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Saturday, September 24, 2016

week ending Sep 24

 The Federal Reserve confronts a possibility it never expected: No exit. - Two years ago, top officials at the Federal Reserve mapped out a strategy for withdrawing the central bank’s unprecedented support for the American economy. The official communiqué was titled “Policy Normalization Principles and Plans,” and it was supposed to serve as a rough outline for the tenure of newly installed Fed Chair Janet L. Yellen. Essentially, it consisted of two basic parts: Raise interest rates and shrink the central bank’s massive balance sheet. But now, both of those steps are being called into question as Fed officials grapple with an economy that appears to be stuck in first gear. Instead of executing its exit strategy, the Fed is confronting the possibility that the dramatic measures it took to safeguard the recovery will remain in place indefinitely. "Maybe this is one of those cases where you can’t go home again,” former Fed chairman Ben S. Bernanke wrote in a recent blog post arguing for a shift in course. The central bank has made no official changes to its strategy, which was adopted with a nearly unanimous vote. But just getting started clearly has been a challenge. The Fed has struggled to increase its benchmark interest rate this year after raising it above zero in December for the first time since the Great Recession. That move was supposed to be the start of a gradual process of normalization, in which the Fed slowly turned up the dial on its target interest rate until it reached about 3.5 percent, close to its historical average. Several times this year, officials suggested that they were preparing to hike, only to punt amid financial market turmoil and fractures in the global economy. The Fed’s top brass will meet again in Washington this week, but investors largely expect them to keep rates steady until December, or even later. Even once rates do rise again, there is growing acceptance within the central bank that they are unlikely to increase as much as initially anticipated. Officials now estimate rates will only likely reach about 3 percent. Investors believe even that could be too optimistic.Indeed, some economists fear the next U.S. recession may not be far off — and that means the Fed should be not be considering withdrawing its support but debating what more it could do. "Fed is almost certain to make a mistake," tweeted Narayana Kocherlakota, a professor at the University of Rochester in New York and former head of the Minneapolis Fed.

Why Won't the Fed Raise Rates? -  Jamie Dimon, chairman of JP Morgan, has stated blankly “Let’s just raise rates."  Furthermore, he has said a quarter point is just a “drop in the bucket."  We know where the big money banks stand on the issue. They need higher rates to achieve better profit margins. But even from other financial quarters, there are calls for the Fed to stop speaking and start acting.  Although the Fed's inflation target has not yet been reached, there are many who warn that the real risk now lies in getting behind the curve. Once the inflation genie is out of the bottle, they argue, it will be too hard or, at least painful, to put back. So, why is that the Fed so reticent to start a real move towards ‘normalizing’ credit conditions?  In a speech last week, Fed Governor Lael Brainard offered an insight into this question (1). The clue to her thinking lies in the analysis of the "neutral rate of interest."  This rate is defined as the '' level that is consistent with output growing close to its potential and with full employment and stable inflation". In other words,  it is an ideal condition when the economy is using all its resources to the fullest and inflation remains constant. If the fed funds rate is below the neutral rate, then monetary policy is promoting expansion; a fed funds rate above the neutral rate implies a tightening of monetary conditions. Governor Brainard argues, on two related grounds, for waiting longer before raising the federal funds rate: 1) that the current fed funds rate is consistent with the current neutral rate, and 2) the neutral rate today is much lower than the rate in previous decades. In other words, this time, it is different.( see accompanying chart). It is this second point that bears scrutiny. There has been a downward shift in the neutral rate. Hence, we are in what is now referred to as the “ new normal”.  There is a lot to be said in support of this view. During the Great Recession, starting in 2008, nominal interest rates have been zero in the US (and negative in the EU and Japan). All the while, growth has been subdued (less than 2 per cent) and inflation very stable (about 1.5 per cent). Put differently; the US economy continues to expand modestly with the nominal rate at zero and the real rate negative. This has not happened anytime in the post-war era. 

Fed Hits Crossroads on Unemployment - WSJ: Most Federal Reserve officials agree the economy is at or getting very close to what economists consider full employment, the rate below which inflation starts to rise. What they can’t agree on is what should happen next. As the unemployment rate hovers below 5% and job gains moderate, one of the key debates at this week’s Fed policy meeting will be how much farther the Fed can let it decline without risking runaway inflation. On one side are officials, including governors Lael Brainard and Daniel Tarullo, who say there’s still room for improvement in the labor market. Allowing unemployment to fall further below its current 4.9% level would give more Americans—especially minorities—a chance to come back to the labor force and share in the gains of the expansion, they say.The counterargument from officials such as San Francisco Fed President John Williams is that letting the jobless rate get too low could cause prices to surge, forcing the Fed to ratchet up short-term interest rates faster than they’d like. That could trigger a downturn that would hurt minorities most. “I understand the desire to try to help everybody in the economy,” Mr. Williams said Sept. 6 in Reno, Nev. “But I think that just running an overly hot economy for too long does risk…creating the conditions that then could lead to a recession that undoes all of that.” When faced with inflation jumps in the past, the Fed doesn’t have a great track record of combating rising prices without causing a sharp upturn in the unemployment rate.  Fed Chairwoman Janet Yellen has expressed sympathy for both camps, and added in a footnote to a March speech that the Fed could be wrong in its estimate of the full-employment level. Officials’ median estimate then was 4.8%, and she said the true level was likely lower. And if so, “a lower level of unemployment might be needed to fully eliminate slack in the labor market, drive faster wage growth, and return inflation to our 2% objective.”

Fed leaves interest rates alone; dials down 2016 forecast - --The Federal Reserve is still waiting for the right moment to raise interest rates. Fed leaders decided not to increase the bank's key interest rate on Wednesday at the conclusion of a two-day meeting. The decision was largely expected by economists and investors who bet there was very little chance of a move. "Our decision does not reflect a lack of confidence in the economy," said Janet Yellen, chair of the Fed. "It's better to err on the side of caution." The Fed downgraded its forecast for economic growth in 2016 for the third time this year. It now projects growth this year to be 1.8%. In June it forecast growth of 2%. As the Fed has hesitated to raise rates, there is a growing debate about its credibility. Many economists and investors say the Fed's hesitancy to raise rates -- and conflicting messages from its top leaders -- has eroded public confidence in the central bank.  Some experts supported the Fed's decision, arguing that there are more risks to raising rates too soon rather than too late. "The better decision would be to wait," says William Poole, senior fellow at the Cato Institute and former St. Louis Fed President. "We can make up ground if we have to in the future but if we raised rates prematurely and then we had to back down, that's going to more disruptive."  However, there wasn't unanimous agreement over the Federal Reserve's decision. At least three of the top officials -- Esther George, Loretta Mester and Eric Rosengren -- wanted to raise rates. That's the most dissents among the Fed's officials this year.

A Divided Fed Leaves Rates Unchanged - On Wednesday, the Fed decided to leave rates unchanged. Their statement contained some interesting tidbits: Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. Although the case for raising rates was stronger, the Fed decided to hold off. There are a few potential reasons for this inaction. First, the latest manufacturing and service readings from ISM contained very large drops. While both are still positive, the magnitude of the declines along with fairly severe internal weakness may signal that “something” is out there. In addition, the latest retail sales and industrial production numbers declined. The combination of these 4 numbers could have been enough to put the Fed into a more cautionary stance. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Fed is focusing on total CPI/PCE rather than using each’s tabulation without food and energy prices. Both are currently near 1%: The Fed vacillates between using core and total; now "total" is their preferred measure. My thoughts are that President Brainard is the primary reason for the inclusion of this measure. And finally, we have this: Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent. There are now three Fed Presidents who want to raise rates. Yellen, Brainard and Bullard are all dovish. Brainard will remain in the dove camp for the foreseeable future. The St. Louis Fed has announced a new policy framework which puts Bullard clearly in the dove camp. And it’s hard to see Yellen as anything but a dove . That leaves three – Powell, Tarullo and Fisher – to vote for raising rates.

FOMC Statement: No Change to Policy, "The case for an increase in the federal funds rate has strengthened" -- FOMC Statement: Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments. Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

Parsing the Fed: How the September Statement Changed from July -- The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the September statement compared with July.

Merrill: "Fed signals December hike"  --This is now the consensus view - one rate hike in 2016, most likely in December (but the November meeting is "live") ... From Merrill Lynch: Fed signals December hike The FOMC clearly signaled a hike before the end of the year in both the language and the dots. The Fed made two important changes to the statement. First, the committee noted that near-term risks to the economic outlook “appear roughly balanced”. This is an important step for the Fed to justify hiking rates at an upcoming meeting and is a page out of the playbook from last year. ...Second, the FOMC noted that “the Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of further progress toward its objectives.” This is a strong signal that the Fed is planning to hike in an upcoming meeting. It is not explicit calendar guidance, but it is a small step in that direction.

The Rise and Rise of the Bubble Managers - Barclays on the Fed: Although we had expected a interest rate hike at this meeting, the non-hike was very close call. The language in the statement suggests that the committee was quite undecided in its view. More clearly, with three members dissenting against the decision and three, presumably different, members calling for no further rate hikes this year, the committee is more split than it has been at any time in our memory. This split in views will make FOMC communication and action increasingly difficult this year. In particular, we believe that this level of dissent will make it difficult for the committee to keep the possibility of December rate hike live in the minds of market participants and, indeed, households and businesses. Versus BofAML on the Fed: The FOMC clearly signaled a hike before the end of the year in both the language and the dots The Fed made two important changes to the statement: 1. the committee noted that near-term risks to the economic outlook “appear roughly balanced”. This is an important step for the Fed to justify hiking rates at an upcoming meeting and is a page out of the playbook from last year. And, 2. “the Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of further progress toward its objectives.” This is a strong signal that the Fed is planning to hike in an upcoming meeting. It is not explicit calendar guidance, but it is a small step in that direction. My own view is the Fed’s window is closed as oil falls, Chinese growth eases, Trump wins and Italy is shaken by the rise of MS5. But that underlines the only point that matters these days. None of these events should be economically significant enough to derail a tightening cycle. What each can do is hammer sentiment and deflate asset markets. That’s why monetary policy observation has become a bit of a joke. You can line up as much data as you like but what the bubble manager feels about risk is now the key determinant in setting the cash rate. The new reaction function of central banks is not inflation, nor unemployment, nor nominal GDP. It is what s/he had for breakfast, whether s/he got laid last night or whether s/he is dropping prozac.

Fed Now Sees Only Three Rate Hikes Thru End Of 2017; Cuts Long-Run US GDP Potential - While the Fed's dot plot, which last December predicted four rate hikes in 2016, has lost virtually all credibility, there are those who still keep track of its as a forward guidance indicator. So here is what it said:

  • the median target for end-2016 is now 0.625% vs 0.875% in June, with three Fed members expecting no more rate hikes in 2016
  • the median target for end-2017 is 1.125% vs 1.625% in June
  • the median target for end-2018 is 1.875% vs 2.375% in June
  • The 2019 median dot debuts at 2.625%
  • The Long-run target falls to 2.875% from 3%

As a result of the revised dot plot, the Fed now sees one rate hike in 2016, supposedly in December and only two rate hikes next year, down from their June median projection of three. Also  as r-star continues to plauge the Fed, the long-run interest rate is now seen at 2.875%, down from 3.0% three months ago. Here is the comparison of the June and September dot plots:

Professors Aren't Feeling the Economy's Pain - Narayana Kocherlakota -In the eight months since I returned to academia from a six-year stint at the Federal Reserve, I've noticed a strange inertia: Despite the shocking experience of a global financial crisis and prolonged economic slump, most macroeconomic research is guided by the same paradigms that prevailed ten years ago. I think this might have more to do with professors' salaries than with the state of the broader economy. The last great transformation of the field of macroeconomics happened in the late 1970s and early 1980s. Known as the rational expectations revolution, it was founded on the notion that people make decisions much as a statistician would, weighing the probabilities of various possible futures in order to make optimal choices today. It led researchers to stop looking at the economy as a series of snapshots in time, and engendered skepticism about the ability of governments to systematically improve economic performance (because people with rational expectations would respond to policies in ways that undermined their effectiveness). Although the revolution occurred in part for purely intellectual reasons, it also came amid the stagflation of the 1970s -- what many economists saw as a disastrous period that called for change in the way economic policy was made. Yet as bad as that time was, the experience of the past ten years has been worse. As of June 30, real per capita U.S. economic output was just 5 percent higher than it was a decade earlier. In mid-1983, it was up about 12 percent from mid-1973. So why are macroeconomists more complacent about the last ten years than they were about the 1970s? Like people everywhere, academic macroeconomists’ views about the world are shaped by their own circumstances. And the 1970s and early 1980s were disastrous for them in a way that the last ten years have not been. In inflation-adjusted terms, the average compensation for full professors declined by more than 20 percent from 1970 to 1982. By contrast, it's been pretty much flat since 2007, and even reached a historical high during the recession year of 2009.

 What if slow economic growth is the new normal? – Thoma -  With U.S. economic growth stuck in low gear for several years, it’s leading many economists to worry that the country has entered a prolonged period where any expansion will be weaker than it has been in the past. Are these worries justified? And if so, what might the consequences be for the future of America’s economy?  One theory about why economic growth has slowed, proposed by Robert Gordon, is that the country has entered an era where productivity growth will be much lower than in the past. According to Gordon, the digital revolution now underway is much less important than inventions that came about between 1870 and 1970 such as electricity, sanitation, chemicals, pharmaceuticals, transportation systems (the internal combustion engine in particular) and communication.  A second explanation that has been offered to account for the recent period of low economic growth is known as secular stagnation. According to this theory, recently revived by Larry Summers, sluggish economic growth can be traced to an imbalance between saving and investment. First, people who save or lend money will realize lower returns. Retirement savings, for example, will not grow as fast. However, while low interest rates hurt savers and lenders, people who borrow money to purchase, say, a house or a car will be better off because they’ll have lower monthly payments.  Second, lower interest rates reduce the Fed’s ability to fight severe recessions. If average interest rates are 2 percent, then the Fed can cut rates by only 2 percent before running into the “zero lower bound.” When interest rates hit the zero bound, the Fed loses its most powerful tool for stimulating the economy. But if average interest rates were 4 percent, the Fed would have twice as much room to cut rates before they hit zero.  Third, a prolonged period of low growth, particularly if secular stagnation is the cause, will lead to low inflation. Lower inflation helps people who receive fixed monthly payments (e.g., a pension income with no adjustment for inflation or a payment from a borrower with a fixed-rate loan) and hurts people making the payments (the company paying the pension or the borrower).

October Surprise? U.S. Economic Growth May Accelerate Just Before Election Day -- Less than two weeks before Election Day, American voters could learn that economic growth has suddenly accelerated to its fastest pace in two years. It’s not a trick or conspiracy, simply the product of the government’s regular schedule for releasing economic statistics. The Commerce Department’s first estimate of gross domestic product for the third quarter has long been scheduled to come out on Oct. 28, 11 days before the Nov. 8 presidential election. Many economists are predicting the report will show a pickup in growth after three straight quarters of lackluster expansion, fueled by decent-if-not-great consumer spending and the end of a five-quarter drag from lackluster business inventories.  A lot can (and probably will) change between now and late October. But as of Friday, forecasting firm Macroeconomic Advisers projected a 3.1% seasonally adjusted annual growth rate for GDP in the third quarter. The Federal Reserve Bank of Atlanta’s GDPNow model on Thursday predicted a 3% growth rate. Oxford Economics on Friday also estimated the third quarter’s growth rate at 3%. Some forecasters are more cautious – economists at Barclays on Friday predicted third-quarter growth at a more modest 2.6% pace. And surprises are common; economists similarly predicted a pickup in GDP growth during the second quarter, but it failed to materialize. Still, if the pace of GDP growth exceeds 2.6% for the current quarter, it would be the strongest growth rate since the 5% pace seen in the third quarter of 2014. That won’t decide the election either way, but good news could benefit Democratic nominee Hillary Clinton, who has positioned herself as the political heir to President Barack Obama and his stewardship of the economy. Similar good news came last week when the government reported that U.S. household incomes surged in 2015 while the poverty rate declined.

Chicago Fed: Economic Growth Slowed in August -  “Index shows economic growth slowed in August " 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 declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.55 in August from +0.24 in July. All four broad categories of indicators that make up the index decreased from July, and all four categories made negative contributions to the index in August. The index’s three-month moving average, CFNAI-MA3, ticked up to –0.07 in August from –0.09 in July. August’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index, which is also a three-month moving average, ticked down to –0.02 in August from –0.01 in July. Nineteen of the 85 individual indicators made positive contributions to the CFNAI in August, while 66 made negative contributions. Twenty-one indicators improved from July to August, while 63 indicators deteriorated and one was unchanged. Of the indicators that improved, 13 made negative contributions. [ Link to News Release]The previous month's CFNAI was revised downward from 0.27 to 0.24. The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.

 Chicago Fed: Subdued US Growth Continued In August - US economic output remained steady at a below-trend rate in August, based on this morning’s update of the three-month average of the Chicago Fed National Activity Index (CFNAI-MA3). Last month’s reading inched up to -0.07, the highest since Sep. 2015. But the slightly below-zero level reflects modest economic activity, which is in line with the data over the last several months. Meantime, recession risk is still low, according to CFNAI-MA3. A decline below -0.70 for the index marks the start of a downturn, according to Chicago Fed guidelines. By that yardstick, the probability is low that August marked the first month of an NBER-defined recession. But while the broad macro trend remains positive, the pace remains sluggish. The August review “suggests that growth in national economic activity was slightly below its historical trend,” the Chicago Fed advised in a statement. “The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.” The continuation of a relatively soft economic trend via CFNAI-MA3 aligns with yesterday’s review of business-cycle risk by The Capital Spectator. “The US economy’s forward momentum remained sluggish in August,” I noted on Wednesday. “Although recession risk was low last month, a series of disappointing indicator updates in recent weeks suggest that the macro trend continues to struggle.” The central bank seems to agree. The Federal Reserve’s yesterday decided to leave interest rates unchanged, which suggests that the monetary mavens, on balance, remain cautious after reviewing recent data. Although Fed Chair Janet Yellen said that  “our decision [to forgo a rate hike] does not reflect a lack of confidence in the economy,” the new quarterly economic forecasts reflect flat to slightly lower expectations for growth and interest rates. In the wake of that decision, today’s report from the Chicago Fed implies that delaying a new round of monetary tightening remains a reasonable path for policy until or if the macro trend delivers more convincing evidence that growth is picking up and/or in no danger of slipping over to the dark side.

 Conference Board Leading Economic Index Declined in August, Disappoints Expectations - The Latest Conference Board Leading Economic Index (LEI) for August decreased 0.2 percent to 124.1 from July's 124.3 and a downward revision was made to June's number. The latest indicator value came in below the 0.1 month-over-month percent forecast by Investing.com. Here is an overview from the LEI technical press release: The Conference Board LEI for the U.S. declined in August. Large negative contributions from average weekly manufacturing hours and new orders, more than offset positive contributions from the financial components. In the six-month period ending August 2016, the leading economic index increased 0.9 percent (about a 1.8 percent annual rate), faster than the growth of 0.2 percent (about a 0.3 percent annual rate) during the previous six months. However, the weaknesses and strengths among the leading indicators are somewhat balanced. [Full notes in PDF] Here is a log-scale chart of the LEI series with documented recessions as identified by the NBER. The use of a log scale gives us a better sense of the relative sizes of peaks and troughs than a more conventional linear scale.

  Atlanta Fed's Exuberant Q3 GDP Estimate Tumbles Back To Reality - Just over a month ago, The Atlanta Fed surprised economic watchers when in early August it unveiled that its Q3 GDP tracker was predicting that the US economy would grow at an annualized pace of 3.6% (and as high as 3.80%) a substantial rebound from the "deplorable" 0.8% and 1.1% growth rates in Q1 and Q2, respectively. To be sure, many expressed surprise at the underlying assumptions that would send US economic growth soaring in the second half: after all, it was a near record surge in consumer spending that boosted first half GDP -  and kept it positive - as all other components, most notably Capex, tumbled into a non-consumer recession. Alas, the spending surge that boosted first half growth has now fizzled, as monthly personal spending data confirmed, so it stood to reason that these overoptimistic estimates for GDP growth would ultimately be revised substantially lower. Sure enough, moments ago in the latest revision to the Atlanta Fed forecast, the model has now unveiled its first sub-3% GDP growth estimate, printing at 2.9%, and the lowest in this particular series' lifetime. This is what the Atlanta Fed said: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 2.9 percent on September 20, down from 3.0 percent on September 15. The forecast of third-quarter real consumer spending growth ticked down from 3.1 percent to 3.0 percent after last Friday's Consumer Price Index release from the U.S. Bureau of Labor Statistics. The forecast of third-quarter real residential investment growth remained at -6.3 percent after this morning’s housing starts release from the U.S. Census Bureau.

The White House Says Its Policies Slashed the Income Gap -- One of the big criticisms of the current economic expansion—and also the one that ran from 2001 through 2007—is that most of the gains accrued to the best off, unleashing a populist groundswell in the presidential election campaign. The White House lays out the case in a new report that the Obama administration’s policies have done more than any administration in the last half-century to reduce inequality. The report from the White House Council of Economic Advisers breaks the administration’s policies into three primary buckets:

  • First, the administration says fiscal policy enacted in response to the 2007-09 recession early in President Barack Obama’s term prevented unemployment from rising even higher than it did, “offsetting roughly half of the increase in wage inequality that would otherwise have occurred.” The 2009 stimulus package provided new and expanded tax credits, state grants and increases in unemployment insurance benefits, federal food stamps and tuition grants.
  • Second, the report flags the Affordable Care Act’s role in adding 20 million Americans to health-care insurance rolls, dropping the share of Americans without insurance to less than 9%, from 16% in 2010. The report cites several studies showing how expanded coverage has improved access to health care and protected the sick from financial hardship.
  • Third, the report touts tax policy, including the repeal of the Bush tax cuts for top income-earners in 2013, for reducing inequality. After-tax incomes for the bottom fifth of households will be 18% higher next year than they would have been if the policies in place at the end of the Bush administration had been maintained, according to the report. Meantime, average tax rates for the top 0.1% of families, a group with average annual pretax incomes of more than $8 million, will be seven percentage points higher.

The upshot is these changes in tax and health-care policy will increase the share of after-tax income by the poorest fifth of households by 0.6 percentage point while reducing the share of the wealthiest 1% of households by 1.2 percentage points.

 Backlash Against Trade Deals: The End of U.S.-Led Economic Globalisation? -- There is much angst in the Northern financial media about how the era of globalisation led actively by the United States may well be coming to an end. This is said to be exemplified in the changed political attitudes to mega regional trade deals like the Trans Pacific Partnership Agreement (TPP) that was signed (but has not yet been ratified) by the US and 11 other countries in Latin America, Asia and Oceania; and the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP) still being negotiated by the US and the European Union. President Obama has been a fervent supporter of both these deals, with the explicit aim of enhancing and securing US power. “We have to make sure America writes the rules of the global economy. We should do it today while our economy is in the position of global strength. …We’ve got to harness it on our terms. If we don’t write the rules for trade around the world – guess what? China will!”, he famously said in a speech to workers in a Nike factory in Oregon, USA in May 2015. But even though he has made the case for the TPP plainly enough, his only chance of pushing even the TPP through is in the “lame duck” session of Congress just before the November Presidential election in the US. However, the changing political currents in the US are making that ever more unlikely. Hardly anyone who is a candidate in the coming elections, whether for the Presidency, the Senate or the House of Representatives, is willing to stick their necks out to back the deal. Both Presidential candidates in the US (Donald Trump and Hillary Clinton) have openly come out against the TPP. In Clinton’s case this is a complete reversal of her earlier position when she had referred to the TPP as “the gold standard of trade deals” – and it has clearly been forced upon her by the insurgent movement in the Democratic Party led by Bernie Sanders. She is already being pushed by her rival candidate for not coming out more clearly in terms of a complete rejection of this deal. Given the significant trust deficit that she still has to deal with across a large swathe of US voters, it will be hard if not impossible for her to backtrack on this once again (as her husband did earlier with NAFTA) even if she does achieve the Presidency.

Peterson Institute: Trump’s trade proposals ‘horribly destructive’ : Donald Trump’s threat to raise tariffs on China, Mexico and other countries to force them to negotiate better deals with the United States “could unleash a trade war that would plunge the U.S. economy into recession and cost more than 4 million private sector jobs,” the non-partisan Peterson Institute for International Economics says in a new analysis of both Trump and Hillary Clinton’s trade policy proposals. Story Continued Below The think tank took both candidates to task over their opposition to the Trans-Pacific Partnership, but said the broader sweep of Trump’s proposals were much more dangerous for the United States. “Clinton’s proposed trade and international economic policies would damage American well-being, primarily but not solely due to her stated opposition to TPP and to further economic integration,” PIIE President Adam Posen said in an introduction to the report that was released overnight. “The policies proposed by Trump are another matter altogether.” “His stated approach to the global economy of waging trade war and protecting uncompetitive special interests would be disastrous for American economic well-being and national security,” Posen continued. “We call them as we see them: While Clinton’s stated trade policy would be harmful, Trump’s stated trade policy would be horribly destructive.” Could Trump really carry out his threats? “The answer is yes, PIIE said. “There is ample precedent and scope for a president to unilaterally raise tariffs … Any effort to block Trump’s actions through the courts, or amend the authorizing statutes in Congress, would be difficult and time consuming.”

 Checking the Math on Donald Trump’s Family Tax-Cut Promises - Donald Trump has been touting very specific estimates for how deeply his tax proposals would slash the burden on two sample middle-income families with children. Let’s check the math.His campaign’s calculations leave out two important tax breaks for families, and including them alters the results significantly. A more complete calculation shows that the Republican presidential nominee overstates the benefits of his plan in one case and understates them in another. Since he unveiled his revised tax plan last week, Mr. Trump has used the following examples in speeches:“A married couple earning $50,000 per year with two children and $8,000 in child care expenses will save 35% from their current tax bill. A married couple earning $75,000 per year with two children and $10,000 in child care expenses will receive a 30% reduction in their tax bill.”  According to the campaign, however, those estimates come from calculations that ignore two key tax breaks in existing law: the existing $1,000-per-child tax credit and the child and dependent-care tax credit, which provides up to $1,200 to families in this income group.Including those breaks, which would remain in place in Mr. Trump’s plan, the Republican’s proposal would take the first family from a $948 net income tax refund to $1,040, according to calculations by The Wall Street Journal and checked by accountant Tony Nitti of Withum Smith and Brown. That’s a 10% increase in a tax refund and less than a $100 change, not the 35% tax cut Mr. Trump touts. The family could get more money if it could save up to $2,000 tax-free in the new dependent-care savings accounts Mr. Trump would create and get the $500 matching contribution. The $75,000 household would see its income tax bill drop from $2,803 to $1,720, a 39% drop that’s bigger than the 30% drop the campaign claims. Again, the reduction would get bigger if the family used the new savings account, though it wouldn’t be eligible for the match.

Who benefits from childcare tax credits? Mostly, almost entirely, childcare providers, one study suggests - Donald Trump’s family policy agenda has put the issue of what the federal government should be doing — if anything — about childcare squarely in the presidential campaign spotlight.  This new research seems relevant to the policy discussion: Abstract: Child care tax credits are intended to relieve the financial burden of child care expenses for working families, yet the benefit incidence may fall on child care providers if they increase prices in response to credit generosity. Using policy-induced variation in the Child and Dependent Care Credit and multiple datasets in both difference-in-difference and instrumental variable frameworks, I find evidence of substantial pass-through: between $0.73 – $0.90 of every dollar is passed through to providers in the form of higher prices and wages. Robustness checks confirm the pattern that the bulk of credits are crowded out by increased prices. Furthermore, the relative inelasticity of child care suppliers implies that increased non-refundable credit generosity may have the unintended effect of making child care less affordable for low-income families, though the magnitude of this conclusion is tempered by heterogeneous pass-through rates. Unintended, though perhaps not unexpected, consequences.

Corporate tax chartbook: How corporations rig the rules to dodge the taxes they owe – EPI - In recent years, corporate profits have reached record highs, and so too has the amount of untaxed profits U.S. corporations have stashed offshore: $2.4 trillion. And it is estimated corporations could owe as much as $700 billion on those profits. In short, corporations are dodging more and more of their tax responsibilities. While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate. Driving this divergence between what corporations are supposed to pay and what they actually pay is a combination of offshore profit shifting and tax avoidance. Multinational corporations pay taxes on between just 3.0 and 6.6 percent of the profits they book in tax havens. And corporations have become increasingly adept at making their profits appear to be earned in these tax havens; the share of offshore profits booked in tax havens rose to 55 percent in 2013. Almost half of offshore profits are held by health care companies (mostly pharmaceutical companies) and information technology firms. Because of the inherent difficulty in assigning a precise price to intellectual property rights, it is relatively easy for these companies to manipulate the rules so that U.S. profits show up in tax havens. The use of offshore profit-shifting hinges on a single corporate tax loophole: deferral. Multinational companies are allowed to defer paying taxes on profits from an offshore subsidiary until they pay them back to the U.S. parent as a dividend. Proponents of cutting the corporate tax rate refer to profits held offshore as “trapped.” This characterization is patently false. Nothing prevents corporations from returning these profits to the United States except a desire to pay lower taxes. In fact, corporations overall return about two-thirds of the profits they make offshore, and pay the taxes they owe on them.  Further, there are numerous U.S. investments that these companies can undertake without triggering the tax. In short, deferral provides a mammoth incentive for multinational corporations to disguise their U.S. profits as profits earned in tax havens. And they have responded to this incentive: 82 percent of the U.S. tax revenue loss from income shifting is due to profit shifting to just seven tax-haven countries. This chartbook details the extent of corporate tax avoidance.

Report: New Data Disproves US Corporations’ False Narrative on Taxes - naked capitalism. Yves here. This short post extracts key findings from a new study by Americans for Tax Fairness and the Economic Policy Institute. We liked the summary and include it immediately below. One thing to keep in mind: taxes are a big element of economic policy by default, as in that they provide incentives and disincentives. The fact that Big Pharma and tech companies lower their tax rates through the use of clever structuring and tax havens and report higher profits is an economic privilege relative to other industries.  From the overview:While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate. Driving this divergence between what corporations are supposed to pay and what they actually pay is a combination of offshore profit shifting and tax avoidance. Multinational corporations pay taxes on between just 3.0 and 6.6 percent of the profits they book in tax havens.And corporations have become increasingly adept at making their profits appear to be earned in these tax havens; the share of offshore profits booked in tax havens rose to 55 percent in 2013. Almost half of offshore profits are held by health care companies (mostly pharmaceutical companies) and information technology firms. Because of the inherent difficulty in assigning a precise price to intellectual property rights, it is relatively easy for these companies to manipulate the rules so that U.S. profits show up in tax havens.The use of offshore profit-shifting hinges on a single corporate tax loophole: deferral. Multinational companies are allowed to defer paying taxes on profits from an offshore subsidiary until they pay them back to the U.S. parent as a dividend. Proponents of cutting the corporate tax rate refer to profits held offshore as “trapped.” This characterization is patently false. Nothing prevents corporations from returning these profits to the United States except a desire to pay lower taxes. In fact, corporations overall return about two-thirds of the profits they make offshore, and pay the taxes they owe on them.

Occupy Wall Street, five years on: fire in the dustbin of history - There’s a feeling common among everyone I know from the weird, wild, fast-moving political days of 2011. It’s a feeling of having somehow gone down the wrong trouser-leg of time.  Five years ago today, the Occupy movement began in Lower Manhattan. Thousands of activists took over New York City’s Zuccotti Park, a square of semi-public land suspended between Wall Street and Ground Zero, and declared their intent to stay. Their goals were broad enough to appear incoherent: nothing more or less than total change to the political narrative, with jobs, healthcare, education and debt relief as transitional demands. The sheer gall of it started a global conversation about income inequality that continues to this day.  To remember it now — the all-night glow of the tech tent, the sound of rain on plastic, the police sirens, the taste of hand rolled cigarettes, the smell of unwashed bodies and the beginning of the end of the End of History —  is to feel a pang in the intimate, desiring part of your heart, the part that wanted something more from the future and still does. It’s something like sheepishness. Something like grief. Greil Marcus, in his essay on “the Dustbin of History in a World Made Fresh,” speaks about the sense of shame that followed the uprisings of 1989 and 1968, and the savagery with which they were written out of the political narrative:  “Everything you did was immediately written out of history.  Now your words sound childish: listen to yourself and your fellows. ‘Fantastic;' 'marvellous'; 'a dream world' — but even the comrades history denies you already sound strange, speaking from some netherworld.”  Here are some more voices from the dustbin of history.

Stock & Bond Bubbles Much Worse Than 1929: David Stockman -- Economic expert and best-selling author David Stockman offers a dire view of the deep financial trouble America faces in his new book titled “Trumped!”   Stockman warns, “I think we are on the very edge, but what is different this time and makes it scarier . . . is I believe the central banks that ruled the roost have gone from one extreme to the next and done unfathomable things like negative interest rates on $13 trillion of bonds around the world, monetization of the debt, and bond purchases that are staggering such as $90 billion a month in Europe. . . . So, this time, as the phrase goes, they went all in.  They have violated every principle of sound money and sustainable finance that mankind has ever learned about over many centuries.  They have taken us to the edge, but they are out of dry powder.  I think it’s pretty obvious that they can’t go any deeper with subzero interest rates, or negative interest rates. . . . If they tried this in the United States, I think there would be a huge political uprising. . . . They are out of dry powder and out of tools, and therefore, the financial markets of the world are more vulnerable, maybe even more so than in 1929.  You are talking about a bond bubble like never before imagined or conceived, and the stock market is the same way as well as derivatives.”  All this financial malfeasance and engineering was fantastic for the one percent, but everybody else got the shaft. For example, Stockman points out in “Trumped!” the last 30 years “The top 1%’s wealth has grown by 300%, and the top “Forbes 400” wealthiest people in the world had their wealth grow by a staggering 1,000%.”  Meanwhile, the “bottom 90% of Americans have seen their wealth steadily deteriorate.”  Stockman goes on to say, “This has benefited a very narrow slice of the population.  You can call it the 1% or the bicoastal elites who own most of the financial assets.”

What happens when floating-rate coupons sink below zero? - The short answer: Both bondholders and issuers could be in an awkward spot. Many corporate bonds have “floors” in place, which means their coupon payments can’t go below zero. But in a recent note, S&P Global Market Intelligence calls attention to a host of floating-rate securities that don’t have coupon floors. Analysts at S&P found two examples of European floating-rate transactions with coupons that were technically negative. (They wouldn’t tell us which ones, so any and all tips are welcome!) In those situations, the issuer just “paid” zero per cent:Because European reference rates have been negative for some time (by as much as 38 basis points), there are examples of negative “calculated coupons” on the senior tranches of some floating-rate European transactions. According to servicer reports for two transactions that we identified (though there may be others), coupon payouts to noteholders were zero when calculated coupons were negative. Must be nice for creditors! What if this were to happen in a more litigious jurisdiction, such as the United States?Even if it’s improbable negative rates will be adopted — and even less likely that they’ll be adopted any time soon — the analysts say it’s warranted to discuss the implications of NIRP in the US.Because, if it’s possible for US policy rates to go negative, it would follow that it’s possible for offshore interbank dollar-lending rates (i.e., LIBOR) to go negative. There are lots of floating-rate securities linked to LIBOR — and while some of them have coupon floors, not all of them do. High-quality US asset-backed securities would be “vulnerable to negative rates,” according to the note, since they’re usually LIBOR-based and priced at low-double-digit margins. (Currency and interest-rate swaps would face a risk of dual payouts as well, but that’s a post for another day.) So, how exactly would owners of floating-rate securities make coupon payments to issuers? Would they make coupon payments to issuers?

 Markets Have Become More Dependent on Central Banks, Says BIS - WSJ: Recent developments in financial markets underscore how dependent they have become on central banks, the chief economist of the Bank for International Settlements said Sunday. “It is becoming increasingly evident that central banks have been overburdened for far too long,” said Claudio Borio, chief economist at BIS, a Switzerland-based consortium of central banks. Mr. Borio’s comments, in conjunction with the BIS’s quarterly review, were a familiar refrain. The BIS has for years warned that the global economy is too dependent on its central banks, whose money-printing power allows for a rapid response to crises. The result is that central bank money boosts asset prices even if underlying economic conditions haven’t changed. “There has been a distinctly mixed feel to the recent rally—more stick than carrot, more push than pull, more frustration than joy,” said Mr. Borio. “This explains the nagging question of whether market prices fully reflect the risks ahead. Doubts about valuations seem to have taken hold in recent days. Only time will tell.” This trend was underscored in the summer. The U.K.’s decision in late June to exit from the European Union caused global stock markets to plunge. But these declines were quickly reversed by expectations that central banks would maintain, or accelerate, their easy-money policies. “Developments in the period under review have highlighted once more just how dependent on central banks markets have become,” Mr. Borio said.

Your Mutual Fund Has Your Proxy, Like It or Not - Gretchen Morgenson - As investors, we are supposed to be able to sound off on corporate governance matters at the companies whose shares we own. We do so by voting on the issues when they arise at a company’s annual shareholders’ meeting. But if you invest, as most people do, with a large fund manager, like BlackRock or the Vanguard Group, the chances are very good that your objections to common corporate practices are not getting through. That is because fund overseers vote your shares and often do so without regard to your views. The result is a breakdown in one of the few accountability mechanisms available to individual investors in our so-called ownership society. This failure has everything to do with the fact that executive pay rises higher each year. The voting of fund managers is infected by conflicts of interest, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. That is because these giant mutual fund operators don’t just own shares in many big American companies; they also do business with them. “Funds often avoid challenging management on executive pay and corporate governance because they want to be included in corporate defined-contribution benefit plans,” he said in an email. “If a fund irritates a C.E.O. and the C.E.O.’s pals on the board, the fund risks losing business at several companies.” BlackRock and Vanguard dispute this notion, saying they put their customers’ interests first in their voting. Every August, fund companies must disclose how they voted in the most recent proxy season. I asked Proxy Insight, a data analytics firm that tracks such votes, to tally those of BlackRock, with almost $5 trillion in assets, and Vanguard with over $3 trillion. Here is what I learned. On matters involving executive pay, in the most recent 12 months, both fund managers overwhelmingly supported compensation practices at the companies in the Standard & Poor’s 500-stock index. BlackRock supported executive pay at 98.3 percent of those companies in the most recent year, and Vanguard voted in favor of pay practices in 98.1 percent of its votes. (Vanguard disputed this, saying it voted yes a mere 96 percent of the time.)

Harvard University’s endowment has a staff of 200+ investment experts who can’t beat the market -- Some interesting facts about the poor financial performance of Harvard’s $38 billion endowment, from the Boston Globe article “Harvard endowment posts 2 percent loss“:

    • 1. The Harvard University endowment (managed by Harvard Management Company) reported a 2% loss on its investments for fiscal 2016. The world’s largest college endowment had its worst year since 2009.
    • 2. Over the past decade, Harvard would have made more money if it had simply invested [passively] in a big basket of US stocks and bonds.
    • 3. The $35.7 billion endowment — whose assets are down 5% from a year ago — has been buffeted since the crisis by questions of whether the investment model that once made it famous no longer works.
    • 4. For the 12 months ended June 30, Harvard’s 2% loss compared with a 2.3% gain in a hypothetical portfolio of 60% global stocks and 40% global bonds. If the money had been invested just in the US stock market, it would have gained 5%.
    • 5. What’s troubling for managers who subscribe to the widely diversified style of large endowments — with holdings in private equity, real estate, hedge funds, and natural resources — is how poorly they have done, relative to simply putting money in stocks and bonds. The idea is to spread out risk, but in the decade that includes the global declines of the 2008-2009 crisis, Harvard would have been better off just owning US stocks and bonds over one, three, and five years.
    • 6. For 10 years, Harvard reported a 5.7% annualized gain, compared with a 6.9% annual rerun for a 60/40 portfolio of domestic stocks and bonds (see chart above).
    • 7. Over five years the difference is even bigger, with Harvard’s return at 5.9% and the US markets delivering an annualized gain of 8.9% (see chart above).
  • And just how many financial “experts” and active investment managers does it take to consistently under-perform the market, various benchmarks, and returns from a passive portfolio?
    • 8. Charles Skorina, a San Francisco executive recruiter who closely follows Harvard and other large endowments, thinks Harvard Management can no longer justify its large staff of more than 200 and high salaries, given its results.

  SEC Probes Exxon Over Accounting for Climate Change - WSJ: The U.S. Securities and Exchange Commission is investigating how Exxon Mobil Corp. XOM 0.74 % values its assets in a world of increasing climate-change regulations, a probe that could have far-reaching consequences for the oil and gas industry. The SEC sought information and documents in August from Exxon and the company’s auditor, PricewaterhouseCoopers LLP, according to people familiar with the matter. The federal agency has been receiving documents the company submitted as part of a continuing probe into similar issues begun last year by New York Attorney General Eric Schneiderman, the people said. The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects. The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies. “It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said. As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron Corp. CVX 1.69 % have lowered valuations by a collective $50 billion.

 Wells Fargo’s Management by Magical Thinking Comes Up Short in the Cover-Up Category - Yves Smith - As the Wells Fargo fake accounts scandal escalates, it has been delicious to see a full-blown corporate pathology on display. With impressive speed, the press has eviscerated the pious mythology that Wells has peddled over the years. Somehow, no one in the top brass was alert enough to realize that creating a boiler room that churned employees, both the ones fired and the one disgusted with the culture, would leave a lot of eye witnesses who’d be delighted to tell their stories. And even by the standards of corporate misconduct, they are wowsers. The media reports paint Wells as having leaders with their brains rotted by too many TED talks, leadership gurus, motivation coaches, and management information experts. They seemed to believe that boring old banking could become the next Apple….without any iPhone, that the mere force of corporate will could get the American public to buy more Wells banking services, in the absence of any evidence of customer appetite or Wells having better financial mousetraps. It was unadulterated “trees grow to the sky” thinking. We’ve managed to cross sell better than anyone else! Why shouldn’t we be able to stuff more products down customers’ throats? And the delusion started from the top. From the Wall Street JournalIn the 2010 annual report, Mr. Stumpf said he often was asked why Wells Fargo had set a cross-selling goal of eight. “The answer is, it rhymed with ‘great,’ he wrote. “Perhaps our new cheer should be: ‘Let’s go again, for ten!’  This sounds like a inept parody of managerial hopium meeting Soviet Stakhanovite goal setting. But the worst was that analysts and the media ate it up.   So how were Wells Fargo employees supposed to make Stumpf’s lame imitations of Muhammad Ali’s poetry happen? Did Wells train them how to go out on the street, tackle and hogtie hapless prospects, drag them into the branch, um, store, force feed them credit cards, and then attach ankle bracelets so they’d get electrical shocks if they didn’t use the products often enough? No, the bank’s bright ideas seemed to come straight of of multi-level marketing scams: sign up your all your relatives and harass everyone you meet. And these suggestions, um, requirements, suggest that the San Francisco bank may also have pressured employees to work unpaid, during off hours, to meet the relentless pressure to hit sales targets.

Media Grossly Downplaying the Depths of the Wells Fargo Scandal (Real News Network video & transcript) Wells Fargo scrapped its product sales goals for retail bankers and may take further disciplinary action against its employees in the wake of a fake account scandal that has already led to a hundred ninety million in fines and the firing of fifty-three hundred employees. Wells Fargo has been hit hard by allegations that staff opened more than two million bank accounts and credit cards for customers without their consent in a bid to meet internal sales goals. Politicians are calling for an investigation in Wells Fargo and regulators are expected to testify in the senate, next week. Now joining us to discuss this is Bill Black. He’s an associate professor of Economics and Law at the University of Missouri, Kansas City. He’s a white-collar criminologist, former financial regulator and author of The Best Way to Rob a Bank is to Own One and, of course, a regular contributor at The Real News. Thanks so much for joining us again, Bill.

Why Wells Debacle Is Cautionary Tale for Bank Boards - The tragic episode at Wells Fargo of revelations of unauthorized customer accounts is a cautionary tale for not just bank executives and rank-and-file workers on sales metrics and risk management culture.  Don't forget about the role of the board of directors in all of this. The Wells story reveals three critical lessons that must not be lost on bank directors in 2016.First, when performance appears too good to be true ("TGTBT"), it likely is. Like Mark McGwire hitting 70 home runs and Lance Armstrong winning the Tour de France seven straight times, extraordinary bank performance requires extraordinary scrutiny.  Wells Fargo's directors are not the first to learn this lesson. Every bank director in America ought to read detailed analyses of bank failures and big losses like the London Whale. What they would see is that TGTBT performance is a factor common to failure and losses. Directors would also see repeated patterns where banks justified extraordinary performance because "this time is different" and "we're just smarter than other banks." Neither prove true over time. Second, Wells Fargo is a case study in a systemic problem plaguing US banks: Few directors have the hands-on experience and detailed knowledge needed to govern a bank. History shows that bank directors struggle to identify TGTBT performance. Or when identified, the directors too often lack the detailed knowledge of banking to challenge management's perspective on performance. Third, Wells Fargo provides another important lesson to bank directors: Never become overconfident.  Evidence of the bank's overconfidence can be seen by the board's decision in 2010 to allow Chairman and Chief Executive Officer John Stumpf to join the board of directors of both Target and Chevron. The only way this could happen is if Wells Fargo's directors believed the bank was so well run that it did not require a full-time CEO.

Wells Fargo faces proposed class action over bogus accounts | Reuters: Wells Fargo & Co, embroiled in a scandal over the opening of sham accounts, was sued on Friday by customers who accused the bank of fraud and recklessness for its behavior. The lawsuit was filed in the U.S. District Court in Utah, and seeks class-action status on behalf of hundreds of thousands of customers nationwide. Wells Fargo did not immediately respond to requests for comment. Last week, the San Francisco-based lender agreed to pay $190 million to settle regulatory charges that employees opened some 2 million accounts without customers' knowledge, in order to meet sales targets. Wells Fargo, the country's third-largest bank by assets, has said it has fired 5,300 people over the matter and would eliminate sales goals in its retail banking on Jan. 1, 2017. Federal prosecutors have begun examining Wells Fargo's practices, and the bank's Chief Executive Officer John Stumpf is scheduled to testify before Congress next week. In the complaint, three plaintiffs said customers were hurt by "abusive and fraudulent tactics" used by employees who felt they had to "do whatever it takes," including selling products they did not need or want, to meet sales quotas. It was not immediately clear how the three named plaintiffs were specifically harmed by the bank's alleged wrongdoing.

The Debate Is Over: Banking Has Become a Criminal Enterprise in the U.S. -  Pam Martens - Tomorrow the U.S. Senate Banking Committee will hold a hearing to take testimony from Wells Fargo CEO John Stumpf and Federal regulators to understand how this mega bank was able to get away with opening more than two million fake customer accounts over a span of years. The accounts and/or credit cards were never authorized by the customer and were opened solely by employees to meet sales quotas, get bonuses or to avoid getting fired for failing to meet sales targets. The only reason the Republican-controlled Senate is holding this hearing is because the Wells Fargo fake-account story got a lot of coverage in the media when the Consumer Financial Protection Bureau (CFPB) announced a $185 million settlement over the charges on September 8. The reason the story got a lot of media coverage is because it’s a simple story to tell: widely respected bank opens two million accounts for its customers without their knowledge or permission, sometimes illegally funneling money to the new account from the old account to generate fees. In July of last year, when Citibank, the deposit-taking retail bank settled charges with the CFPB for $700 million for deceptively selling add-on products to credit card customers, the Senate Banking Committee yawned and did nothing.  The story didn’t get major press attention because it was a complicated story to tell. Among a long list of fraudulent practices, the CFPB found that Citibank led 2.2 million customers to believe they were paying to have their credit card monitored for fraud and identity theft, “when, in fact, these services were either not being performed at all, or were only partially performed,” according to the CFPB.  The CFPB charges against Citibank came exactly two months after Citbank’s parent, Citicorp, pleaded guilty to a felony with the Justice Department in connection with the rigging of foreign currency. On the same day, another U.S. mega bank, JPMorgan Chase, also pleaded guilty to a felony related to the same crime. Both banks are more than a century old and both banks, on May 20 of last year, pleaded guilty to a felony for the first time in their history.

How to Make Sure Bad Bankers Are Held Accountable | Bank Think: The past few weeks have revealed a shocking level of outright consumer fraud at Wells Fargo, involving the opening of millions of fraudulent customer accounts. Yet perhaps the most shocking aspect of this story is that no executive under whose watch it occurred has been forced to return any compensation. While over 5,000 front line, mostly customer service employees have been fired, former consumer banking chief Carrie Tolstedt, who oversaw their work, recently retired with a $125 million compensation package. It is unclear if Wells Fargo plans to take back any of this pay package. There is similarly no clear indication that Wells Fargo CEO John Stumpf will have to return any of the almost $100 million in bonus pay he received for the years in which the violations were occurring. This is just the latest example of the lack of executive accountability for illegal activity at major banks. Although tens of billions in penalties have been levied at big banks for mortgage fraud and other illegal activities during the financial crisis, there is no evidence that key executives have ever had to pay back bonuses connected to these activities. Common sense tells us that top executive accountability is crucial to changing bank culture and preventing further abuses. Yet our current system of regulatory and legal oversight seems to be terrible at achieving it. But regulators now have an excellent opportunity to change that. The bank regulatory agencies are currently implementing a mandate in Section 956 of the Dodd-Frank Act to reform incentive-based bonus compensation at financial firms. The current rule, still in the proposal stage, offers a potential tool that could make top executives routinely far more accountable for misconduct – if regulators are willing to use it.

NEP’s Bill Black appears on The Monitor -- NEP’s Bill Black talks with Mark Bebawi – host of The Monitor on KPFT in Houston. The topic of conversation is the Wells Fargo scandal and the settlement. You can listen to the podcast here.

Senator Warren Tells Wells Fargo CEO to Quit His Job – Alexis Goldstein - In a Senate Banking Committee Hearing today, Senator Elizabeth Warren (D-MA) called on Wells Fargo CEO John Stump to quit his job. The hearing was called in response to the discovery that Wells Fargo created 2 million accounts that customers never requested, and then charged their clients fees on these scam accounts.  If this weren’t enough, the executive in charge of the division where this fraud occurred it retiring with almost $125 million in compensation.  Senator Elizabeth Warren was having none of it. She called on Stumpf to resign:  @SenWarren #WellsFargo CEO: “You should resign. You should give back the money that you took…” pic.twitter.com/aPZViWGJIN She also asked Stumpf if “cross selling,” or pushing existing customers to open more accounts, was all about boosting Wells Fargo’s stock price. Stumpf said it wasn’t, but when Senator Warren read his own words back to him, and submitted to the record transcripts of twelve calls with invesors where Stumpf bragged about how cross-selling was boosting the bank:

Warren: Cross selling pumps up Wells’ stock price, right?
Stumpf: No it’s about deepening relationships
Warren: No? HERE ARE THE TRANSCRIPTS
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— Alexis Goldstein (@alexisgoldstein) September 20, 2016

Finally, she called Stumpf’s leadership “gutless."   Warren wasn’t the only Senator to slam Stumpf. Senator Sherrod Brown pointed out that the bank previously faced THIRTY NINE enforcement actions:  “Over the past 10 years, your bank has had approximately 39 enforcement actions, just a few of which have come up today. Many were related to failure to serve or abusive conduct towards customers and investors. You talk much about Wells culture, how proud you are of it, about either. What does this say, if you’ve had 39 enforcement actions, about Wells culture?” Republican Senator David Vitter asked about the implications for Too Big to Fail: "Why isn’t this crystal clear proof that an entity as big as Wells is not only Too Big to Fail, it’s Too Big to Manage, and Too Big to Regulate. One percent of your business if fired for fraud, but it doesn’t rise to your level?” And Senator Bob Menendez pointed out that what Stumpf called “good paying jobs” were nowhere close to his massive compensation: 

Elizabeth Warren Accuses Wells Fargo Chief of ‘Gutless Leadership’ - The more the chief executive of Wells Fargo tried to explain, the more skeptical the senators became.For more than two hours testifying before the Senate Banking Committee on Tuesday, John G. Stumpf expressed regret that Wells Fargo had created as many as two million bogus bank and credit card accounts without its customers’ consent. He apologized for failing to stop the illicit behavior sooner, and vowed to make amends.Some of the senators on the committee scoffed. Mr. Stumpf, they said, was offering little more than platitudes while allowing his top executives to avoid any real consequences — like being fired or having their enormous pay packages clawed back.Instead, the bank’s lowest-paid workers have borne the brunt of the punishment, the senators noted. Senior management, they said, seemed to ignore this practice because it helped turn the bank into a profit machine.Addressing Mr. Stumpf directly, Senator Elizabeth Warren took the unusual step of telling the bank chief executive that he should resign.  “Have you returned one nickel of the money that you earned while this scandal was going on?” asked Ms. Warren, Democrat of Massachusetts. “Have you fired any senior management, the people who actually oversaw this fraud?”“No,” Mr. Stumpf answered.Ms. Warren added: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.”It has been several years since a banking scandal has consumed Wall Street and Washington the way Wells Fargo’s problems have in recent weeks. The extent of the problems came to light on Sept. 8, when Wells agreed to a $185 million settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles city attorney.Unlike some of the arcane trading scandals that have befallen large investment banks recently, the illicit activity at Wells is easy for the public to comprehend: Bank employees were creating fake bank accounts to pad their sales numbers. As a result, thousands of Wells Fargo customers nationwide paid overdraft fees and late fees on credit cards and deposit accounts they never knew they had. The bank has refunded more than $2 million to its customers and is still reviewing whether other bogus fees were charged.

Wells Fargo CEO’s Teflon Don Act Backfires at Senate Hearing; “I Take Full Responsibility” Means Anything But - - Yves Smith - It’s a safe bet that Wells Fargo CEO John Stumpf will be turfed out in the next ten days. Not only did he break the cardinal rule of executive survival, namely, throw someone under the bus when the going gets rough, but he couldn’t even manage a credible show of contrition and groveling after a massive fraud took place on his watch. As one Senator noted, the Wells Fargo fake accounts scam achieved a difficult feat: “For the first time in ten years, you have united this committee, and not in a good way.” Even Republicans like Paul Toomey used the “f” word, as in “fraud”.   The chamber was packed, and the toughest interrogation came from Sherrod Brown, Bob Menendez, and of course, Elizabeth Warren, who reached new levels of bad-assery. For instance, the Massachusetts senator pointed out that Stumpf had gotten $200 million in gains on his Wells Fargo shareholdings while this fraud was underway and demanded that he pay it all back. Too bad she didn’t add that he could easily have paid the restitution to consumers of a mere $2.4 million himself. Wells Fargo had obvious, glaring control deficiencies that appear designed to give Stumpf and his fellow execs a “whocoulddanode?” excuse. The main audit functions sat in the business units, not the at the corporate level. It is a basic failure to have control functions report into profit centers. This is the structure that led to JP Morgan’s London Whale debacle and elicited incredulous reactions all over Wall Street. Tom Curry of the Office of the Comptroller confirmed that this was a serious deficiency. But that begs the question: how did regulators give this foxes run the henhouse organization a free pass?  Despite saying he’d take full responsibility, Stumpf did nothing of the kind. Even though the press had already found a branch manager (who was later fired) warning him of abuses in February 2011, he says he didn’t have any idea there was a problem until sometime in 2013. Stumpf kept insisting there was nothing wrong with the bank’s culture, which elicited derision: did 5,300 employees really join Wells Fargo just for the fun of forging signatures and making up fake e-mail addresses? The CEO kept insisting the 5300 fired employees were bad apples, leading to the retort by Menendez:  This isn’t the work of 5,300 bad apples, this is the work or result of sowing seeds that rotted the whole orchard,You and senior executives created an environment where a culture of decrepit thrived.  Several Senators argued in some detail how it was absurd to expect low wage workers with families to buck the pressure of Wells Fargo’s absurd sales targets with the threat of firing over their heads. In yet another proof of how out of touch he was, Stumpf tried arguing that these were good-paying jobs, which the Senators again disputed, pointing out that the overwhelming majority of people who were canned were at the bottom of the food chain and $35,000 to $60,000 per year wasn’t something to brag about.

Carrie Tolstedt: In the Eye of the Wells Fargo Storm - WSJ: Inside Wells Fargo & Co., some executives called Carrie Tolstedt “the watchmaker” for her obsessive attention to detail in running the firm’s sprawling retail-banking operation. Now, the question is how allegedly illegal sales practices could have escaped her notice as the executive responsible for the bank’s 6,000 branches across the U.S. On Tuesday, Wells Fargo Chief Executive John Stumpf will appear before the Senate Banking Committee to explain what happened. One big question: Who is responsible in the bank’s upper echelons for the sales-practice problems and who, if anyone, will be held accountable? That has taken on added import given regulators disclosed that Wells Fargo over five years had fired 5,300 employees for improper behavior. Mr. Stumpf has declined to say how high up the ranks the dismissals went. Ms. Tolstedt wasn’t asked to appear at the congressional hearing. She stepped down from her post atop the retail-banking business in July and plans to retire at the end of the year. She continues to work at the bank until then, reporting to Chief Operating Officer Tim Sloan, according to the bank.Already some senators have raised questions about her role. Last week, a group of senators led by Massachusetts Democrat Elizabeth Warren sent a letter to Mr. Stumpf asking whether the bank will use its “clawback authority” to recover compensation it has paid to senior executives, especially to Ms. Tolstedt. The senators noted that Ms. Tolstedt received more than $20 million in annual bonuses from 2010 to 2015, “justified by the company in certain instances because of the ‘strong cross-sell ratios’ in her division.” They added: “That is a direct reference to the extraordinary number of accounts created by her division, many of which were never authorized by customers.”  In response to questions related to clawing back pay, Mr. Stumpf said in a CNBC interview last week that “to the extent that’s a consideration, we have a process” without elaborating further.

Wells Fargo Discloses Carrie Tolstedt's Compensation, Answers If Any Will Be "Clawed Back" -- Following today's dramatic grilling of Wells Fargo CEO John Stumpf in the Senate which culminated with Elizabeth Warren shouting at Stumpf that "You Should Resign, You Should Be Criminally Investigated"" moments ago Elizabeth Warren, and four Senate Democrats released answers from Wells Fargo Senior Executive VP Hope Hamilton to questions about compensation of Senior Executive Carrie Tolstedt, who as reported last week by Fortune would be departing the bank with total compensation of $125 million after her decision to retire in July, shortly before the bank's fraudulent practices involving the creation of 2 million fake client accounts was made public in a group run by Tolstedt. With regard to her compensation, this is what Wells Fargo responded:   Wells Fargo is aware of various reports in the media regarding Ms. Tolstedt's compensation. To clarify, Ms. Tolstedt will not receive an award of approximately $125 million in stock options and restricted stock upon her retirement. No incentive compensation was granted as a result of Ms. Tolstedt's retirement, and none of her equity awards will be "triggered" or otherwise increased or accelerated by her retirement. Ms. Tolstedt will not receive any severance payment as a result of her retirement. The bank provided the following breakdown of Toldstedt's existing stock holdings of WFC stock as well as outstanding compensation, which between her current share ownership ($43.6 million), her vested stock options ($34.1 million) and her unvested awards ($18.9 million), amounts to roughly $97 million. This excludes the millions in pay she had received over the 27 years during which she was employed by the bank. All told, the amount probably sums up to the previously quoted figure of $125 million, although as per Wells' classification, the banks would likely have a difficult time clawing any of it back.

Clawing Back Bankers’ Pay at Wells Fargo Is Harder Than It Looks - Bloomberg: Members of the U.S. Senate Banking Committee are demanding that Wells Fargo & Co. claw back pay from Carrie Tolstedt, the executive whose community banking unit created 2 million unauthorized customer accounts. They’re not likely to get as much as they want. At a hearing in Washington on Tuesday, senators cited figures eclipsing $100 million. During her three-decade career at Wells Fargo and its predecessors, Tolstedt received about $44 million in shares, $34 million in vested options and still more from cash bonuses and stock sales. But the bank’s clawback policy, like that of most U.S. companies, doesn’t allow Wells Fargo to go after those assets unless there’s a financial restatement. When the damage is reputational harm, only unvested stock awards can be recouped -- in the case of Tolstedt, 56, whose retirement was announced in July, that’s about $19 million.Decisions about clawbacks will be made by Wells Fargo’s board, Chief Executive Officer John Stumpf, 63, told senators. The board’s human resources committee, headed by Lloyd Dean, CEO of Dignity Health, a San Francisco-based operator of not-for-profit hospitals, will make recommendations to the board. “The Wells Fargo board is actively engaged in this issue,” said Stumpf, who’s also the board’s chairman. Senator Elizabeth Warren said Stumpf should resign and pay should be clawed back. The Massachusetts Democrat accused him of “gutless leadership” for firing lower-level employees while not holding top managers accountable. While clawback policies have exploded in popularity -- 76 percent of the biggest banks around the world have them, up from 44 percent in 2010, according to Mercer, a compensation-consulting firm -- they’re rarely used. During the past two years, only 10 percent of companies polled by Mercer in April used such policies to reclaim compensation that had already been paid. “Clawbacks are easier said than done,”

In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses - Gretchen Morgenson - John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.  But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.  This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers. “Wells didn’t intentionally educate judges. It was people really digging in and having the resources and the time to ask the right questions about what they were doing with the money.” Those practices included levying improper fees and incorrectly foreclosing on homes.  Tom Goyda, a Wells Fargo spokesman, said: “Wells Fargo has acknowledged that we made mistakes in the handling of mortgage foreclosures along the way. Lenders, investors, along with policy makers and regulators — all sides — learned foreclosure processes had to be addressed, and Wells Fargo made significant improvements to the way we work with customers when they fall behind in their payments and during the foreclosure process.”  During the financial crisis, Wells Fargo was at a remove from Wall Street and was not a big player in creating toxic and complex mortgage securities that were engineered to fail. But the bank’s ability to emerge from the crisis with a relatively good reputation is something of a mystery to anyone who paid attention to its aggressive foreclosure activities.There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same.

Wells Fargo Fake Accounts Hidden by Fake Whistleblowing: Former Employees, Including HR Officials, Allege Systematic Retaliation -- Yves Smith - CNN has just found a smoking gun that should enable prosecutors to bring charges against Wells Fargo CEO John Stumpf.  We were skeptical early on about the bank’s pious claims that it had fired 5,300 employees for creating phony accounts from 2011 to 2015. Since it took outside intervention for the bank to stop misconduct that had gone on for years and was central to the bank’s strategy, it was pretty certain that until recently, any refusniks would be fired. And that meant Wells Fargo would be highly motivated to bolster its “See, we were trying to do the right thing but it was harder to do than we thought” story by inflating the number of people it said it fired in connection with the fraud by including ones fired for bucking their bosses and refusing to participate.   Mind you, the CNN story didn’t establish that Wells Fargo had larded up the numbers by including internal dissenters it fired. But what it has found is far worse: the bank terminated employees who made use of formal whistleblower procedures to object to account fakery and other abuses, like forging signatures.   Not only does the story have multiple sources, most of whom let their names be published, but it also includes a source from Wells Fargo who confirms that the “can the whistleblowers” process was institutionalized. For instance, the Human Resources department gave the business units tips as to how to created trumped-up charges so as to cover for the real reason for the firings. Per CNN: Now CNNMoney is hearing from former Wells Fargo (WFC) workers around the country who tried to put a stop to these illegal tactics. Almost half a dozen workers who spoke with us say they paid dearly for trying to do the right thing: they were fired… [Bill] Bado not only refused orders to open phony bank and credit accounts. The New Jersey man called an ethics hotline and sent an email to human resources in September 2013, flagging unethical sales activities he was being instructed to do. Eight days after that email, a copy of which CNNMoney obtained, Bado was terminated. The stated reason? Tardiness…. One former Wells Fargo human resources official said that Wells Fargo would find ways to fire employees “in retaliation for shining light” on sales issues.   “If this person was supposed to be at the branch at 8:30 a.m. and they showed up at 8:32 a.m, they would fire them,” the former human resources official told CNNMoney, on the condition he remain anonymous out of fear for his career. Another six former Wells Fargo employees told CNNMoney they witnessed similar behavior at Wells Fargo — even though the company has a policy in place that is supposed to prevent retaliation against whistleblowers.

Eight Times Stumpf Was Hammered by Senators - American Banker: It was never going to be a good hearing for Wells Fargo CEO John Stumpf, but his performance Tuesday before the Senate Banking Committee was widely panned. Called to answer for millions of phony accounts being opened, Stumpf didn't know the answers to many of the lawmakers' questions and distanced himself from the board which he chairs. Lawmakers from both parties were highly critical. The following were some of Stumpf's worst moments: (slides)

How Wells Fargo Mishandled a Reputational Crisis - American Banker -

  • 1. It failed to hold senior leadership accountable. The bank has repeatedly pinned the blame on the 5,300 former employees who were fired for opening roughly 2 million phony accounts. The problem, experts say, is that the bank appeared unable or unwilling to believe that the culture at the institution contributed to the widespread fraud.
  • 2. Wells' apology was late and halfhearted. The day after the settlement with regulators was announced Sept. 8, the bank took out full-page ads in several newspapers expressing regret. But lawmakers questioned why there was no apology in the company's direct communications with its customers.
  • 3. Wells repeatedly missed opportunities to fix the problem. Articles by the Los Angeles Times in 2013 led to a lawsuit by the city's attorney, Mike Feuer, and ultimately paved the way for the $190 million in fines and restitution paid by the bank as part of a regulatory settlement announced two weeks ago.But when those articles first came out, Wells initially fought back hard against the claims. Bank officials argued that Wells did not have a problem with its sales culture. Tim Sloan, Wells' chief financial officer, told the paper that he was "not aware of any overbearing sales culture."

Fed Deserves Some Blame for Aggressive Cross-Selling Tactics -- American Banker - Now that Wells Fargo has sullied the reputation of a sound business practice, namely cross-selling, this is an appropriate time to look at a close cousin of cross-selling: tying. Rather than using a relationship with an established customer to sell additional products, as is generally the case with cross-selling, tying is the linking of two separate products: one that a customer is actually seeking and another that the customer is not really seeking. But the two practices — tying and cross-selling — have things in common. Wells has shown that there is good cross-selling and bad cross-selling. Similarly, there is good tying and there is bad tying, and banking law marks a sharp difference between the two.  No one objects to the inquiry, "Do you want fries with that?" But buying a bank product is different than ordering a hamburger. In short, banks are in a position of economic power over customers. However, even though the legal distinction between good and bad tying is clear, federal enforcement of anti-tying laws — led by the Federal Reserve Board — has been weak. In fact, after the obligatory dressing down of Wells Fargo CEO John Stumpf, the Senate Banking Committee should now turn its attention to the Fed. The central bank has generally been missing in action when it comes to enforcement of tying policies. The Fed's past statements on tying can also be interpreted as encouraging aggressive cross-selling and tying activities by the likes of Wells Fargo and others.  Some more relevant background is needed.

Taxpayers Subsidized Wells Fargo Executive Pay Amid Bank’s Fraud - On Tuesday, the Senate Banking Committee detailed how Wells Fargo opened millions of accounts and credit cards without customers’ permission— a move that last week drew a $185 million fine from the Consumer Financial Protection Bureau and local regulators. Meanwhile, Carrie Tolstedt, an executive who oversaw Wells Fargo’s Community Banking group — where much of the fraud occurred — pocketed millions in “performance pay,” including stock and equity, between 2012-2015. Under a 1993 law, corporations can deduct no more than $1 million of executive compensation from their taxes. But that law made an exception for pay linked to performance. Consequently, because Wells Fargo structured Tolstedt’s payout as a bonus — rather than wages — the bank could deduct the $78 million from its taxes, effectively giving itself a $27 million tax boost, according to economist Sarah Anderson, who directs the Global Economy Project at the Institute for Policy Studies. In all, Andersen said, Wells Fargo’s Securities and Exchange Commission filings show that in the last four years, its bonus pay packages for top executives effectively gave the bank a nearly $160 million taxpayer subsidy.“This is just one more example of how the notion of ‘performance pay’ is a total hoax,” Anderson told International Business Times. Anderson is the author of a recent study which documented how the exemption translated into a $725 million subsidy for the top 20 U.S. banks over the past four years. Banks continue to use these subsidies even as government regulators charged them with breaking rules. Between 2012-2015, Wells Fargo cashed in on $54 million in tax subsidies for CEO John Stumpf’s compensation, according to the IPS report. Over that same period, regulators extracted $10.4 billion in misconduct penalties from the bank.

Pressure Mounts on Wells Fargo CEO John Stumpf - WSJ: Democratic senators stepped up pressure on Wells Fargo WFC -0.24 % & Co., urging the Federal Reserve Bank of San Francisco to reject the reappointment of Chief Executive John Stumpf to an advisory council and separately requesting an investigation of the bank’s labor practices. The San Francisco Fed said later Thursday that Mr. Stumpf had stepped down as a representative to the Federal Advisory Council, a group of 12 bankers that meets four times a year to discuss economic and banking matters with the Fed’s board of governors in Washington. “John made a personal decision to resign,” a Wells Fargo spokesman said. “His top priority is leading Wells Fargo.” The embattled chief executive and his bank have been at the center of a public and political storm following disclosures that thousands of Wells Fargo employees in recent years created as many as two million accounts without customers’ knowledge. Wells Fargo this month agreed to pay a $185 million fine and entered into an enforcement action with regulators and a local official. Mr. Stumpf had appeared Tuesday before the Senate Banking Committee and was subjected to harsh questioning from both Democrats and Republicans. Some of the sharpest exchanges were with Sen. Elizabeth Warren (D., Mass.), who was among the signatories of the letters to the San Francisco Fed and Labor Department. “It would be ironic if the Federal Reserve, a key federal banking regulator tasked in part with ensuring the fair and equitable treatment of consumers in financial transactions, continued to receive special insights and recommendations from senior management of a financial institution that just paid a record-breaking fine to the Consumer Financial Protection Bureau for ‘unfair’ and ‘abusive’ practices that placed consumers at financial risk,” the senators wrote to the San Francisco Fed.

Does a Golden Parachute Await Wells Fargo CEO John Stumpf? - NEP’s Bill Black appears on The Real News Network and explains why criminal prosecutions of executives time after time are not happening. The video is below and if you would like to view with a transcript, click here.

CEOs Can Now Be Prosecuted Like War Criminals at the Hague -- The International Criminal Court announced Thursday it will now hold corporate executives and governments legally responsible for environmental crimes. The Hague court made explicit references to widening its approach to include land grabbing, which has allowed private corporations, with the help of governments, to take over large areas of foreign land to exploit natural resources. It will also prosecute for environmental destruction. “Chasing communities off their land and trashing the environment has become an accepted way of doing business in many resource-rich yet cash-poor countries,” said Gillian Caldwell, executive director at Global Witness. "Company bosses and politicians complicit in violently seizing land, razing tropical forests or poisoning water sources could soon find themselves standing trial in the Hague alongside war criminals and dictators. The ICC’s interest could help improve the lives of millions of people and protect critical ecosystems.” The violence surrounding environmental conflicts also often leaves corpses in its wake. In 2015, more than three people were murdered each week attempting to defend their lands from land grabbing, according to Global Witness. The group estimated that an area the size of Germany has been leased to international investors in developing countries since 2000.International legal experts say the court’s widened focus could potentially open up criminal prosecutions for climate change.

After Brutal Hearing, What's Next for Wells Fargo? | American Banker: John Stumpf may have hoped that Tuesday's hearing on Capitol Hill would mark a key turning point in Wells Fargo's blossoming scandal, but his harsh questioning by lawmakers — and his struggle to answer many of their questions — suggests that the embattled megabank's problems are just beginning. "We believe this went worse than expected for Wells Fargo," wrote Jaret Seiberg, an analyst with Cowen Washington Research Group, in a note to clients. "We had thought that the change in tone over the last few days and the repeated apologies suggested the bank understood its precarious political position. We were wrong." And there appears to be plenty more to come, including the results of criminal probes, another hearing this month by a different committee, and a search for additional victims who may have been harmed by Wells employees opening phony accounts. Following is a guide to what's still coming. Federal prosecutors in New York, California and North Carolina are all reportedly investigating how Wells Fargo employees set up as many as 2 million sham accounts between 2011 and 2015. The Justice Department, which has been criticized for failing to prosecute big-bank executives in the wake of the financial crisis, last year laid out a series of measures aimed at strengthening its pursuit of individual corporate wrongdoing. The Wells Fargo case is shaping up as a test case for the effectiveness of that new guidance.  Comptroller Thomas Curry said at Tuesday's Senate Banking Committee hearing that his agency, which hit Wells Fargo with a $35 million penalty, is not finished with the case. Curry said that the Office of the Comptroller of the Currency is now focused on possible civil enforcement remedies against individuals. In addition, Democratic Sen. Jeff Merkley asked the Securities and Exchange Commission on Tuesday to investigate whether Wells Fargo violated certain provisions of the Sarbanes-Oxley Act by not recognizing and stopping widespread fraud among its employees. An SEC spokesman declined to comment on that request. The House Financial Services Committee is planning to hold its own hearing on Wells Fargo later this month. Stumpf, the company's embattled chief executive officer, is expected to be called to testify again.

Wells Fargo Whistleblower: "They Are All Riding the Stagecoach to Hell": It has been and continues to be an interesting week for Wells Fargo, with widespread coverage from mainstream news outlets; John Stumpf, Wells Fargo's CEO, going before Congress on September 20; and a $185 million settlement announced with the Consumer Financial Protection Bureau. Interesting, then, that despite all of the monies paid in fines to the CFPB, Wells Fargo still denies any allegations of wrongdoing. Per usual goes the refrain: "Here is $185 million, but we didn't do anything, we swear!" The irony is that in the Wells Fargo web of deceit and the consumer death spiral, no one can hear you scream. The fees and losses of $40 is pretty insignificant to homeowners being scammed out of $400,000, the family home, equity and actual shelter. The $20 loss isn't comparable to what it would take financially to fight banks like Wells Fargo at nearly $2,000 a month to retain an attorney. It does, however, clearly indicate a criminogenic environment of intent, fraud and disturbing arrogance. I recently spoke to a former Wells Fargo employee turned whistleblower about the ongoing issues of fraud and predatory banking practices implemented by the bank regarding the ongoing housing and mortgage fraud. Beth Jacobson is a former high level employee of the bank, who told me: "In 1998, I was hired by Wells Fargo Home Mortgage as a 'Home Mortgage Consultant' or loan officer. I worked for Wells Fargo Home Mortgage ('Wells Fargo') until December, 2007. After a period of time, I was promoted to Sales Manager. I told DOJ over six years ago about Wells Fargo's quotas. At that time it was subprime loans. A loan officer had to fund three subprime loans per month. If there was a quarter when that didn't happen, they were fired. So the result is prime borrowers were put in subprime loans so that the loan officer kept their job. [John] Stumpf was also part of the management team that stated the company goal was to have Wells Fargo's fixed cost paid by the subprime division. Once Countywide went under, Wells Fargo was the #1 subprime lender in the country, specifically [in the] third quarter of 2007. The media keeps whitewashing Wells Fargo as this great lender that avoided all the pitfalls of the other lenders in the mortgage meltdown. No, Wells Fargo was the worst, they are just pure evil, [but] they hired more lawyers and more PR people to spin it Wells Fargo's way. They are all riding the stagecoach to hell."

Not Wells Fargo’s First Rodeo… Adam Levitin, Credit Slips - Over on Twitter, Michael Barr noticed that there's an eerie similarity between Wells Fargo employees team members being incentivized to open up unauthorized deposit and credit card accounts for consumers and another practice that got Wells in trouble in 2011, falsifying borrower income and employment information in order to sell debt consolidation, cash-out refinance mortgage loans at sub-prime rates (often to prime borrowers).  Wells entered into an $85 million consent order with the Federal Reserve Board in July 2011 over these practices. (See summary here.) The consent order noted that it was Wells incentive-based compensation and minimum sales quotas that drove the employee fraud:  B. Under Financial's sales performance standards and incentive compensation programs, Financial sales personnel, called "team members," were expected to sell (a) a minimum dollar amount of loans to avoid performance improvement plans that could result in loss of their positions with Financial, and (b) a minimum dollar amount of loans to receive incentive compensation payments above their base salary. This rather expensive consent order should have been a giant red flag for Wells Fargo's compliance department, for Wells Fargo's board of directors, and for John Stumpf, Wells Fargo's Chairman/CEO.  It should have caused Wells Fargo to reexamine its loan officer compensation structures throughout the bank.  One assumes that the consent order did not come out of the blue in July 2011, but was likely the result of months if not years of investigation and negotiation.  That suggests that Wells should have been aware of problems with its compensation system substantially before it began firing employees in 2011 over the unauthorized account openings.  As ugly as things already look for Wells, we might learn that things were in fact worse.

Senators Call For Labor Dept Probe Into Wells Fargo As Warren Buffett Vows To Keep Silent Until After Election --  Just hours after a CNN report suggested that Wells Fargo was retaliating, and firing, company whistleblowers who had spoken out against the company's illegal "account creation" practices (while blaming them of being "tardy"), moments ago Reuters reported that Senators have asked the Labor Department to investigate Wells Fargo for potential violations of Fair Labor Standards Act.  To be sure, now would be a perfect time for Wells Fargo's biggest shareholder, Warren Buffett - who owns a 10% stake in WFC - to speak up in defense of his favorite US bank, alas that won't happen. As Fox Business reported overnight, Warren Buffett said it’ll be more than a month before he publicly discusses the bank’s phantom-account scandal. Why? He doesn't want it becoming an "election issue." If I start commenting on that or anything else, it will lead down too many paths so I will wait until November to speak about it, the election or any other subject,” Buffett told the Fox Business Network, according to an article on its website. If history is any guide, Buffett can't be thrilled about the ethics lapse.  25 years ago this month, Buffett testified before a Congressional sub-committee regarding the Salomon Brothers bond scandal.  Buffett had become a major shareholder in Salomon when it was revealed that traders had been submitting false Treasury bond bids in order to skirt trading rules.  Buffett swiftly took over as CEO and fired a number of management.  At the time, he said during the testimony, "Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."  In retrospect, there appears to have been a footnote there.  As Bloomberg notes, Buffett’s silence on Wells Fargo contrasts with his support of executives including Goldman Sachs CEO Lloyd Blankfein and JPMorgan's Jamie Dimon when their companies drew regulatory scrutiny.

It’s strike three for Warren Buffett as Wells Fargo faces investigation – Billionaire investor Warren Buffett is famous for his “front-page-of-the-newspaper test.”  In a recent interview with Bloomberg, he described it, simply, as not doing anything he would be embarrassed to have written up on the front page of the newspaper. To encourage ethics over profits, he tells his managers: “Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”  However, three recent incidents have brought Buffett to the front page of the newspaper, damaging his previously wholesome and folksy reputation.

  • Strike one is Berkshire Hathaway subsidiary Clayton Homes being profiled for predatory lending. Buffett defended Clayton Homes at the Berkshire Hathaway BRK.B, -1.04%  annual meeting and in the annual letter to shareholders. Rather than responding directly to the accusations or laying out changes that would be made, he tried to highlight the positives of the business.
  • Strike two for Buffett has been numerous articles on the aggressive, but legal, tax maneuvers undertaken by Berkshire Hathaway. Buffett has publicly advocated for higher taxes on high-income individuals. The “Buffett Rule” was named after him when he suggested in 2011 that individuals earning more than $1 million should pay an effective tax rate of no less than 30%. That’s a laudable goal, but it wouldn’t mean that much for Buffett, as the vast majority of his wealth is tied up in Berkshire Hathaway shares.
  • The third strike for Buffett is the Wells Fargo scandal. Over two million accounts and credit cards were established without client consent. Once the accounts were opened, customers were billed for various fees on the unauthorized accounts. Low-level staff did this as they feared they would lose their jobs if they failed to hit the unrealistic cross-selling targets set by senior management. A total of 2% of Wells Fargo’s workforce has been fired for involvement in the practices that date back at least five years.

 Wells Fargo and the Cult of the Customer -  James Kwak “An unwavering focus on the customer.” Those words grace the cover of Wells Fargo’s 2014 annual report: The 2015 annual report features this: One can only wonder what the bank’s public relations whizzes will think of for the 2016 version. We know now that, over the past five years, more than five thousand Wells Fargo employees illegally opened more than 1 million bank accounts and applied for hundreds of thousands of credit cards on behalf of existing customers—all to meet aggressive “cross-selling” targets set by bank executives. At the moment, we’re not exactly sure who knew what and when they knew it. But as with the rest of the once-shocking-but-now-mundane banking scandals of the past decade—the London Whale, fixing LIBOR, manipulating foreign exchange markets, money laundering, and so on—either the bank’s top executives were unaware of what was going on, which is recklessly incompetent, or they were aware of it, which is worse.  The mantra of “the customer” is standard corporate PR fare, of course, but Wells Fargo takes it to absurd and now apparently Orwellian extremes. The bank’s “strategy” highlights the following sentence:  We start with what the customer needs — not with what we want to sell them. This is exactly the opposite of how the bank actually behaved. Even when caught ripping its customers off, the bank responded by saying: Wells Fargo is committed to putting our customers’ interests first 100 percent of the time. Now, there actually are businesses that do put their customers’ interests first, at least almost all of the time. […] Wells Fargo is not that kind of business. For Wells Fargo, as for any megabank, “the customer” is not a person—it’s a dataset, with means, medians, correlations, and metrics, like “cost of acquisition” and “churn rate” and “marginal profitability of product X.” Yes, customers matter, but in the generic sense that applies to all businesses: customers are where the money comes from.

It's Time for Banks to Look in the Ethical Mirror | Bank Think - With all the new coverage of Wells Fargo's fake-account debacle, I have yet to see an answer to this pivotal question: How does one simply miss over 5,300 wrongdoers at a bank?  How can so many employees across so many branches go off the rails and no one know about it? The easiest answer: This was an ingrained practice. By firing so many employees, Wells has all but acknowledged that unethical behavior was rampant. Rather than a needle in a haystack, the huge number of employees opening sham accounts was an overt sign of an organizational culture problem.  Such an entrenched problem at such a large bank suggests the banking industry's ethics are still fundamentally awry eight years after the mortgage meltdown. So what has caused this ethical breakdown? I would point to two factors in particular. First, the concern for personal careers and corporate profits in many companies crushes everything else. When making numbers and advancing careers is so dominant, you get a Wells Fargo-like debacle and a mortgage crisis, you don't get adherence to the Caux Roundtable standards or Daniels Fund Ethics Initiative principles. The research is clear that industry's focus on materialistic orientations of both the organization and the individual are not associated with ethics and social responsibility. Because materialistic orientations define our modern organizational world, the toxin is embedded within everything we do. Second, ethics and social responsibility are nice concepts for codes of ethics that are published in the light of day. These are the pretty curtains that many organizations use to demonstrate their commitment to the greater good; a commitment that some undoubtedly have. But to many organizations, ethics and social responsibility are no more than impression management and public relations that deflect from the activities actually going on within the organization.

Bank Size No Excuse for Mismanagement, Yellen Says - WSJ: Federal Reserve Chairwoman Janet Yellen said she doesn’t believe the Wells Fargo WFC -0.76 % & Co. settlement over its sales practices means the bank is “too big to manage,” but she noted that consumer harm can indicate safety and soundness issues. Ms. Yellen said the Fed’s expectations that banks have “robust systems” of risk management, auditing and compliance weren't “impossible standards to meet,” as all banks are expected to do. She dismissed the notion that a bank’s size would make it unable to fulfill those responsibilities. “We have been distressed to see banking organizations responding when a particular problem arises,” rather than having policies in place that “ensure that employees are always acting in a legal and ethical manner,” she said at a press conference after the Federal Open Market Committee meeting. She added that one focus of the Fed’s supervision of banks is whether the “incentives that are put in place…are appropriate and don’t serve to foster behavior that could harm the public.” Wells Fargo Chief Executive John Stumpf pushed back on the notion his bank was too big to manage when he testified before the Senate Banking Committee on Tuesday. “This was a problem of focus and not of size,” he said.While Fed regulators generally don’t concentrate on consumer protection, Ms. Yellen noted that issues of consumer harm can ultimately “become safety and soundness issues.” She said that one of the lessons of the 2008 financial crisis was that subprime lending practices were initially an issue of consumer harm before becoming a safety and soundness issue.

Can Technology Prevent Wells Fargo-Style Account Fraud? | American Banker: As reports have rolled in that Wells Fargo employees opened more than 2 million fake accounts to meet sales goals or secure bonuses, and that 5,300 workers were fired, personal failings and human judgment have been at the heart of the debate. Regardless of where the fault lies — with branch employees or upper management — the failure of humans to act with honesty and integrity raises an oft-repeated question these days: Could technology have prevented the problem? It certainly could have helped Wells put checks in place that would have ensured employees could not set up bogus accounts — and could help other banks from following in its footsteps, tech experts say. "Systems that are used to detect fraudulent account openings and transactions can be adapted to detect internal shenanigans as well," said David Mooney, president and chief executive of Alliant Credit Union in Chicago. "This is a particularly good application for artificial intelligence and intelligent machines, which can scan large amounts of public and internal data and identify patterns." Mooney serves on the advisory board of a company called Datanomers that does this for telecom companies. More on that later. "Whenever incentives-based selling is in place with front-line employees, there should be a series of risk management checks in place, and regular and visible audits to detect abuse," said Al Pascual, head of fraud and security at Javelin Strategy & Research.

Phony Accounts Go Beyond Wells Fargo, Policymakers Fear | American Banker: — Federal regulators and lawmakers raised concerns Tuesday that other institutions may be engaging in the same types of fraudulent activities that caught up Wells Fargo. During a Senate Banking Committee hearing, policymakers repeatedly said that Wells' mistakes couldn't be blamed — as the company maintains — on rogue employees who opened up some 2 million phony accounts in order to meet sales goals. Instead, they see a cultural problem at the San Francisco bank — and wondered whether it extended beyond Wells Fargo. "This is the beginning of a lot of things," said Senate Banking Committee Chairman Richard Shelby. "A lot of us are worried that perhaps there's similar goings-on in other banks." Regulators said they are actively searching for such behavior elsewhere. "We've been looking at these problems in all of the banks and nonbank financial companies," said Richard Cordray, director of the Consumer Financial Protection Bureau. Sen. Robert Menendez, D-N.J., asked regulators if cross-selling was to blame. "How widespread is the issue of cross-selling, at least in the perverse way that it took place at Wells Fargo?" he said. "Do you have any sense whether this is a one-off or is this an industrywide concern?" Comptroller of the Currency Thomas Curry said the agency was examining cross-selling, particularly incentive compensation practices. "I have directed that we are to do a horizontal review so we will be looking specifically at sales practices at our largest banks and midsized banks," he said.

Inside the quiet shake-up taking place at Goldman Sachs - A changing of the guard is taking place at Goldman Sachs. The securities division, which houses the bank's equities and fixed income, currencies, and commodities units, has seen at least 18 partner-level departures from key roles in the US and Europe in 2016. They include the heads of trading for equities, US interest-rate products and mortgages, and coheads of sales for fixed income, currencies, and commodities. (You can see a full list of partner-level departures at the bottom of this page.) These exits represent just a small fraction of Goldman's partner pool, which stands at more than 450, and the three coheads of securities — Pablo Salame, Isabelle Ealet and Ashok Varadhan — remain in place. But the high-level departures speak to numerous concurrent challenges for the firm, current and former executives say. The securities division, which generated about half of Goldman's first-half revenues, is in a difficult environment, and it has been assigned a new "mission" to do more business with existing clients. Of course, some familiar workplace issues — like questions of performance, office politics, and shifts in influence — are also at play here. And it's not coincidental that moves to bring through the next generation of leaders at Goldman Sachs are taking place ahead of a biennial decision about who becomes a partner.

Deutsche Bank's Trading At a Quarter of Book Value and Here's Why - Reggie Middleton - Deutsche Bank is trading at 1/4 its book value. Book value is the measure that the street uses to value banks. Unfortunately, boo value is meaningless for banks today, who's books are no longer marked to market, distorted by negative interest rates and transformed by Harry Potter style accounting. It appears as if the market is not going for it. We, at Veritaseum, never did! Here's an example of why one should heavily discount DB's book value number. Mortgages are one of the, if not the, biggest loan buckets on DB's balance sheet. Five percent of those mortgages are underwater (guaranteed losses). Seventeen percent are over 70% loan-to-value ration. Well, you may be saying to yourself "That's not bank run material". The German housing market is on an absolute tear. One could be tempted to say its a bubble, but the German economy is the strongest in all of Europe, right? It's the engine that powers the EU, right? Well, German home prices have handily outgrown, and continue to do so, German wage growth - by a very wide margin. So, if real wages aren't powering these fantastic price gains, then what is??? IF the ECB fails to perfectly juggle all of those negative interest rate balls simultaneously (unlikely) then DB will have a hell of a Bear Stearns/Lehman-like problem on its hands, as housing prices crash and DB's mortgage portfolio goes from 5% underwater (likely quite understated) to something like 30-40% underwater. There goes bank equity and here come bank bail-ins! The info below is taken from our DB subscription research (see Derivative Risk Exposure of Major Banks to Deutsche Bank).

 Let's Think Again About Dodd-Frank – Tyler Cohen - Six years after the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2008 financial crisis, it is not obvious that it made the U.S. economy safer and sounder.  Take the slow recovery in the real estate market. Some of the weak housing demand is due to high student debt and slow rates of household formation, but tighter regulations on mortgage lending also have held it back. Evidence of this comes in a recent paper by Francesco D’Acunto and Alberto G. Rossi at the University of Maryland Business School, who show that the lending regulations of Dodd-Frank redistributed credit away from the middle class toward wealthier Americans. Looking at a broad swath of history, I see three major forces that can make financial systems safer: people being scared by recent events, solid economic growth and reduced debt in comparison to the value of equity. The financial crisis gave us the first on that list as perhaps its main “gift” (for now), but Dodd-Frank may have worsened economic growth problems. On the plus side, we might like to think that Dodd-Frank improved the debt-equity balance by pushing banks to raise more capital. But that, too, now stands in doubt.  Last week Natasha Sarin and Lawrence H. Summers of Harvard University released a paper questioning whether Dodd-Frank has made big U.S. banks safer at all. The authors look at a variety of measures, including options prices, the ratio of market prices to book values, bank share volatility relative to overall market volatility, credit-default swap spreads and the value of preferred equity shares for banks. In every metric, it seems that the big banks are at least as risky as they were before the crisis, in part because they have lower capital values.  It’s a common economic prescription that regulation should insist that banks carry high levels of capital to withstand losses in bad times. But although Dodd-Frank raised statutory capital requirements, it may have drained banks of some of their true economic capital by regulating and sometimes prohibiting valuable banking activities. The ratio of market price to book value has declined for the biggest banks, and that is one sign of falling values for true economic capital, even though banks have met the letter of law by increasing capital as the regulations specified. Sarin and Summers note that measures of bank capital, as defined by regulators rather than the market, have little predictive power for bank failures.

Banking Group Finds Fed Stress Tests Likely Illegal - WSJ: A group that represents executives from some of the largest U.S. banks concluded in a paper that the Federal Reserve likely acted illegally in adopting central parts of its annual stress tests, the latest evidence that some in the banking industry are contemplating a potential lawsuit. The Committee on Capital Markets Regulation, a nonprofit organization of academics and financial executives, was set to release the paper Thursday, and The Wall Street Journal reviewed a copy. The groups’ members include senior executives at big banks J.P. Morgan Chase & Co., Citigroup Inc., C -1.42 % Goldman Sachs Group Inc., Wells Fargo & Co., and State Street Corp. STT -1.53 % “We find that the Federal Reserve has likely not complied with the [Administrative Procedure Act’s] procedural requirements in adopting key aspects of its Comprehensive Capital Analysis and Review stress tests,” the paper says. Following those requirements “would result in better public policy outcomes and reduce the threat of a legal challenge to the Fed’s actions.” A Fed spokesman declined to comment. A draft reviewed by the Journal didn’t note any objections from the committee’s members. But on Wednesday evening, after the Journal contacted banks on the committee, the committee revised the paper to say Deutsche Bank AG DB -9.35 % objects to its findings. Later, a Citi spokesman said, “We have not reviewed the report and therefore cannot comment on its findings.”  The paper details the arguments banks could use if they sued the Fed over the stress tests, shedding more light on a possible legal framework to challenge a central piece of the regulatory regime adopted after the 2008 financial crisis. The Journal reported earlier this month that big banks were weighing a legal challenge to the tests.   Read The Administrative Procedure Act and Federal Reserve Stress Tests document in full.

Larry Summers Makes the Case for Higher Capital Requirements - Mike Konczal - How can we tell if the biggest banks have gotten safer? One way is to look at their balance sheets, especially the amount of debt they have. And there we can see that their leverage has decreased compared to where it was before the crisis.But another way is to look at how the market trades the equity of those banks in the stock market. Are the stocks volatile, indicating risk? In a new Brookings paper, Have Big Banks Gotten Safer?, Natasha Sarin and Lawrence H. Summers find that in big categories of traded activities, the biggest banks are where they were before the crisis. But rather than signaling the futility of financial reform, I think this paper makes an excellent case for the successes so far, and for pushing to further increase capital requirements. One of the key pieces of evidence Sarin and Summers presents is the market beta. Beta is the relationship (covariance) between an individual stock and the overall stock market; a higher beta means that the stock will move more when the stock market moves. There are other reasons to care about market beta, especially for portfolios of stocks, but for our purposes it’s a useful measure of a stock’s risk that measures not just the stock by itself but also the stock’s relationship to the broader market.Sarin and Summers find that for the biggest banks, “bank beta has actually increased in the aftermath of Great Recession.” And although “bank betas have been falling since the crisis, they  have yet to dip below the pre-crisis [2002-2007] levels.” The authors have other evidence, but much of the argument is related to this measure (and it’s the best one publicly available), so let’s dig deeper.’

Shadow Banking Increases The Risk Of Another Global Financial Crisis: Banks may still be evading increased regulation by shifting activities to shadow banking. This system is well established as part of the financial sector, but it provides products that separate an investor from an investment, making it more difficult to evaluate risk and value. This lack of transparency increases the risk in our financial system overall, making it vulnerable to the types of shocks that caused the 2008 global financial crisis. A current example is the so-called "bespoke tranche opportunity" offered by shadow banks. This is similar to the notorious collateralised debt obligations, packages made up of thousands of mortgage loans some of which were sub-prime, blamed for the global financial crisis. Shadow banking is comprised of hedge funds, private equity funds, mutual funds, pension funds and endowments, insurance and finance companies providing financial intermediation without explicit public liquidity and credit guarantees from governments. Shadow banking is usually located in lightly regulated offshore financial centres. In the period leading up to the global financial crisis, a large portion of financing of securitised assets that allowed regulated banks to exceed limitations on their risk-taking was handled by the shadow banking sector. To this day, shadow banking continues to make a significant contribution to financing the real economy. For example, according to the Financial Stability Board, in 2013 shadow banking assets represented 25% of total financial system assets. While the average annual growth in assets of banks (2011-2014) was 5.6%, shadow banking growth stood at 6.3%. A comparison of country-based share of shadow banking assets between 2010 and 2014 reveals the largest rise for China from 2% to 8%, while the USA maintains its dominance of the shadow banking markets with around 40%.

OCC's Curry: Fintech Charter Would Mean Consistent Standards -- Comptroller of the Currency Thomas Curry said that if the OCC decides to grant limited-purpose charters to financial technology companies, they would be held to the same regulatory standards as other federally chartered institutions. Speaking at a summit of online marketplace lenders, Curry asked whether fintech firms should be subject to a new system of regulations and who should be responsible for overseeing these companies.  Curry noted that a federal banking charter for fintechs could provide a more level regulatory playing field, though it could also result in lighter supervision of these firms by allowing them to avoid consumer-protection oversight. He said an OCC task force plans to complete a regulatory framework to assess “responsible innovation” this fall.

 Enough with D.C.'s Mixed Messaging on Fintech | Bank Think --385 to 4. That was the recorded vote taken on the floor of the House of Representatives on Monday on House Resolution 835.  As offered by Congressmen Tony Cárdenas, D-Calif., and Adam Kinzinger, R-Ill., H. Res. 835 will go down in U.S. fintech lore as the first fintech resolution to be passed by the House. As the first part of the resolution explains, H. Res. 835 expresses "the sense of the House of Representatives that the United States should adopt a national policy for technology to promote consumers' access to financial tools and online commerce to promote economic growth and consumer empowerment."  It has everything a fintech political junkie could possibly want. It's bipartisan — that's right, bipartisan — and achieved overwhelming support in the House. The resolution has fintech written all over it, and we even got to see the members on both sides discuss fintech's potential for 15 minutes! No need for Monday Night Football when all the excitement was on C-SPAN!  It should be noted that those who came to the floor to speak in favor of the resolution included Reps. Michael Burgess, R-Texas, and Janice Schakowsky, D-Ill., the chairman and ranking member, respectively, on the House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade — the same subcommittee that has held its "Disruptor Series" covering, in particular, mobile payments and digital currencies and blockchain technology. Some highlights from the floor discussion: Burgess: "While innovation can be frightening, discovery should be encouraged because the public will never see the benefits without assuming some measured risk." Schakowsky: "And the challenge for federal regulators is to understand and adapt to this new technology.... This resolution recognizes that Congress and federal agencies need to be working on policies that promote the responsible development of fintech."

Ripple raises $55 million in second funding round, adds several banks to network | Reuters: U.S.-based start-up Ripple, a provider of blockchain-based cross-border payments technology for banks, said on Thursday it has raised $55 million in a second round of funding. Blockchain is the underlying technology in digital currencies such as bitcoin and has become one of the hottest innovations in the financial services world. The company has raised a total of $93 million over the last two years, said Chris Larsen, Ripple chief executive officer and co-founder, securing funding from new investors including Standard Chartered, Accenture, SCB Digital Ventures, the venture arm of Siam Commercial Bank, and SBI Holdings. "We have a ton of resources now that will allow us to continue to grow," said Larsen in an interview with Reuters. "The team is now about 135 people. And we're aggressively growing, especially in our integration and engineering groups." Existing Ripple investors include Google Ventures, venture capitalist Andreessen Horowitz, IDG Capital Partners, and AME Cloud Ventures. Ripple aims to ultimately enable the exchange of value as seamlessly and quickly as exchanging information. It reduces the cost of settlement by enabling banks to transact directly, optionally using the digital asset Ripple. Larsen said with Ripple's technology, it takes three to five seconds to transfer a cross-border payment, compared with three to five days under the current international payment system.

Blockchain Startup Ripple Raises $55 Million, Signs Bank Partners -- There has been plenty of hype over blockchain technology, which promises to speed up all sorts of financial transactions and record-keeping, but much of this has been just theory. Despite its potential, blockchain has yet to to disrupt everyday banking. News from Ripple, however, suggests this is beginning to change. The company, which is a familiar name in the digital currency realm, on Thursday announced a $55 million Series B round plus a series of partnerships with heavy-weights from the banking world. The new partners include global banks like Standard Chartered, BMO Financial Group, and Shanghai Huarui Bank. Ripple says they will join other banks using its technology to improve cross-border payments. So what exactly will this mean in practice? Ripple’s CEO Chris Larsen shared some specifics with Fortune, explaining how banks are already using Ripple for common transactions. Larsen cites examples like banks carrying out foreign exchange transactions on Ripple instead of the SWIFT network, and using Ripple to facilitate escrow arrangements between corporate customers. He also suggests banks can use Ripple to help big tech customers make payments to their many small partners in other countries. Until now, Larsen notes, doing so has been impractical since such payments were slow and expensive.

 BNP Paribas Joins the Blockchain Lab Legion -- "Evolve or die" — it is a familiar refrain today among bank executives and technologists. Evolution, for banks, requires innovation — their own or someone else's. BNP Paribas feels this as keenly as any institution today, and rather than merely partnering with fintechs it is betting on itself. Last week it opened a 5,000-square-foot innovation lab at its North American headquarters in New York, the first use of which was a two-day hackathon focused on blockchain technology. About 40 employees participated in the hackathon, which was preceded on Wednesday morning by a talk given by Yorke Rhodes III, the head of Microsoft's own blockchain team, and a panel discussion that included Todd McDonald, co-founder and chief operating officer of R3, and Dan O'Prey, the chief marketing officer of Digital Asset Holdings, in which BNP Paribas invested this year. In light of that investment, the hackathon appears to be a reaffirmation of the French bank's interest in blockchain technology. Bruno d'Illiers, the COO of BNP Paribas North America, said he believes distributed shared ledgers will "shape the future of the banking industry." Such rhetoric is common nowadays, with the technology originally developed for the digital currency bitcoin enjoying an extraordinary level of attention from financial institutions. But while blockchain may be at "the tip of the hype cycle" right now, Rhodes said there is substance beyond the flash. "We're beyond the point that we know the technology is good for something," he said. Still, the innovation lab isn't putting all its eggs in one basket. Six "task forces" are now using it as a base of operations, each devoted to a particular area of research. One is tackling big data, another robotics. While none of these teams is able to work full-time on their projects — the employees have to devote part of their time to their regular jobs — they have already been working for six months, and some of their projects are at the proof-of-concept stage.

Bitcoin Industry to Legislators: Lay Off Miners, Multisig Wallets | American Banker: — Virtual currency advocates are hoping a recent surge of support in Congress can help them accomplish a long-sought goal of creating a safe harbor for companies that do not directly hold customers' funds. The House voted last week to approve a nonbinding resolution by Reps. Adam Kinzinger, R-Ill., and Tony Cardenas, D-Calif., to "encourage the development of tools for consumers to learn and protect their assets" through technology in order to "foster future economic growth." It was a small step toward virtual currency firm's eventual goal — the creation of an exemption from state money transmission laws for a certain class of bitcoin companies. Many businesses involved in bitcoin or other virtual currencies are "just a conduit," said Aaron J. Wright, a professor at the Cardozo Law School who penned a Medium post last year on the topic. "They just pass it along." To Wright and a number of other virtual currency advocates, bitcoin miners and multisig wallets — which allow customers to store their assets, but do not single-handedly control the funds — should be able to avoid the state-by-state licensing regime faced by money transmitters. "The question," said Wright, "becomes, 'Should they have the same level of regulation?' " In a recent statement, Coin Center — an advocacy group for virtual currency companies — argued that those companies should not be on the hook for state-imposed bonding, minimum-capital and consumer protection requirements. "These individuals and businesses do not hold customer funds, therefore they do not pose a solvency risk to consumers," said Peter Van Valkenburgh, Coin Center's director of research. "If such activities were clearly stated as not being subject to licensing there would likely be no enhanced risk of consumer harm."

Congressman McHenry Introduce Bill to Create Financial Services Innovation Offices to Boost Fintech Growth - Congressman Patrick McHenry, the Chief Deputy Whip of the House, has introduced new legislation designed to boost Fintech innovation in the US. Today, the US may be the financial center of the world but in some respects, the country is slipping behind when it comes to innovation emanating out of other financial centers. HR 6118 or the “Financial Services Innovation Act of 2016, is part of the broader Innovation Initiative created by McHenry and House Majority Leader Kevin McCarthy. HR 6188, as it is currently worded, will establish a regulatory framework that helps Fintech firms and startups gain the access and flexibility they need to innovate and experiment. The legislation will mandate that 12 different regulators must establish “Financial Services Innovation Offices or FSIOs within their agencies. Firms may apply for an “enforceable compliance agreement” with the FSIOs that, if accepted, will allow them to provide an innovative product or service under an alternative compliance plan, which modifies regulation that is antiquated or unduly burdensome. The plan will bring the US in closer alignment with the countries that have already established similar offices or regulatory Sandboxes. Congressman McHenry released a statement on the proposal; “For generations, America has been the world’s leader in innovation, spanning a variety of fields from transportation to medicine to software. One area we’re falling behind, is the financial services industry. The bill I introduced today changes that. The Financial Services Innovation Act represents a mindset shift in the way we address financial regulation,” said McHenry. “Rather than the command-and-control structure of the past, my bill establishes an evolved regulatory framework that encourages financial innovation, all while maintaining our regulators’ commitment to the safety of consumers and our financial markets.”

Swift to Start Daily Reports to Help Banks Spot Payments Fraud | American Banker: Swift is taking another step to protect the payment system following a multimillion-dollar cybertheft early in the year. The global financial messaging system on Tuesday unveiled plans to offer banks so-called daily validation reports starting in December. The reports will help them "quickly detect fraud — whether perpetrated by external attackers or by malicious insiders," Stephen Gilderdale head of Swift's customer security program, said in a news release. Each report would contain a daily rundown of banks' message flows so they can verify them independently, detect unusual patterns and potentially cancel transfers they find to be fraudulent. The reports would be sent on an independent channel in case banks' own systems are compromised. "A key step in the modus operandi in recent wire fraud cases at customer firms involves the attackers concealing their fraudulent messaging activity on customers' local systems," Gilderdale said. "Smaller institutions, in particular, are currently dependent on the accuracy of the data on their own systems, but in the event of a security breach, their locally stored payment and reconciliation data may be altered or unavailable." Swift, the Society for Worldwide Interbank Financial Telecommunication, connects 11,000 financial services firms with its messaging platform for transfers. The reports are being launched as part of the Transaction Pattern Detection stream within  Swift's information-sharing and threat-intelligence program for member banks, which launched in June as a key part of its newly created customer-security-intelligence team. The new reports are another response to a host of high-profile cyberattacks on Swift members, beginning with a February incident in which hackers lifted $81 million out of Bangladesh Bank's account at the Federal Reserve Bank of New York; the incident was discovered days after the hackers had already deleted records of fraudulent Swift messages sent from the Bangladesh account at the New York Fed.

You Probably Can't 'Prevent' Cyberattacks, But Here's What You Can Do | Bank Think: It is no secret that cybersecurity risks add complexities that often restrict the process of seamlessly carrying out banking transactions. However, this ongoing challenge raises an even bigger problem. On one hand, banks need solutions that ensure confidentiality, availability and integrity of sensitive data. On the other hand, banks often fall into the trap of thinking that a set of solutions today will deliver them safely from the cybersecurity threats of tomorrow. First things first. There is no one-size-fits-all solution. Each bank is different. Moreover, each bank has a different risk appetite than its peers; thus, the right controls for one bank will prove excessive for the next and not enough for the third. So the first thing that must be established by the board or by the chief executive is: what is the risk appetite of the organization? Then, banks need to get a grip on business assets. What, exactly, are the things of value to protect and what are the threats against them? Is it a matter of protecting intellectual property? Customer data? Classified information? Reputation? Is it a question of physical security? Insider threats? In short, what does your bank's world look like and where are the threats coming from? It is no accident that the National Institute of Standards and Technology framework for improving critical infrastructure cybersecurity leads with "identify" and not with "prevent." That is because it is very difficult to "prevent" a cyber attack. The sooner we get comfortable with that notion, the sooner we'll get to the real work of identifying, protecting, detecting, responding and recovering (the five NIST framework functions) when a cybersecurity incident hits.

Have big banks gotten safer? | Brookings Institution – Abstract: Since the financial crisis, there have been major changes in the regulation of large financial institutions directed at reducing their risk. Measures of regulatory capital have substantially increased; leverage ratios have been reduced; and stress testing has sought to further assure safety by raising levels of capital and reducing risk taking. Standard financial theories would predict that such changes would lead to substantial declines in financial market measures of risk. For major institutions in the United States and around the world and midsized institutions in the United States, we test this proposition using information on stock price volatility, option-based estimates of future volatility, beta, credit default swaps, earnings-price ratios, and preferred stock yields. To our surprise, we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased. This does not make a case against the regulatory approaches that have been pursued, but does caution against complacency. We examine a number of possible explanations for our surprising findings. We conclude that financial markets may have underestimated risk prior to the crisis and that there may have been significant distortions in measures of regulatory capital. Yet we believe that the main reason for our findings is that regulatory measures that have increased safety have been offset by a dramatic decline in the franchise value of major financial institutions, caused at least in part by these new regulations. This decline in franchise value makes financial institutions more vulnerable to adverse shocks. We highlight that the ratio of the market value of common equity to assets on both a risk-adjusted and risk-unadjusted basis has declined significantly for most major institutions. Our findings, if validated by others, may have important implications for regulatory policy. Download the paper

 Banks Are Now Too Scared to Even Make Money - WSJ: Banks have become too regulated and too scared of the risks to do what they should be doing, greasing the flows of money between countries. If $10 bills are left lying around in markets, they get picked up pretty quickly. Not right now. Down in the depths of the financial markets strange things are happening, because banks either can’t or won’t pick up the free money. One sign of this is on the foreign exchanges. The flight from negative rates in Europe and Japan has led to a surge in demand for currency hedges into higher-yielding dollars, and driven up the price of those hedges. In days of yore—that is, before Lehman failed—a Japanese investor wanting to buy Treasurys would do a deal with a U.S. bank sitting on a big pile of dollar deposits. For a fee, they would switch currencies, agreeing to switch back in a year or more at an agreed rate. They would also lock in their interest rates during the period of the contract with Libor in their own currency, so they knew what the cost would be.For banks, this used to be treated as free money to be picked up immediately. But now the money is just sitting there. That is why others are stepping in. Hedge funds, mutual funds and corporate treasurers with spare dollars are increasingly sending them to Japan as they take advantage of the opportunity. These investors buy negative yielding Japanese T-bills in exchange, but they don’t care about that: they are able to offset these losses, and more, by charging evermore for their dollars. This is known as a cross-currency basis swap, where the basis is the extra interest on top of Libor the bank is able to charge for the currency most in demand—at the moment, the dollar. This is easy money: those lending dollars can lock in an extra 0.8% or so a year to swap them into yen. Over time, the market will exploit these arbitrages until they disappear. But the odd thing is this: They are not disappearing now. Why? A new study by the Basel, Switzerland-based Bank for International Settlements shows the close link between aggressive central bank easing and the flight of money across borders. In Japan, investors responded by looking for profit opportunities abroad, while in the eurozone American companies issued a flood of so-called “reverse Yankee” bonds in euros as yields fell far below those in the U.S.

The Banking Model from Hell Has Now Killed the IPO Market - Pam Martens - The horror stories that continue to spill out about what Wall Street banks are doing behind their cloistered walls have blurred the actual function of Wall Street: to efficiently allocate capital so that new industries can be born and thrive in America, creating new jobs and a rising standard of living for all of our fellow citizens. In the same week that the U.S. Senate Banking committee was taking testimony that one of the biggest Wall Street banks, Wells Fargo, was opening two million unauthorized customer accounts over at least a four-year span in order to generate fees and meet daily sales quotas, the Wall Street Journal reported yesterday that just 68 new companies had been listed for public trading this year, a drop of 51 percent from the 138 companies that had gone public by this time last year. Let’s recap what the public has learned over the past eight years about the Wall Street banking model from hell. (1) The greatest housing collapse since the Great Depression resulted from Wall Street banks muzzling their internal whistleblowers who wrote memos to management and shouted from the rafters that the banks’ mortgage loan departments were ignoring their own compliance rules and buying up tens of thousands of mortgages with wildly overstated incomes by the mortgage holder. (2) The banks then knowingly bundled these toxic mortgages into pools and paid the ratings agencies, Standard & Poor’s and Moody’s, to assign triple-A ratings to the offerings (called securitizations). (3) The banks knew these toxic mortgages would fail but they sold them to their customers as sound investments. (4) The banks also used their insider knowledge that the mortgages were going to fail to place bets (short sales) and reap billions of dollars in profits as the U.S. housing market collapsed and families were thrown into the streets.  As Wall Street scratches its head and attempts to figure out why new companies don’t want to list their shares on a Wall Street stock exchange or hire a Wall Street bank to do their stock underwriting, we have a simple message for Wall Street: “It’s about trust, stupid.”

 While Tempting, Lending Loopholes Could Lead to UDAAP Traps -- The Consumer Financial Protection Bureau's recent victory against an online loan servicer serves as an important lesson both as to the CFPB's expansive use of Unfair, Deceptive or Abusive Acts or Practices and the risks associated with joint ventures as well as the mini-correspondent model. Lenders that find loopholes or technicalities contradicting the clear intent and spirit of the laws are subject to UDAAP — the trump card the CFPB can use at any time.CashCall Inc. created a subsidiary, WS Funding LLC, organized in and under the laws of a Native American tribal land. By virtue of being subject to the tribal land laws, it was able to avoid usury laws of various states, even though CashCall was otherwise subject to these statutes.However, according to the ruling from the U.S. District Court for the Central District of California, the manner in which CashCall organized the subsidiary rendered CashCall the real party with financial interest. For instance, CashCall provided lines of credit for WS Funding to make payday loans and bought and serviced all of the loans made by the WS Funding.Further, CashCall was required to make certain minimum payments to the subsidiary and it dictated the underwriting terms. CashCall also reimbursed the subsidiary for marketing and other expenses and provided customer support services. The CFPB brought suit alleging that CashCall, and not its wholly owned subsidiary, was the real party in interest because it ultimately bore the full economic risk of the loans. In other words, the subsidiary was from an economic perspective a pass-through entity with little risk, created solely for the purpose of avoiding state usury statutes.

Let's Not Repeat Failings of Pre-Durbin Age  - In 2010, lawmakers passed bipartisan reforms to bring transparency and competition to a debit-card swipe fee market that had previously been devoid of both. Now, members of Congress want to undo that progress.  By seeking to repeal the so-called Durbin amendment, the Financial Choice Act — recently passed by the House Financial Services Committee — would restore the Visa-MasterCard duopoly, subject consumers and merchants to billions of dollars in new fees, and rob community banks and credit unions of their newfound competitive advantage in swipe-fee pricing over their big-bank rivals.The amendment — added to the Dodd-Frank Act by Sen. Richard Durbin, D-Ill. — passed in 2010 with support from both Democrats and Republicans. Prior to its enactment, the card networks had used their overwhelming market power to manipulate fees at will and deny merchants and consumers of the typical pressures that restrain fee growth in a competitive market. Consequently, swipe fees ballooned. In fact, for merchants the cost of processing a debit card transaction was exponentially more expensive than processing a paper check.   Imagine a world in which it costs 10 times more to send an email than to mail a letter. That is the world that Visa and MasterCard had created for merchants. For merchants small and large, swipe fees had become and remain today their second largest annual expense, exceeded only by the cost of labor. Following the passage of the reforms in 2010, Discover CEO David Nelms seconded the perspective of merchants that the market was broken when he said, "Visa has tremendous market power in this area, and that's how we ended up here. Visa raised prices quite a bit and, I think, took the actions that have led to the legislation in the first place." The fact is the reforms have largely worked, bringing swipe fees under control, creating competition between networks for merchant routing preferences and protecting banks with less than $10 billion in assets (which are exempted from the swipe fee cap).

Post office banking: an old idea getting a second look  -In big cities and affluent areas, banks can seem as ubiquitous as coffee chains. Making a deposit or stopping in to talk about a loan can be about as simple as grabbing a nonfat vanilla latte with an extra shot, no foam. But many Americans — those living in poor neighborhoods or in rural communities — don’t enjoy such convenience. They rely instead on costly “off-the-grid” services such as payday loans and check cashing. And plenty of others are tired of banks and would like an alternative.What if the local post office could fill this gap? Customers could complete everyday banking tasks while sending packages and buying stamps. It’s an old reality that’s getting a new look. And depending on whom you ask, it would either be a massive and misguided government overreach or the long-awaited alternative to payday loans that could save Americans about $90 billion a year. The need for such a service certainly exists:

  • Payday loans often carry $15 or more in fees for every $100 borrowed, and a borrower can end up paying several hundred dollars each year in interest and fees. For unbanked households in the U.S. — as much as 7.7% of the country — this is often the only way to get a loan.
  • Nearly 50% of Americans say they would struggle to come up with $400 in the event of an emergency, the Federal Reserve reports, and most banks don’t offer such small personal loans. This means plenty of people who have bank accounts still turn to payday loans.
  • And if you live in a rural area, going to the bank can be a chore no matter your income level. “It takes about an hour to get there because I go the speed limit,” . “Forty-seven miles is a long way to go.”

Lenders Have Adjusted to New Mortgage Rules: CFPB: — The Consumer Financial Protection Bureau appears pleased with the progress banks and nonbank mortgage lenders have made to comply with new rules governing the mortgage sector. Speaking at a conference on Monday, Peggy Twohig, the CFPB's assistant director of supervision policy, said the agency "is finding that both banks and nonbanks have generally adjusted their business models and practices to comply with the new mortgage origination rules." "Our supervisory work has generally found adequate compliance systems and compliance with the ability to repay and the loan origination compensation rules," she told the Mortgage Bankers Association conference. "And with some exceptions we have not found any violations involving unfair and deceptive practice in mortgage origination examinations." She said that CFPB expects servicers to have adequate compliance management systems that provide ongoing monitoring to detect problems and to take corrective action, such as "providing consumers remuneration when appropriate," Twohig said. "We now have the regulatory structure and oversight in place that will be better for consumers and the mortgage industry in the long run," she said. MBA President and Chief Executive David Stevens said that a lot of the CFPB rules required by the Dodd-Frank Act have been implemented. "They are working well. Homeownership is expanding," he said.

The Silent Crisis in Housing Finance | Bank Think: It's shaping up to be a solid year in the U.S. housing sector. New mortgage originations are up over last year's total of $1.6 trillion in new credit. Some analysts are even predicting that new mortgage volumes could get close to $2 trillion in 2016 due to a modest surge in mortgage refinancing. Furthermore, default rates are continuing to fall on one- to four-family mortgages, mirroring the generally benign credit environment across the banking industry's $9 trillion in total loans. But beneath this calm surface, the U.S. mortgage industry is facing a crisis. Kroll Bond Rating Agency outlined some of the issues regarding liquidity and profitability in a report last month. The basic problem, however, comes down to over-regulation.Adding to the mortgage market's predicament is the exit of banks from the single-family mortgage business in favor of multifamily and commercial assets that are not subject to the CFPB mortgage rules. As commercial banks migrate away from mortgage lending, the nonbanks that are taking their place have smaller balance sheets and lack an ability to retain the cash balances that once made mortgage servicing an attractive business for bank lenders. Indeed, nonbanks miss roughly half of the potential revenue from a residential mortgage loan because they cannot retain the cash balances. The nonbank must give this cash business to a depository and then borrow the money back with a haircut. This makes it extremely tough to achieve profitability overall. In the wake of the 2008 financial crisis and the passage of the Dodd-Frank law two years later, the composition of the market for making and servicing residential mortgage loans has changed dramatically: the costs for servicers are rising and smaller nonbanks are replacing a dwindling population of bank lenders. With the creation of the Consumer Financial Protection Bureau, the cost of servicing mortgage loans in the U.S. has dramatically risen. Prior to the crisis, servicing a defaulted mortgage cost less than $500 annually. Today, under the harsh regulatory regime put in place by the CFPB, the cost is closer to $2,500 — and that estimate does not include the extensive delays in foreclosure timelines now built into current state and federal laws. Sure, servicing performing loans is less costly; however, profit margins have also been squeezed so that investors in these businesses are lucky to see single-digit equity returns.

GSE Reform Should Follow Ginnie Mae Model: Tozer: The next administration in the White House must act swiftly to move reform of Fannie Mae and Freddie Mac off dead center, according to two key housing advisors in the Obama administration. But Ginnie Mae President Ted Tozer suggested that the model for a new secondary market is already in place. "The thing the GSEs are trying to build, we have today" at Ginnie Mae, Tozer told a crowd of nearly 1,000 at a summit the agency is hosting this week. "It's the Washington way — try to build what we already have." In the opening session, Jim Parrott, who severed several years as a senior advisor at the National Economic Council, where he led a team charged with counseling President Obama and his cabinet on housing issues, said the impetus for GSE reform "has got to come from leadership." "It will take leadership" to make sure reform "is coherent so there is not some monumental waste of effort," he said. Michael Stegman, who followed Parrott as senior policy advisor on the NEC, agreed, saying that the new administration "has to view reform as an actual issue." Noting that homeownership is "still a major stepping stone to the middle class," Stegman said the housing finance system "has to adjust to the new realities" of the market, and the sooner, the better.

 Fannie Mae Completes $14.4B of Credit Insurance Risk Transfers: Fannie Mae has completed two Credit Insurance Risk Transfer transactions worth $14.4 billion, in a continuation of its efforts to reduce taxpayer risk through an increased role for private capital in the mortgage market. The two deals, CIRT 2016-7 and CIRT 2016-8, transferred the risk on loans Fannie Mae acquired between July and December 2015 to a group of insurers and reinsurers and became effective Aug. 1. The pools featured 30-year fixed-rate loans with loan-to-value ratios between 60% and 80%. For CIRT 2016-7 Fannie Mae agreed to retain the risk for the first 50 basis points of loss on the $10.4 billion pool of loans and then cover the next 250 basis points of loss on the pool up to a maximum coverage of $260 million if the initial $52 million retention layer is exhausted. With the second deal, CIRT 2016-8, Fannie Mae retained the risk for the initial 50 basis points of loss on the $4 billion pool, and then similarly will cover the following 250 basis points of loss up to a maximum coverage of $100 million when the starting retention layer of $20 million is exhausted. The deals' coverage is provided for actual losses incurred during a 10-year term. The aggregate coverage amount can be reduced starting on the three-year anniversary of the deals' effective date and on each subsequent anniversary thereafter based on the paydown of the pool and the principal amount of insured loans that become seriously delinquent. Additionally, Fannie Mae reserves the right to cancel coverage at any time on or after the five-year anniversary of the effective date after paying a fee.

Goldman Sachs Passes First Settlement Compliance Test: Monitor: Goldman Sachs has passed its first compliance test as part of its mortgage-related settlement agreements, the independent monitor reported Friday. Eric Green, who is the monitor of the consumer-relief portions of the agreements, determined that Goldman Sachs' approach to calculating the credit it should receive for loan modifications and other forms of relief was "logical and appropriate." That sets the stage for Goldman Sachs to begin recording consumer relief activities in earnest. "In the coming months, we should get a clearer picture of how quickly Goldman Sachs is delivering on its consumer-relief obligations and how much of what kind of relief is being delivered," Green said in a news release. Green's determination was based on the forgiveness or extinguishment of the debt owed to Goldman Sachs on five first-lien mortgage loans, five second-lien mortgage loans, and 90 junior-lien or unsecured mortgage loans, representing roughly $2.1 million of reportable credit. The loans were located across 11 states, with 66 in Department of Housing and Urban Development-identified "Hardest Hit Areas" that contain large concentrations of distressed properties and foreclosures. On average, the first-lien principal forgiven was more than $55,000. Future submissions will likely include more consumer relief than what was included in the 100 loans in the initial batch analyzed. Per the settlement agreements, Goldman Sachs can receive "Enhanced Early Incentive Credit" of 150% for relief provided by the end of November 2016 and "Early Incentive Credit" of 115% for certain consumer relief activities offered or completed by the end of June 2017.

Startup Offers to Buy Home Equity, Instead of Lending Against It - Homeowners who want to tap their hard-to-access nest eggs have a new option. A fintech startup called Point is allowing consumers sell a piece of their home equity to investors, rather than borrowing against the value of their houses. The Palo Alto, Calif., firm, which is currently operating in California and Washington state, announced Tuesday that it has raised $8.4 million in a second round of fundraising. Point is touting its product as a way for households that cannot qualify for a home equity loan — a product that has become harder to obtain in recent years — to tap into their equity. Customers can use the funds, anywhere from $40,000 to $250,000, to remodel their homes, pay off debt or buy other properties. The firm evaluates applicants based on an analysis of both homeowner and the property, under the theory that homeowners have some influence over the future trajectory of their property values. In an interview, Chief Executive Officer Eddie Lim said that Point is looking for homeowners who have at least 30% to 35% equity in their properties. That equity gets purchased by accredited investors — including both individuals and institutions — that invest their money through the firm's platform. One of the company's main selling points is that homeowners receive a lump-sum payment upfront, and they do not have to repay a loan. "It's really this alternative to debt with no monthly payments," Lim said. But the deal also carries some significant downsides for homeowners. First, the home equity is sold to investors at a markdown of 10% to 20% from the appraised value. And second, Point's contracts have a 10-year term, which means that homeowners will typically have to sell or refinance their properties within that timeframe

House-Flippers Turn to the Crowd for Quick Cash. What Could Go Wrong? - House flippers and property developers are increasingly crowdfunding -- tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks. That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions.  The crowdfunding sites are part of the multibillion-dollar ecosystem of marketplace lenders, like LendingClub Corp. and Prosper Marketplace Inc., that match users who need money with people who want to provide it for anything from debt consolidation to elective medical procedures. That business hasn’t always run smoothly. LendingClub is going through a rough stretch after years of rapid growth. In May, its founder and chief executive officer resigned amid an internal probe into a botched loan sale, sending LendingClub’s shares tumbling. So far, there have been few defaults in real estate crowdfunding deals. When they happen, the platforms say they’ll pay investors the proceeds from property sales.  The business has other potential pitfalls. When it comes to real estate, faster isn’t always better. Wall Street’s home-mortgage machine of the mid-2000s valued speed over accuracy, with disastrous results, though most crowdfunding sites cater to investors and not homebuyers. Also, clicking for capital can be exploited by fraudsters who may not be who they say they are, according to Sara Hanks, co-founder and CEO of CrowdCheck, which provides due-diligence services for online investors. “We’ve seen some things where the entity that’s supposed to own the property doesn’t actually own it,’’ she said.

How Mortgage Lenders Perpetuate Minority Wealth Gap: Mortgage lending continues to lock out many consumers of color. Troubling lending patterns across the country raise concerns for African-American and Latino borrowers, in particular. These patterns call into question the future of the housing market and the nation's ability to turn the tide of rising wealth inequality and continued residential segregation. The communities that currently lack access to mortgages are the very same ones that were disproportionately targeted for predatory loans leading up to the foreclosure crisis. Consequently, these consumers lost the most wealth. A recent analysis of California mortgages by the Center for Responsible Lending revealed a lack of access for many Latinos and African-American consumers. Focusing on first-lien owner-occupied home purchase mortgages from 2012-2014, CRL found a distinct lack of access to conventional mortgage loans. The dearth of conventional loans made to communities of color result in disproportionate usage of higher-cost and government-insured mortgages, such as those from the Veterans Administration and Federal Housing Administration. Most of these purchased homes are also located in minority census tracts. This pattern occurred even though most of these consumers were higher-income borrowers. Among African-Americans receiving mortgages, 79% had middle or high incomes relative to other households in their areas. Of Latino borrowers, 66% had similar income levels. African-Americans received just 3% of the loans analyzed in the report and Hispanic borrowers received 22%. In addition, few conventional mortgages were made to either group of minority consumers.

 Housing Debt Is Causing Problems for Retirees: Prudential: Americans are carrying higher levels of debt as they head into retirement, raising the specter of financial headaches in their old age, according to a white paper from Prudential Financial. Much of that debt Americans are taking with them into retirement is housing debt, Prudential noted Tuesday in a white paper based on data from the Center for Retirement Research at Boston College. Citing Federal Reserve data, Prudential reported that median-home values for those aged 65 to 74 rose 76%, while housing debt skyrocketed 393%. This trend is the byproduct of low interest rates and high access to home equity lines of credit and mortgage refinancing activity. "It is easy to accumulate debt and Americans are pretty comfortable with borrowing money," said Jill Perlin, Prudential Individual Life Insurance vice president of advanced marketing. Another factor contributing to Americans' willingness to retire with debt is the change in income, as today both parties in a couple can collect Social Security since more households have dual incomes. Of course, income has also changed for the worse, as employer-funded pensions and retiree health coverage have become rarer. "The increased debt means the monthly payments will eat away at their Social Security checks and the situation for many could become especially difficult for couples when one of them passes away," Perlin said. Therefore, problems easily crop up for couples with high levels of housing debt, such as the forced sale of a home when a spouse dies. This whole scenario has fueled the life insurance industry, as retirees' higher debt burdens necessitate greater protections.

Black Knight: Mortgage Delinquencies declined in August -- From Black Knight: Black Knight’s First Look at August 2016 Mortgage Data: Prepayments Skyrocket, Fueled by Post-‘Brexit’ Activity, Hit Highest Single-Month Rate in Over Three Years

• Monthly prepayment rate (historically a good indicator of refinance activity) increased by 32 percent month-over-month
• August’s prepayment rate of 1.67 percent is the highest Single Month Mortality (SMM) rate in over three years
• Delinquencies fully recovered from July’s spike, falling 6 percent (-135,000) from one month ago
• Inventory of loans in foreclosure has now declined for 19 consecutive months -- and 51 of the past 52 months
Note: the "spike" in delinquencies in July was seasonal.  According to Black Knight's First Look report for August, the percent of loans delinquent decreased 6.0% in August compared to July, and declined 11.4% year-over-year. The percent of loans in the foreclosure process declined 4.3% in August and were down 29.9% 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 4.24% in August, down from 4.51% in July.
The percent of loans in the foreclosure process declined in August to 1.04%.   The number of delinquent properties, but not in foreclosure, is down 262,000 properties year-over-year, and the number of properties in the foreclosure process is down 221,000 properties year-over-year.
Black Knight will release the complete mortgage monitor for August on October 3rd.

Lawler: Table of Distressed Sales and All Cash Sales for Selected Cities in August -- Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in August. On distressed: Total "distressed" share is down year-over-year in all of these markets. Short sales and foreclosures are down in all of these areas (except a minor increase in Springfield). The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.MBA: "Mortgage Applications Decrease in Latest Weekly Survey" - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 16, 2016. The prior week’s results included an adjustment for the Labor Day holiday. .. The Refinance Index decreased 8 percent from the previous week to the lowest level since June 2016. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 15 percent compared with the previous week and was 3 percent higher than the same week one year ago.    The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since June 2016, 3.70 percent, from 3.67 percent, with points increasing to 0.38 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity has increased this year since rates have declined. Last week I noted "Based on the increase in mortgage rates over the last few days, I'd expect refinance activity to decline soon", and it looks like activity is now declining. Rates would have to take another step down to see a pickup in refinance activity. The second graph shows the MBA mortgage purchase index. The purchase index is only "3 percent higher than the same week one year ago".

 FHFA: House Price Index Up 0.5 Percent in July - Earlier from the FHFA: FHFA House Price Index Up 0.5 Percent in July 2016  U.S. house prices rose in July, up 0.5 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.2 percent increase in June was revised upward to reflect a 0.3 percent increase. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From July 2015 to July 2016, house prices were up 5.8 percent.  Most of the other indexes are also showing mid-single digit year-over-year gains.

Existing Home Sales increased in August to 5.33 million SAAR -- From the NAR: Existing-Home Sales Soften Further in August  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.9 percent to a seasonally adjusted annual rate of 5.33 million in August from a downwardly revised 5.38 million in July. After last month's decline, sales are at their second-lowest pace of 2016, but are still slightly higher (0.8 percent) than a year ago (5.29 million). ...  Total housing inventory at the end of August fell 3.3 percent to 2.04 million existing homes available for sale, and is now 10.1 percent lower than a year ago (2.27 million) and has declined year-over-year for 15 straight months. Unsold inventory is at a 4.6-month supply at the current sales pace, which is down from 4.7 months in July.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in August (5.33 million SAAR) were 0.9% lower than last month, and were 0.8% above the August 2015 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 2.04 million in August from 2.11 million in July. 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. Inventory decreased 10.1% year-over-year in August compared to August 2015. Months of supply was at 4.6 months in August. This was below consensus expectations. For existing home sales, a key number is inventory - and inventory is still low.

NAR Stumped As Existing Home Sales Slide Continues; Lack Of Household Income Growth Blamed - After last month's unexpected, dramatic 3.4% drop, and 1.64% Y/Y decline - the first annual decline since November 2015 - the weakness in exiting home sales continued today, when the NAR reported that in July sales of existing homes dropped another -0.9% from a downward revised 5.38MM to 5.33MM, missing expectations of a rebound to 5.45 million.Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.9 percent to a seasonally adjusted annual rate of 5.33 million in August from a downwardly revised 5.38 million in July. After last month's decline, sales are at their second-lowest pace of 2016, but are still slightly higher (0.8 percent) than a year ago (5.29 million). As the NAR reported, existing-home sales eased up in August for the second consecutive month despite mortgage rates near record lows as higher home prices and not enough inventory for sale kept some would-be buyers at bay. Only the Northeast region saw a monthly increase in closings in August, where inventory is currently more adequate. Some of the key details from the report: 4.6 months supply in Aug. vs. 4.7 in July. Inventory fell 3.3% to 2.04m homes. First time buyers comprised 31% of total sales; all cash were 22%; investors represented 13% while distressed sales were 5% of total sales  Even the traditionally cheerful Lawrence Yun, NAR chief economist, was perplexed and said that recent job growth is not yielding higher home sales. "Healthy labor markets in most the country should be creating a sustained demand for home purchases," he said. "However, there's no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn't picking up to tame price growth and replace what's being quickly sold."

A Few Comments on August Existing Home Sales --Inventory remains a key issue. Here is repeat of two paragraphs I wrote about inventory a few months ago: I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 10.1% year-over-year in August). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply. Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade. A key point: Some areas are seeing more inventory.   For example, there is more inventory in some coastal areas of California, in New York city and for high rise condos in Miami. Another key point: I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.  The following graph shows existing home sales Not Seasonally Adjusted (NSA). Sales NSA in August (red column) were the highest for August since 2006 (NSA). Note that sales NSA were strong in August (up 7.3% from August 2015, and up 5.5% from last month), but there were more selling days this year - so the seasonally adjusted number was lower than last month.

 Housing Starts September 20, 2016: The details are not as weak as the headlines as the new home market remains one of the positives for the economy. Housing starts and permits did fall in August, down a sharp 5.4 percent for starts to a lower-than-expected 1.142 million annualized rate and down 0.4 percent for permits to 1.139 million which is also lower than expected. But permit growth for single-family homes, which is a key indication on housing demand, rose a very solid 3.7 percent to a 737,000 rate which is about where permits were trending earlier in the year. But the nearer term outlook is less positive as starts for single-family homes fell 6.0 percent to 722,000. Multi-family starts also show weakness, down 5.4 percent to 420,000 and with permits down 7.2 percent to 402,000. The permit dip pulls the year-on-year reading for multi-family homes deep into the negative column at minus 11.8 percent though starts for multi-family homes are still positive, at least for now at plus 4.7 percent. A positive in the report and reflecting the general strength in prior starts is a 0.9 percent rise in total homes under construction to a new cycle high at 1.038 million. The strength for single-family permits, which in contrast to the once high-flying and lower cost multi-family category, is a solid plus for residential construction. New home sales data for August will be posted on Monday of next week.

New Residential Housing Starts in August Disappoint Expectations - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for August new residential housing starts. The latest reading of 1.142M was below the Investing.com forecast of 1.190M. The July count was revised upward by 1 thousand.Here is the opening of this morning's monthly report: Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,142,000. This is 5.8 percent (±9.7%)* below the revised July estimate of 1,212,000, but is 0.9 percent (±12.5%)* above the August 2015 rate of 1,132,000. Single-family housing starts in August were at a rate of 722,000; this is 6.0 percent (±8.2%)* below the revised July figure of 768,000. The August rate for units in buildings with five units or more was 403,000. [link to report] Here is the historical series for total privately-owned housing starts, which dates from 1959. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included.

Housing Starts decreased to 1.142 Million Annual Rate in August --From the Census Bureau: Permits, Starts and Completions - Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,142,000. This is 5.8 percent below the revised July estimate of 1,212,000, but is 0.9 percent above the August 2015 rate of 1,132,000.
Single-family housing starts in August were at a rate of 722,000; this is 6.0 percent below the revised July figure of 768,000. The August rate for units in buildings with five units or more was 403,000. Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,139,000. This is 0.4 percent below the revised July rate of 1,144,000 and is 2.3 percent below the August 2015 estimate of 1,166,000. Single-family authorizations in August were at a rate of 737,000; this is 3.7 percent above the revised July figure of 711,000. Authorizations of units in buildings with five units or more were at a rate of 370,000 in August.
Feedspot: The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in August compared to July. Multi-family starts are up 4.7% year-over-year. Single-family starts (blue) decreased in August, and are down 1.2% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), Total housing starts in August were below expectations, however combined starts for June and July were revised up slightly.

Housing Starts in U.S. Declined in August on Plunge in South - Bloomberg: Residential starts declined 5.8 percent to a 1.14 million annualized rate, from the prior month’s revised 1.21 million pace, a Commerce Department report showed Tuesday in Washington. The median estimate of economists surveyed by Bloomberg called for a drop to 1.19 million. Permits, a proxy for future construction, unexpectedly slipped on fewer applications for apartment projects. The figures represent a pause after a spell of strong gains, and permits show that single-family home construction in the South may bounce back. A solid job market and mortgage rates near historically low levels continue to support housing, with a measure of homebuilder sentiment rising to an 11-month high. “It looks like housing is taking a bit of a breather in the short term,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. “I don’t think it’s anything to be overly concerned about, but I don’t think housing’s going to be as big a contribution” to growth in the second half of the year, he said. The decline of 14.8 percent in housing starts in the South, to a 543,000 annual pace, was the steepest since October. The other three regions -- the Northeast, Midwest, and West -- all showed pickups. Construction of single-family homes in the South may rebound in coming months, as applications to build such dwellings rose 3.6 percent to a 404,000 annualized pace, the strongest since 2007. In the Bloomberg survey, projections for housing starts nationwide ranged from 1.1 million to 1.25 million. The pace in August was up 0.9 percent from a year earlier.

New Residential Building Permits: August Count Below Expectations - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for August new residential building permits. The latest reading of 1.139M was a decrease over 1.144M in July and below the Investing.com forecast of 1.170M. Here is the opening of this morning's monthly report: Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,139,000. This is 0.4 percent (±1.6%)* below the revised July rate of 1,144,000 and is 2.3 percent (±1.5%) below the August 2015 estimate of 1,166,000.Single-family authorizations in August were at a rate of 737,000; this is 3.7 percent (±3.0%) above the revised July figure of 711,000. Authorizations of units in buildings with five units or more were at a rate of 370,000 in August. [link to report] Here is the complete historical series, which dates from 1960. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included.

Comments on August Housing Starts - Feedspot: The housing starts report this morning was below consensus, however there were upward revisions to the prior two months. This first graph shows the month to month comparison between 2015 (blue) and 2016 (red). . Year-to-date starts are up 6.1% compared to the same period in 2015. My guess was starts would increase 4% to 8% in 2016, and that still looks about right. Multi-family starts are up 0.3% year-to-date, and single-family starts are up 9.1% year-to-date. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries, although this has dipped lately). Completions lag starts by about 12 months. I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).

August 2016 Residential Building Permit Growth Rate Disappoints: The building permits issued are contracting year-over-year, but there are still more building permits being issued than construction completions. The backward revisions again were significant and they modified the trends. However, the unadjusted data is somewhat better then the soft headline data. All short term trends are now accelerating - but the rolling averages remain weak. The nature of this industry normally has large variations from month to month so the rolling averages are the best way to view this series - permits unfortunately are running well under the range seen in the last five years.
  • The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is a +10.1 % this month.
  • Construction completions are lower than permits this month for the 20th month in a row (when permits exceed completions - this sector should be expanding).
  • Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is -3.8 % (permits) and +10.0 % (construction completions):

Housing Starts Tumble Despite Surging Homebuilder Confidence -- While homebuilder confidence spiked this mornth to near cycle highs, Housing Starts plunged 5.8% MoM - the biggest drop in 5 months; and building permits slipped 0.4% MoM - the second monthly drop in a row. Below the surface, things are more troubling as Rental unit permits (forward-looking) dropped to April lows (perhaps the surgeing rent-flation is finally crushing demand). Worse still Single-family housing starts are the worst since October. Confidence seems a little misplaced... Both single-family and rental units saw Starts drop - but Single-Family is weakest since October... Permits tumbled for rental units - worst since April... However it appears a lot of the drop might be due to the weather as Starts in the south slumped 14.8% and Permits -3.4%.

NAHB: Builder Confidence increases to 65 in September -  The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 65 in September, up from 59 in August. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Surges in September Builder confidence in the market for newly built, single-family homes in September jumped six points to 65 from a downwardly revised August reading of 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This marks the highest HMI level since October 2015...“With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them,” said NAHB Chief Economist Robert Dietz. “Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots.”...All three HMI components moved higher in September. The component measuring current sales expectations rose six points to 71 and the gauge charting sales expectations in the next six months increased five points to also stand at 71. The index measuring traffic of prospective buyers posted a four-point gain to 48. The three-month moving averages for HMI scores posted gains in three out of the four regions. The Northeast and South each registered a one-point gain to 42 and 64, respectively, while the West rose four points to 73. The Midwest was unchanged at 55.

NAHB Housing Market Index: Builder Confidence Surges in September - The National Association of Home Builders (NAHB) Housing Market Index (HMI) is a gauge of builder opinion on the relative level of current and future single-family home sales. It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook. The latest reading of 65, a six point increase and its highest since October 2015, surprised the Investing.com forecast of 60. Here is the opening of this morning's monthly report:Builder confidence in the market for newly built, single-family homes in September jumped six points to 65 from a downwardly revised August reading of 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This marks the highest HMI level since October 2015. "As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward," said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. "The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017." "With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them," said NAHB Chief Economist Robert Dietz. "Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots." [link to report]  Here is the historical series, which dates from 1985.

AIA: Architecture Billings Index declines in August - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.
From the AIA: Architecture Billings Index slips, overall outlook remains positive On the heels of six out of seven months of increasing levels of demand for design services, the Architecture Billings Index (ABI) fell just below the positive mark. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 49.7, down from the mark of 51.5 in the previous month. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.8, up sharply from a reading of 57.5 the previous month. “This is only the second month this year where demand for architectural services has declined and it is only by a fraction of a point,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Given the solid numbers for new design contracts and project inquiries, it doesn’t appear that this is the beginning of a broader downturn in the design and construction industry.”
• Regional averages: South (55.2), Midwest (52.8), West (49.0), Northeast (44.9)
• Sector index breakdown: mixed practice (51.8), multi-family residential (50.9), commercial / industrial (50.8), institutional (50.7)
Note that multi-family is positive again, so we might see another pickup in multi-family starts.

Hotels: "Demand Growth Slows, Supply Growth Increases" - First here is the weekly data from HotelNewsNow.com: STR: US hotel results for week ending 10 September - The U.S. hotel industry recorded mixed results in the three key performance metrics during the week of 4-10 September 2016, according to data from STR.  In year-over-year comparisons, the industry’s occupancy fell 1.4% to 62.8%. However, average daily rate increased 1.8% to US$118.58, and revenue per available room was nearly flat (+0.3% to US$74.45).   The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Poor Families Evicted From Silicon Valley Apartments so Building Can Rebrand for Facebook Workers -- A poor family in Silicon Valley, always prompt with their rent payments, recently received an inexplicable eviction notice.  The story of the Hernandez family, which the Guardian reports in detail Wednesday, turns out not to be an anomaly. Many other Latino families in the Redwood City building that was recently purchased by the private equity firm Trion Properties are receiving similar notices. Executives at Trion, according to the Guardian "have made it unusually clear that they want a different kind of tenant – high-paid technology workers at the nearby headquarters of Facebook, which is planning a large campus expansion." Similar stories of displacement are unfolding elsewhere in Silicon Valley, housing advocates say, including in San Mateo and Burlingame. Investors are buying apartments, emptying them of their poor tenants en masse if necessary, then renovating and renting the spaces out to high-paid tech workers. What seems to distinguish Hernandez's building is how transparent Trion is being about what it is doing, Sam Levin of the Guardian reports. The marketing materials make clear that the intention is to “rebrand” and “revitalize” the property, raise the rents and attract “young working professionals” employed at “Google, Facebook, and other Fortune 100 tech companies.” While not strictly illegal, the evictions are causing tenants a great deal of fear and anxiety. Laura Hernandez, 26, says she was given very little time to move. “Because I breastfeed my daughter, I feel like I’m passing that stress and depression on to her,” she told the Guardian during an interview in Spanish. “We’re not asking for a place to live for free. We just need a little more time.” 

 Fed Rate Increase Would Make It Harder for Some to Pay Debt -  A potential 25-basis-point increase of short-term rates at the Federal Open Market Committee meeting this week would affect 4.1 million mortgage borrowers' ability to meet their total monthly debt obligations. Overall 9.3 million consumers would not be able to handle all of their monthly debt payments, a study from TransUnion found. TransUnion used its CreditVision aggregate excess payment algorithm to look at the entire universe of consumer debt obligations, including both variable- and fixed-rate products. "To really understand the true impact of the rate increase, you have to look at the consumer not from a product perspective but look at what they have in their wallet," said Nidhi Verma, senior director of research and consulting, in an interview with National Mortgage News. "You may think as a mortgage lender that 'I really don't do any adjustable-rate mortgages.' Sure, but you have consumers who have credit cards who may not be able to absorb a payment shock coming from those 25 bps," she said, and that affects their ability to pay mortgages. Up to 92 million consumers overall could see an increase in their monthly debt service payments if the Fed moved to increase short-term rates, but about 90% should be able to handle the higher payments. However, for those that are looking to obtain a new mortgage — purchase or refinance — the increased monthly payment for their credit card debt could bring some of them above the conforming total debt-to-income ratio limit.

Don’t Celebrate Just Yet: Median Household Income In a 20-Year Decline - naked capitalism - Lambert here: Campaign-driven happy talk about the US Census income figures has been debunked remarkably fast. Here Richard D. Wolff does a thorough demolition. (Real News Network video and transcript)

 Census report of big jump in income is a little too good to be true - Brookings -- The Census Bureau recently released new statistics on the trends in poverty and household income.  In contrast to the dismal numbers the Bureau published last year, the latest statistics show robust gains up and down the income distribution. They also show a sizeable drop in the poverty rate.  The headline number in the new report was the surge in median household income, which increased $2,800 (or 5.2 percent) between 2014 and 2015. Median income fell in six out of the previous seven years, so last year’s sizeable gain was a striking contrast to a lengthy string of gloomy reports.  I suspect the reported income gain in 2015 was a little too good to be true. Based on national income statistics, it appears that average income gains were probably smaller. On the other hand, previous Census reports understated the income improvement Americans experienced earlier in the recovery. Based on comprehensive income data covering the entire economy and the full economic recovery, income gains over the recovery have been larger than implied by the household survey statistics.  The latest Census numbers show big proportional increases in the incomes of households near the bottom of the distribution. Households in the bottom one-fifth of the distribution, for example, saw their average incomes climb 6.6 percent. Not surprisingly, the improvement in bottom-end incomes produced a notable drop in the poverty rate. The percent of Americans classified as poor dropped 1.2 percentage points, falling to 13.5 percent, the lowest level in eight years.  Poverty fell in all age groups, though it dropped fastest among children. Poverty also declined in all regions of the country.  The income improvements were fueled by strong employment growth and healthy gains in worker earnings. The number of adults who reported being employed sometime during the year increased 2.1 percent in 2015 compared with 2014. That’s the biggest employment gain we’ve seen since the late 1990s. Aided by a low rate of consumer price inflation, workers also saw notable gains in the purchasing power of their earnings. In combination, growing payrolls and rising wages boosted the real incomes of the nation’s working-age families.

Kolko: "Unpacking the Jump In Median Household Income" -- Last week the Census reported large gains in median household income in two different surveys: 5.2% from the Current Population Survey’s March 2016 Annual Social and Economic Supplement (ASEC), and 3.8% from the 2015 American Community Survey (ACS). But these are slippery measures, and several thoughtful responses (here, here, and here) catalogued numerous cautions, including the limitations of these self-reported Census survey data relative to administrative data.  A particularly important concern when interpreting these income gains is whether households are changing. The share of young adults living in their parents’ homes has climbed sharply since 2005 and , according to last week’s data release. Their earnings count toward their parents’ household income – so larger households mean higher household incomes, even if individuals’ earnings don’t change. Fortunately, the surveys released last week aren’t just about income; they’re also the definitive sources on households and living arrangements, so we can unpack the change in median household income and assess whether changing household structure had an effect.  Both the ASEC and ACS show a that the number of adults per household was essentially unchanged between 2014 and 2015. (The two surveys actually cover different time periods, but for simplicity I’m calling them 2014-to-2015 changes. See note at end.) The number of adults (18+) per household rose a slight 0.2% in the ACS and was flat in the ASEC. The increase in young adults living at home, noted above, is only part of the broader changes in living arrangements; at the same time as more young adults are living with parents, a rising share of households are single-person. Changes in household size, therefore, explain essentially none of the increase in median household income.  A different factor, however, explains some of the jump in household income. More adults were working in 2015 than in 2014. The number of workers per household increased 1.1% in the ASEC and 0.5% in the ACS: this includes all workers, regardless of how many hours per week or weeks per year they worked. The number of full-time, year-round workers per household increased more: 1.2% in the ASEC and 1.7% in the ACS.

 Fun With Fake Statistics: The 5% "Increase" In Median Household Income Is Pure Illusion -- Supporters of the status quo nearly wet their pants with joy when the Census Bureau reported that real (adjusted for inflation) median household income rose 5.2% between 2014 and 2015. Too bad it was completely bogus: the supposed increase in everyone's income is pure statistical trickery.  First, the marks who fell for it: here's the Huffington Post wetting itself with glee: Average Americans Just Got a Huge Income Boost.  This headline is risibly wrong on a number of counts. Most importantly, a notch up in median household income doesn't mean "average Americans Just Got a Huge Income Boost": It means that half of households in 2015 earned more than $56,516 and half earned less than $56,516.  It does not mean every household saw a boost in income.  Please follow along as I show you how median household income works. Let's start with a simple sample group of ten households. Household #1 earns $40,000, #2 earns $41,000 and so on, as each additional household earns $1,000 more than the previous household. Household #10 earns $49,000.  The median income of our group is $44,500, as 50% earn less than $44,500 and 50% earn more than $44,500.  As the economy expands, it adds two households earning $48,000 and $49,000 respectively. Meanwhile, the income of the two households that had earned $48,000 and $49,000 respectively each leaps to $250,000 each.  The median household income of the group increases to $45,500, but only the top two households experienced any increase in real income--and their income soared. The "average household" didn't make a dime more, even as the economy expanded and income for the entire group rose an astonishing 45%. You see what happened as median household income increased: all the gains went to the top layer--"average" household income didn't rise at all. See how much fun we can have with misleading statistics? Yes, median household income would rise if every household earned an additional $1,000. But an increase in median household income does not prove every household gained. In fact, other statistics reveal that the increases in income and wealth have been concentrated in the top 1%, 5% and 10%.

Increase in Incomes is Real and Important – Ritholtz - During the past two years, we have seen signs that wage pressure is building as the economic recovery grinds on. Enough evidence has now accumulated to suggest that it is already happening. The latest data, courtesy of the Census Bureau, which released its annual update on incomes and poverty yesterday, showed that median household income increased a whopping 5.2 percent in 2015 to an inflation-adjusted $56,516. As the New York Times, noted, it was “the largest single-year increase since record-keeping began in 1967.” Some killjoys will note that median household income was $57,909 in 1999. That’s true, but the dot-com crash, housing bust and the credit crisis managed to cut that a lot. Median incomes fell 2.59 percent from 2000 to 2004, before almost rebounding to the pre-crisis peak. After 2007, the collapse was greater -- a 4.94 percent drop that bottomed in 2013. You can see the changes in the chart below:

 America is full of high-earning poor people --Do you earn a decent salary, but live paycheck-to-paycheck? If so, you are part of a growing segment of the American population: the income rich-ish and asset poor. We tend to associate empty bank balances with those on the lowest rungs of the income ladder. But many of America’s upper middle class have almost no emergency cushion and are woefully unprepared for retirement. And years into the recovery, they are still struggling, leaving the entire economy vulnerable. Median household income in America is about $55,000. You’re considered doing relatively well if you earn more, particularly in low-cost areas. That’s what they bring in, but what do they really have? The figure below plots financial assets held by the upper middle class (household income from $50,000 to $75,000, and $75,000 to $100,000) aged 40 to 55. Financial assets are any assets a household owns that isn’t a house, car, or business, which means it includes all retirement funds. Even a relatively high earner who has been working many years typically only has $70,000 in financial assets, which isn’t even a year’s salary. That’s just the average—about 25% of upper-middle-class 40- to 55-year-olds have less than $17,500 in financial assets. You might find some solace to hear this is nothing new. Financial assets trended up in the 1990s, and have nearly recovered since the financial crisis. But one reason asset balances went up is the increased popularity of 401(k) plans. In the 1980s, companies saved for their employees through defined benefit pensions, now people do it for themselves

Gun inequality: US study charts rise of hardcore super gun  owners -- Americans own an estimated 265m guns, more than one gun for every American adult, according to the most definitive portrait of US gun ownership in two decades. But the new survey estimates that 133m of these guns are concentrated in the hands of just 3% of American adults – a group of super-owners who have amassed an average of 17 guns each. The unpublished Harvard/Northeastern survey result summary, obtained exclusively by the Guardian and the Trace, estimates that America’s gun stock has increased by 70m guns since 1994. At the same time, the percentage of Americans who own guns decreased slightly from 25% to 22%. The new survey, conducted in 2015 by public health researchers from Harvard and Northeastern universities, also found that the proportion of female gun owners is increasing as fewer men own guns. These women were more likely to own a gun for self-defense than men, and more likely to own a handgun only. Women’s focus on self-defense is part of a broader trend. Even as the US has grown dramatically safer and gun violence rates have plummeted, handguns have become a greater proportion of the country’s civilian gun stock, suggesting that self-defense is an increasingly important factor in gun ownership.   “The desire to own a gun for protection – there’s a disconnect between that and the decreasing rates of lethal violence in this country. It isn’t a response to actuarial reality,” The data suggests that American gun ownership is driven by an “increasing fearfulness”, said Dr Deborah Azrael, a Harvard School of Public Health firearms researcher and the lead author of the study.

Right-to-Repair Activists are Heroes -- The only function of “intellectual property” is to snatch scarcity from the jaws of abundance — to take goods that, thanks to the advance of human knowledge, should naturally be getting cheaper, and make them artificially expensive. This is nowhere more evident than in the war corporations are fighting against their own customers’ right to repair the items they purchase. Fortunately, as Emily Matchar points out at Smithsonian (“The Fight for the ‘Right to Repair,’” July 13), there are activists fighting for the right to repair.  “Repair prevention,” Matchar says, is a rapidly growing method for enforcing planned obsolescence or turning repairs into a cash cow. Cars and most appliances now have embedded software, which is usually proprietary. “Some companies use digital locks or copyrighted software to prevent consumers or independent repair people from making changes. Others simply refuse to share their repair manuals. Some add fine print clauses to their user agreements so customers (often unwittingly) promise not to fix their own products.” The price gouging these methods enable is disgraceful. An “authorized” iPhone battery replacement costs $79, compared to the $30 Matchar paid for an unauthorized replacement at a Hong Kong electronics mall, and the $35 iFixit (about which more below) charges for a mail-order replacement kit. Several years ago Julian Sanchez managed to defeat the purposefully impossible to open casing on his iPhone and unjam a button, rather than take the Genius Bar’s advice and replace it for $250 (“Dammit, Apple,” June 2, 2008). Besides price gouging, this proprietary planned obsolescence takes a heavy toll in wasted resources and environmental destruction. Tech Dump, an organization that refurbishes discarded electronics and sells them to the poor at affordable prices, is only able to refurbish about 15% of the computers, cell phones and TVs it takes in either because replacement parts are proprietary or repair information is closely guarded. Imagine the savings in rare earth metals — a trade associated with some of the worst conflict regions and labor exploitation on Earth — without this barrier to recycling electronics.

For the Debaters: What Shall We Do About the Tech Careening Our Way? - The self-driving truck is an 18-wheeled trick question barreling toward us from an uncertain future. In testing how Donald J. Trump and Hillary Clinton might respond to the not-too-distant possibility of trucks that drive themselves, we might get at something most political debates fail to address: how the candidates are weighing the costs and benefits of rapid, unpredictable and transformative technological change. Depending on whom you talk to, a big-rig truck that drives itself would either be a logistical innovation on the order of transcontinental air travel, or the first sign that Stephen King’s B-horror flick “Maximum Overdrive” was actually a pretty accurate peek at tomorrow.According to the boosters, autonomous trucks would avert lots of accidents, saving thousands of lives annually. They could reduce congestion and carbon emissions by cutting the number of trucks on the road, as each truck would never have to sleep. In the short-to-midrange future — before they are good enough to dispense with a human driver entirely — they may make the job of driving a truck far more comfortable and enjoyable than it is today. And they could also slash the cost of interstate transit, possibly sparking wider economic prosperity.  But it wouldn’t all be rainbows. At least at first, the autonomous technology wouldn’t be perfect. Errors and bugs, perhaps fatal ones, might spark politically damaging fear and outrage. In the long run, if the trucks prove successful and our logistics infrastructure adjusts to accommodate them, they could begin to displace the three million Americans (mostly men) who now drive trucks for a living, not to mention truck stops and the small towns that depend on them. There would be deeper issues to consider: The threat of hacking, the narrowing economic control over a vital lane of national commerce, and a growing detachment from America’s ineffable, often irrational love affair with the open road. These aren’t academic questions. Federal regulators endorsed automated vehicles and issued new guidelines this week. The self-driving truck is real, and it’s spectacular. Two months ago, I rode in a prototype autonomous big-rig developed by Otto, a trucking company founded earlier this year by former Google engineers.

 Trucking Data Improved But Still Soft in August 2016: Truck shipments improved in August - even the BLS truck employment data improved. But there remains a disconnect between reporting sources. We previously only analyzed ATA trucking to get a feel of the truck transport sector. But their data was far from transparent, and it was at odds with truck employment data. ATA trucking data does not represent the entire industry - only a slice of it. This month the ATA truck data is saying there was a year-over-year improvement - I do not believe this is representative of the entire truck sector. Now several sources are analyzed - and we see the proponderance data saying that trucking volumes did improve this month, but remains in contraction year-over-year. The entire transport industry (truck, rail and ship) remains in contraction. The trend lines in trucking are not clear - one month it looks like the situation is improving, and the next month indicates the opposite. This situation is mirroring the trends in wholesale trade and manufacturing - which all remain in contraction. Prior to the New Normal, this would have indicated a recession - in 2016 it seems only to be indicating very weak near term economic conditions. The American Trucking Associations' (ATA) trucking index increased 5.9 % in August, following a 2.1 % decline in July.From ATA Chief Economist Bob Costello: Volatility continues to reign in 2016. This month's tonnage reading highlights this fact and underscores the difficulty in determining any real or clear trend in truck tonnage. What is clear to me is that normal seasonal patterns are not holding in 2016. Despite a difficult to read August, I expect the truck freight environment to be softer than normal as well as continued choppiness until the inventory correction is complete. With moderate economic growth forecasted, truck freight will improve as progress is made with the inventory overhang.

August 2016 Import Sea Container Counts Should Be Ignored This Month: This month exports trend lines accelerated further into positive territory - something positive is happening in international markets. On the other hand, imports have fallen significantly - normally this is a sign of recession in the USA. This month I must disclaim the analysis. Econintersect uses container movements to model economic activity - and this month the bankruptcy of Hanjin Shipping have affected the offloading at the Long Beach with imports down 10% year-over-year. On the other hand, the Port of Los Angeles enjoyed record movements. The Port of Los Angeles handled 798,932 Twenty-Foot Equivalent Units (TEUs) in August, its strongest month since 2006. It was the second busiest month in the Port's 109-year history, eclipsed only by October 2006, when the Port handled 800,063 TEUs. For the first eight months of 2016, year-to-date volumes have increased 4.3 percent compared to 2015. Exports were not affected by the Hanjin bankruptcy - as the containers would simply be routed on other ships. The Hanjin import containers will eventually be offloaded and add to the data in the following months. It is significant that export container counts were up in August.which demonstrates there is life in the international markets. If I were to guess - for economic correlations - I would say container counts are predicting an improvement in USA economic growth in the coming months. This data set is based on the Ports of LA and Long Beach which account for much (approximately 40%) of the container movement into and out of the United States - and these two ports report their data significantly earlier than other USA ports. Most of the manufactured goods move between countries in sea containers (except larger rolling items such as automobiles). This pulse point is an early indicator of the health of the economy.

 United States Air Force grounds F-35As after cooling kit cracks up The “ready for combat” F-35 has run into headwinds again, with 15 of the F-35A variant grounded in America because cooling line insulation is cracking up. Various reports state that the problem is non-conforming insulation in lines carrying coolant in the plane's wings. The F-35 passes its poly-alpha-olefin (PAO) coolant through the fuel tanks to chill it. During maintenance, the insulation around PAO lines was found to be “peeling and crumbling”, and leaving residue in the tanks. So far, 13 aircraft belonging to the US Air Force have been grounded, and two more belonging to Norway. According to Bloomberg, the problem also affects 42 aircraft currently on the production line. The US Air Force says the “non-conforming” insulation is the fault of a contractor supplying the cooling lines. Ten of the aircraft are at Hill Air Base in Utah, the US Air Force's first “combat-ready” squadron of the Toothless Tiger Moths. As Defense One notes, the grounding happens a week ahead of the annual Air Force Association convention. Defense One says the F-35 program office said the unnamed third-party supplier used “nonconforming material” for the insulation, and made mistakes during its manufacturing processes.

LCS Montgomery Suffers Two Engine Casualties Days after Commissioning --Just three days after a glittering commissioning ceremony in Mobile, Alabama, the Navy's newest littoral combat ship suffered two unrelated engine casualties, totaling enough damage that the ship was forced to abandon its transit to its San Diego homeport and head to Florida for repairs. The USS Montgomery is the third littoral combat ship in three weeks to suffer significant engine problems, and the fifth within a 12-month span. The Independence-class ship's casualties, first reported by USNI News, come on the heels of sweeping changes to the LCS program and a series of reviews, most aimed at correcting the problems behind the rash of ship breakdowns. The Montgomery will stop for fuel at Naval Station Guantanamo Bay, Cuba, before sailing to Naval Station Mayport, Florida, to conduct warranty repairs, officials with Naval Surface Force, Pacific, said in a statement. Its engine casualties come just two weeks after the Aug. 30 breakdown of another Independence-class LCS, the Coronado, during a transit to the Western Pacific on its first deployment. On Aug. 31, Naval Surface Force Commander Vice Adm. Tom Rowden announced the command had completed an engineering stand-down of all LCS squadrons to review procedures and standards, with mandatory re-training for all engineer crews over the next month, and an additional review by the Navy's Surface Warfare Officer's School set to be completed by the end of October.Days later, officials announced an overhaul to the LCS force employment strategy that involves taking the first four littoral combat ships out of the deployment rotation for use as test ships, changing the crewing model, and adjusting how the remaining ships deploy to maximize their capability.

Markit Manufacturing PMI "Growth Eases Again in September"--The preliminary September US Manufacturing Purchasing Managers' Index conducted by Markit came in at 51.4, down from the 52.0 August final. Today's headline number came in slightly below the Investing.com consensus of 51.9. Markit's Manufacturing PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Here is the opening from the latest press release: September data highlighted a further upturn in U.S. manufacturing output, but the rate of expansion was modest and only slightly faster than seen on average during the first half of 2016. The latest survey also pointed to a lack of momentum in terms of incoming new orders, especially from export clients. [Press Release] Here is a snapshot of the series since mid-2012.  Here is an overlay with the equivalent PMI survey conducted by the Institute for Supply Management (see our full article on this series here).

Manufacturing PMI Slides As New Orders And "Subdued Domestic Demand" Weigh On Growth Hopes -- The brief July spike hopes of a rebound are officially dashed on the rocks of reality as Markit's Manufacturing PMI (preliminary) print for September missed expectations of 52.0, dropping to 3mo lows at 51.4. New orders and inventories declined but payrolls picked up modestly despite slowing output. Commenting on the flash PMI data, Tim Moore, Senior Economist at IHS Markit said:“September’s survey data points to a sustained upturn in manufacturing production, although growth remains subdued overall and only slightly faster than seen through the first half of 2016. However, manufacturers reported firmer job hiring than one month previously and input price inflation nudged upwards, meaning that the weaker headline PMI figure is unlikely to dampen expectations that the Fed will tighten policy at the end of the year.“Softer new order gains are the main concern in the latest PMI survey, and this could act as a drag on production growth into the final quarter. Alongside reports of subdued domestic demand, a renewed dip in export sales also held back growth momentum in September.“Despite the growth setback in September, manufacturers appear reasonably upbeat about their longer-term prospects. Reflecting this, job creation rebounded since August and input buying continued to expand at a notably faster pace than seen during the first half of the year. At the same time, overall cost inflation remained marginal and this provided some headroom to stimulate client spending through price discounting.”

 Kansas City Fed: Regional Manufacturing Activity "Rebounded Moderately" in September - From the Kansas City Fed: Tenth District Manufacturing Activity Rebounded Moderately The Federal Reserve Bank of Kansas City released the September 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 increased moderately.“For the second time in four months we had a positive reading on our composite index,” said Wilkerson. “This followed 15 straight months of contraction and suggests regional factory activity may be stabilizing.”The month-over-month composite index was 6 in September, up from -4 in August and -6 in July ... The production, shipments, and capital spending indexes were moderately higher, whilethe employment and order backlog indexes were unchanged. ...  The Kansas City region was hit hard by the decline in oil prices, and activity may now be stabilizing.

The number of new businesses in the US is collapsing — and that's disastrous news for the economy : Possibly the defining business trend coming out of the financial crisis has been a "startup boom." Everyone is building an app or starting their own business it seems. This image, however, may be just an illusion, according to Michelle Meyer, US economist at Bank of America Merrill Lynch. Both the formation of firms (for example, McDonald's as a whole) and establishments (an individual McDonald's restaurant), have dropped off precipitously since the financial crisis and remained low. This is important, according to Meyer, because new businesses typically hire faster and produce higher levels of productivity than firms that have been around for a while. Thus the decline in business formation can explain some of the labor market's postrecession problems, and is at least part of the reason for the steep drop in productivity. Bank of America Merrill Lynch Additionally, Meyer says, it can end up affecting the nation's gross domestic product. Here's Meyer (emphasis added): "A recent paper from the Federal Reserve Board (and referenced by Vice Chair Fischer in his Jackson Hole speech) estimates that there is a persistent increase in both GDP and productivity as a result of changes in the number of start-ups. Specifically, they found that a one-standard deviation shock to the number of start-ups led to an increase of real GDP culminating to 1-1.5% and lasting 10 years or longer. This suggests a notable and lasting impact on the economy from weak rate of business entry over the past decade."

Free Trade's Unwilling Victims - Noah Smith - When people talk about the benefits and harms from trade, they usually refer to the labor market. That makes sense, since losing a job has a huge impact on a person’s life. Even if you can find another job, it takes time and money and causes lots of stress. It disrupts your life, and sometimes you can’t find as good a job as the one you had before. That’s why recent research from economists David Autor, David Dorn and Gordon Hanson, showing that trade with China hurt lots of U.S. workers, made such a splash -- we can all imagine the stress, the fear, the humiliation and the hopelessness of workers whose careers are destroyed in a day, leaving them dependent on welfare or working at a job paying half as much. If Autor et al. are right, the “China shock” of the 2000s hurt more workers than it helped.Defenders of free trade will often respond that labor markets aren’t the only markets affected by trade. Many of the things we buy, from TVs and phones to toys and clothing and food, are traded in international markets. Opening up to trade doesn’t always reduce the price of everything we buy, but it tends to make most stuff less expensive, in two ways. First, consumers get to buy things from companies that make those things overseas more cheaply -- some of that cost saving gets passed on in the form of lower prices. Second, trade allows countries to shift their own production toward the things that they’re the most efficient at making, which also tends to push down prices.  Lower prices take some of the sting -- hopefully all of the sting -- out of lower wages. They even provide a bit of relief for the unlucky few who lose their jobs. That’s why cheaper consumer prices are one of the main benefits cited by defenders of free trade policies. But there’s a catch -- trade doesn’t affect all prices equally. Some things get much cheaper, other things barely change, and a few things can even get more expensive. If trade fails to lower prices for the things bought by the people who lose their jobs to foreign competition, it’s a double whammy for those folks.

Weekly Unemployment Claims: Down 8K from Last Week, Better Than Forecast - Here is the opening statement from the Department of Labor:  In the week ending September 17, the advance figure for seasonally adjusted initial claims was 252,000, a decrease of 8,000 from the previous week's unrevised level of 260,000. The 4-week moving average was 258,500, a decrease of 2,250 from the previous week's unrevised average of 260,750. There were no special factors impacting this week's initial claims. This marks 81 consecutive weeks of initial claims below 300,000, the longest streak since 1970. [See full report] Today's seasonally adjusted 252K new claims, down 8K from last week's number, was below the Investing.com forecast of 262K. The BLS calls attention to the 81-month streak below 300K. However, the latest weekly number is 4,000 above its interim low set 22 weeks ago on April 16th. The four-week moving average is at 258,500, which is 2,500 above the post-recession low set on April 23rd. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

BLS: Unemployment Rates stable in 41 states in August --From the BLS: Regional and State Employment and Unemployment Summary Unemployment rates were significantly higher in August in 6 states, lower in 3 states, and stable in 41 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. .. South Dakota and New Hampshire had the lowest jobless rates in August, 2.9 percent and 3.0 percent, respectively. Alaska had the highest unemployment rate, 6.8 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The yellow squares are the lowest unemployment rate per state since 1976. The states are ranked by the highest current unemployment rate. Alaska, at 6.8%, had the highest state unemployment rate. The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 7% (light blue); Only five states and D.C are at or above 6% (dark blue). The states are Alaska (6.8%), New Mexico (6.6%), Louisiana (6.3%), Nevada (6.3%), D.C. (6.0%), and Mississippi (6.0%).

Most Battleground States Posted Healthy Job Growth Over the Past Year -  WSJ: Job growth over the past year was particularly strong in nine of the 12 most competitive states in the 2016 presidential election. Democratic presidential nominee Hillary Clinton and Republican nominee Donald Trump are campaigning most intensely in a dozen states considered “battlegrounds.” A strengthening economy in these states—where polls show a close race or where neither party has historically had a lock on voters–could bolster Mrs. Clinton’s argument to keep Democrats in control of the White House. Sluggish growth could boost Mr. Trump’s argument for political upheaval. A monthly report from the Labor Department on Tuesday showed the number of jobs rose in every battleground state in the year through August, including nine with growth above the national average. Florida led the pack, with nonfarm payrolls rising 3.2%. Arizona, Georgia, Iowa, Nevada and New Hampshire all posted job growth of between 2% and 3%. Employment grew 1.9% in Virginia and 1.8% in Michigan and North Carolina. Ohio and Wisconsin each posted below-average job growth of 1.4%, and Pennsylvania saw growth of 1%. Nationally, employment climbed 1.7% over the past year. A separate survey of households showed the unemployment rate declined in two battleground states and rose in two others. The rate was essentially unchanged in the rest. In North Carolina, the jobless rate fell to 4.6% in August from 5.7% a year earlier. In Georgia, it dropped to 4.9% from 5.6%. Joblessness in Pennsylvania rose to 5.7% from 4.9%. And in Iowa, it climbed to 4.2% from 3.6%. In the latter two, the unemployment rise partly reflected growth in the labor force. Nationally, unemployment averaged 4.9% in August, down from 5.1% a year earlier.

Philly Fed: State Coincident Indexes increased in 39 states in August -- From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for August 2016. In the past month, the indexes increased in 39 states, decreased in nine, and remained stable in two, for a one-month diffusion index of 60. Over the past three months, the indexes increased in 41 states, decreased in eight, and remained stable in one, for a three month diffusion index of 66. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP. This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).  In August, 39 states had increasing activity.  Six states have seen declines over the last 6 months, in order they are Wyoming (worst), Louisiana, Montana, Kansas, Alaska and Oklahoma - mostly due to the decline in oil prices.

Why Falling Employee Tenure Could Be Good News About the U.S. Economy - Americans are accumulating less seniority in their workplaces—and that could be good news about the health of the U.S. labor market.  Median employee tenure, the length of time a worker has been with his or her current employer, was 4.2 years in January, the Labor Department said Thursday. That was down from 4.6 years in January 2014, the first decline recorded in the biennial survey since 2000.  Tenure moved lower in the late 1990s, from 3.8 years in 1996 to 3.5 years in 2000, during a robust economic boom. Since then, an aging workforce has helped push up tenure, since older workers tend to hold their jobs longer than younger workers do.  The decline between 2014 and 2016 was fairly broad, with median tenure ticking down for both men and women and across most industries. Median tenure was flat or down across every age category, as well.  The Labor Department report warned against reading too much into changes in tenure, saying a strong economy might boost or depress the figure depending on the forces at work.  “During periods of economic growth, median tenure…could fall if more job opportunities are available for new entrants to the workforce and experienced workers have more opportunities to change employers and take better jobs,” the report said. “Tenure also could rise under improving economic conditions, however, as fewer layoffs occur and good job matches develop between workers and employers.”  Still, there’s a strong case that the latest decline is good news about the economy. It came during an especially strong stretch of hiring: Nonfarm payrolls rose by nearly 5.8 million in 2014 and 2015, the strongest two years of job creation since 1998 and 1999, according to Labor Department data.  There is no sign of a surge in layoffs that might be forcing workers to find new jobs. Initial jobless claims have declined since early 2014 and lately have been hovering at historically low levels. In fact, increasingly confident workers seem to be voluntarily quitting their jobs in search of new, better positions. The quits rate rose from 1.7% in January 2014 to 2.0% in January 2016, and was 2.1% as of July. “The increase in the quits rate is a sign that workers are feeling more confident about the job market and are likely receiving more job offers,” Federal Reserve Chairwoman Janet Yellen said in a June speech.

No Victory Lap Yet: U.S. Wage Growth Elusive – iMFdirect - The U.S. labor market seems to have finally healed. The unemployment rate has been below 5 percent for some time and job growth is steady. And more Americans are coming back to the labor market—in other words, labor participation is increasing. Yet, despite a bump-up in 2015, wage growth so far this year—compared to the 2000s—is still disappointingly low (see Chart 1). This is worrying because consumer spending, which makes up the majority of U.S. economic output, cannot continue at the current pace unless wages grow.  Low wages are a vestige of the crisis. Almost eight years after the height of the crisis, laid-off workers continue to re-enter the labor force, which affects average wage growth. This so-called decomposition effect occurs when new employees are hired for less than the average wage rate. When a worker finds a new job after a long unemployment spell, his or her wages tend to be well below that of peers who remained employed. As a result, these new hires bring down the average hourly wage rate—that is, the rate across all workers. In a recently published study, I find that this re-entry effect is substantially larger in the post-Great Recession period than before, as returnees to the labor market have to accept large wage cuts. The next question is whether wages among steadily employed workers are growing at a healthy clip. The results are not so surprising: wage growth for a broad segment of workers is also lower than a decade ago. For instance, wages of so-called job stayers—the vast majority of U.S. workers who remain at the same job—have risen 3.5 percent this year, a full percentage point lower than before the Great Recession. Similarly, earnings in the middle of the wage distribution—the 50th percentile—are also seeing less gains than in the past: they have risen by 3.2 this year compared to 4.1 percent during 2000–07.  The same is true for workers in services and other sectors. And while it is often said that slow wage growth is due to a rising share of low-paying jobs, the data do not support it: the number of low-wage jobs has grown but not nearly fast enough to make a substantial dent in average wage growth.  A likely reason for slow wage growth is declining productivity of workers. The more productive workers are, the more they earn.’

Scarce cash in land of plenty: Farmers adjust to downturn: (AP) — Pale green and 8 feet tall, tightly packed corn stalks reach to the horizon throughout the Midwest in what is likely to be the biggest harvest the U.S. has ever seen. Aside from a sense of pride in breaking the previous record by nearly a billion bushels, farmers won't benefit. They'll lose money on virtually every cob. It'll be the third consecutive year in which most corn farmers will spend more than they'll earn. The growing has been too good and the resulting glut of corn depressed prices to a decade-low. It's a similar story for soybeans, the second most common Midwest crop. As a result, farmers are cutting costs, dipping into savings or going further into debt. Federal crop insurance and payments that help protect farmers when prices fall too low offer some protection, yet many farmers and their spouses supplement income with off-the-farm jobs. The drop in farm profits raises questions about agriculture's boom-and-bust cycles and why people adhere to what at times is seemingly not a sustainable business model. "I am 67 years old and when we examined my Social Security records recently, I had a 12-year stretch when I didn't pay myself one single dime," said Wayne Humphreys, who grows corn and soybeans and raises hogs in southwest Iowa. "We lived on my wife's salary. Everything else went to the farm."

Leaked Apple emails reveal employees’ complaints about sexist, toxic work environment - Danielle* didn't expect her workday to begin with her male coworkers publicly joking about rape. Danielle is an engineer at Apple — and like many of the women in the company, she works on a male-dominated team. On a Tuesday morning in July, when men on her team began to joke that an office intruder was coming to rape everybody, Danielle decided to speak out about what she described as the "very toxic atmosphere" created by jokes about violent sexual assault. The coworker who first made the joke apologized, repeatedly assuring her that something like this wouldn't happen again. But his assurances did little to instill confidence. This wasn't the first time Danielle had allegedly seen something like this happen on her team, nor was it the first time she complained that the office culture at Apple was, in her words, toxic. Despite repeated formal complaints to her manager, Danielle said, nothing ever changed. But this rape joke was the final straw. The next day, Danielle escalated her complaint about the offense to the very top: Apple CEO Tim Cook. "Rape jokes in work chat is basically where I completely draw the limit," she wrote to Cook in an email obtained by Mic. "I do not feel safe at a company that tolerates individuals who make rape jokes." Danielle wrote that she did not receive a response to her formal complaint to Cook — even as he made headlines for responding to emails from random Apple customers. To protect their identities and employment, Mic will not use the names of women whose accounts it obtained. Pseudonyms are marked with an asterisk on first use.

What Happens to Wages When Refugees Arrive? More Than You Might Think -- The U.S. is accepting 85,000 refugees this fiscal year and the Obama administration plans to raise that figure to 110,000 next year.The plan is controversial amid worries that terrorists could slip through a rigorous screening process. But what about the economic implications?A new study by Harvard University’s George Borjas and the Center for Monetary and Financial Studies’s Joan Monras looks at evidence from four earlier refugee surges and finds they worsen prospects for one segment of the population while bettering the lot of another.“In short, refugee supply shocks have sizable distributional consequences in the labor markets of receiving countries,” the authors said.Mr. Borjas is generally considered an immigration skeptic, though his work is careful to avoid political judgement or policy prescriptions. His work is often cited as evidence that immigration erodes wages for lower skilled U.S. natives. His latest work is surprising because it shows clear benefits as well—though not for everyone.Refugees damaged the prospects of natives with similar skill levels, the study found, but benefited natives with complimentary skill sets. For example, the Mariel boatlift brought about 120,000 refugees, mainly to Miami. Messrs. Borjas and Monras write that more than 60% lacked a high school diploma. “Even though the Marielitos increased Miami’s population by only 8%, they increased the number of male workers without a high school diploma by 32%,” the authors wrote.

Negative Effects of Immigration on the Economy - Mike Kimel -In a recent post, I showed that looking at data since 1950 or so, the percentage of the population that is foreign born is negatively correlated with job creation in later years. I promised an explanation, and I will attempt to deliver on that promise in this post.  I can think of a few reasons for the finding, just about all of which would have been amplified since LBJ’s Presidency due to two things: the 1965 Hart-Cellar Act and the launch of the Great Society. The Hart-Cellar Act may be better known as the Immigration and Nationality Act of 1965. It phased out country quotas in existence since the 1920s. As a result of these quotas, about 70% of all immigrants were coming from England, Germany and Ireland, with most of the remainder coming from elsewhere in Western Europe and from Latin America. The Great Society, of course, included a number of welfare programs, many of which (or their descendants) are still in existence.  With that, reasons why the foreign born population is negatively correlated with subsequent job creation include:

  • 1. Immigrants who are sufficiently similar to the existing population when it comes to language, culture, skillsets and expectations will integrate more smoothly. Slower and more imperfect integration necessarily requires more expenditure of resources, resources which otherwise could go toward economic development.
  • 2. Naturally, skills and values that are more productive and efficient than those of the existing population are conducive toward growth. Conversely, bringing inferior technology and processes does not improve the economy.
  • 3. Eligibility for welfare can change the incentive structure for existing and potential immigrants. An immigrant arriving in the US in 1890 certainly had no expectation of being supported by the state. It may be that most immigrants arriving in the US now also don’t have that expectation. However, it is no secret that welfare exists so some percentage of potential immigrants arrive expecting to be supported to some degree by the state.
  • 4. Rightly or wrongly, reasons 1 – 3 above may combine to create resentment in the existing population. Think “my grandparents came to this country with nothing and nobody gave them anything…” Resentment can break down trust and institutions necessary for the economy to function smoothly.
  • 5. Over time, transportation has become cheaper and easier. As a result, the likelihood that an immigrant has come to the US to stay has diminished. Many immigrants come to the US for several years and then go back to their country of origin. This in turn leads to four issues that can have negative impacts on the economy:

Mike Kimel vs. Yves Smith -  Beverly Mann - I and many others, including Yves Smith, waded into the thicket of Mike Kimel’s provocative generic and specific-reasons-for-the-generic claims in his post here earlier this week titled “Negative Effects of Immigration on the Economy.”  I and others, including academic economist Barkley Rosser, commented in replies in the Comments thread to Mike’s post.  Yves did so on her Naked Capitalism blog, in prefatory comment to her republication of Mike Kimel’s post. Yves is an expert on such matters as the effects of immigration on the economy.  I, suffice it to say, am not.   But Angry Bear Bruce Webb and I both invoked Yves’ prefatory comment as refutation of Mike’s specific reasons for his generic claims.  But Mike begs to differ, claiming that Yves’ preface is in agreement with his post. To which I replied: You and Yves Smith make the same point? Really? Actually, Yves was trying gently to refute your main point, which was your claim that immigration has a negative impact on job creation and your attributing this to the fact that so many immigrants aren’t white and from Europe and therefore, culturally (and intellectually) don’t sufficiently appreciate the importance of such things as time schedules and promptness. Yves’ point was the opposite: that lower rates of job creation comes from lower rates of increase in GDP, which has nothing to do with the entrepreneurial, timekeeping and English-language skills of the current wave of immigrants and everything to do with the highly successful corporate efforts in the last nearly four decades to suppress wages–one (but only one) tactic of which has been the use of immigrants to keep wages down, thus reducing DEMAND FOR GOODS AND SERVICES. The effect on job creation is, contrary to your claim, not direct and is not the result of what you say it is, and is the indirect result of deliberate corporate goals. Funny, y’know, but Germany, Holland, Scandinavia and Canada all have had very large non-white immigration in recent decades. All have strong laws supporting worker power, as well as corporate cultures that favor long-term investment and rational executive-suite compensation, and … voila! They have economies that work well. Obviously, Yves can speak for herself on this if she cares to.  But it’s clear from the comments in the lengthy Comments thread to Mike’s post that I’m far from the only one who takes strong issue with what is at the heart of Mike’s premise.

What We Know (And Don’t Know) About Immigration and the U.S. Economy - The National Academies of Sciences, Engineering and Medicine this week released a report looking at the economic and fiscal implications of immigration to the U.S.  The findings suggest benefits for the immigrants themselves and the broader U.S. economy, but also acknowledge costs for state and local governments. Here are some additional facts, figures and findings from the study:

  • The immigrant population has grown rapidly. Between the mid-1990s and 2014, the total number of immigrants living in the U.S. increased by more than 70%, from 24.5 million in 1995 to 42.3 million in 2014. Over the same period, the number of unauthorized immigrants estimated to be in the country roughly doubled from about 5.7 million in 1995 to about 11.1 million. All together, the foreign-born portion of the labor force has grown from about 11% to just over 16% in the past 20 years.
  • The inflow of illegal immigrants has changed dramatically in recent decades. Growth of the unauthorized immigrant population averaged about 500,000 per year between 1990 and 2007. In the early 2000s, annual inflows averaged more than 800,000. But during the recession, the unauthorized immigrant population decreased by about 1 million. Since 2009, 300,000 to 400,000 new unauthorized immigrants have arrived each year and about the same number have left, holding their population steady.
  • Immigrants and their children will account for the vast majority of current and future net workforce growth. Even so, the U.S. civilian labor force is growing only slowly. It’s expected to expand 0.5% this decade, compared with 1.2% in the 1990s and 0.7% in the 2000s. That has significant implications for overall economic growth as well as funding for programs like Social Security.

 Michael Hudson: Celebrating the One Percent – Is Inequality Really Good for the Economy? To paraphrase Mark Twain, everyone complains about inequality, but nobody does anything about it. What they do is to use “inequality” as a takeoff point to project their own views on how to make society more prosperous and at the same time more equal. These views largely depend on whether they view the One Percent as innovative, smart and creative, making wealth by helping the rest of society – or whether, as the great classical economists wrote, the wealthiest layer of the population consist of rentiers, making their income and wealth off the 99 Percent as idle landlords, monopolists and predatory bankers. Economic statistics show fairly worldwide trends in inequality. After peaking in the 1920s, the reforms of the Great Depression helped make income distribution more equitable and stable until 1980.[1] Then, in the wake of Thatcherism in Britain and Reaganomics in the United States, inequality really took off. And it took off largely by the financial sector (especially as interest rates retreated from their high of 20 percent in 1980, creating the greatest bond market boom in history). Real estate and industry were financialized, that is, debt leveraged. Inequality increased steadily until the global financial crash of 2008. Since then, as bankers and bondholders were saved instead of the economy, the top One Percent have pulled even more sharply ahead of the rest of the economy. Meanwhile, the bottom 25 percent of the economy has seen its net worth and relative income deteriorate. Needless to say, the wealthy have their own public relations agents, backed by the usual phalange of academic useful idiots. Indeed, mainstream economics has become a celebration of the wealthy rentier class for a century now, and as inequality is sharply widening today, celebrators of the One Percent have found a pressing need for their services.

 Black-white wage gaps expand with rising wage inequality: What this report finds: Black-white wage gaps are larger today than they were in 1979, but the increase has not occurred along a straight line. During the early 1980s, rising unemployment, declining unionization, and policies such as the failure to raise the minimum wage and lax enforcement of anti-discrimination laws contributed to the growing black-white wage gap. During the late 1990s, the gap shrank due in part to tighter labor markets, which made discrimination more costly, and increases in the minimum wage. Since 2000 the gap has grown again. As of 2015, relative to the average hourly wages of white men with the same education, experience, metro status, and region of residence, black men make 22.0 percent less, and black women make 34.2 percent less. Black women earn 11.7 percent less than their white female counterparts. The widening gap has not affected everyone equally. Young black women (those with 0 to 10 years of experience) have been hardest hit since 2000. Introduction and key findings ... Income inequality and slow growth in the living standards of low- and moderate-income Americans have become defining features of today’s economy, and at their root is the near stagnation of hourly wage growth for the vast majority of American workers. Since 1979, wages have grown more slowly than productivity—a measure of the potential for wage growth—for everyone except the top 5 percent of workers, while wage growth for the top 1 percent has significantly exceeded the rate of productivity growth (Bivens and Mishel 2015). This means that the majority of workers have reaped few of the economic rewards they helped to produce over the last 36 years because a disproportionate share of the benefits have gone to those at the very top. While wage growth lagging behind productivity has affected workers from all demographic groups, wage growth for African American workers has been particularly slow. As a result, large pay disparities by race have remained unchanged or even expanded. This study describes broad trends and patterns in black-white wage inequality and examines the factors driving these trends as the growing wedge between productivity growth and wage growth has emerged. ...

Wage Gap Between Black and White Americans Is at 40-Year High -- A new report from the Economic Policy Institute reveals a stark disparity between the hourly pay of blacks and whites; on average, whites make 26.7 percent more than blacks, earning $25.22 an hour compared with $18.49 for blacks. Amazingly, blacks today earn less relative to their white counterparts than they did in 1979. “The finding that stands out the most, our major result, is that the racial wage gaps were larger in 2015 than they were in 1979. That’s huge because the impression people have, in general, is we know there’s still racism in this country, but we think or at least believe that it’s getting better,” Valerie Wilson, director of EPI’s program on race, ethnicity and the economy, told the Guardian. According to EPI, the driving force behind the pay gap is “discrimination… and growing earnings inequality in general.” "Race is not a skill or characteristic that should have any market value as it relates to your wages, but it does," Wilson said. According to the report, wage inequalities build up over time, which explains why black male college graduates “started the 1980s with less than 10 percent disadvantage relative to white male college graduates, but by 2014 similarly educated new entrants were at a roughly 18 percent disadvantage.” Wilson also noted factors like the mass incarceration rates for black men and women in the 1980s and '90s and barriers to hiring for black individuals in general also contribute to the pay disparity. Studies show people with black-sounding names are less likely to be hired than those with white-sounding names. No doubt the group facing the most discrimination in the workforce is black women. While the gender wage gap for white women shrunk in the 1990s, the pay gap for black women remained largely the same. “Black women are faced with both kinds of discrimination,” Wilson said. “And that racial disadvantage has basically limited their achievements in narrowing the gender gap.”

Firms that Discriminate are More Likely to Go Bust - Discrimination is costly, especially in a competitive market. If the wages of X-type workers are 25% lower than those of Y-type workers, for example, then a greedy capitalist can increase profits by hiring more X workers. If Y workers cost $15 per hour and X workers cost $11.25 per hour then a firm with 100 workers could make an extra $750,000 a year. In fact, a greedy capitalist could earn more than this by pricing just below the discriminating firms, taking over the market, and driving the discriminating firms under. The basic logic of employer wage discrimination was laid out by Becker in 1957. The logic implies that discrimination is costly, especially in the long-run, not that it doesn’t happen.  A nice test of the theory can be found in a paper just published in Sociological Science, Are Business Firms that Discriminate More Likely to Go Out of Business? The author, Devah Pager, is a pioneer in using field experiments to study discrimination. In 2004, she and co-authors, Bruce Western and Bart Bonikowski, ran an audit study on discrimination in New York using job applicants with similar resumes but different races and they found significant discrimination in callbacks. Now Pager has gone back to that data and asks what happened to those firms by 2010? She finds that 36% of the firms that discriminated failed but only 17% of the non-discriminatory firms failed. The sample is small but the results are statistically significant and they continue to hold controlling for size, sales, and industry.

Mississippi's unfunded debt would cost each citizen $11,800 - Watchdog.org: Mississippi citizens, get your checkbooks ready. According to a new report by the non-partisan financial transparency group Truth in Accounting, each Mississippian would have to write a check for $11,800 to pay off the state’s unfunded debts. Related: Mississippi’s pension crisis explained in four charts According to Truth in Accounting’s analysis of the financial statements of the 50 states, Mississippi’s per capita state debt ranked 33rd and was considered one of 40 “sinkhole” states that don’t have enough money to pay their bills, which add up to $13.4 billion. Of that figure, $5.4 billion was in unfunded pension debt, $732 million in unfunded retirees’ health care, and $7.3 billion was in other debt such as bonds. The state has $5 billion in assets available to pay off debt, leaving an unfunded debt of $8.4 billion. Truth in Accounting uses each state’s annual comprehensive financial report and subtracts its debts from its available assets. That number is divided by the number of citizens in each state to provide the amount of debt owed by each. According to Sheila Weinberg, a CPA and founder and CEO of Truth in Accounting, her goal is to educate the public on the serious nature of the debt crisis facing the nation. The states now owe $1.3 trillion in unfunded debt, with pensions accounting for $684 billion.

Puerto Rico Blackout Enters Second Day - Entire Island Of 3.5 Million People Without Power -- The 3.5 million people of Puerto Rico are entering their second day with no power after a substation fire knocked out service to the entire island.   The power outage has left schools scrambling to cancel classes and public hospitals forced to cancel surgeries.Perhaps even worse, the outage caused numerous fires across the island as a result of malfunctioning generators, including at the upscale Vanderbilt hotel in the popular tourist area of Condado and at the mayor’s office in the northern coastal town of Catano.While Puerto Rico's Governor Padilla and the utility's CEO, Javier Quintana, have said they expect service to be restored by this morning, many Puerto Ricans are dubious saying that the economic slump has affected the government's ability to maintain basic infrastructure.  According to the Wall Street Journal, hundreds of people took to social media to criticize the Electric Power Authority, noting they already pay bills on average twice that of the U.S. mainland. The fire apparently started at this sub-station in Central Aguirre, Puerto Rico.

 THE DISINTEGRATION OF U.S. INFRASTRUCTURE: Quarter Million Water Main Breaks A Year --The United States is sitting on top of a massive amount of aging infrastructure that continues to disintegrate at an alarming rate.  According to the American Society of Civil Engineers, the U.S. suffers from 240,000 water main breaks a year.  That's roughly 700 water main breaks each day. Some of these water main breaks can be quite large.  Here is a picture of water main break that took place on Howard Street in Baltimore. Furthermore, according to the the Water Main Break Clock, it costs approximately $3 billion a year just to repair the water main breaks in North America (USA & Canada).  In addition, a congressional study estimated that water pipe corrosion in the United States costs $50.7 billion annually.  Since 2000, the total U.S. water paper corrosion cost is a staggering $674 billion. To replace all the water pipes in the U.S. would cost over $1 trillion.  Moreover, experts estimate water main breaks and leaking pipes waste 1.7 trillion gallons of water in the country a year.  Here's an old picture of a water distribution main being constructed in Philadelphia in 1946.  These older iron pipes have a life expectancy of 75-100 years:  However, corrosion can cause iron pipes to fail before their full lifespan.  I did some research and the average lifespan of a iron pipe water main in Boston, was 83 years.  This water main shown above is now 70 years old. A comprehensive study done in 2012 called, Water Main Break Rates in USA & Canada provided the following data on the aging water infrastructure in North America:

String Of Deadly Arsons Strike Chicago Leaving 1 Dead And Dozens Homeless - The level of crime in Chicago these days is more on par with certain violent third-world countries than other U.S. cities.  In fact, we recently pointed out that Chicago has recorded more homicides so far in 2016 than Los Angeles and New York, combined, despite having a fraction of the population (see "Chicago Records "Most Violent Month In 20 Years").  With 3 days left in the month of August, the city of Chicago has recorded 84 homicides making it the deadliest month since October 1996 when 85 homicides were committed.  In fact, as the Chicago Tribune points out, YTD through August,Chicago has recorded more homicides than New York City and Los Angeles, combined.  So far Chicago has recorded 487 homicides in 2016 compared to 222 in New York and 176 in Los Angeles.  This staggering data comes despite the fact that Chicago's total population is roughly 20% the size of New York and Los Angeles. The latest wave of violent crime came on Friday when an arsonist set 7 fires in the Lower West Side neighborhood of Chicago.  The fires killed at least one man and has left as many as 40 people homeless according to The Chicago Tribune and ABC.

Debt and Death Bind Chicago as Emanuel Seeks to Bolster Cops - Every man, woman and child in Chicago is already on the hook for $12,600 to rescue wobbly public pensions. This week, residents will learn from Mayor Rahm Emanuel how he plans to add more police to stem a wave of more than 500 killings and 2,500 shootings, mostly in black and Hispanic neighborhoods. The body count outstrips that of New York and Los Angeles combined. In response to a deadly surge in violence this year, some cities -- such as Dallas and Denver -- are moving to put more officers on the street. Nowhere is a pledge to beef up the police force more costly than in Chicago, which is fighting an expensive two-front war -- one on crime, the other to keep the junk-rated city afloat. The city council raised water and sewer levies last week to avert insolvency in the municipal pension fund, which was due to run out of money within a decade. That’s on the heels of a record half-billion dollar property-tax increase last October to prop up police and fire retirement funds, and a telephone tax hike to boost the laborers’ pension. The four systems are short a combined $34 billion. Chicago will shell out about $1 billion from the 2017 budget for pensions. That’s enough to cover more than 7,000 police officers, based on an estimated cost of $138,000 a head in the first year for salary, supervision and other benefits. The average cost of a police officer is $180,000.The city already has 12,500 police officers, second only to New York, with 35,800 uniformed members.

On our nation’s shameful neglect of half of our children - Some excerpts from the Psychology Today article “Will We Ever Notice Boys’ Struggles?” by Mark Sherman, professor emeritus of psychology at the State University of New York at New Paltz: My main problem is that after years of being a strong supporter of feminism, I discovered, nearly 25 years ago, that it was boys much more than girls who were struggling in school, not to mention in other even more significant ways – for example, committing suicide at around four times the rate that girls were. Having three sons (the youngest of whom was 12 when I made this discovery), I realized that my children were being ignored. Having later been blessed by the birth of four grandsons, my concern about boys as a group has only increased. But the concern of our country hasn’t. For example, in spite of data overwhelmingly showing the problems that boys struggle with, there is no White House Council on Boys and Men to parallel the one established for women and girls very soon after President Obama took office — this in spite of years of hard work by a bipartisan network of experts who have pushed for one (for full disclosure, I am part of this group). And the situation I wrote about here more than six years ago, in piece titled “Boys and Young Men: A New Cause for Liberals,” has barely changed. If you do see an article or book in support of boys or men, it is usually by someone known to be a conservative or it is on a conservative website. Consider the first well-known book on this issue, The War Against Boys, in 2000, by Christina Hoff Sommers (now with the American Enterprise Institute). Or a 2015 article in the National Review, titled “Why Do More Women Than Men Go to College?” My fellow liberals continue to focus almost exclusively on women and girls.

Parents Cry 'Bully!' After School Shames 10-Year-Old, Dumps Lunch In Trash In Front Of Classmates -- Parents at a Bedford, Kentucky, elementary school accuse the school itself of bullying a 10-year-old girl there last week after a school official seized her hot lunch tray from in front of her as she sat in the cafeteria with her friends — then dumped the whole thing in the trash.“Someone came and took her lunch while she was sitting there with her friends and everybody else,” said Leslie Chilton, an aunt to the little girl whose name has not been made public.“An actual employee told me that afternoon because I was at school,” Chilton, who is active in the school’s Parent-Teacher Organization, said. “It was awful to think about her being there, sitting there and she was crying. She’s a shy girl anyway, she’s 10 years old and she’s knows what’s going on.”But what the little girl did not know was the reason the grown-up humiliated her in front of her friends, forcing her to make it through the school day on just the cheese sandwich the school granted her after trashing her full meal — and wasting an entire meal’s worth of perfectly good food in the process.“I think it’s all bullying,” said Doug Joyce, the 10-year-old’s grandpa. “They kick kids out for bullying, they need to kick grown-ups out for bullying.”The whole traumatic episode happened because the girl’s family was a bit in arrears on her school lunch account bill. The debt wasn’t a matter of being unable to pay, Joyce told WAVE-TV. It was simply an oversight. But another parent, Kim Wright, told the station that the school needs to find a better way to settle school lunch accounts — a way that doesn’t involve bullying innocent kids.

An 8th grader had to teach a math class for a month because Detroit schools were so understaffed, lawsuit alleges - A lawsuit filed in federal court Tuesday against Michigan Gov. Rick Snyder and other state education officials paints an abysmal picture of schooling within the Detroit Public Schools Community District (DPSCD), the state's largest public-school district that serves nearly 50,000 students.  Filed on behalf of seven black and Latino students who attend five of the lowest performing schools in Detroit, the suit describes "slum-like conditions" at the schools, "lacking the most basic educational opportunities." They also serve more than 97% low-income students of color. Because of these conditions, the suit argues, students remain "separate and unequal" and can't attain "the level of literacy necessary to function," in addition to proficiency in other subjects. As such, the suit alleges the district violates their due process and equal protection under the 14th Amendment.   "For years, classrooms and campuses have been unable to satisfy minimal state health and safety standards, let alone deliver basic education," the suit reads.   “We are concerned with the literacy levels of all children in Michigan,” State Superintendent Brian Whiston told Business Insider in an email. “However, we have not received the lawsuit yet and cannot speak directly to its claims.” Specific allegations in the suit range from a lack of teachers and supplies to classroom temperatures that induced fainting and vermin infestations.  For instance, none of the plaintiffs can take his or her books home from school, making homework nearly impossible. Many students at the schools must also share books, often damaged beyond readability. Some books are even older than the students reading them, according to the suit.

Wealthy Kids Save More for College, Thanks to the IRS -- Assets in college savings plans named for an obscure section of the Internal Revenue Service code hit a new record this summer, totaling $266.2 billion. That’s up 5.1 percent from a year ago, when assets in the accounts stood at $253.2 billion. Individual balances in so-called 529 plans also hit a record average, at $20,975, up 3.1 percent for the year. These latest national figures, as of June 30, cover a total of 12.7 million tax-advantaged education savings accounts, according to the College Savings Plans Network.  Unfortunately, that pot of money is only enough to cover an average one year’s worth of costs for an in-state student at a four-year public institution1, according to the College Board’s 2015 Trends in College Pricing. But every penny counts for students these days—even for the well-off, who the government says happen to benefit most from 529 plans. Assets in such plans compound free of federal—and sometimes state—income taxes. Distributions for qualified educational use also go untaxed. For households in the top tax bracket in particular, that’s a big benefit.  While the number of these accounts is up 2 percent from a year ago, from 12.45 million, a hard number on just what percentage of U.S. families use them is hard to come by. A report from the U.S. Government Accountability Office found that only 3 percent of all U.S. families used 529s in 2010, and that families with the plans had three times the median income of those without.

Household Incomes: The Value of Higher Education – DShort - What is the value of education for household income? The Census Bureau's annual survey data for 2015 published last week gives us some interesting insights into this question. The median income for all households with a householder age 25 and older was $58,044. The chart below shows the median annual household income for nine cohorts by educational attainment. We've rounded the data points to the nearest $100, e.g. $58.0K for all households age 25 and older.A particularly notable feature in the chart above is that the Bachelor's Degree median at $88.0K is over double the High School grad's $42.0K. A Master's Degree increases the Bachelor's median by $13.3K. A Professional Degree (Law and Medical being the major ones) adds another $35.3K. Here is the same chart, this time illustrating the Mean (average) household incomes for the same cohorts.For a better sense of the mean skew, here is a side-by side comparison of the median and mean. As we would expect, the mean is larger than the median for all cohorts. The educational attainment of householders has clearly increased over the time frame of the Census Bureau's annual data. The current survey questionnaire dates from 1991. Here is a pair of pie charts that highlight the difference in the cohort percentages in 1991 versus the present

Enrollment is tanking at the University of Phoenix, DeVry and other for-profit colleges - Some of the nation's largest for-profit colleges are suffering steep declines in enrollment amid growing competition, new regulation and government pressure that led to the recent collapse of one of the industry's biggest players, ITT Technical Institute. The industry has been losing students for the last six years, but the crisis appears to be deepening with alarming speed. Some schools, in their latest corporate filings, reported a pronounced drop. Enrollment at the University of Phoenix chain fell 22% this year, to 171,000 students, marking a 70% loss since 2010. DeVry University reported a 23% drop this year, to about 26,500. Hondros College, a chain of nursing schools, slid 14%. Meanwhile, community colleges are reaping the benefits. For-profit colleges underwent years of rapid growth before seeing their fortunes change. With jobs more plentiful, fewer adults are going back to school, experts say. Traditional universities have lured students away with new online programs. And President Obama's administration has cracked down on for-profit colleges amid allegations many were using aggressive recruiting tactics, lying about the success of their students, pushing them into risky loans and leaving them saddled with heavy debt and few job prospects. Officials at many of these companies had no comment. But Steve Gunderson, president of Career Education Colleges and Universities, an industry lobbying group in Washington, said some schools are in danger of collapsing, in part because of "the incredible eight-year regulatory, ideological assault by the administration and their allies."

Commentary: For $178 million, the U.S. could pay for one fighter plane – or 3,358 years of college Reuters - Does free college threaten our all-volunteer military? That is what Benjamin Luxenberg, on the military blog War on the Rocks says. But the real question goes beyond Luxenberg's practical query, striking deep into who we are and what we will be as a nation.  Unlike nearly every other developed country, which offer free or low cost higher education (Germany, Sweden and others are completely free; Korea's flagship Seoul National University runs about $12,000 a year, around the same as Oxford), in America you need money to go to college. Harvard charges $63,000 a year for tuition, room, board and fees, a quarter of a million dollars for a degree. Even a good state school will charge $22,000 for in-state tuition, room and board.  Right now there are only a handful of paths to higher education in America: have well-to-do parents; be low-income and smart to qualify for financial aid, take on crippling debt, or...  Join the military. The Post-9/11 GI Bill provides up to $20,000 per year for tuition, along with an adjustable living stipend. At Harvard that stipend is $2,800 a month. Universities participating in the Yellow Ribbon Program make additional funds available without affecting the GI Bill entitlement. There are also the military academies, such as West Point, and the Reserve Officers’ Training Corps, commonly known as ROTC, which provide full or near-full college scholarships to future military officers.  Overall, 75 percent of those who enlisted or who sought an officer’s commission said they did so to obtain educational benefits. And in that vein, Luxenberg raises the question of whether the lower cost college education presidential nominee Hillary Clinton proposes is a threat to America's all-volunteer military. If college was cheaper, would they still enlist? It is a practical question worth asking, but raises more serious issues in its trail. Do tuition costs need to stay high to help keep the ranks filled? Does unequal access to college help sustain our national defense?

Media role models and black educational attainment: evidence from the Crosby Show - Kirsten Cornelsonz (pdf) The tendency of young people to imitate older members of their social groups could explain the surprising persistence of black-white education gaps in the U.S. over the past ve decades. It is dicult to separate these role modeling" effects, however, from other factors influencing educational attainment. This paper assesses the influence of role models on young people's educational choices by examining the impact of a popular 1980's sitcom: The Cosby Show. The show portrayed an upper middle class black family headed by highly educated parents, who frequently discussed the importance of education with their ve children. If role model e ects exist, black teenagers should have had a stronger response to this message. To test this hypothesis, I relate educational attainment to city-level Cosby Show ratings during the period in which a respondent was aged 16-20. In order to control for the possible endogeneity of Cosby Show popularity, I use Thursday night NBA games as an instrument for ratings. I show that exposure to The Cosby Show signi cantly increased college attainment among black men, with smaller e ects for black women. I estimate that at least 110,000 young black men and women completed college as a result of the show. There is no similar effect among the white sample. The results do not appear to be driven by reduced discrimination, as Cosby Show ratings are not related to changes in either the black-white wage differential or in the return to college for blacks.

Black Students Harassed With Bananas At American University - Students at American University in Washington D.C. have condemned the school over what they said was an inadequate response to racially-charged incidents on campus this month.In one case, a rotting banana was left at the door of a black student’s dorm room. In addition, someone drew a penis on a whiteboard attached to her door.   “I wouldn’t let people drive me out,” Neah Gray, the freshman who found the banana, told the newspaper. “But it’s kind of sad that this kind of thing still happens.”   In another incident, someone threw a rotten banana at a black student, according to the American University Black Student Alliance. The organization said that the actions were part of a pattern of behavior at the university; last year, racist epithets were written on the dorm doors of black students.  The university described one of the incidents as “not characterized as bias related,” and announced that “conduct charges” were taking place through the “Student Conduct process.” It was not clear which incident the university was referring to. On Friday, the administration also announced plans for a town hall meeting to be held that very night.That response didn’t sit well with many students, who said they weren’t given enough notice to attend the meeting.“Black women are under threat on campus ― they are being used as target practice,” Jada Bell, the Black Student Alliance’s outreach coordinator, told BuzzFeed. “We’re literally being attacked and assaulted on campus, and there’s nothing being done about it by the administration.”

San Francisco State Builds Segregated Dorms Where African-Americans Can "Safely Live And Talk" -- A long time ago, like 10 whole years ago before anyone had yet uttered the phrase "safe space", college was a place where young adults went to be challenged academically and immersed in culture.  Today, we seem to trending in the exact opposite direction with dissenting opinions strictly forbidden and frequently even labeled as "hate speech" and/or acts of "micro-aggression", if you prefer.     Oddly enough, the latest trend, at least in California, is self-imposed segregation.  According toCBS, SFSU, upon demands of the Black Student Union, will be building dorms on campus specifically for black students who don't currently feel like they have a place where they can "safely live and talk about issues affecting African-Americans."  SFSU is joining Cal State LA, UC Davis and Berkeley which have already announced similar plans to offer segregated housing dedicated to black students. While these housing options are technically open to all students, they’re billed and used as arrangements in which black students can live with one another. Now, campus officials are responding to demands from the Black Student Union to create a new space on campus where students can safely live and talk about issues affecting African-Americans. SF State spokesman Jonathan Morales said, “We want to be pro-active responding to some of the issues that have been brought out by the Black Lives Matter movement and we want to work with our student leaders in the Black Student Union and other students of color organizations to make sure that our living and learning community here is inclusive…” So, if we understand Morales correctly, SFSU wants to create an "inclusive" living and learning community by promoting segregation?  Seems reasonable.

Academic Penury: Adjunct Faculty as the New Precariat   -- “What is education?” Ruth Wangerin asks me, when I Skype the sociology professor at her home in New York. “Is education a good for its own sake? Is it a process of weeding people out? Or is the student a customer paying for certification and the adjunct is there to train them?” It’s a good question. Wangerin is an adjunct at the City University of New York or CUNY. Although she completed a PhD in the 1970s, the energetic 70-year-old spent her career outside of education, returning to teaching after filling in for a friend on sabbatical. As an adjunct, Wangerin is employed on a casual basis and earns somewhere between half and one-third of what a tenure-track professor would make for teaching the same courses. That is significant, because non-tenure track teaching staff – commonly referred to as adjuncts and contingent faculty – now make up approximately 70% of all teaching staff in American higher education. This means that roughly three out of every four courses a student takes are taught by someone without job security who is working on minimal pay.  When Wangerin conducted a survey at the College of Staten Island, a CUNY-affiliated institution, she discovered that one-fifth of adjuncts had no health insurance and that half of all respondents were seeking full-time employment but were unable to attain it. “The work is there,” Wangerin tells me, “they just don’t want to pay.”  A one-time adjunct and contract lecturer myself, I decide to look into the matter more deeply. Are Wangerin’s contentions particular to her own experience or are they more widely shared across the United States? And if they are, what does this mean for higher education? Information, as it turns out, isn’t hard to come by. I write one message to a long-time Twitter contact who also happens to be a contingent faculty member and my inbox explodes. As I sort through my e-mails a picture of higher education begins to emerge and, far removed from the conventional image of pipe-smoking professors in book-lined studies, it is largely one of exploitation and control. “I am currently teaching one class, and in all honesty, unemployment benefits pay double that,” a community college lecturer who wished to remain anonymous told me, “I would be better off not teaching at all.” An art professor from Ohio writes in to tell me that she’s just thrown in the towel after more than a decade of work: “My class was canceled two weeks before classes start and I decided to get my Alternative Educator License and teach at the high school level.”

Student Debt Is Tied to Lower Grades Among College Students -- Hillary Clinton’s plan for tuition-free college has gained a lot of support from young voters wary of student debt. But it’s also stoked a broader debate among economists and policy makers: Would insulating students from the cost of their education reduce their incentives to work hard and make smart choices about what they study? (Think of how government aid and insurance encourages ineffective but costly health-care procedures.) Supporters of free college just got new ammunition: A new study links student debt with lower academic performance. The working paper published Monday by the National Bureau of Economic Research shows that students whose college tuition was paid for exclusively by grants—which don’t have to be repaid—got better grades than their peers who took on student debt. The study pushes an interesting theory: Students who receive grants are essentially guilted into working harder.The research tracked two groups of students who graduated four-year colleges in 1993. The first group received grants exclusively to cover their college tuition. The second group received other forms of financial aid–mostly, loans, but also tuition reimbursement in exchange for part-time work (known as work-study). The grants-only students did significantly better than the second group, even when controlling for factors such as family background, race, academic ability entering college and test scores. Students who received grants achieved grades about 0.08 to 0.15 points higher, on a 4.00 scale, than their peers, write authors Peter Cappelli of the University of Pennsylvania’s Wharton School and Shinjae Won of the University of Illinois. They say the findings support the theory that when students receive grants, they feel more obligated to get better grades than if they were receiving loans. “The grants create pressure to reciprocate by taking academic performance more seriously,” they write. Students with loans, by contrast, may have “viewed their education as less worthwhile than those who only received grants,” they write. That’s “consistent with the notion of mental accounting, where the reminder of the payment makes them more critical of what they paid for.”

Few Recent Graduates Were Actually Forced to Work as Baristas, Study Finds -- At one point during the Great Recession, half of recent college graduates were underemployed. But contrary to popular perception, few occupied low-skill service positions, like that of the ubiquitous barista. In fact, fewer than 10 percent of recent graduates work in such jobs, according to a paper released this week by the National Bureau of Economic Research. “While there is some truth behind the popular image of the college-educated barista,” the report reads, “this picture is not an accurate portrayal of the typical underemployed recent college graduate.” Recent graduates were much more likely to work in higher-paying jobs that do not require a degree but earn more in those positions than co-workers without one. The report also cites evidence to suggest that entering a poor job market may have long-term effects on an individual’s earning power, though the effects “differ greatly by college major and ability.” The report, written by Jaison Abel and Richard Deitz, covers 2009 to 2013 and defines a recent graduate as anyone 22 to 27 with a bachelor’s degree. Other notable findings:

  • Degree-holders are half as likely as their peers to work as physical laborers or in low-skill service positions.
  • Students who double majored or had graduate degrees are less likely to work in low-skill service jobs.
  • Men are more likely to be underemployed than women, but are also better paid.
  • Women are more likely than men to move on from underemployment by their late 20s.
  • Graduates who held liberal-arts or other general degrees are up to three times as likely to be underemployed as graduates with more field-specific degrees.

 Comptroller: NY student loan debt hits $82B - Capitol Confidential: The growing debt load is likely the result of rising college costs and a steady increase in the number of individuals taking out student loans, the report finds. The average cost for tuition, fees, room and board at four-year institutions rose by more than 50 percent for in-state students at both public and private schools in New York. In the 2014-15 academic year, the average cost of public college was $20,549, up from $13,275 in 2005-06. The average cost of private college was $48,845, up from $32,478 over the same time frame. The number of students taking out college loans in New York rose by more than 41 percent to 2.8 million over the past decade. Nationwide, that rise was sharper, with borrowing up nearly 60 percent to 43.7 million. The average New Yorker with college loan debt owed $32,200 in 2015, about 8.4 percent higher than the national average of $29,700, the report found. See the full press release and report below:

New Report Outlines Higher Education’s $2.7 Billion ‘Debt Bomb’ -- Rana Foroohar  - As I’ve written recently, higher education, and in particular the for-profit sector, has become increasingly financialized—meaning, it is focused on money over outcomes and engaged in financial machinations that actually undermine the quality of the core business proposition, which is supposed to be turning out well-prepared students. But the problems aren’t limited to the for-profit sector alone. A new study out Tuesday from the Roosevelt Institute shows that non-profit public and private colleges and universities are increasingly involved in risky deals with Wall Street that are putting them at huge financial risk. A detailed case study of 19 major institutions, ranging from Ivy League schools like Harvard and Columbia, to state universities like the University of Michigan, to a variety of smaller state schools local community colleges, found that these institutions were involved in risky swaps deals that had already cost schools $2.7 billion in unnecessary fees—enough to pay tuition and school fees for 108,000 students in the sample group. That is money which, as the report notes, has siphoned “billions of dollars out of these schools’ budgets, at a time when schools are increasingly passing on their costs to students, including borrowing costs, and for public schools, costs related to decreases in state and federal funding.” What’s more, in order to get out of the bad derivatives deals, schools would have to pay an estimated $808 million in penalties to lenders.  Why are such schools cutting risky deals with the Street, the very same sort of bad deals that brought down public governments in places like Detroit? The fall in state funding for public universities over the last two decades is a core part of the story; those cuts are due not only to the financial crisis but over the longer term to the tax revolt in various red states (thank you Grover Norquist and the Koch Brothers). But as the Roosevelt study outlines, the borrowing isn’t just down to a need to pay for high quality education for students, but also “an amenities arms race,” in which colleges are competing with each other to nab rich, full fee-paying students by building fancier facilities, students centers, and luxurious housing. In a separate study, Charlie Eaton, a University of California Berkeley sociologist, and his colleagues found that only about 25 % of all interest payments on debt being made by schools were for investments in classroom construction or other instruction related projects. The majority is going to build things like new stadiums, cafeterias, and rec center. All of this has resulted in a huge borrowing boom amongst colleges and universities – between 2003 and 2012, per student spending on debt interest payments increased 45 % at public colleges, 23 % at private colleges and an eye popping 76 % at community colleges.

As Student Loan Defaults Increase, So Do the Scams - NBC News: The dramatic rise in student loan defaults has created a space for scammers to flourish, according to the Consumer Financial Protection Bureau. "This bears an eerie resemblance to the foreclosure rescue scams that emerged in the wake of the mortgage meltdown," said the CFPB's Student Loan Ombudsman Seth Frotman. Student loans can be a financial burden for decades after going to college. For someone who's struggling to make their monthly payments, a company that promises lower payments or total loan forgiveness, seems like a godsend.Here's the rub: The ads never mention that there's an upfront fee, typically $600 to $1,200. And despite the claims of "guaranteed results" and "customized programs," these companies don't do anything special.  The Consumer Financial Protection Bureau told NBC News it's seen an increase in the number of companies that charge large upfront fees to get borrowers into government debt relief plans they could sign up for on their own - for free.  Consumer advocates say the postcards, texts, emails and online ads for these debt relief companies are typically high pressure and often highly misleading:

  • Most are designed to make it look like the company has a special relationship with the federal government. They do not.
  • Many use the Department of Education logo without permission.
  • Some reference the "Obama New Student Loan Forgiveness Program" and make it sound like they are the only ones that can access these federal benefits. Fact: There is no such Obama program.

 The Government’s Plan to Reduce Student-Loan Defaults Helps Borrowers Who Need It Least - The Obama administration has sought to stem a surge in Americans defaulting on their student loans by slashing borrowers’ monthly payments through so-called income-based repayment plans. Enrollment in the plans—which set borrowers’ bills as a small percentage of their incomes—has soared over the past three years. But new research shows there’s a flaw in the administration’s strategy: The program isn’t reaching many borrowers who need it the most. A study published Tuesday by the Urban Institute, a left-leaning think tank, shows that the programs have only modestly reduced defaults. The reason: Borrowers who have enrolled in the plans are the least likely to default in the first place. These borrowers tend to have higher student-loan balances and credit scores than those who remain in standard repayment plans, the study shows. That suggests they attended well-regarded colleges—which charge higher tuition than less-regarded ones—and graduate, medical and law schools. Such borrowers are much more likely to be employed and earning high salaries than those with lower credit scores and balances. The implication is income-based repayment is largely helping white-collar workers while failing to reach a big chunk of the college dropouts and graduates of for-profit schools and community colleges, who studies show are most likely to default. “It appears that borrowers who choose to use modified repayment have many characteristics that already make them less likely to default,” writes Urban Institute research associate Kristin Blagg, the study’s author. Ms. Blagg showed that 8% of borrowers with modified plans later defaulted, which she defines as having gone more than 120 days without making a payment. By comparison, 19% of borrowers in standard plans defaulted, leaving an 11-percentage-point spread between the two groups. But when controlling for characteristics such as age, previous delinquency, loan principal, credit score, and location, the spread shrinks to three percentage points, Ms. Blagg writes.

 Illinois State Pension Board Stops Trying to Beat the Market - WSJ: The board overseeing 401(k)-style benefits for 52,000 Illinois state workers has terminated all money managers who try to handpick winners, a major embrace of low-cost funds that instead mimic the markets. The Illinois State Board of Investment, in a 7-to-1 vote on Thursday, jettisoned mutual funds sold by T. Rowe Price Group Inc., TROW -0.57 % Fidelity Investments, Invesco Inc. and four others. The pullback means roughly $2.8 billion of Illinois state-employee retirement assets—representing roughly two-thirds of the $4 billion fund—would now be in the hands of Vanguard Group and Northern Trust. NTRS 0.22 % The shift would dramatically reduce outside management fees paid plan-wide, dropping from more than $10 million annually to $1 million, Marc Levine, the board’s chairman, said in an interview. On a per-participant basis, it equates to fees being shaved to about one-fourth of the previously paid total.

'We're beyond crisis': Oregon's public pension problem brings official to tears | KVAL: (AP) — Just how bad is Oregon's public pension funding crisis? Bad enough that Rukaiyah Adams, the normally polished investment professional who is vice chair of the Oregon Investment Council, broke down in tears last week as she spoke of passing a record $22 billion in unfunded promises to future taxpayers. "My call to the legislature and to the governor is for leadership on this, and I mean right now," Adams said during last Wednesday's joint meeting of the Oregon Public Employees Retirement System board and the citizen panel that oversees its investments. "This is becoming a moral issue. We can't just talk about numbers anymore." The numbers are bleak. Oregon's pension system owes billions of dollars more to retirees than it has, and the last major attempt to fix the problem was shot down in courts. This month, cities, school districts and others will find out how much more they'll pay to help prop up the system. Higher pension costs could come at the expense of funding for other needs, including social services, infrastructure investments and education programs. Last week's meeting was extraordinarily candid. And it provided a brief, reality-based peek behind the financial charade taking place not only in Oregon's pension system, but also in systems across the country. Experts openly acknowledged they're understating the magnitude of Oregon's problem. They're relying on optimistic assumptions about investment returns. And they're holding down required pension payments below what's needed to keep pace with the debt, to avoid eviscerating school and government budgets across Oregon.

CalPERS forecasts funding gap could grow to $9.2 bln in 15 years - The United States' largest public pension fund, the California Public Employees' Retirement System (CalPERS), forecast on Monday that benefits paid to retirees would outpace projected income by $9.2 billion within 15 years. The funding gap is projected to widen from about $1.2 billion this year, according to CalPERS. "This is really a sobering look at what's going on," Board Member Theresa Taylor said during a presentation. Such warnings have been echoed by public pension funds across the nation, where the costs of aging baby boomers and expensive retirement benefits are growing faster than contributions from current public workers and municipal governments. Last year, CalPERS' cash flow flipped negative, meaning retiree pension costs were larger than worker contributions and investment income. As a result, the public pension fund has been scrutinizing its investments with an eye toward reducing volatility. The forecast presented on Monday assumed a 7.5 percent return on investments, a goal that Chief Investment Officer Ted Eliopoulos has warned may not be possible for the $307 billion fund to achieve in coming years. "We are going to face challenges as a committee and as a staff," said Eliopoulos on Monday. "The path of returns is very consequential here, and we can't predict it." (

Court rules Kentucky pension systems can be sued for bad investments  --Kentucky Retirement Systems cannot cite sovereign immunity to avoid a lawsuit alleging it has squandered hundreds of millions of dollars on “illegal and imprudent investments,”  the state Court of Appeals ruled FridayThe suit, filed as a class action in 2014 by the Northern Kentucky city of Fort Wright, alleges that KRS violates the law with risky investments in hedge funds, venture capital funds, private equity funds, leveraged buyout funds and other “alternative investments” that have produced small returns and excessive management fees. KRS is the public agency responsible for providing retirement benefits to more than 355,000 past and present employees of local and state governments. In its defense against the suit, KRS said it could not be sued because of sovereign immunity — a legal concept that generally protects governments from legal liability. A Franklin Circuit Court judge rejected KRS’ defense, a decision the Court of Appeals upheld on Friday. Among the flaws in KRS’ argument, the appeals court said, the law establishing the KRS board of trustees explicitly says the board can sue and be sued in return. “As a contributor to (KRS) on behalf of its employees, the city has an interest in requiring the board to act in accordance with the law,” Judge Christopher Shea Nickell wrote for a unanimous three-judge panel.  The city’s suit now proceeds in Franklin Circuit Court. KRS has $14.9 billion in assets, but more than a decade of inadequate funding by the state government has left it with billions of dollars in unfunded liabilities. Its largest pension fund for state retirees has only 17 percent of the money it’s expected to need for promised benefits.  The Herald-Leader reported last month that KRS is doubling down on a hedge fund that is one of its worst performers: Prisma Capital Partners’ Daniel Boone Fund, which represents 5 percent of the systems’ assets and produced a negative 8 percent return in fiscal 2015. KRS officials defended the investment, saying that hedge funds give the systems’ portfolio diversity over the long run.

Reckoning Comes for U.S. Pension Funds as Investment Returns Lag -  The $1.9 trillion shortfall in U.S. state and local pension funds is poised to grow as near record-low bond yields and global stock-market turmoil reduce investment gains, increasing pressure on governments to put more money into the retirement systems. With the Federal Reserve deciding to hold interest rates steady at its meeting Wednesday, the funds will continue to be squeezed by rock-bottom payouts on fixed-income securities just as stocks fall overseas and post only modest U.S. gains. As a result, pensions in Illinois, Missouri and Hawaii this year have moved to roll back the assumed rate of return on their investments, joining the dozens that have taken that step over the past two years.“There’s little light at the end of the tunnel as far as pension funding is concerned,”   “I expect funded ratios will drop further. It’ll require increased pension contributions on the part of the states and local government, but most state and local governments don’t have the ability to do so.” Pensions count on annual investment gains of more than 7 percent to cover much of the benefits that come due as workers retire. But public plans had a median increase of 1 percent for the year ended June 30, the smallest advance since 2009, when they lost 16.2 percent, according to the Wilshire Trust Universe Comparison Service. The chief investment officer of the California State Teachers’ Retirement System, the nation’s second-biggest public pension, on Tuesday said it posted similar returns, falling short of its target for a third straight year. When investments lag expectations, governments and employees can be called upon to increase annual contributions to make up for the shortfall that’s left behind. The decision by the Illinois Teachers’ Retirement System in August to cut its annual return forecast may increase the state’s pension bill by nearly half a billion dollars.

NYT’s Public Pension Birtherism - Dean Baker - The NYT seems determined to do the equivalent of birtherism with public pensions, implying that there is some conspiracy in the way they do their accounting.. The paper ran a major business section article today headlined, "a sour surprise for public pensions: two sets of books." The "surprise" should hardly be a surprise to anyone familiar with public pension systems. Pensions calculate liabilities based on the expected rates of return for the assets they hold. This calculation tells governments how much they should expect to put into the fund each year on order to meet their obligations to their retirees. If they do their projections correctly (this is not an issue raised in the piece) then this should be the number that governments are most interested in. However, the piece highlights "the second set of books." This is market value of pension funds assets and liabilities. This is where the pensions would sit today if they wanted to cash out of the system, which is exactly the situation described in the piece. The market value would make a pension look considerably worse, since they would have to use a lower discount rate (typically the interest rate paid on either Treasury bonds or municipal bonds) to assess the liability of the funds. The fact that the latter would show a worse situation for pensions is hardly a secret, nor is it particularly hard to determine the larger liability, at least to a close approximation. If anyone has a knowledge of the projected stream of payouts for a pension, it is a simple matter to throw this up on Excel spreadsheet and apply a different discount rate to it. In other words, this is a great non-scandal, just like President Obama's real birth certificate.

Retirement Crisis Looms As Average U.S. Household Has Saved $2,500 For Retirement - The global demographic crisis expected to play out over the coming years has been a frequent topic of ours (you can read our most recent post on the topic here:  "DB Warns 35-Year Economic Super Cycle Is Officially Ending").  The problem, of course, is that baby boomers all over the globe are on the verge of transitioning out of their highest wage earning years and into retirement.  That transition brings with it all sort of negative consequences ranging from the detrimental impact on average incomes and GDP to exposing the epic ponzi schemes that workers have heretofore referred to by their more common names of pension plans, social security, medicare and medicaid.  A report from the National Institute on Retirement Security (NIRS) recently pointed out just how ill prepared American's are for retirement.  The study by the NIRS found that the average American household has $2,500 saved for their retirement.  Even worse, the study found that even people near retirement (aged 55-64) have only set aside $14,500 which should allow them to live very comfortably for about 2-3 months.

It’s a Medicare surprise for senior citizens not paying attention - What you don’t know can hurt you.  A special Medicare provision that allows private health insurance companies to enroll individuals who become eligible for Medicare into their Medicare Advantage coverage is costing surprised patients lots of money, according to news reports. The little-known rule, called “seamless conversion,” means some health insurance companies are automatically signing members of its non-Medicare insurance plans into their Medicare plans when they reach 65, the age of Medicare eligibility.  Medicare rules require a health insurance company to send a letter explaining the new coverage, which takes effect unless the member opts out within 60 days, according to Kaiser Health News. But many seniors are tossing out these letters. They find out they’ve been auto enrolled only when they get a bill from a physician or a hospital. The Centers for Medicare & Medicaid Services has said it eventually will release a list of insurance companies that have received approval for seamless conversion, but that has yet to happen. CMS also has declined to say how long the practice has been allowed. Cigna, Anthem and other Blue Cross Blue Shield subsidiaries also declined to discuss whether they are automatically enrolling beneficiaries as they turn 65. Aetna, however, is expected to make the conversion for its Medicare-eligible members in 17 Florida counties beginning in November. The company will give potential beneficiaries 90 days advance notice instead of the required 60 days to opt out. United Healthcare also will start to enroll members of its Medicaid plans in Tennessee and Arizona into its Medicare Advantage plans automatically, a spokeswoman said. And Humana has applied for federal permission to do auto-enrollment.

Crapifying Medicare with the New MACRA Program -- Lambert Strether --MACRA stands for “Medicare Access and CHIP Reauthorization Act,” and there’s something pleasingly meta, even a foretaste of what is to come, in the fact that “MACRA” is an acronym that includes an acronym (CHIP, Children’s Health Insurance Program). The American Hospital Assocation (not a disinterested player, but that is a topic for another post) summarizes MACRA as follows:The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 makes sweeping changes to how Medicare will pay for physician services. The legislation repeals the flawed Medicare physician sustainable growth rate (SGR) formula and, instead, provides predictable payment increases. The law also calls for the Centers for Medicare & Medicaid Services (CMS) to implement a new two-track payment system for physicians and other eligible professionals. The intent of the two tracks is to tie an increased percentage of physician payments to outcomes through the Merit-based Incentive Payment System [MIPS] and to encourage the adoption of “alternative payment models” (APMs). APMs move payment away from fee-for-service reimbursement, and instead pay providers based on the quality and cost of care for particular episodes (e.g., bundled payment), or defined patient populations (e.g., accountable care organizations).  (MACRA is one of those “bipartisan” bills that gives you the idea that the only thing the two parties can ever agree on is screwing the rest of us.)

 The Vexing Economics of Obamacare - Will anyone be able to figure out American health care? So far, perhaps the world’s most byzantine arrangement of doctors, hospitals, clinics, contractors, pharmaceutical companies, private insurers, public insurers, medical schools, nursing homes, and dozens of other stakeholders has been less a coherent system than a collection of discount-furniture bits and pieces thrown on a floor with no instructions for assembly. Each individual piece usually works well and America’s doctors especially do pretty good jobs—that’s why they earn the big bucks—but fusing these disparate components to make a coherent health economy has often looked more like alchemy than science. The Affordable Care Act has been the most recent attempt at transmuting the pieces of health care into a well-functioning whole. Recent news, however, including Aetna’s sudden exit from states’ health-insurance exchanges and forecasts of a spike in insurance premiums, has cast serious doubt on the chances of that undertaking succeeding. Is this turbulence to be expected or is it a sign that Obamacare is buckling under the strain of impossibility?  American health-care reform has always struggled to align two concepts that tend to be inversely related: access and affordability. Care is expensive to provide, but it doesn’t quite adhere to classic supply and demand curves for a number of reasons, including the fact that health insurance shields most patients from direct costs and because the government is so heavily involved in the market. Insurance is usually a good thing for patients, though, because it is the only thing that allows many Americans to afford even some basic health services without going bankrupt.  Insurance is, however, a major contributor to the irreconcilability of access and affordability. In most insurance markets, the incentive is for insurers to pay for as few things as possible in exchange for regular, guaranteed premiums; the risk insurers shoulder of having to pay for services for any enrollee is reflected in those premiums. Life insurance’s example as perhaps the ideal insurance market makes that clear: Everybody will die, of course, but death is an increasingly likely event for older people and people with certain conditions and behaviors, like smoking. No life insurer would take on an enrollee who is obviously already dying.

Rising Obamacare premiums are still lower than employer-sponsored health insurance - People who warn that President Obama's healthcare law is in dire straits often point to rising health insurance premiums as proof. Sen. John McCain (R-Ariz.) has called premium increases on Affordable Care Act exchanges "astronomically high." Sen. Ron Johnson (R-Wis.), said premiums have "skyrocketed." But are these growing premiums actually high? A new analysis from the Urban Institute found that the average unsubsidized premiums in the Affordable Care Act exchanges, commonly known as Obamacare, are actually 10% lower than the full premiums in the average employer plan nationally in 2016. Nationally, the average employer-sponsored premium was $516 a month, while the unsubsidized marketplace premium was $464. To make an apples-to-apples comparison, the researchers adjusted marketplace premiums to account for the age of enrollees and the different values of the health coverage provided by the marketplace plans. The exchanges offer health coverage to people who aren't insured through their jobs, with subsidies based on income. About 11 million people are insured through the marketplaces, compared with about 155 million Americans who receive insurance coverage through employer-provided plans. Recent news of large insurance carriers pulling out of some states' marketplaces and raising premiums in others has raised concerns that offering health insurance through exchanges isn't sustainable and that the healthcare offered isn't affordable.  But the Urban Institute researchers found that, in more than three-quarters of states and 80% of the large metropolitan areas they studied, total premiums were lower in an average marketplace plan than in employer-provided plans. For example, in Boston, the premiums for marketplace plans were 35% cheaper than employer plans. In New York City, marketplace plans were 26% cheaper than employer plans.

America Is Not the Greatest Country on Earth. It’s No. 28 - Every study ranking nations by health or living standards invariably offers Scandinavian social democracies a chance to show their quiet dominance. A new analysis published this week—perhaps the most comprehensive ever—is no different. But what it does reveal are the broad shortcomings of sustainable development efforts, the new shorthand for not killing ourselves or the planet, as well as the specific afflictions of a certain North American country.   Iceland and Sweden share the top slot with Singapore as world leaders when it comes to health goals set by the United Nations, according to a report published in the Lancet. Using the UN’s sustainable development goals as guideposts, which measure the obvious (poverty, clean water, education) and less obvious (societal inequality, industry innovation), more than 1,870 researchers in 124 countries compiled data on 33 different indicators of progress toward the UN goals related to health.  The massive study emerged from a decade long collaboration focused on the worldwide distribution of disease. About a year and a half ago, the researchers involved decided their data might help measure progress on what may be the single most ambitious undertaking humans have ever committed themselves to: survival. In doing so, they came up with some disturbing findings, including that the country with the biggest economy (not to mention, if we’re talking about health, multibillion-dollar health-food and fitness industries) ranks No. 28 overall, between Japan and Estonia.

EpiPen Maker Lobbies to Shift High Costs to Others - Against a growing outcry over the surging price of EpiPens, a chorus of prominent voices has emerged with a smart-sounding solution: Add the EpiPen, the lifesaving allergy treatment, to a federal list of preventive medical services, a move that would eliminate the out-of-pocket costs of the product for millions of families — and mute the protests.Dr. Leonard Fromer, an assistant clinical professor of family medicine at the University of California, Los Angeles, just promoted the idea in the prestigious American Journal of Medicine. A handful of groups are preparing a formal request to the government. And Tonya Winders, who runs a patient advocacy nonprofit organization, reached out late last month to crucial lawmakers on Capitol Hill.“We can save lives by ensuring access to these medications,” said Ms. Winders, chief executive of the Allergy and Asthma Network.A point not mentioned by these advocates is that a big potential beneficiary of the campaign is Mylan, the pharmaceutical giant behind EpiPens. The company would be able to continue charging high prices for the product without patients complaining about the cost.  An examination of the campaign by The New York Times, including a review of documents and interviews with more than a dozen people, shows that Mylan is well aware of that benefit and, in fact, has been helping orchestrate and pay for the effort.

Forensic techniques sending people to prison may not be scientifically valid - The White House's Council of Advisors on Science and Technology said in a report released Tuesday that widely used forensic techniques may not pass scientific muster, and should be reviewed for accuracy. The advisory group's report said "feature-comparison" forensic techniques like bite mark comparison, analysis of firearms, and methods for DNA comparison should be better scrutinized, and new techniques should be given more attention for scientific validity in the future. The techniques have been used for years, but their accuracy has often been the target of criticism. Tuesday's report was partly called for in response to a damning 2009 report calling into question the validity many forensic techniques that have sometimes been used in convictions that were later overturned.  The authors of the White House report said the committee drew on more than 2,000 papers and interviews with stakeholders to reach its conclusions. Among other suggestions, the report recommends the National Institutes of Standards and Technology release an annual report detailing evaluations of feature-matching techniques. It also suggests the Justice Department tell attorneys representing the government to make sure expert testimony is scientifically valid. "We believe the findings and recommendations will be of use both to the judiciary and to those working to strengthen forensic science," the report reads. Already, however, the Justice Department has said it rejects the recommendations from the report. "While we appreciate their contribution to the field of scientific inquiry, the department will not be adopting the recommendations related to the admissibility of forensic science evidence," Attorney General Loretta Lynch said in a statement to The Wall Street Journal.

Drugmakers fought domino effect of Washington opioid limits -- When Washington state made one of the first major moves to place limits on opioid painkiller prescriptions, pharmaceutical companies fought back — using the Pain Care Forum, a national network of drug companies and opioid-friendly nonprofits, many of them funded by drugmakers.  Alarm bells rang at the forum in 2007 after Washington state’s agency medical directors — spurred by overdose deaths of patients in the worker’s compensation system — drafted guidelines that would require pain specialists to approve high doses of opioids.  Worried the guidelines would create a “domino effect” of other states adopting restrictive policies, the forum agreed to pay a public relations consultant $85,000 to prep speakers, draft patient testimonials and coordinate an educational initiative focused on elected officials and the state medical board, documents obtained by the Center for Public Integrity and The Associated Press reveal. The core message of the campaign: Patients should have access to painkillers.  Purdue Pharma also wrote one of the Washington medical directors, calling the new proposed guidelines too tough. The company knew the role painkillers have played in America’s addiction crisis: Its executives pleaded guilty to misleading the public about their drug OxyContin’s risk of addiction that year. The same internal memos show that advocates affiliated with the Pain Care Forum met with the Washington governor’s chief health adviser to discuss the "unintended consequences" of the guidelines. They also helped defeat a resolution from the state medical association, which represents doctors,  that would have supported the guidelines.

A searing new report claims opioid drugmakers spent 8 times as much as the NRA on lobbying --A searing new report from the Associated Press claims that the makers of opioid painkillers, the dangerous drugs at the center of the tragic overdose crisis, outspent the US gun lobby on lobbying and campaign contributions by 8:1.  The report looked at the period from 2006 to 2015, when deaths from the drugs began to skyrocket. Here are some of its most striking findings:

  • Opioid drugmakers including Purdue Pharma, the maker of OxyContin, spent more than $880 million, or roughly $98 million per year, on lobbying and campaign contributions that included efforts to support the drugs.
  • Drugmakers and allied advocacy groups employed a yearly average of 1,350 lobbyists in legislative centers.
  • In 2015 alone, 227 million opioid prescriptions were given out in the US, or "enough to hand a bottle of pills to nine out of every 10 American adults."
  • Purdue Pharma, the company that makes OxyContin, made $2.4 billion from opioid sales last year alone.

Worse still, the same drug companies now stand to make more money off of new iterations of the pills which they're marketing as safer and tougher to abuse but which may not actually work to stem the tide of overdose deaths, the report states. According to the report, opioid drugmakers are behind state-based lobbying efforts aimed at peddling so-called "abuse-deterrent" versions of the drugs which may carry the same risks of addiction but "ultimately are more lucrative [than traditional opioids], since they're protected by patent and do not yet have generic competitors."  The opioid epidemic has already claimed more than 165,000 American lives. Deaths from the drugs — which dozens of studies have shown can be addictive since they act on the brain in a manner almost identical to heroin — have continued to skyrocket. In 2013, more Americans died from overdosing on opioid painkillers than from heroin or cocaine combined.

Canada Just Legalized Heroin For Medical Use --Much like in the United States, Canada has seen a spike in the rates of opiate use among its populace. Over a four-month period early this year, 256 Canadians died after overdosing on fentanyl, the same substance tied to “bad batches” of heroin that have been killing Americans. In order to respond to what Canadian officials see as a growing threat, Health Canada  launched new proposals in May to “allow doctors to prescribe heroin to some opioid addicts who do not respond to treatments such as methadone.” On September 8, Canada enacted these new rules as a response to the country’s “opioid overdose crisis.” But despite the changes, drug war laws remain mostly in place, meaning the only change regulators made was to the health code, allowing healthcare providers to prescribe the substance only to individuals who have an addiction problem. Also, these prescriptions may only happen “under a special-access program in cases where traditional treatment has failed.” To users who are not considered addicts, however, heroin access remains restricted.

How the Sugar Industry Buys Academia and Politicians - Last week, historical documents were released showing that the sugar industry paid Harvard scientists in the 1960s to produce research that downplayed the connection between sugar and heart disease, and instead laid the blame on saturated fat. According to The New York Times, the documents, released by a researcher at the University of California, San Francisco, suggested that five decades of scientific research into the interconnection between nutrition and heart disease “may have been largely shaped by the sugar industry.”1)Anahad O’connor, “How the Sugar Industry Shifted Blame to Fat,”. The New York Times, September 12, 2016.  The recent revelations were in line with the industry’s repeated attempts to play down the health risks involved with increased sugar consumption. In the 1970s, as scientists and media began to connect sugar with illnesses such as obesity and diabetes, the Sugar Association— an industry trade group—ran a successful PR campaign that even led the American Heart Association and the American Diabetes Association to approve sugar as part of a healthy diet.2)Gary Taubes and Cristin Kearns Couzens, “Big Sugar’s Sweet Little Lies.” Mother Jones, December 2012.  Over the years, the industry has also invested heavily in lobbying and political contributions, using its influence with legislators to deter regulatory oversight. In 2003, for instance, when the World Health Organization recommended that people reduce the amount of sugar they consume, American sugar companies threatened to appeal to Congress to cut the WHO’s funding.3)Sarah Boseley, “Sugar Industry Threatens to Scupper WHO.” The Guardian, April 2003.  The recent revelations regarding the way the sugar industry influenced scientific research serve as a backdrop to the industry’s ongoing political activity. While the rift between Hillary Clinton and Donald Trump continues to deepen, there is at least one place they can both turn to for support: the Florida-based Fanjul brothers, who just last month hosted fundraiser events for both Trump and Clinton–separately of course, and without much media attention.4)

How the FDA Manipulates the Media - Scientific American: It was a faustian bargain—and it certainly made editors at National Public Radio squirm. The deal was this: NPR, along with a select group of media outlets, would get a briefing about an upcoming announcement by the U.S. Food and Drug Administration a day before anyone else. But in exchange for the scoop, NPR would have to abandon its reportorial independence. The FDA would dictate whom NPR's reporter could and couldn't interview. “My editors are uncomfortable with the condition that we cannot seek reaction,” NPR reporter Rob Stein wrote back to the government officials offering the deal. Stein asked for a little bit of leeway to do some independent reporting but was turned down flat. Take the deal or leave it. NPR took the deal. “I'll be at the briefing,” Stein wrote. Later that day in April 2014, Stein—along with reporters from more than a dozen other top-tier media organizations, including CBS, NBC, CNN, the Washington Post, the Wall Street Journal and the New York Times—showed up at a federal building to get his reward. Every single journalist present had agreed not to ask any questions of sources not approved by the government until given the go-ahead. “I think embargoes that attempt to control sourcing are dangerous because they limit the role of the reporter whose job it is to do a full look at a subject,” says New York Times former public editor Margaret Sullivan. “It's really inappropriate for a source to be telling a journalist whom he or she can and can't talk to.”

Cancer-Causing Chemical Found in Drinking Water of 218 Million Americans =Drinking water supplies for two-thirds of Americans are contaminated with the carcinogenic chemical made notorious by the film, Erin Brockovich , which was based on the real-life poisoning of tap water in a California desert town. But there are no national regulations for the compound—and the chemical industry is trying to keep it that way.  The Environmental Working Group (EWG) released an analysis Tuesday of more than 60,000 tap water tests conducted nationwide, finding that chromium-6, or hexavalent chromium, is in the tap water of more than 218 million Americans. That's two-thirds of the U.S. being served water with chromium-6 at, or above, the level that California state scientists consider safe. The California public health goal allows a chromium-6 level expected to cause no more than one case of cancer in 1 million people who drink it for lifetime.  Though far more permissive than its public health goal, California is the only state that has set an enforceable legal limit for chromium-6 in drinking water. Federal chromium regulations, set in 1991, do not specifically address chromium-6 and do not consider current science showing that drinking water contaminated with the chemical can cause cancer. Chromium is a naturally occurring element but can also be manufactured. The two main types are chromium-3—an essential human nutrient considered to be mostly harmless—and chromium-6, which has long been known to cause lung cancer when airborne particles are inhaled. Recent science has also shown that, when ingested, it can cause stomach cancer. Chromium-6 is used in chrome plating, wood and leather treatments, dyes and pigments, and the water in cooling towers of electrical power plants.Interactive map of chromium-6 in U.S. drinking water shows an estimated 218 million Americans served unsafe levels of the chemical. Environmental Protection Agency, UCMR-3

Chemicals in indoor dust tied to antibiotic resistance  (Reuters) – Slowing the rise of antibiotic-resistant “superbugs” may take more than just curbing overuse of antibiotics or eliminating antimicrobial chemicals from household products like soap and cosmetics, a new study suggests. It may also require taking a closer look at antimicrobial chemicals like triclosan that are found in indoor dust, said lead study author Dr. Erica Hartmann, a researcher at Northwestern University in Evanston, Illinois.   “We need to find responsible ways to use antimicrobials and antibiotics everywhere - at home, in agriculture, and in medicine - to truly tackle the problem of antibiotic resistance,” Hartmann, who worked on the study while a researcher at the University of Oregon, said by email.  “In some cases, like in household soaps, that may mean not using them at all,” Hartmann added.  Hartmann and colleagues analyzed dust samples from an indoor athletic and educational facility and found links between antimicrobial chemicals and antibiotic-resistance genes in microbes.  For instance, dust samples with higher amounts of triclosan also had higher levels of a gene that's been implicated in bacterial resistance to multiple drugs. While they found only very small amounts of triclosan – less than many household products contain – the connection suggests a need to investigate how these chemicals in dust may contribute to antibiotic resistance, the researchers conclude.  Earlier this month, the U.S. Food and Drug Administration banned over-the-counter bar soaps and certain other consumer products that contain triclosan and other antibacterial chemicals. The ban didn’t cover hand sanitizers or antibacterial products used in hospitals.  The ban also doesn’t apply to lots of other products that contain these chemicals, including paints, toothpaste, baby toys, bedding, and kitchen utensils, Hartmann said.  “Right now, we don’t know how much of the triclosan we see in dust comes from soap versus other products (building materials, paints, plastics, etc.),” Hartmann said. “In a lot of cases, the antimicrobial chemical can just be omitted and the product is still just as effective.”

 Get Your Children Good and Dirty - WSJ: For most of the past century, we have considered microbes bad news, and for good reason: They cause disease, pandemics and death. Most human communities have experienced the benefits of medical advances like antibiotics, vaccines and sterilization, which have radically reduced the number and severity of infections that we suffer throughout life. Dying from a microbial infection is now a very rare event in the Western world, and, in the U.S., lifespans have increased by some 30 years since 1915—in large part because of success against infectious diseases. Unfortunately, this progress has come with a price, as news reports have been telling us for some years now. Our anti-microbe mission has been accompanied, in industrialized countries, by an explosion in the prevalence of chronic noninfectious diseases and disorders. Diabetes, allergies, asthma, inflammatory bowel diseases, autoimmune diseases, autism, obesity and certain types of cancer are at an all-time high. The incidence of some of these disorders is doubling every 10 years, and they are starting to appear sooner in life, often in childhood. All of these diseases have a genetic component, but their alarming growth cannot be explained by genetics alone. Recent studies find a direct link between the presence and absence of certain bacteria and all of the chronic diseases mentioned above. It turns out that the microbes within us are much more than quiet residents; they are an inherent part of our physiology, and altering them leads to disease.Our own 2015 study (published in the journal Science Translational Medicine) found, for example, that 3-month-olds who had four particular microbes in their feces were much less likely to get asthma later in life. When those four microbes were introduced into mice, they protected against experimentally induced asthma, showing for the first time that alterations in gut microbes can drive the development of the disease. Lab experiments also have found that obese mice lose weight when they get a transfer of gut microbes from lean mice (and the reverse holds true as well, with lean mice growing fat after a transfer from obese mice).  The practical upshot of all this research is clear: Our health depends to a large degree on maintaining a robust and diverse community of microorganisms in our bodies—and establishing good gut-health as children is especially important.  From the moment we are born, we begin getting colonized by bacteria, which kick-start a series of fundamental biological processes, including the development of our immune system.  If deprived of this interaction, the immune system remains sloppy and immature, unable to fight off diseases properly.

Alarming Levels of Mercury Contamination Found Across Western North America -- An international team of scientists led by the U.S Geological Survey (USGS) released a comprehensive report last week showing widespread mercury contamination across western North American.  The report, based on decades of mercury data and research, found alarming levels of mercury and methylmercury in the forests, fishes, wildlife, plants and waterways of America's western landscapes. The USGS study provides the first integrated analysis of where mercury occurs in western North America, how it moves through the environment, and the processes that influence its movement and transfer to aquatic and ultimately, the human food chain.  Among the many disturbing findings are shocking accumulations of mercury in densely forested areas such as those found along the Pacific mountain ranges of California and Oregon. The scientific team showed that these critical ecosystems collect dangerous mercury loads because they receive high amounts of precipitation. Rainfall washes mercury from the atmosphere onto wet forested regions where it binds to the vegetation and accumulates in the soils and surface waters. From these vectors it can bioaccumulate in fish, including salmon.  The report confirms the findings of a January 2016 study that narrowly investigated mercury levels in rainfall. That study reported that the long-term trend of decreasing mercury levels in precipitation had leveled off and that some sites in the western U.S. were experiencing increases, which the investigators concluded were due to exploding mercury emissions from Asia.

When it rains it pours, and sewage hits the fan - Record rainstorms across the U.S. in the past year have continued to make national news, causing billions of dollars of flood damage and killing dozens. But what has barely made headlines are that these floods often cause massive overflows of untreated sewage into streams, rivers, bays, canals, and even streets and homes. See the full report. Climate Central has investigated the extent of these sewage overflows. In most cases, we found reports that millions of gallons of untreated sewage were released into streets and waterways. These overflows can have devastating consequences for public health and the environment: they can trigger dangerous outbreaks of waterborne diseases and are often linked to fish kills. And when sewage overflows into homes and businesses, expensive remediation and decontamination is needed to make them safe again.Worse was the discovery that the true extent of sewage overflow is often undocumented and largely unknown.From the 70 sewage overflows we identified that had occurred in the past 20 months, overflows of more than one billion gallons combined were reported, triggering health warnings in dozens of cities. Local officials confirmed that these reported volumes are likely underestimating the true extent of overflows; during these flooding emergencies, there is typically no reliable way to determine how much untreated sewage gets into the waterways.  With a backdrop of antiquated and overpopulated sewer systems, the increase in rain and heavy downpours in recent decades — one of the ongoing impacts of climate change — continues to trigger overflows that affect millions of Americans every year. While many cities are working toward upgrading their sewer systems, they can’t eliminate their sewage overflow risks entirely. Climate models project that both overall precipitation, and the amount of rain falling in heavy downpours, will continue to increase this century with continued climate change, which could cause even more overflows.

 Banning microbeads may not be enough to stop water pollution in our freshwater - For years, cosmetic, toothpaste, and body care product manufacturers added “microbeads,” microscopic balls of plastic, to their merchandise, touting their skin-exfoliating effects. A Congressional ban that goes into effect beginning in 2017 will put an end to the environmentally toxic practice, at least in the US. Researchers studying America’s waterways have now discovered microbeads may be the tip of the iceberg for plastic pollution.  A study published in Environmental Science & Technology on Sept. 14 found rivers and streams in the US are full of microplastic debris. Scientists studied 29 tributaries that flow into the Great Lakes across six states and floating microplastics were found in all 107 samples collected. The trash ranged from fragments, films, foams, and pellets (most prevalent in urban areas) to tiny fibers, potentially originating from fishing line, nets, and synthetic textiles.Concentrations peaked in Michigan’s Rouge River at 32 particles per cubic meter, but dropped as waterways passed through forested and undeveloped areas.  The most common debris throughout were the thin plastic fibers that come from textiles like clothing, carpet, and fishing gear, and which account for about 71% of the total plastic pollution in the samples. The researchers could not pin down a single source for the plastic fibers; in the study, they note they did not find higher concentrations near cities, wastewater treatment plants, and other likely contributing sites. That, in turn, suggests either multiple local sources or that the particles remain suspended in the water over long-distances.Plastic objects (styrofoam, plastic bags, bottles, wrappers, cigarette butts, tires) degrade over time, breaking into microscope plastic debris that runs off into the waterstream. Wastewater treatment plants capture heavier polyester fibers before they enter waterways like rivers and lake (though these fibers may make their way back into the water once treated sewage sludge from plants is applied to fields and golf courses). But the plants do not eliminate most microplastics. This pollution presents a danger to marine life by obstructing an animal’s digestive system, interfering with reproduction, and carrying harmful chemicals that can stymie development or even kill water-dwelling creatures.

A Mosquito Killer, Unwelcome to Many - A controversial pesticide, naled, was sprayed over Miami this month in an effort to eradicate Aedes aegypti, the mosquitoes spreading the Zika virus in southern Florida. The spraying has prompted protests from environmentalists and residents worried about naled’s toxicity. Here are some facts about the pesticide. Sold as Dibrom, naled is an organophosphate, a category of chemicals that also includes malathion; both are widely used to control mosquitoes. Organophosphates are the most common type of insecticide, but they have been removed from most home products. Naled is very lethal to insects, and toxic to some birds and freshwater fish. It is meant to be used at very low doses; it is released as an “ultra-low-volume” spray, and the amount distributed over a given area is supposed to be minute — about two tablespoons per acre.  Naled breaks down rapidly in sunlight and water, and does not persist in the environment, according to the Environmental Protection Agency. Researchers do not believe Aedes aegypti mosquitoes have developed resistance to naled as they have to other chemicals used to control their populations. Officials in the United States and Europe disagree over naled’s safety. It affects the enzymes that control muscle contraction.. Overdoses can cause vomiting, seizures and loss of consciousness. At extreme doses, from a spill for example, victims lose their ability to breathe, and die. It has been banned in the European Union since 2012 as a “potential and unacceptable risk” to humans and the environment, and because officials felt there was insufficient evidence that it worked well enough to justify that risk. Naled has been used in the United States since 1959, and the E.P.A. considers it safe for humans, including children, at the concentrations used in aerial spraying. Agricultural workers must wear protective equipment when the pesticide is used.  People are exposed to naled largely by eating foods on which there is residue. Naled is not permitted in some products, including flea treatments — for fear that children might receive large doses by stroking pets.

Greenpeace Investigation Uncovers Studies Showing Pesticides Pose Serious Harm to Honeybees --  Chemical giants Bayer and Syngenta commissioned private studies which showed that their neonicotinoidpesticides can cause serious harm to bees, a Greenpeace investigation has uncovered.  The revelations come with the UK set to decide its own policy on pesticide use once it leaves the EU. The UK lobbied against the current EU ban when it was introduced.  The company research—designed to reveal the level at which their products harm bees —was obtained through Freedom of Information Act requests to the U.S. environmental regulator. Publicly, the two firms have often sought to play down suggestions that their products can cause harm tohoneybees . However, the studies will cause little surprise in industry circles. Industry and scientists have long known that the products can harm bees at certain levels. Instead, the research has been criticized by experts because it assumes a very narrow definition of harm to bee health and ignores wild bees, which evidence suggests are more likely to be harmed by neonicotinoids. It means the studies may substantially underestimate the impact of the two firm's products on pollinators. Due to commercial confidentiality rules, Greenpeace Energydesk is not allowed to release the studies in full.

Pesticide Companies' Own Secret Tests Showed Their Product Harmed Bees - Agrochemical giants Syngenta and Bayer discovered in their own tests that their pesticides caused severe harm to bees, according to unpublished documents obtained through a Freedom of Information Act (FOIA) request by the environmental group Greenpeace.The companies conducted the trials on products that used the controversial pesticides known as neonicotinoids, or neonics, which have long been linked to rapid bee decline. Neonics are also the world's most commonly used pesticide.According to their own studies, Syngenta's thiamethoxam and Bayer's clothianidin were found to cause severe harm at high levels of use, although the effect was lessened when used under 50 parts per billion (ppb) and 40ppb respectively, the Guardian reports. However, as Greenpeace notes, the research "assumes a very narrow definition of harm to bee health and ignores wild bees which evidence suggests are more likely to be harmed by neonicotinoids." That means the findings may "substantially underestimate" the impact of neonics, Greenpeace said. Still, the studies are significant not just for the admission of risk to bees, which help pollinate three-quarters of the world's food supply, but also because they expose the agrochemical industry's disregard for environmental and food security concerns, experts said. "If Bayer and Syngenta cared about the future of our pollinators, they would have made the findings public. Instead, they kept quiet about them for months and carried on downplaying nearly every study that questioned the safety of their products. It's time for these companies to come clean about what they really know," Greenpeace's Ben Stewart told the Guardian.

Vietnam Welcomes Monsanto’s GMOs Despite Horrific Legacy of Agent Orange --One of Monsanto 's former companies , among nine contractors responsible for creating Agent Orange, sprayed more than 20 million gallons of the herbicide on an area of South Vietnam about the size of the state of Massachusetts between 1962 and 1971. In a caustic plot twist, the Vietnamese government says it hopes to have 30 to 50 percent of its cropland planted with GMOs by 2020—exactly 55 years after the U.S. government first devastated Ho Chi Minh City and surrounding areas. Monsanto and the U.S. government alike have issued statements saying Monsanto deserves no blame for making chemical agents that have caused hundreds of thousands of birth defects and contaminated Vietnam's land so inexorably that even without applying additional herbicides to transgenic crops, they shall remain toxic for decades.  Babies are still being born today with horrific birth defects —decades after Agent Orange was sprayed so haphazardly across Vietnam. Nearly 4.8 million Vietnamese people have been exposed, causing 400,000deaths and a grab bag of health issues that would make a haunted house seem cheery. An estimated 650,000 victims are suffering from chronic illnesses linked to Agent Orange in Vietnam, alone. The Vietnamese government has never officially stated its stance on the grievous actions of Monsanto and other military contractors for the U.S., focusing instead on reparations for victims of Agent Orange. As one of the makers of Agent Orange, Monsanto claims they were just following the recipe for the formula as directed by the U.S. government. Instead, the country seems to be embracing a company headquartered in the U.S. and its incessant propaganda promoting genetically modified organisms .

Bayer-Monsanto deal 'danger for our food': French chefs - Some of France's top chefs on Tuesday denounced the $66-billion takeover of controversial seed firm Monsanto by chemicals giant Bayer as a "danger for our dinner plates". "Nature, diversity and the quality of our food should not be crushed by the freedom-destroying steamroller of Bayer-Monsanto," they declared in an open letter signed by more than 100 chefs, winemakers and patissiers. "This new giant of seeds and pesticides has only one ambition - to control the complete food chain... citizens cannot stand by and watch their plates be filled with chemicals," it added. The chefs, who included the Argentina-born Mauro Colagreco, who runs the Mirazur restaurant on the French Riviera which was named the sixth best restaurant in the world earlier this year, said the EU was right to be worried by the merger. The bloc is investigating the likely impact of the massive deal -- the biggest ever undertaken by a German company -- which would need the approval of regulators. Monsanto's genetically modified crops, its herbicide Roundup and other pesticides "threaten cultural as well as agricultural diversity", the chefs said in their letter published on the Atabula website. "Without quality and healthy products and a diversity of crops, cooks can no longer exercise their creative talents," added the letter, which was also signed by three-star Michelin chefs Yannick Alleno and Michel and Sebastien Bras.

‘A Five-Alarm Threat to Our Food Supply’: Experts Describe Bayer-Monsanto Merger -It’s been about a week since Monsanto and Bayer confirmed their intention to say “I do”—ample time for media, lawmakers, consumer and farmer advocacy groups, and of course the happy couple themselves, to weigh in on the pros and cons. Reactions poured in from all the usual suspects. Groups like the Farmers Union, Food & Water Watch, Friends of the Earth and others didn’t mince words when it came to condemning the deal. (Organic Consumers Association tagged it a “Marriage Made in Hell” back in May, pre-announcement, when the two mega-corporations were still doing their mating dance).Predictably, the corporate heads of state last week promoted the proposed $66-billion deal as an altruistic plan to improve “the lives of growers and people around the world.” Last week, they told Senate Judiciary Committee members that the merger “is needed to meet a rising food demand.”Is anyone out there still buying the line that Monsanto and Bayer are in the business of  feeding the world? When the evidence says otherwise? Even if that claim weren’t ludicrous, who thinks it’s a good idea to entrust the job of “feeding the world” to the likes of Bayer, a company that—as part of the I.G. Farben cartel in the 1940s—produced the poison gas for the Nazi concentration camps, and more recently sold HIV-infected drugs to parents of haemophiliacs in foreign countries, causing thousands of children to die of AIDS? The sordid, unethical, greedy, monopolizing and downright criminal histories of both Monsanto and Bayer have been well documented. Does allowing them to merge into the world’s largest seed and pesticide company pose what two former Justice Department officials call “a five-alarm threat to our food supply and to farmers around the world?”

 Behind the Monsanto Deal, Doubts About the GMO Revolution - WSJ: Behind a wave of multibillion-dollar mergers in the agriculture business is a moment of change in American farming. The dominance of genetically modified crops is under threat. Since their introduction to U.S. farms 20 years ago, genetically engineered seeds have become like mobile phones—multifunctional and ubiquitous. Scientists inserted genes to make crops repel insects, survive amid powerful herbicides, survive on less water and yield oils with less saturated fat, in turn eliminating farmers’ amateur chemistry. The U.S. Department of Agriculture estimates this year that 94% of soybean acres were planted with biotech varieties, and 92% of corn acres. Today, farmers are finding it harder to justify the high and often rising prices for modified, or GMO, seed, given the measly returns of the current farm economy. Spending on crop seeds has nearly quadrupled since 1996, when Monsanto Co. MON 1.44 % became the first of the companies to launch biotech varieties. Yet major crop prices have skidded lower for three years, and this year, many farmers stand to lose money.Biotech farming has also shown limitations, given how certain weeds are evolving to resist sprays, forcing farmers to fork out for a broader array of chemicals. Some are starting to seek out old-fashioned seed, citing diminished returns from biotech bells and whistles. “The price we are paying for biotech seed now, we’re not able to capture the returns,” said Ohio farmer Joe Logan. This spring, Mr. Logan loaded up his planter with soybean seeds costing $85 a bag, nearly five times what he paid two decades ago. Next spring, he says, he plans to sow many of his corn and soybean fields with non-biotech seeds to save money. Those pressures have touched off a frenzy of deal making among the world’s top seed and pesticide suppliers. Bayer on Wednesday said it agreed to buy Monsanto for $57 billion, creating one of the world’s largest agrochemical firms. DuPont and Dow Chemical Co. are pursuing a merger that would eventually spin off a combined agricultural business, along with two other units. Syngenta agreed in February to a $43 billion sale to China National Chemical Corp., after turning down a takeover proposal from Monsanto.

Norway to Kill 47 of Its Remaining 68 Wolves -- Norway has announced plans to kill more than two-thirds of its remaining wolves, justifying the action as protection for livestock. The plan has sparked outrage by conservationists.  Three wolf packs , including pups, will be shot by hunters during Norway's annual hunting season, which runs from Oct. 1 to March 31. Last year, 11,571 people applied for licenses to kill just 16 wolves. This season's allotment would mark the largest wolf kill in the country since 1911. "This is an outright mass slaughter. Something similar we have not seen in nearly 100 years, when the policy was that all large carnivores would be destroyed," Nina Jensen, CEO of World Wildlife Fund (WWF) of Norway, told The Guardian. "To shoot 70 percent of the wolf population is not worthy of an environmental nation." She goes on to note, "This decision includes a wolf family in Letjenna who have not taken or eaten one sheep since they established themselves there in the winter of 2011/2012."  In Norway, farmers release about 2 million sheep to open grazing lands. Of these, estimates are that 120,000 go missing each year. Those lost include natural accidents, being hit by cars and trains, and predators including wolves and wolverines. Estimates for the numbers lost to wolf predation vary from 380 to 1,800 and may be influenced by Norway's compensation policy. Along with many other European countries, Norway compensates farmers for livestock losses due to wolves, creating an impetus for inflated numbers.

An American tragedy: why are millions of trees dying across the country? -- JB Friday, a forest ecologist at the University of Hawaii, started getting calls from concerned landowners in Puna, which is on the eastern tip of Hawaii’s big island, in 2010. Their seemingly ubiquitous ohi’a trees were dying at an astonishing rate. The leaves would turn yellow, then brown, over just a few weeks – a startling change for an evergreen tree.  Almost six years later and nearly 50,000 acres of native forest on the big island are infected with rapid ohi’a death disease.  Scientists still aren’t sure of where it came from or how to treat it.  But the plight of the ohi’a is not unique - it’s part of a quiet crisis playing out in forests across America. Drought, disease, insects and wildfire are chewing up tens of millions of trees at an incredible pace, much of it driven by climate change.  Forestry officials and scientists are increasingly alarmed, and say the essential role of trees – providing clean water, locking up carbon and sheltering whole ecosystems – is being undermined on a grand scale.California and mountain states have suffered particularly big die-offs in recent years, with 66m trees killed in the Sierra Nevada alone since 2010, according to the Forestry Service.In northern California, an invasive pathogen called Sudden Oak Death is infecting hundreds of different plants, from redwoods and ferns to backyard oaks and bay laurels. The disease is distantly related to the cause of the 19th-century Irish potato famine, and appears to have arrived with two “Typhoid Marys”, rhododendrons and bay laurels, said Dr David Rizzo, of the University of California, Davis.  “We’re talking millions of trees killed, whole mountain sides dying,” Rizzo said.   Five years of drought in the west have not only starved trees of water but weakened their defenses and created conditions for “insect eruptions” across the US, said Diana Six, an entomologist at the University of Montana. Bark beetles and mountain pine beetles, usually held in check by wet winters, now have more time to breed and roam. The latter have already expanded their range from British Columbia across the Rockies, to the Yukon border and eastward, into jack pine forests that have never seen the bug.

California’s Soberanes fire is the most expensive in America — ever -The Soberanes Fire — which continues to burn throughout California’s Monterey County — is officially the most expensive in the United States’ history, with costs topping $208.4 million, the Associated Press reports.  California already sustains the highest annual wildfire costs of any state. And, as KPCC reports, this year’s fire season as a whole—which has included scorchers like the Blue Cut, Soberanes, and Sand Fires — could prove to be the most expensive for the California Department of Forestry and Fire Protection (Cal Fire) since 2000. The Soberanes Fire, which began on July 22nd after an illegal campfire, is only 71 percent contained, according to the National Interagency Fire Center. At 121,000 acres burned, the blaze is the 20th largest in the state of all time, according to Cal Fire. (The Cedar Fire, which burned more than 273,000 acres across San Diego County in 2003 is the biggest.)  At its peak, the Soberanes Fire was costing $8 million per day, the AP reports. (That figure includes just the compensation paid to firefighters and the prices of containing the fire, not structural damages.) More than 2,000 personnel are still involved in fighting the blaze. Because of climate change, fire seasons are, on average, about 78 days longer across the country than they were in the ’70s. Twice as many acres also burn from wildfire as they did about 30 years ago — a figure set to double by the middle of the century, according to a 2015 report by the U.S. Forest Service. Since 1960, six of the worst fire seasons have taken place since 2000. This uptick is taxing the Forest Service considerably. For the first time in more than 100 years, wildfire costs in fiscal year 2015 totaled more than half the federal agency’s budget.

Stop blaming the drought on a lack of rain - We tend to think of drought as a supply problem. When it doesn't rain in California—now in its fifth year of drought—there's not enough water to go around. That mentality has spurred many to consider desalinating water from the Pacific Ocean as the state's next water source. On this week's episode of the Inquiring Minds podcast, Judith Schwartz, author of Water in Plain Sight, offers a more optimistic perspective. She tells co-host Indre Viskontas that better storage and reuse of the water we have—and, in the case of California, not letting that water drain into the Pacific Ocean in the first place—could drastically reduce the effects of drought. You can listen to the full interview below: Numbers support the argument that better water and land management could curb the effects of the state's drought. In 2014, the Pacific Institute and the Natural Resources Defense Council released a report showing that initiatives such water recycling, stormwater capture, smart irrigation, and better land management (i.e., using plants and permeable surfaces rather than turf and concrete) could help California save up to 14 million acre-feet of water per year. That's more than the combined annual water use of all of California's cities.  "There are always barriers. Lack of knowledge is a barrier, lack of financial incentives is a barrier," Peter Gleick, the president of the Pacific Institute, explained to Mother Jones. "The good news is we know these things work. We know how to capture this potential…The question is: Will we?

Nestlé Can Keep Piping Water Out of Drought-Stricken California Despite Permit Expiring in 1988 -- In a major setback for environmental groups, a federal judge in California has tossed out allegations that the U.S. Forest Service allowed Nestlé's bottled water operation to take water from the San Bernardino National Forest on a permit that expired back in 1988.  The decision regards a lawsuit filed against the Forest Service in October 2015 by the Courage Campaign Institute, the Center for Biological Diversity and the Story of Stuff Project. The groups alleged that the agency was allowing Nestlé Waters North America to pipe water from public lands on a permit that had long expired.  With the ruling, the multinational food and drink corporation can continue its use of a four-mile pipeline that siphons thousands of gallons of public water a day from the Strawberry Creek watershed and sell it back to the public as bottled water. The water is sold under the Arrowhead brand.  U.S. District Judge Jesus Bernal wrote in a Sept. 20 order that since the Forest Service received a request to renew the permit in May 1987, the effort was considered a "timely and sufficient application for renewal," thus keeping the original permit valid.

In a Parched Corner of Xinjiang, Ancient Water Tunnels Are Running Dry - The New York Times: — It is an improbable journey that begins on the highest peaks of the Tianshan Mountains, where glacial snowmelt descends across one of the world’s most arid landscapes to reach the lush oasis communities of this ancient Silk Road outpost.Powered by gravity, the water — pure and cold — makes the entire voyage underground, traveling through scores of subterranean channels, some of them 15 miles long and 100 feet deep, that were built 2,000 years ago by the pastoralists who settled this inhospitable corner of China’s far western Xinjiang region.Known as karez, the system of channels is an engineering marvel that has long fascinated scientists and filled this city’s ethnic Uighurs with pride.“Our ancestors were amazing because they built these without machines,” said Salayidin Nejemdin, 29, whose family has been growing grapes in Turpan for generations. “Without them, we would not be able to live in such a harsh place.”But after millenniums of nourishing the region’s farmers, goat herders and cross-continental traders, the karez channels of Turpan are drying up. Although scientists say global warming has shrunk the glaciers that feed the elaborate irrigation system, the more immediate threat is the soaring demand for water from the petroleum drillers and industrial-scale farmers, who are sucking the Turpan Basin dry.

New study undercuts favorite climate myth ‘more CO2 is good for plants’ -- A new study by scientists at Stanford University, published in the Proceedings of the National Academy of Sciences, tested whether hotter temperatures and higher carbon dioxide levels that we’ll see post-2050 will benefit the kinds of plants that live in California grasslands. They found that carbon dioxide at higher levels than today (400 ppm) did not significantly change plant growth, while higher temperatures had a negative effect. Those who benefit from the status quo of burning copious amounts of fossil fuels love to argue that more carbon dioxide in the atmosphere will benefit plant life. It’s a favorite claim of climate contrarians like Matt Ridley and Rupert Murdoch. It seems like a great counter-argument to the fact that carbon dioxide is a dangerous pollutant – a fact that contrarians often dispute. However, reality is far more complicated than the oversimplification of ‘CO2 is plant food.’ Unlike in the controlled environment of a greenhouse, the increasing greenhouse effect on Earth causes temperatures to rise and the climate to change in various ways that can be bad for plant life. We can’t control all the other variables the way we can in a greenhouse. So far, as contrarians like Rupert Murdoch love to point out, the plant food effect has won out. Earth has become greener in recent decades (although that trend may now be reversing). The situation is not unlike a human diet – at relatively low calorie levels, more food is beneficial. But as calorie intake continues to rise, at a certain point it’s no longer benefiting the human body. More food is good, but only up to a certain point, as the global obesity epidemic makes clear. The Stanford scientists set up 132 plots of flowers and grass in California and introduced varying levels of carbon dioxide, temperature, water, and nitrogen. The scientists conducted the experiments over 16 growing seasons between 1998 and 2014. They found that only higher nitrogen levels resulted in higher plant productivity, while higher temperatures caused it to decline.

Climate change threatens world’s coffee supply, report says   -- A report examining the many ways climate change threatens coffee and coffee farmers has alarmed people who are now imagining what it would be like getting through the day without their caffeine fix. The report, released this month by the Climate Institute, a nonprofit organization in Australia, was commissioned by Fairtrade Australia and New Zealand, the regional hub of the global Fairtrade system. Though it contains little new research, it has made waves by collating an array of available literature indicating that climate change will have a stark effect on the world’s coffee supply. The report emphasizes the threat warming temperatures pose to farmland, citing a study from the March 2015 issue of the journal Climatic Change that found climate change “will reduce the global area suitable for coffee by about 50 percent across emission scenarios.” In addition to the disappearing land on which to grow coffee, the report highlights the way warmer weather is exacerbating the threat of diseases like coffee rust and pests like the coffee berry borer, a type of beetle that a 2011 report said caused annual losses of hundreds of millions of dollars in coffee beans.

Are U.S. Tax Dollars Financing Destruction of World’s Largest Mangrove Forest? - Friends of the Earth U.S. obtained documents that suggest the U.S. Export-Import Bank, Ex-Im Bank, which is supported by taxpayer dollars, is considering financing the Orion-Khulna coal plant near the Sundarbans in Bangladesh. . According to media reports, the Bangladeshi company Orion Group, originally claimed to have secured financing for not one, but two coal projects in Bangladesh from Ex-Im Bank.  The second coal plant, known as the Orion-Khulna project, is proposed to be built 14 kilometers from the Sundarbans, the world's largest mangrove forest and a UNESCO World Heritage site. The Sundarbans, which spans the border of India and Bangladesh, is home to endangered species like the Bengal tiger and Irrawaddy dolphin, and provides a home and livelihoods for upwards of 6 million people. The coal plant would greatly damage the Sundarbans' surrounding ecosystem, threaten the human rights of thousands and contribute to runaway climate change. Indeed, as a nation, Bangladesh is one of the countries most vulnerable to the impacts of climate change in the world; its people cannot afford for any more coal to be burned.  However, recent news indicates the Orion-Khulna project could move forward soon. Another massive coal project proposed to be built near the Sundarbans, the Rampal coal plant, just secured financing from India's Export-Import Bank. According to local Bangladeshi groups, if the Rampal project proceeds, Orion-Khulna will follow soon after.  Another reason for Americans to be concerned about this international issue is one of the largest U.S. corporations, and a serial environmental polluter and tax evader, General Electric (GE), is slated to receive U.S. Ex-Im financing for its involvement in the construction of the Orion-Khulna coal plant. GE is no stranger to controversy. GE's poor environmental track record includes polluting the Hudson River with toxic waste water from 1947 to 1977 and supplying the nuclear reactors that faltered and led to the Fukushima nuclear plant explosion in 2011. GE, one of the long-running top beneficiaries of Ex-Im—the second largest recipient of Ex-Im financing after Boeing, is contracted to supply the turbine generators for the Orion-Khulna coal plant. Since acquiring the French power company Alstom, GE has expressed a renewed interest in coal throughout the world, including in Southeast Asia.

Study Estimates 100,000 Premature Deaths From Indonesia Haze - (AP) -- Indonesian forest fires that choked a swath of Southeast Asia with a smoky haze for weeks last year may have caused more than 100,000 premature deaths, according to new research that will add to pressure on Indonesia's government to tackle the annual crisis. The study by scientists from Harvard University and Columbia University to be published in the journal Environmental Research Letters is being welcomed by other researchers and Indonesia's medical profession as an advance in quantifying the suspected serious public health effects of the fires, which are mostly set to clear land for farming. The number of deaths is an estimate derived from a complex analysis that has not yet been validated by analysis of official data on mortality. The research has implications for land-use practices and Indonesia's vast pulp and paper industry. The researchers showed that peatlands within timber concessions, and peatlands overall, were a much bigger proportion of the fires observed by satellite than in 2006, which was another particularly bad year for haze. The researchers surmise that draining of the peatlands to prepare them for pulpwood plantations and other uses made them more vulnerable to fires. The estimate of premature deaths linked to respiratory illness that covers Indonesia and its neighbors Singapore and Malaysia dwarves Indonesia's official toll of 19 that included deaths from illness and the deaths of firefighters. However, the possible scale of serious heath consequences was indicated by a statement from the country's disaster management agency in October that said more than 43 million Indonesians were exposed to smoke from the fires and half a million suffered acute respiratory infections.

The alarming number of fires in the Brazilian Amazon - The sharp decrease in the annual rates of forest loss in the Brazilian Amazon is celebrated worldwide. The trend started in 2005 after a peak in deforestation the year before; 27,772 square kilometers were deforested in 2004 (about 6.9 million acres). In 2012, the forest loss rate reached its lowest level since records began in 1977, having dropped to 4,571 square kilometers (about 1.1 million acres). However, the figures are not so bright when it comes to forest fires, and few people are talking about that. The number of fires in the Brazilian Amazon is alarming, and that was especially true in 2015, when a sharp increase in forest fires occurred, as illustrated in the graph below.  Forest fires and precipitation are strongly correlated in the Brazilian Amazon; in dry years, more forest fires occur. 2015 was a dry year, but not as dry as 2010 or 2005 were – years when the region faced anomalous droughts. Nevertheless, in 2015, forest fires increased 115.6 percent and 105.5 percent compared to 2005 and 2010, respectively. Hence it is safe to say that the peak observed last year was strongly associated with unregulated anthropogenic activities in the forest.In the region, using fire in order to clear large areas is a common practice. The expansion of roads, settlements, croplands and cattle ranches has been leading fires to reach ever-wider areas of the forest. The consequences associated with this issue are vast. They are felt locally, regionally and globally. Forest fires contribute to climate change due to the emission of three greenhouse gases: carbon dioxide, methane, and nitrous oxide. As the forest burns, health-damaging gases – carbon monoxide, non-methane hydrocarbons, methyl chloride, and methyl bromide – are also emitted, as well as volatile organic compounds (VOCs) and aerosols. VOCs interact with nitrous oxides to form ozone, a phytotoxic gas. Aerosols cause the suppression of cloud formation and the decrease of precipitation efficiency. Moreover, a positive feedback between fire-induced death of trees and increased solar penetration in the forest occurs, resulting in the intensification of successive fires.

Brazil's raging forest fires threaten indigenous land, uncontacted tribes  - Forest fires raging in northeast Brazil are forcing indigenous people out of their traditional territories and threatening uncontacted tribes, an indigenous leader said on Wednesday. Fire season in the Amazon and surrounding savannah normally lasts from July to November, but burning has become more intense due to climate change and illegal logging, said Sonia Guajajara, National Coordinator of the Association of Indigenous Peoples. Uncontacted members of the Awa tribe live in areas affected by fires, and some have been forced out of the jungle, Guajajara told the Thomson Reuters Foundation. "The Awa people live in isolation but they are coming out of the forests much more frequently," said Guajajara, who hails from the fire-hit region in northeastern Maranhao state. "Illegal logging and fires are putting pressures on them by destroying the forests," she said. Uncontacted tribes are particularly vulnerable when their land rights are threatened because they lack the natural immunity to diseases that are carried by outsiders. Brazil's uncontacted tribes, some of the last on earth, depend on large areas of unspoiled forest land to hunt animals and gather the food they need to survive. "We are worried about what will happen to the Awa people," said Guajajara, of a group thought to include several hundred uncontacted members. "The fires are out of control and (are) getting worse," she said, adding that at least one indigenous child had died in a blaze and others had been injured. Much of the burning land has been formally demarcated to indigenous groups, said Guajajara, and illegal loggers are known to try to force residents off territory by setting it ablaze. It is not known exactly how many people have been forced off the land by fires in Maranhao this year, Guajajara said. Last year, she said, fires destroyed more than half of the 413,000 hectare territory known as Arariboia, which her tribe calls home. Teams of firefighters backed by Brazil's National Indigenous Foundation (FUNAI) and country's environment agency are battling the blazes, government officials said. More than 90 percent of the fires have been caused by human actions, said Gabriel Zacharias, the head of Prevfogo, the firefighting division of the environment ministry. "There are intentional fires in areas of conflict or in forests converted into pasture," Zacharias said in a statement.

Goldman Prize Winner Reportedly Attacked at Her Home by Mining Industry Hitmen -- Early Sunday morning, Máxima Acuña , a 2016 recipient of the prestigious Goldman Environmental Prize , was reportedly attacked at her home in Peru when hitmen illegally entered the property. Máxima was awarded the 2016 Goldman Prize for her fight against the expansion of the Yanacocha Mine, a subsidiary of Colorado-based mining giant Newmont and Peruvian-based mining company Buenaventura. The hitmen that attacked Máxima and her partner, Jaime Chaupe, were reportedly hired by the mining companies It is with healing thoughts and a heavy heart we wish Máxima and her partner a quick recovery from this outrageous attack. Máxima has been an inspiration in the fight to protect her land, her livelihood and her community from the greed and destruction of the mining companies operating in Peru. Her bravery and persistence have helped shape the world in untold ways, and we are intensely disturbed by Sunday's events. The continued attacks and assassinations of the brave environmental and indigenous rights activists around the world is a clear indication that we still have a long way to go to ensure a world that is truly safe, equitable and inclusive for all.

Canada’s eastern boreal forest could become a climate change refuge - With climate change driving species in the Northern Hemisphere ever further up the latitudinal ladder, a recent study released in the journal Science finds that Canada’s eastern boreal forests may act as crucial ecological reservoirs, islands of cooler habitat for the dominant tree species, black spruce (Picea mariana), and the panoply of plant and animal life that depend on it. Stretching around the northern third of the planet from Siberia to the Yukon, Finland to Alaska, global boreal ecosystems – also referred to as “taiga” – comprise 1.9 billion hectares – 14 percent of the world’s land and 33 percent of its remaining forests. These hardy evergreen forests still contain “a large fraction of the planet’s remaining unmanaged forests,” according the Science study, “responsible for ~20% of the total carbon sequestrated annually by forest ecosystems.”   Boreal forests are home to iconic wildlife like grey wolves, brown bears, snowshoe hare, moose, and lynx. They also have their fair share of endangered species such as woodland caribou and whooping cranes, found in the boreal regions of North America, and Siberian tigers and Blakiston’s fish owl in Russia. But while the boreal is vast, human activities are putting parts of it at risk.  The forest monitoring platform Global Forest Watch shows intact boreal forest has declined and is particularly patchy in Eurasia. In the Canadian province of Alberta, the thirst for oil has led to the razing of more than a quarter-million hectares of forest as companies seek to exploit the tar sands that lie beneath. Another recent scientific report from Cornell spells out the hazards of industrialization in grim detail, with three billion birds – Canada warblers and evening grosbeaks particularly – at risk of population collapse across North America’s 1.5 billion acres of boreal forest.

August Extends an Exceptional String of Record-Warm Global Months - August 2016 was Earth's warmest August since record keeping began in 1880, said NOAA's National Centers for Environmental Information (NCEI) on Tuesday. In the NOAA database, August 2016 came in 0.92°C (1.66°F) warmer than the 20th-century average for August, beating the previous record for August, set in 2015, by 0.05°C. NASA also reported the warmest August in its database, as well as a tie with July 2016 for the warmest absolute temperature recorded in any month. Because most of the world’s land area is in the Northern Hemisphere, absolute global temperatures are warmest in northern summer--about 3-4°C (5-7°F) higher than in northern winter. This is why monthly global anomalies (departures from the monthly average) are commonly used to assess the relative warmth or coolness of a given month. August 2016 marked the 16th consecutive month that NOAA’s global monthly temperature record was broken, which is the longest such streak since global temperature records began in 1880. Ocean-only temperatures were 0.02°C (0.04°F) cooler than the record warmth of August 2015, while land-only temperatures were a substantial 0.19°C (0.34°F) above the previous land-only record from August 2015. For the lowest 8 km of the atmosphere, global satellite-measured temperatures in August 2016 were the second warmest for any August in the 38-year record, behind only 1998, according to the University of Alabama in Huntsville (UAH).   With the powerful 2015-16 El Niño event now over, the impressive global warmth in recent months can mostly be attributed to the steady build-up of heat-trapping greenhouse gases due to human activities. NOAA’s global surface temperature for the year so far (January-August 2016) is an eye-opening 1.01°C (1.82°F) above the 20th-century average and a remarkable 0.16°C (0.29°F) warmer than the previous January-to-August record, set in 2015 (see Figure 3 below). Following the 1997-98 “super” El Niño, monthly global temperature records were set through August 1998. The departure of the equally strong 2015-16 El Niño and the possible arrival of La Niña late this year should allow temperatures to drop slightly, perhaps breaking our string of record-warm months sometime in the near future. However, temperatures would have to truly plummet between now and December in order to keep 2016 from becoming the warmest year in global record-keeping.

 La Niña Likely to Be a No-Show This Fall and Winter --La Niña conditions are no longer likely to develop this fall or winter, according to a new NOAA report. As a result, NOAA has canceled its so-called La Niña watch that was in place the last several months.  There is now a 55 to 60 percent chance that neutral conditions (neither La Niña or El Niño) will be in place this fall and winter, the agency said.  La Niña/El Niño, the periodic cooling/warm of the equatorial eastern and central Pacific Ocean, can shift weather patterns over a period of months, bringing the possibility of more sustained warm, cold, wet or dry weather in parts of the world. If you recall, this past winter featured a strong El Niño, which had impacts on weather conditions in many parts of the world. El Niño events can sometimes be followed by a La Niña months later.  After the record strong El Niño of 1997-98, La Niña almost immediately set in the following summer and reached moderate-to-strong intensity before finally ending in spring 2001.  A similar thing happened following the strong El Niño of 1972-73.However, neutral conditions followed three other strong El Niños of 1982-83, 1965-66 and 1957-58. Though the development of La Niña is no longer likely, it still can't be ruled out in the months ahead.NOAA says there remains about a 40 percent chance that La Niña could still develop, which is much lower than earlier projections this past spring.There is also a chance that the development of La Niña could be delayed. After the 1982-83 strong El Niño temperatures in the equatorial Pacific Ocean were slightly below average for about a year before a moderate La Niña finally took shape in October 1984, NOAA said.  Interestingly, water temperatures are running about 0.5 degrees Celsius below the long-term average in the so-called Nino 3.4 region of the equatorial Pacific Ocean that is monitored for La Niña or El Niño. This qualifies as reaching the La Niña criteria.

After Strong El Niño Winter, NASA Model Sees Return to Normal - Not too hot, not too cold – instead, water temperatures in the equatorial Pacific Ocean should be just around normal for the rest of 2016, according to forecasts from the Global Modeling and Assimilation Office, or GMAO. With these neutral conditions, scientists with the modeling center at NASA’s Goddard Space Flight Center say there is unlikely to be a La Niña event in late 2016. Last winter saw an extremely strong El Niño event, in which warmer-than-normal water sloshed toward the eastern Pacific Ocean. Historically, some of the larger El Niño events are followed by a La Niña event, in which deep, colder-than-normal water surfaces in the eastern Pacific Ocean, off the coast of South America."We are consistently predicting a more neutral state, with no La Niña or El Niño later this year," said Steven Pawson, chief of the GMAO. "Our September forecast continues to show the neutral conditions that have been predicted since the spring." As part of a research and development project, GMAO contributes experimental seasonal forecasts each month to the North American Multi-Model Ensemble (NMME) and other centers. MME produces a forecast by combining the individual forecasts of a number of participating institutions, which helps to reduce the uncertainty involved in forecasting events nine to twelve months in advance. The NMME prediction system delivers forecasts based on the National Oceanic and Atmospheric Administration (NOAA) operational schedule and is used by many operational forecasters in predicting El Niño and La Niña events.

Warm fall predicted, but 'La Nada' is a challenge for the forecast: A warmer-than-average fall is forecast for almost the entire USA, federal forecasters announced Thursday. Folks in the Southwest, Northeast and Alaska have the best chance to see warmer-than-average temperatures from October to December, the Climate Prediction Center said. Not a single square inch of the nation is predicted to see cooler-than-average temperatures in those months. The pattern will continue what's been a scorching year for the nation: From January to August, the U.S. sweltered through its third-warmest year on record, the National Center for Environmental Information said earlier this week. Overall, every state is having a warmer-than-average year. As for precipitation this fall, people in the nation's southern tier from Texas to the Carolinas should be able to ditch the umbrellas since that area has the best chance of seeing clear skies and dry conditions. Only Montana and Alaska should see more rain and snow than usual in the October-through-December period. While waterlogged portions of the nation such as Louisiana might welcome a few dry months, much of the West, Southeast and Northeast could definitely use some rain: Massachusetts, for example, is now in the midst of its worst drought since the 1960s, climate scientist Jake Crouch of the center for environmental information said. He said more than half of the state, including the entire Boston metropolitan area, is in extreme drought conditions. Crouch said that hasn't happened since the weekly federal Drought Monitor started in 2000.

Scientists investigate how atmospheric rivers may change as climate warms -- A high-resolution climate model based at the National Center for Atmospheric Research (NCAR) is able to accurately capture the ribbons of moist air that sometimes escape the sodden tropics and flow toward the drier mid-latitudes, allowing scientists to investigate how “atmospheric rivers” may change as the climate warms. These rivers in the sky can unleash drenching rains when they crash onto land. Because these downpours can alleviate droughts and also cause damaging floods, scientists are keenly interested in how their frequency, intensity, or path may be altered with climate change. But standard-resolution climate models have had difficulty realistically simulating atmospheric rivers and their impacts. In a pair of studies published in July and August in Geophysical Research Letters, a journal of the American Geophysical Union, NCAR scientists Christine Shields and Jeffrey Kiehl tested to see if a high-resolution climate model could do a better job. They found that a version of the NCAR-based Community Climate System Model 4.0 (CCSM4) with a resolution twice as high as normal does a good job of capturing the frequency with which atmospheric rivers made landfall over the last century as well as their locations and associated storms. Looking forward, the model projects that storms on the U.S. West Coast associated with a type of atmospheric river called the Pineapple Express, which sweeps moisture in from Hawaii, could linger and become more intense if greenhouse gas emissions are not mitigated. The studies also find that future changes to atmospheric rivers in general — including a possible increase in the number that make landfall in Southern California — will likely be dependent on how jet streams change in a warming world. “Atmospheric rivers play an extremely important role in the Earth’s water cycle,” Kiehl said. “At any latitude, they account for only 10 percent of the air but they transport as much as 90 percent of the water that is moving from the tropics toward the poles. Understanding atmospheric rivers is critical to understanding how the entire climate system works.”

 Climate change doubled the chances of Louisiana heavy rains, scientists warn -- Torrential rains unleashed on south Louisiana in August were made almost twice as likely by human-caused climate change, according to a quick-fire analysis released just weeks after the flood waters subsided. The team of scientists concluded that such an event is expected to occur a minimum of 40% more often now than in 1900, but their best estimate is that the odds have now halved.Dr Friederike Otto, a senior researcher in extreme weather and attribution in the Environmental Change Institute at Oxford University, who wasn’t involved in the research, tells Carbon Brief:“It is a very striking example of the impact that climate change already has on us today…it is the rainfall event with the highest increase in risk that has been analysed, that I’m aware of.” The new research is the latest in what are known as “single event attribution” studies. This one is notable for being the first collaboration between scientists at the World Weather Attribution (WWA) project and the US National Oceanic and Atmospheric Administration (NOAA).

It’s a depressing sight’: climate change unleashes ghostly death on Great Barrier Reef -- John Rumney says that just a year ago, this particular spot was once the most stunning coral garden on the entire Great Barrier Reef. If a film crew said it wanted to get a cliche shot of the reef with its mind-boggling richness of coral and fish species, this was where he took them.  Now he’s taking us there to see the destruction wrought by climate change. He says the fact this reef was used in so many films and magazines means it’s a perfect location to see the effects of the recent bleaching event. He tells us he would regularly describe the location as having “more than 100% coral cover”. “It was growing on top of each other and underneath. It was just magnificent,” says Rumney, a veteran reef tourism operator, who helped pioneer ecotourism on the reef, and is now establishing a privately funded non-profit research enterprise, Great Barrier Reef Legacy. “So we have a great baseline of what it was like. And it was absolutely fantastic,” says Rumney. “So anything that is damaged is directly proportional to this year’s bleaching. It’s not like it’s 50% dead and then you had bleaching so you don’t know what is old and new.”  Much has been written about the devastating global coral bleaching event that has snaked its way around the world since 2014, and which touched 93% of reefs on the Great Barrier Reef this year.  Surveys of the full impact suggest the worst impacts were in the remote northern third of the reef, far from where tourists regularly go. While almost a quarter of coral has been killed on the Great Barrier Reef, it has been concentrated in the area north of Port Douglas. Despite that, the effects on this reef just 50km north-east of Port Douglas – the most popular launching point for reef tourism – have been severe. Guardian Australia is here with the Climate Council, which visited this reef at the peak of the bleaching, in May, and has come back now to see how much has recovered.

Rising seas could ease coral bleaching but will be ‘too little too late’ --Coral reefs could receive an unforeseen benefit from global sea level rise, a new study suggests. Deeper waters over shallow reefs could alleviate the extreme temperatures that corals are exposed to, the study says, potentially easing coral bleaching caused by ocean warming. But other scientists tell Carbon Brief that coral bleaching is already so widespread that any alleviation from sea level rise is unlikely to counter the impact of increasing temperatures.  The global ocean surface is currently warmer than it has been at any point in the observed record. In 2015, for example, global sea surface temperature was 0.33-0.39C higher than the 1981-2010 average, and 0.74C higher than the average for the 20th century. Ocean warming arguably poses the biggest threat to the world’s coral reefs, says the new Science Advances paper, as it increases the likelihood of coral bleaching events. High temperatures stress the corals, to the point that they are forced expel the tiny colourful algae living in their tissues – known as zooxanthellae – leaving behind a stark white skeleton. While a bleached coral reef is not dead, as the algae provide the coral with energy through photosynthesis, the coral cannot grow without them. A coral can recover from a single bleaching event, but persistently high temperatures can kill off entire reefs. Research suggests that a global average temperature rise of 2C above pre-industrial levels could see long-term degradation of virtually all the world’s coral reefs. And even a more ambitious temperature limit of 1.5C could see 90% of coral reefs at risk of bleaching by 2050. The study’s findings suggest that rising sea levels could help buffer the temperature extremes that corals are exposed to by increasing the volume of water the corals are surrounded by.

  Earth roasts through hottest summer ever recorded: Humanity just sweltered through its hottest summer ever recorded, beating the previous mark set only last year. From June to August, average temperatures across global land and ocean surfaces soared 1.6 degrees Fahrenheit above the average of 60.1 degrees (F), according to a federal climate report released Tuesday. The warmth was fueled by a combination of the fading El Niño and the long-term trend of human-caused global warming, according to climate scientist Ahira Sánchez-Lugo of NOAA's National Center for Environmental Information. Climatologists define summer as the three warmest months of June, July and August. Global climate records go back to 1880. Before 1880, scientists rely on paleoclimatic records such as ice cores, tree rings and lake sediments that provide an ever further look back in time: "It is plausible that this summer was the warmest in thousands of years, perhaps even longer," said meteorologist Michael Mann of Penn State University. "There is now very robust paleoclimate evidence that the past decade was likely Earth’s warmest in more than a thousand years, and there is somewhat more tentative but nonetheless compelling evidence that we have moved into territory unseen in more than a hundred thousand years," he added. Another climate scientist, Gavin Schmidt of NASA, agrees that while individual seasons may be hard to quantify in terms of record warmth, the unusual warmth over the past few decades "seems exceptional in many hundreds and perhaps thousands of years. "Glacier retreat is indicative of this, since they are unearthing soil, debris, and trees that were buried 1,000, to 4,000, years ago," he said. Western Alaska, northern South America, central and southern Africa, the Middle East, northwestern and Far East Russia, China, Indonesia and New Zealand all tallied record warmth this summer, NOAA said.

 Approaching the First Climate Tipping Point — On Track to Hit 1.5 C Before 2035 - Robert Scribbler - July 2016 was the hottest month ever recorded. That record lasted for all of one month as global temperatures remained at record-high levels through August, resulting in a tie with July during a period when the Earth typically cools. Given natural variability, we might expect August to remain hot if an El Nino were forming in the Pacific, but at that time, with a weak La Nina struggling to fire off, the exact opposite was the case. In other words, the El Nino/La Nina cycle, which typically helps to drive global warm and cool periods, was pointed in the direction of ‘cool’, but the world remained near record-hot levels. So what the heck was going on?  We can’t answer this question without looking at the amazing overburden of greenhouse gasses that are trapping an enormous amount of heat in the Earth’s atmosphere and ocean. Due to decades of rampant fossil-fuel burning, 2016 will likely average around 404 parts per million CO2, which is the Earth’s primary heat-trapping gas that drives global climate. The last time levels of this gas were so high, more than 3 million years ago, the Earth was 2 to 3 degrees Celsius hotter than 1880s averages, seas were 25 to 75 feet higher, and the Earth was a remarkably different place.  CO2 isn’t the only gas adding heat-forcing to the Earth’s atmosphere. Human-emitted methane and other chemical compounds now add together with CO2 to produce a total CO2-equivalent forcing near 490 ppm. If this measure in any way remotely correlates to past climate forcings, then the Earth could well be on a path toward Middle Miocene climates that were around 4 C hotter than 1880s values.

Loss of Planet Reflectivity an Impending Catastrophe - The planet’s air conditioning system is on the blink, working intermittently, losing its glinting, lustrous white reflectiveness, as it turns deep blue, absorbing 90% of sunlight rather than reflecting it back into outer space. The repercussions of Arctic sea ice loss are immense.“Our planet has actually changed colour,” Peter Wadhams, A Farewell to Ice (Allen Lane an imprint of Penguin Books, 2016). Loss of Arctic sea ice has such an overriding powerful impact on the planet, it warrants this 206-page book. “It is Man’s first major achievement in reshaping the face of his planet, and it is of course an unintended achievement, with dubious and possibly catastrophic consequences to follow.” (p.3)“There is no period in Earth history that we know about where the rate of rise of atmospheric CO2 is as great as it is today,” Professor Peter Wadhams brings fresh insight to the dynamics behind the interrelationship of Arctic sea ice and climate change/global warming. The conclusions by this preeminent ice scientist are sobering.According to Professor Wadhams (Cambridge), who is the UK’s most experienced sea ice scientist (50 trips under or on Arctic ice): “The CO2 levels in the atmosphere are already so high that when their warming potential is realized in a few decades, the resulting temperature rise will be catastrophic,” referencing the latency effect of CO2’s maddening dance with global warming.Fascinatingly, when analyzing Earth’s climatic history, the Yucatan Peninsula asteroid event in Mexico 65 million years ago pales in certain respects to today’s anthropogenic (human-caused) climate change impact.

 How the Greenland ice sheet fared in 2016: With the melt season in Greenland coming to a close just a few days ago, it’s the time of year when scientists take stock and give the ice sheet its annual “health check”. One way to gauge the state of the ice sheet is through what scientists call the “surface mass balance”. This is the difference between how much snow falls and how much ice melts away. The story in 2016 appears, on first look, to be fairly uneventful. This year’s surface mass balance has come in just below the long term average, which means slightly less ice has accumulated on the surface of the ice sheet than is usual for this time of year. But thanks to the long term observations maintained by the Danish Meteorological Institute, as well as the weather stations maintained on the ice sheet by the PROMICE group at the Geological Survey of Denmark and Greenland, we know this year was, in fact, unusual in many ways. This year’s “average” outcome belies some quite remarkable weather during the year, including a record early melt event in April followed by a new cold record just three months later in July. The official beginning of the “ablation” period – the time of year when more ice is lost through melting than is gained by falling snow – occurred at a fairly typical point, in early June. The size of the area of Greenland’s surface that melted was also close to, or just below, average for most of the summer. Overall, the ice sheet experienced a relatively warm summer, however. Average temperatures in July were 2-4C higher than usual in many places. Interestingly, though, this didn’t include the south, which is typically warmer. The effect of the extra warmth was evident at low levels in the ablation zone of the ice sheet, which experienced very high melt rates. In fact, on July 19, more than 11 billion tonnes of ice and snow was lost to the oceans in a single day. This is a significant amount of ice, but not quite as high as in 2012 – the year that set the record ice melt in Greenland.

Greenland's huge annual ice loss is even worse than thought - The huge annual losses of ice from the Greenland cap are even worse than thought, according to new research which also shows that the melt is not a short-term blip but a long-term trend. The melting Greenland ice sheet is already a major contributor to rising sea level and if it was eventually lost entirely, the oceans would rise by six metres around the world, flooding many of the world’s largest cities. The new study reveals a more accurate estimate of the ice loss by taking better account of the gradual rise of the entire Greenland landmass. When the ice cap was at its peak 20,000 years ago, its great weight depressed the hot, viscous rocks in the underlying mantle. As ice has been shed since, the island has slowly rebounded upwards. Previous satellite estimates of modern ice losses tried to take this into account, but precise new GPS data showed much of Greenland is rising far more rapidly than thought, up to 12mm a year. This means 19 cubic kilometres more ice is falling into the sea each year, an increase of about 8% on earlier figures. The faster rebound is thought to be the result of hotter, more elastic mantle rocks under eastern Greenland, a remnant from 40m years ago when the island passed over the hot spot that now powers Iceland’s volcanoes.

Degraded and Disheveled, Arctic Sea Ice Ties for Second-Lowest Extent on Record – Wunderground  - The National Snow and Ice Data Center (NSIDC) announced on Thursday that the extent of sea ice in the Arctic Ocean has apparently hit its summer minimum. The value of 4.14 million square kilometers (1.60 million square miles) reached on September 10 comes in just behind the record-low extent of 2012 and in a statistical tie with 2007 for second place (see Figure 1). Although refreezing has begun, it’s possible that a late burst of melting could lead to an even lower value in the next few days. This year’s minimum came in below the 4.38 million sq km predicted in August by the median of 39 outlooks submitted by participants in the Sea Ice Prediction Network. This summer’s polar weather didn’t fit the classic template for major ice loss, which makes the near-record depletion all the more striking and concerning. In 2007, a record-smashing minimum was achieved through weeks of round-the-clock sunshine, together with the Arctic Dipole pattern--an atmospheric setup that creates winds that compact sea ice and shove it to lower latitudes through the Fram Strait between Greenland and Norway. This year got off to a phenomenal head start, as winter temperatures north of the Arctic Circle were far higher than anything on record. Then the weather turned largely cloudy during the crucial period from late June into August, staving off what might otherwise have been a minimum even lower than 2012’s. Still, as NSIDC noted, “the upper ocean was quite warm this summer and ocean-driven melting is important during late summer.” Several weeks of intense storminess in August may have helped to churn up warmer water across the western Arctic, fostering melt from below.  “A large portion of the anomalously low ice can be attributed to the unusual winter/spring,” . “If we’d had a classic Arctic Dipole pattern this summer, I have no doubt we would have quickly approached or surpassed 2012.”

 Apocalypse Tourism? Cruising the Melting Arctic Ocean -- On Aug. 16, the Crystal Serenity set out from Seward, Alaska, carrying 1,700 passengers and crew, and escorted by a comparatively minuscule, 1,800-ton icebreaker. She circled west and north around the Alaska Peninsula and through the Bering Strait before heading east into the maze of straits and sounds that constitute the Northwest Passage. For centuries, explorers tried to establish a sea route here between Europe and Asia. Many met with ruin. A few stranded sailors famously ate their boots—and each other. When the Crystal Serenity emerged free and clear of the maze on Sept. 5, there were no accounts of scurvy or cannibalism, only tales of bingeing on themed buffets and grumbles from shutterbugs about the Arctic’s monotonous landscape.  Operated by Crystal Cruises, the Serenity became on that day the first passenger liner to successfully ply the Northwest Passage. As climate change melts Arctic sea ice twice as fast as models predicted, more and larger ships have made their way along these fatal shores. In 2013, the Nordic Orion was the first bulk cargo carrier to transit the Passage, hauling a load of coal. Rates on the Serenity started at around $22,000 per person. For that, passengers were anointed, by Slate, “the world’s worst people”—for venturing into a vulnerable ecosystem in a diesel-burning, 69,000-ton behemoth. Canada’s National Post described the cruise as an “invasion” of indigenous communities. Britain’s Telegraph hinted at Titanic hubris, asking, Is this “the world’s most dangerous cruise”?  As for the Arctic villages the Serenity visited, they were, depending on whom you ask, either overwhelmed or overjoyed by the ship’s hordes of curious, wealthy strangers. The communities staged dances, hawked arts and crafts, and expressed hope that the Crystal Serenity reaches New York safely on Sept. 16. Assuming it does, Crystal Cruises plans to offer the route again next year, departing Anchorage on Aug. 15. Edie Rodriguez, the company’s chief executive officer, says that a few passengers have already rebooked.

Sea ice record retreat has Antarctic experts worried for wildlife, climate -  Scientists fear a sharp reduction in Antarctic sea ice in recent weeks will impact marine life and climate systems. New daily records have been set for measuring the retreat of sea ice around Antarctica in the past week. The sea ice reached a record high in 2014, when it exceeded 20 million square kilometres. This year the sea ice peaked at 18.5 million square kilometres on August 28 — close to the lowest winter level on record. The situation has forced the Australian Antarctic Division to rethink its upcoming expeditions due to the danger of heavy equipment breaking through the ice. Dr Jan Lieser from the Antarctic Climate and Ecosystems Cooperative Research Centre said finding was surprising, but did align with a long-term trend. "It is also a reminder of why it is unwise to leap to conclusions about the link between Antarctic sea ice and climate change on the basis of one or two years of data," Dr Lieser said. "Sea ice cover in the Artic as been reducing steadily over the past several decades and climate models also predict that over time sea ice will also reduce around Antarctica. "We need to look at much larger time scales, 35 to 40 years that we need to know to be sure." Sea ice is thought to act as a regulator for the world's climate systems.

Earth Could Reach Critical Climate Threshold in a Decade, Scientists Warn - The planet could pass the critical 1.5°C global temperature threshold in a decade—and is already two-thirds of the way to hit that warming limit, climate scientists warned on Thursday.  Speaking at a University of Oxford conference this week, led by leading UK climate researcher Richard Betts, scientists said global greenhouse gas emissions are not likely to slow down quickly enough to avoid passing the 1.5°C target.  The goal of limiting global warming to 1.5°C was agreed to in the landmark Paris agreement negotiated by 195 nations last year.  But the planet is continuing to experience unprecedented heat month after month , setting 2016 on track to be the hottest year ever recorded. In fact, the scientists said, Earth is currently on a trajectory to hit at least 2.7°C in global temperature rise.  Pete Smith, a plant and soil scientist at the University of Aberdeen in Scotland, said mass lifestyle change must be undertaken to combat rising temperatures, such as developing more sustainable diets, reducing food waste and red meat intake, and importing fewer greenhouse gas-heavy vegetables.

The SEC is reportedly investigating Exxon -The Securities and Exchange Commission (SEC) is reportedly investigating Exxon on allegations that the company is not accounting for the longterm risks of climate change. According to multiple reports, Exxon might not be accurately valuing its assets during the current spate of low oil prices or, in the longer term, in the face of climate change disruptions and decreased fossil fuel use. It is illegal to misrepresent financial information, including asset values, to shareholders. According to the Wall Street Journal, the SEC requested information in August from Exxon and its auditor, PricewaterhouseCoopers, LLP. The agency has also been reviewing documents received during the New York attorney general’s ongoing Exxon investigation.The news comes nearly a year after Inside Climate News and the Los Angeles Times independently discovered that Exxon scientists were aware as far back as the 1970s that burning fossil fuels leads to climate change. Those revelations prompted state attorneys general in California, New York, and Massachusetts to launch the so-called Exxon Knew investigations, looking at whether Exxon defrauded the public, which includes shareholders, about the long-term risks of its business model. “This is a remarkably important development — the federal government is joining the courageous state attorneys general, and they’re all following the trail of clues that began with powerful investigative journalism,” 350.org founder Bill McKibben said in a statement. “Before they’re done we’ll understand considerably more about how the world overheated — but in the meantime, every institution that invests in Exxon should take real note of who you’re keeping company with.”

Feds Investigating Exxon On Climate Change --The U.S. Securities and Exchange Commission has joined the growing list of agencies and offices probing ExxonMobil on climate change.The federal agency has launched an investigation into how the oil and gas company values its future projects in the face of global climate change and plunging oil prices, The Wall Street Journal reported, citing unnamed sources.The SEC, the Journal reports, is looking into Exxon’s practice of not writing down the value of its assets ― something other major U.S. energy companies have done in response to falling oil prices ― and how the company “calculates the impact to its business from the world’s mounting response to climate change.”The investigation adds to those led by the attorneys general of New York and Massachusetts. In November 2015, New York Attorney General Eric Schneiderman subpoenaed Exxon seeking documents related to the allegations that the company lied to its investors and committed fraud by covering up the risks of climate change. In March, Massachusetts Attorney General Maura Healey said her office would join the ExxonMobil probes in New York and California. Alan Jeffers, media relations manager for Exxon Mobil Corporation, acknowledged the investigation in an email Tuesday to The Huffington Post, and said the SEC is the “appropriate entity to examine issues related to impairment, reserves and other communications important to investors.”“We are fully complying with the SEC request for information and are confident our financial reporting meets all legal and accounting requirements,” Jeffers said. The SEC declined to comment Tuesday.

 Most states on track to meet emissions targets they call burden | Reuters: The 27 states challenging Obama’s Clean Power Plan in court say the lower emissions levels it would impose are an undue burden. But most are likely to hit them anyway. Already, Arkansas, North Carolina, Oklahoma and South Dakota appear to be meeting the CPP's early targets. And changes in the power market, along with policies favoring clean generation, are propelling most of the rest toward timely compliance, according to researchers, power producers and officials, as well as government filings reviewed by Reuters. “We are seeing reductions earlier than we ever expected,” U.S. Environmental Protection Agency Administrator Gina McCarthy said in an interview. “It’s a great sign that the market has already shifted and people are invested in the newer technologies, even while we are in litigation.” States engaged in the legal battle that is set for an appellate court hearing later this month say their concerns go beyond whether they can meet the mandate. The states, most of them led by Republican governors, say they object to what they view as federal overreach by Obama and the Democrats and want to maintain flexibility to make energy decisions at the state level that reflect changing market conditions. Cynthia Coffman, attorney general of Colorado, said her state’s likely ability to comply with the CPP’s mandate “truly is not the issue." "We don't have anything against clean air," Coffman said. "That really doesn't factor into my decision to say the federal government has gone beyond its legal authority.” Oklahoma Attorney General Scott Pruitt said that he sees the Clean Power Plan as a form of federal “coercion and commandeering” of energy policy and that the state should have “sovereignty to make decisions for its own markets.”

US predicts climate law within decade: US Energy Secretary Ernest Moniz on Monday predicted that the world's largest economy would have legislation by the end of the decade to combat climate change. His optimism comes despite intense political debate in the United States with Republican presidential candidate Donald Trump vowing to scrap the Paris climate accord if elected on November 8. But Moniz, opening the annual Climate Week of events in New York on the sidelines of the UN General Assembly, said that US public opinion and state and local policymakers were moving toward reducing carbon responsible for the planet's fast-rising temperatures. "I will state quite frankly, I have a bet riding on the fact that we will have economy-wide legislation in the Congress by the end of this decade. I really believe that this is coming," he said, joking that as a physicist he believed in "rationality." Legislation to create the first nationwide carbon caps in the United States, the world's second-largest emitter after China, died in the Senate in 2010, with little prospect seen for action after the Republicans took control. President Barack Obama instead has relied on executive authority to take measures such as regulating power plants and fuel standards.

Climate deal comes one step closer to effect at United Nations | Reuters: An agreement to fight global warming came one step closer to taking effect on Wednesday when dozens of countries deposited their ratification of the deal at the United Nations, taking the total to 60, U.N. Secretary-General Ban Ki-moon said. The deal, agreed by nearly 200 countries in Paris last December, needs ratification by at least 55 countries representing 55 percent of global carbon dioxide emissions to take effect. Ban said the 60 countries represented more than 47.5 percent. The United Nations said 14 countries, representing 12.58 percent of emissions, have committed to joining the agreement in 2016, which would allow the threshold of 55 percent of global carbon dioxide emissions to be reached. "What once seemed impossible is now inevitable. I'm confident that by the time I leave office the Paris agreement will have entered into force," Ban, whose second five-year term ends on Dec. 31, told an event on the sidelines of the annual United Nations General Assembly. The binding global deal would slash greenhouse gases, keeping global temperature increases to "well below" 2 degrees Celsius. Scientists warn that countries are likely to cross that threshold if they don't take more drastic actions.The Paris agreement received a boost earlier this month after U.S. President Barack Obama and Chinese President Xi Jinping submitted their plan to join the agreement. The world's two biggest emitters account for around 40 percent of global greenhouse gas emissions. The European Union, whose members have not yet ratified the Paris Agreement, is aiming to formally join the pact by the end of the year, said EU Commissioner for Climate Action and Energy Miguel Arias Canete.

Climate programs will be cut in Clinton Foundation restructuring  - The Clinton Foundation's plan to stop accepting foreign donations if Hillary Clinton becomes president, announced following intense political scrutiny, would also decimate its programs combating climate change.   The foundation, a source of criticism from Clinton's political opponents and worrisome to some supporters, runs a sprawling global network of programs and partnerships devoted to public health and development issues. That includes a slice dedicated to climate. The Clinton Climate Initiative had a budget of $8.3 million in 2014, which is only 4 percent of the foundation's total program spending of $217.7 million. What had a far wider impact, however, was the annual Clinton Global Initiative (CGI) event, which brought together corporate executives, foreign leaders and nonprofit leaders who collaborated on support for many climate programs. The CGI, leaning heavily on Bill Clinton's prodigious skill for networking, is responsible for funding commitments for 474 climate projects and in the last year alone marshaled pledges for $230 million. The most recent meeting, which Clinton said will be the last regardless of the outcome in November, opened Monday in New York. In addition, if Hillary Clinton is elected, Bill Clinton has said he will step down from the foundation board and from fundraising, effectively removing him from a deal-making role in its global climate philanthropy.

Clinton pulled climate from speeches after Sanders endorsement -- Hillary Clinton has dropped the words “climate change” from most of her public addresses since winning the endorsement of her party rival Bernie Sanders, according to Climate Home analysis.While the presidential candidate talks regularly about her plan for the US to become a “clean energy superpower”, in recent months she has rarely made reference to the planetary crisis that necessitates it.On Monday, when she launched her online pitch to millennials, she could find no room for an issue that will affect that voting cohort more than any other.The rhetorical shift undermines hopes that climate change might emerge as a key campaign issue in 2016. Boosted by the disparity between Clinton and her Republican opponent Donald Trump, a self-professed non-believer in climate change.Indeed, the signs were there. During the last six months of Clinton’s primary campaign against Sanders, the transcript log of her speeches shows she was talking about climate change at one out of every two speeches she gave.But since Sanders endorsed Clinton on July 12, the full focus of the Clinton campaign has swung to Trump. In 38 speeches since that date, Clinton mentioned climate change specifically eight times. Just once every five public addresses.

Millennials attack "disingenuous" Clinton strategy after climate pivot  -- Young voters have attacked Hillary Clinton as “disingenuous” after Climate Home analysis revealed she pruned references to climate change from her speeches after defeating her Democratic primary opponent Bernie Sanders.  Transcripts of Clinton’s public addresses show that in the last six months of the primary season she mentioned “climate change” directly in one out of every two public addresses. But after securing the endorsement of her socialist rival in June, that rate fell to once every five speeches.  “This is why millennials don’t like you. This is why you are struggling with them,” said Kyle Kulinski, speaking about the story on his radio show Secular Talk. “When you do something as disingenuous as care about one set of issues in the primary, then pretend to care about a whole new set of issues in the general, like I said you’re building deception into your fucking strategy. So that’s why we don’t like you.”  It was a week in which Clinton had attempted to win over young voters, among whom polls show her support is running consistently lower than expected. In response, she has given a speech at Temple University in Philadelphia, in which she did mention climate change, and posted an op-ed on the millennial news site Mic.com, in which she did not.  Even as Clinton attempted to reach out, young commentators and voters pointed to her pivot on climate change as an example of a general sense that she is motivated by politics rather than principle. New York-based journalist and radio host Nomiki Konst tweeted a link to Climate Home’s story, which was reproduced by the Guardian, adding simply: “Yo, millennials can google.”

Bees and biofuels -- Since 2005, North Dakota has claimed the title for the most change in landscape in the country, with the the drastic conversion to monoculture straining habitat that supports native species. North Dakota is the largest producer of honey in the nation but a study published by the U.S. Geological Survey this week found bee colonies “are quickly becoming less conducive to commercial beekeeping as a result of land-use changes.”  Williston apiarists Dave Huelsman of D & L Apiaries and Jay Miller of JL Apiaries, said they are replacing queen bees yearly, opposed to biennially 10 years ago. Their bees require up to 38 square miles to forage, but conversion from prairies and pastures to crops requiring only pollination from the wind has limited their territory. Huelsman and Miller have been forced to supplement their bee’s diets with sucrose, high fructose corn syrup and brewer’s yeast. A new landscape has begun to emerge, with a 94.9 percent increase in corn and soy production since 2005, according to data collected by the USDA. During this time, the Renewable Fuel Standard was penned to commit corn and soy for use in biofuels.   Ethanol was looked at to be a more environmentally sound method for fuel, but further research is uncovering its unsustainability and its impact on bee and wildlife habitat. A bushel, or 56 pounds of shelled corn, produces less than three gallons of ethanol, according to officials at the Dakota Spirit AgEnergy ethanol plant in Jamestown.  “Forty percent of the country’s corn is used to make ethanol,” Jonathan Lewis, senior counsel on climate policy for Clean Air Task Force, said. “Farmers around the world have had to make up for food production with land clearing. The process of clearing forests and wetlands to farm emits significant CO2 release.” The impact is enormous, according to Lark. “The conversion to corn and soy could have emitted as much carbon dioxide into the atmosphere as 34 coal-fired power plants operating for one year,” Lark said on Friday. “The equivalent of 28 million more cars on the road.”

China embarked on wind power frenzy, says IEA - BBC News: China has been building two wind turbines every hour, the International Energy Agency (IEA) has told BBC News. This is the world's biggest programme of turbine installation, double that of its nearest rival, the US. The nation’s entire annual increase in energy demand has been fulfilled from the wind. But the IEA warns China has built so much coal-fired generating capacity that it is turning off wind turbines for 15% of the time. The problem is that coal-fired power stations are given priority access to the grid. An IEA spokesman told BBC News: “The rather rosy statement on wind energy hides the issue that 2015 and the first half of 2016 also saw record new installations of coal. “China has now a clear over-supply. In the province of Gansu, 39% of wind energy had to be curtailed (turned off because there is not enough capacity on the grid). The average European wind farm is forced to stop generating between 1-2% of the year. The IEA says China installed more than 30,000 MW of new wind energy in 2015 – partly thanks to a rush driven by the Chinese government making its existing subsidies less attractive. Construction has slackened in 2016, but only to a level of more than one turbine per hour.

India loses WTO appeal in U.S. solar dispute | Reuters: India lost its appeal at the World Trade Organization in a dispute over solar power on Friday, failing to overturn a U.S. complaint that New Delhi had discriminated against importers in the Indian solar power sector. The WTO's appeals judges upheld an earlier ruling that found India had broken WTO rules by requiring solar power developers to use Indian-made cells and modules. The appeal ruling is final and India will be expected to bring its laws into compliance with the WTO rules. “This report is a clear victory for American solar manufacturers and workers, and another step forward in the fight against climate change,” U.S. Trade Representative Michael Froman said in a statement. Indian officials made no immediate comment on the appeal outcome. U.S. solar exports to India have fallen by more than 90 percent since India brought in the rules, the statement said. As in the earlier ruling, which was issued in February this year, the judges said India could not claim exemptions on the basis of that its national solar power sector was included in government procurement, nor on the basis that solar goods were in short supply. There was also no justification on the grounds of ensuring ecologically sustainable growth or combating climate change.Under WTO rules, countries are not allowed to discriminate against imports and favor local producers, but in the past five years countries keen to support their own manufacturers have frequently resorted to local content requirements, while keeping a sharp eye out for their use by others.

 How much cleaner really is a Tesla? Depends on where you are   How much cleaner are electric cars than the fossil-fuel powered alternative? The answer depends on exactly where you charge the batteries. In places that use low-carbon energy sources like renewables and nuclear, electric vehicles dramatically reduce emissions. There’s less of a difference in regions where most of the power comes from coal, like China. While an electric vehicle on average may produce as little as half the pollution as a gasoline or diesel car, there’s great variation within the range. Running on battery power in China was just 15 percent cleaner than a fossil-fuel car last year, according to data compiled by Bloomberg New Energy Finance. “In countries with large amounts of coal in the generation mix, EVs still look better, but the benefit is smaller and depends on when and where charging takes place,” said Colin McKerracher, head of advanced transport analysis at Bloomberg New Energy Finance. The London-based research arm of Bloomberg LP and the Union of Concerned Scientists both have analyzed the ultimate contribution that electric cars make to emissions and found that on average they’re 40 percent to 50 percent cleaner than those that fuel from gasoline or diesel. Those estimates -- and the forward view on where emissions from the power generation industry are going -- are crucial to understand how much global-warming pollution will come from transportation in the decades ahead.

Massive Sinkhole in Florida Is Leaking Radioactive Water Into the Ground - News broke late Thursday that a massive sinkhole below a phosphate strip mine 30 miles east of Tampa has been releasing radioactive waste into the Floridan aquifer for three weeks.   News reports indicate that Mosaic, the owner of the mine, and state officials have known about the problem for three weeks, but failed to notify the public. The sinkhole formed below a phosphogypsum stack, which is a pile of radioactive waste hundreds of feet tall produced by phosphate mining, and in this case may pose a serious threat to drinking water for millions of Floridians.  "Enough is enough. Florida must finally take a stand against this destructive, radioactive phosphate mining that is putting our health and environment at risk," said Jaclyn Lopez, Florida director at the Center for Biological Diversity.  "Mosaic wants to mine an additional 50,000 acres of Florida's beautiful, biodiverse lands, but this incident makes clear it can't even handle the radioactive waste it currently generates. We must come together and demand that our counties, our state and our federal government reject further expansion of this dangerous industry."  Radioactive phosphogypsum is produced during phosphate mining when sulfuric acid is applied to phosphoric ore, releasing naturally occurring uranium and radium. Besides leaving massive piles of radioactive waste, this process produces radon gas in the air, which is cancer causing. Forty percent of the phosphate ore that's mined in Florida is shipped overseas, but 100 percent of the radioactive phosphogypsum waste that's generated remains in the United States, the majority of it in Florida, where it stays forever. That's five tons of radioactive waste for every one ton of usable phosphate.

China to build at least 60 nuclear plants in coming decade -industry official | Reuters: China plans to build more than 60 nuclear plants in the coming decade, a top Chinese industry official said on Friday. Zheng Mingguang, vice president and chief nuclear designer at China's State Nuclear Power Technology Corporation (SNPTC), told Reuters at the World Nuclear Association conference in London that China would build about 30 reactors in the next five years and more in the five years after that. He said that each of China's major nuclear companies -- SNPTC, CNNC and CGN -- would start building a minimum of two new reactors a year. Zheng said that the 60 new plants would include between six and 10 CAP1000 reactors, which are Chinese versions of the AP1000 made by Toshiba-owned Westinghouse. The first batch of six will include CNNC building two new reactors at Sanmen in Zhejiang Province, where Westinghouse is set to complete construction of AP1000s for the plant's first two units early next year. SNPTC will build two aditional reactors at Haiyang in Shandong province, where Westinghouse is also building two AP1000s.

 China Space Station 'Out of Control,' on Crash Course to Earth -- In a press conference last week, a senior official with the Chinese space program said the country's first space station, Tiangong-1, which means "Heavenly Palace," is expected to fall into the Earth's atmosphere in the second half of 2017. While officials said most of the space lab will burn up upon re-entry into the Earth's atmosphere, the location of where its remnants will land, and whether the country will have the ability to steer the space lab is unclear. Harvard Astrophysicist Jonathan McDowell told The Guardian the announcement suggested China had lost control of the station and that it would re-enter the Earth's atmosphere "naturally." "You really can't steer these things," he said. "Even a couple of days before it re-enters we probably won't know better than six or seven hours, plus or minus, when it's going to come down. Not knowing when it's going to come down translates as not knowing where it's going to come down." McDowell added that while most of space station would burn up, the bigger parts—such as the rocket engines—wouldn't burn up completely and just the slightest change in atmospheric conditions could nudge the landing site "from one continent to the next." "There will be lumps of about 100kg or so, still enough to give you a nasty wallop if it hit you," he said.

U.S. nuclear waste backlog could be eased by private disposal: Moniz | Reuters: The United States could alleviate growing stockpiles of nuclear waste at U.S. power plants by allowing private companies to dispose of it and foster support for new nuclear projects, U.S. Energy Secretary Ernest Moniz said on Tuesday. The U.S. government spent billions of dollars on the Yucca Mountain project in Nevada that was supposed to store nuclear waste permanently underground, but politicians from the state, including top Senate Democrat Harry Reid, opposed the project, leading to its cancellation in 2010. The waste is now mostly held at power plants in dry cask storage or in spent fuel pools, said Moniz, a nuclear physicist who has run the department since 2013. The United States could start transferring that waste to interim sites, potentially including government and private disposal sites, in the middle of the next decade until a permanent solution is developed. "We would like to have the authority for publicly owned and operated (storage) facilities. We are also very much interested in the possibility of pursuing private storage," Moniz said in an interview about the nuclear issues the next administration will face after President Barack Obama leaves office on Jan. 20. The Nuclear Regulatory Commission received an application earlier this year from Waste Control Specialists, part of Valhi Inc to store waste at a site in Texas. More companies may also apply.

Fracking Has Week Of Huge Legal Wins In Ohio - BOE Report -- Anti-hydraulic fracturing, or fracking, activists suffered a pair of major legal defeats in Ohio when the state Supreme Court refused to put anti-fracking measures on the ballot in November and blocked attempts by local governments to ban fracking. The Ohio Supreme Court’s Thursday rulings aren’t major surprises, as local fracking bans have repeatedly been struck down around the country. Several state and federal courts concluded that only the state government has the legal authority to regulate fracking, as any ban would be “preempted by state law and therefore, is invalid and unenforceable.” The oil and gas industry in most states have historically been regulated by state, not local, government. Environmental groups, including The Sierra Club, Greenpeace, Food and Water Watch, and Earthworks vehemently support local bans on fracking across the country. The court also concluded that local governments can’t hold referendums to amend charters to ban fracking.  “Their determinations were consistent with our prior decisions authorizing election officials to determine whether a proposal exceeds the scope of the authority under which it is placed on the ballot,” the majority of the Court wrote in a six to one decision. This ruling confirmed a previous court decision that stopped local governments from banning fracking using zoning laws in 2015. Ohio produces 1,000 percent more oil and natural gas than it did in 2006 and the state’s natural gas production grew 41 percent faster last year than it did in 2014, according to the federal Energy Information Administration. Republicans in both state legislative chambers of Ohio have a long history of being hostile toward green energy. They attempted in 2015 to gut an Ohio law mandating the state get 25 percent of its power from green energy by 2025, despite reported veto threats and hostile rhetoric from Republican Gov. John Kasich. The governor has long been at odds with his own party over the state’s energy future. Ohio’s green energy mandate is responsible for 29,366 lost jobs and caused a $3,842 reduction in average household income, according to a study by Utah State University.

Ohio Republicans Show Support For Oil And Gas Industry - WOSU Public Media -- Some of the state’s highest ranking Republicans are coming out to support the oil and gas industry and its impact on Ohio in an effort to counter rhetoric in the presidential race.   Democratic presidential nominee Hillary Clinton has said she’d like to crack down on the use of fossil fuels and create sanctions on the natural gas drilling practice known as fracking. Republican Lt. Gov. Mary Taylor says Ohio’s economy would be struggling if those policies were in place at the start of 2009. “The future of our economy is tied to energy. We need to support all viable energy options and I would caution anyone who would seek to take coal and natural gas off the table.” She cited numbers of the U.S. Chamber of Commerce which said the oil and gas industry created more than 114,000 jobs and brought in $9.9 billion.

 Study: Fracking chemicals linked to reproductive health abnormalities in mice --In a new study — the first of its kind — researchers fed water laced with fracking chemicals to pregnant mice and then examined their female offspring for signs of impaired fertility. They found negative effects at both high and low chemical concentrations, which raises red flags for human health as well.  Published in the September issue of Endocrinology, the study adds to a growing body of research on the human health effects of fracking chemicals and the potential hazards of related air and water contamination. Just earlier this year, Nagel co-authored another study that found water located downstream from a fracking wastewater site contained levels of endocrine-disrupting chemicals high enough to negatively effect the aquatic inhabitants. In this most recent study, Nagel and colleagues selected 23 chemicals found in oil and gas operations, including fracking, and mixed them at four different concentrations to mimic what’s been found in drinking water and groundwater as well as in industrial wastewater. More specifically, the contaminated water samples were designed to reflect “environmentally relevant” concentrations, with the two lowest doses equivalent to what’s been reported in drinking water in drilling regions and the highest dose meant to mimic industrial wastewater. The contaminated water was then given to pregnant mice on day 11 of pregnancy through birth. The female offspring that were exposed to the chemicals in utero were then compared to female offspring that did not receive the contaminated water. The study noted that of the more than 1,000 chemicals used in unconventional oil and gas operations, at least 130 are known or suspected endocrine disrupters. The researchers found that the exposed group presented notable differences in key hormones related to reproductive health, including disruptions in the development of the ovarian follicle, which is central to egg development. In particular, the female mice offspring exposed to smaller concentrations of the fracking chemicals had fewer ovarian follicles, which may suggest fewer eggs and shorter fertile periods. On the other end, the offspring exposed to high doses of chemicals experienced a follicle increase, which suggests “inappropriate follicle activation (or accumulation) and ultimate follicle death.” In addition to reproductive health impacts, the exposed mice also had altered pituitary hormone production, increased body weights, and increased cardiac fibrosis (a thickening of the heart muscle and an indicator of future heart failure) as well as increased heart weights. (In a 2014 study, researchers found a relationship between proximity to natural gas wells and the prevalence of congenital heart defects in human babies.)

Northeast US gas pipeline plans will enable more production, impact markets further afield - (snapshot video) - The Northeast US is set to undergo radical changes with natural gas infrastructure, but many pipeline development projects are at risk of delay. Eric Brooks evaluates which domestic markets could be impacted by nearly 3 Bcf/d of expansion projects scheduled to come online by the end of 2016 and the feasibility of additional capacity slated for 2017.

14 Pipeline Projects in 24 States ... Which Will Be the Next Battleground? -- Encouraged by the Obama administration's shelving of the Keystone XL pipeline and its revoked authorizationfor construction of the Dakota Access Pipeline on federal lands, activists are now eyeing new battles.  At least 14 new pipeline projects are in the works, carrying both oil and natural gas. These projects involve at least 24 states, adding to the existing 2.5 million miles of energy pipelines in the U.S.—the largest network in the world. Driven by low natural gas prices and the fracking boom, these new pipelines will cross major urban areas as well as important watersheds. Supporters say that they supply energy needs for many communities, provide jobs and are safer for oil transport than truck or rail. Take the case of the Atlantic Sunrise pipeline expansion. Running from Louisiana through the Southeast all the way to Long Island, New York, the project is an expansion of an existing Transco pipeline operated by Tulsa, Oklahoma-based Williams Companies .  Counting branch pipelines, Transco is a 10,200-mile system that can move 10.9 billion cubic feet of natural gas per day. The company transports 10 percent of the natural gas consumed in the U.S., but it was built to move gas mainly from the Gulf of Mexico to the Northeast.  Now, the Marcellus Shale in Pennsylvania provides lower-cost gas and the Atlantic Sunrise will be reconfigured to move product south. In 2014, 1,370 wells were being drilled in the Marcellus, with high-yield wells using hydraulic fracturing, or fracking . The Marcellus provides more than 36 percent of the shale gas produced in the U.S.

With some gas stations dry, pipeline works to send more fuel  (AP) — Gas prices spiked and drivers found “out of service” bags covering pumps as the gas shortage in the South rolled into the work week, raising fears that the disruptions could become more widespread. The shortage is blamed on a pipeline rupture and leak of at least 252,000 gallons (954,000 liters) of gas in Alabama. The pipeline company has two main lines and said Monday that it is shipping “significant volumes” on the second of the two lines to mitigate the impact of the interruption on the other line. Colonial Pipeline said it was working “around the clock” to repair the break and supplies have either been delivered or are on their way to locations in Alabama, Georgia, Tennessee, South Carolina, and North Carolina.  Still, some motorists discovered bone-dry pumps. “I’m definitely on empty, so I’m going to have to figure something out,”  Alpharetta, Georgia-based Colonial has acknowledged that between 252,000 gallons (954,000 liters) and 336,000 gallons (1,272,000 liters) of gasoline leaked from a pipeline near Helena, Alabama, since the spill was first detected Sept. 9. It’s unclear when the spill actually began. The U.S. Department of Transportation is investigating. “We continue to be in regular communication with our customers, who are also working on their own individual contingency plans to minimize supply disruptions. This includes trucking and barging fuel from other markets and refineries,” the company said. Colonial Pipeline said over the weekend that it was beginning construction of a temporary pipeline that will bypass a leaking section of its main gasoline pipeline in Shelby County, Alabama. Its statement Monday did not say when that temporary pipeline is expected to be up and running.

Agency: Leak led to vapors in air, dead animals -- Federal officials say highly flammable vapors keep investigators from the site of a gas leak for the first few days after it was discovered.  The pipeline leak in Alabama has led to gas shortages across the South. Harmful chemicals in the air prevented firefighters, company officials and anyone else from being near the site for more than three days. The U.S. Pipeline and Hazardous Materials Safety Administration said in a preliminary report that the failure of the Colonial Pipeline in Alabama left about 6,000 barrels of gasoline in a pond near Helena, Alabama. The agency said state workers had noticed a strong gasoline odor, along with dead vegetation nearby, on Sept. 9. Three raccoons and a rabbit were later found dead.  The agency said highly flammable benzene and gasoline vapors in the air prevented anyone from investigating the cause in the first few days after it was discovered.

"Panic Gasoline Buying" In Southeast Leads To "Massive Car Lines", Gas Shortages, Price Gouging -- As reported over the weekend, the Colonial Pipeline, which runs from Houston to New York, began leaking on September 9, spilling 250,000 gallons of gasoline, or 6,000 barrels. The pipeline was built in 1962, and the current leak in Helena, Alabama, is the largest one Colonial Pipeline has experienced in 20 years. As a result, various states in the Southeast, including Alabama, Tennessee, & Georgia declared states of emergency ahead of what could be substantial gas shortages, with North Carolina and Virginia joining earlier today. For the Nashville area, however, this escalation achieved the opposite effect of the intended outcome: as the Tennessian reports, in the "panic-driven" rush to Nashville area gas stations to load up in advance of what would be higher prices if not outright shortages, motorists scrambled to load up, leading some stations to run out of gas while others reported long lines.  Ironically, the leaking Colonial Pipeline doesn't even regularly supply Tennessee, said Emily Leroy, executive director of the Tennessee Fuel and Convenience Store Association. However, that did not matter to local residents  And, Leroy adds, "Panic buying is the worst thing that can happen under any circumstance."  According to the paper, Nashville experienced similar panic in September 2008 after Hurricane Ike hit Texas. Officials estimated then that about 85 percent of Nashville area gas stations ran out of fuel — outages caused almost exclusively by panic buying. Many Middle Tennesseans had deja vu when they saw lines over the weekend. Jackie Dawson, 69, of Mt. Juliet, Tenn., gasped when she saw five cars deep at the pumps at her local Kroger. "I was just amazed at how everybody went into panic mode when they shouldn’t have," she said. "One woman put gasoline in three huge gas tanks as well as her car. It was bizarre. Just like in 2008. Just like the '70s."

Pipeline will soon reopen, carrying gasoline to 5 states (AP) — Gasoline should begin flowing again Wednesday — through a temporary bypass on a critical pipeline — after a major leak in Alabama forced a shutdown that led to surging fuel prices and scattered gas shortages across the South, a company official said Tuesday. The roughly 500-foot (152-meter) section of pipe serving as the bypass is now complete, but supply disruptions may continue for days, Colonial Pipeline spokesman Steve Baker told The Associated Press. “When Line 1 restarts, it will take several days for the fuel delivery supply chain to return to normal. As such, some markets served by Colonial Pipeline may experience, or continue to experience, intermittent service interruptions. Colonial continues to move as much gasoline, diesel and jet fuel as possible and will continue to do so until markets return to normal,” Colonial said in a statement. Here are some details related to the spill that led to long gas lines and empty service stations:

East Coast Gasoline Prices Plunge After Leaking Pipeline Bypass Completed -- In what was clearly not 'government work' Colonial has completed the bypass of its leaking pipeline early and has told shippers it will restart supplies tomorrow. This has sent near-term gas prices to the east coast tumbling. Great news amid claims from Alabama's governor of price-gouging by retail gas suppliers. As Bloomberg reports, Colonial Pipeline has finished construction, fabrication and positioning of bypass connector pipeline segment around leak site west of Pelham, Ala., co. says in e-mailed statement.

  • Colonial in process of carrying out hydrostatic test of new segment
  • Segment is approx. 500ft in length
  • Co. says it will take “several days” for fuel delivery supply chain to return to normal when Line 1 restarts
  • Some markets should expect intermittent service interruptions

But the market is pricing out disruptions... This is great news as OilPrice reports several US Governors warned against price-gouging as shortages loomed...Georgia Governor Nathan Deal signed an executive order against unjust price hikes after gasoline prices spiked 20-40 cents across the state following a pipeline leak in Helena, Alabama.The order emphasizes the terms of an existing law that forbids gouging during “a state of emergency” by permitting price changes only as a reaction to the higher cost of fuel or fuel transportation.An increased demand for gasoline—as is the status quo in Alabama, Georgia, Tennessee and the Carolinas after a 252,000-barrel leak in Colonial Pipeline Company’s line last week—is not considered a valid reason to raise prices under the law.

The Latest: Accord reached on documents in ongoing Gulf oil leak (AP) — The Latest on a court fight over the confidentiality of documents related to an ongoing leak of oil from a site damaged by Hurricane Ivan in 2004. Environmental attorneys and an energy company have agreed to work out differences over the confidentiality of documents concerning an ongoing oil leak in the Gulf of Mexico from an offshore site damaged by Hurricane Ivan in 2004. Environmental groups and Taylor Energy agreed during a Thursday federal court hearing to negotiate supplemental language for a 2015 settlement agreement over how and when to release information on Taylor’s response to the leak. At issue are volumes of documents that Taylor Energy says include confidential information about oil spill containment technology developed for the company. A 2015 Associated Press investigation revealed evidence that the leak was worse than the company or the federal government had earlier reported. Government experts believe oil is still leaking at the site. Taylor has said persistent sheens are coming from residual oil oozing from seafloor sediment.

Obama Administration Urged to Halt Dumping of Offshore Fracking Waste Into Gulf of Mexico --  An Obama administration proposal to continue allowing oil companies to dump unlimited amounts of offshore fracking chemicals into the Gulf of Mexico violates federal law and threatens endangered marine wildlife, the Center for Biological Diversity warned over the weekend. In a letter to the Environmental Protection Agency on a proposed wastewater discharge permit for offshore oil and gas drilling activities in the eastern Gulf of Mexico, the Center explained that the proposed permit violates the Clean Water Act because it causes an undue degradation of the marine environment. “The permit allows the unlimited discharge of produced wastewater, including the unlimited discharge of chemicals used in offshore fracking and other well-stimulation treatments,” the letter noted. “The EPA is endangering an entire ecosystem by allowing the oil industry to dump unlimited amounts of fracking chemicals and drilling waste fluid into the Gulf of Mexico,” said Center attorney Kristen Monsell. “This appalling plan from the agency that's supposed to protect our water violates federal law and shows a disturbing disregard for offshore fracking’s toxic threats to sea turtles and other Gulf wildlife.” Today's letter also points out that the EPA is relying on a 33-year-old study of waste fluid produced by offshore platforms, despite the drilling of more than 450 wells in the area since 2010 alone. The letter urges EPA to adopt a zero-discharge requirement for produced water and fracking chemicals, as is required under other offshore drilling permits.

EPA Plans to Allow Unlimited Dumping of Fracking Wastewater in the Gulf of Mexico: Environmentalists are warning the Environmental Protection Agency (EPA) that its draft plan to continue allowing oil and gas companies to dump unlimited amounts of fracking chemicals and wastewater directly into the Gulf of Mexico is in violation of federal law. In a letter sent to EPA officials on Monday, attorneys for the Center for Biological Diversity warned that the agency's draft permit for water pollution discharges in the Gulf fails to properly consider how dumping wastewater containing chemicals from fracking and acidizing operations would impact water quality and marine wildlife. The attorneys claim that regulators do not fully understand how the chemicals used in offshore fracking and other well treatments -- some of which are toxic and dangerous to human and marine life -- can impact marine environments, and crucial parts of the draft permit are based on severely outdated data. Finalizing the draft permit as it stands would be a violation of the Clean Water Act, they argue. "The EPA is endangering an entire ecosystem by allowing the oil industry to dump unlimited amounts of fracking chemicals and drilling waste fluid into the Gulf of Mexico," said Center attorney Kristen Monsell. "This appalling plan from the agency that's supposed to protect our water violates federal law, and shows a disturbing disregard for offshore fracking's toxic threats to sea turtles and other Gulf wildlife."

 Don’t be fooled by the numbers, Eagle Ford play is a sleeping giant - The Barrel Blog: The Eagle Ford shale oil patch has seen brighter days. New well permits are down, production is low (down from its 2015 peak of 1.7 million b/d, to around 980,000 b/d this year) and producers are pulling out of the region to focus their efforts elsewhere. Symbolic of the mood in the field, things were a little more subdued at the recent Hart Energy DUG Eagle Ford conference in San Antonio. Many attendees were quick to notice the smaller scale of the conference this year. Lower oil and gas prices meant a lighter presence and scaled-back events surrounding the conference, which was held in conjunction with the Midstream Texas conference. Major players and past year exhibitors like Baker Hughes and Halliburton were obviously missing from the smaller-than-usual exhibition space and at least one attendee compared this year to past years by lamenting the absence of magicians and open bar at an after-hours mixer. Attendance this year was healthy, but still was a telling reminder of the current state of the Eagle Ford. Around 1,500 people were at the conference, a more than 45% decrease from last year. “While that’s smaller than during the ‘boom,’ it’s not down as much as the decline in crude oil price from the top to the bottom, or the fall in the US rig count, so we’re feeling pretty good about it with the current market conditions,” said Greg Salerno, vice president of marketing for conference presenter Hart Energy.

Oil and gas wastewater is changing the Earth's surface, study finds -- The U.S. oil and gas industry is having a visible effect on the Earth's surface, a new review of satellite images has found. In recent years, energy companies have pumped an unprecedented volume of wastewater — a byproduct of fracking and conventional drilling — deep into underground wells. The water often can't be reused or recycled for economic or technical reasons, so many companies have found it easier to inject the water back into the ground. That process has sparked a wave of earthquakes across the central United States, transforming the Earth both above and below the surface, according to a study published Thursday in the journal Science. SEE ALSO: Oklahoma's magnitude 5.8 quake comes amid concerns around oil and gas boom Wastewater not only puts pressure on underground fault lines, causing "induced" earthquakes, but also pushes up the surface of the ground — a phenomenon called "uplifting" that can be seen from space. Researchers used satellite images of ground uplifting to show how wastewater disposal in eastern Texas eventually triggered a magnitude-4.8 earthquake in May 2012, the largest earthquake recorded in that half of the Lone Star state. "We brought a new angle to this study of 'induced seismicity,' which is monitoring the seismicity from space," said Manoochehr Shirzaei, the study's lead author and a geophysicist at Arizona University's School of Earth and Space Exploration. "This hasn't been done before," he told Mashable. The team studied surface changes near two sets of wastewater disposal wells separated by less than 15 kilometers, or about 9 miles. Using satellite-based observations from 2007, 2010 and 2014, the researchers estimated the evolution of local "pore pressure" — the pressure of fluids within the pores of a subsurface rock. Shirzaei said they estimated the pore pressure changes were strong enough to cause earthquakes, including the 2012 temblor near Timpson, Texas.

'Groundbreaking' Study Links Texas Earthquakes to Wastewater Injection From Fracking -- Even though scientists are pretty certain that wastewater injection from fracking and conventional drilling has led to the unprecedented spate of earthquakes rollicking Oklahoma , Texas and other states in recent years. Definitive proof, however, is rare. But now, in a study published Thursday in Science , researchers have fastened another nail in the "man-made earthquakes" coffin.  Using satellite imagery, the researchers found that a series of earthquakes that struck Texas between 2012 and 2013— including the largest-ever quake recorded in eastern Texas—were caused by the injection of large volumes of wastewater from oil and gas activities into deep underground wells.   As Mashable explained from the study:  Wastewater not only puts pressure on underground fault lines, causing "induced" earthquakes, but also pushes up the surface of the ground—a phenomenon called "uplifting" that can be seen from space.  Researchers used satellite images of ground uplifting to show how wastewater disposal in eastern Texas eventually triggered a magnitude-4.8 earthquake in May 2012, the largest earthquake recorded in that half of the Lone Star state.  "Our research is the first to provide an answer to the questions of why some wastewater injection causes earthquakes, where it starts and why it stops," said study co-author William Ellsworth, a geophysics professor at Stanford's School of Earth, Energy & Environmental Sciences.  As a Stanford press release described, the researchers used Interferometric Synthetic Aperture Radar (or satellite-based radar) to detect tiny, highly precise deformations near four high-volume wastewater disposal wells where the 2012 temblor occurred.  These wells had operated between 2005 and 2007, injecting about 200 million gallons of wastewater annually underground at its peak—or, as Science pointed out, "about an Olympic swimming pool's worth of wastewater pumped underground each day."  This uplift, as a result of pumping so much fluid into the ground, caused the terrain between two sets of injection wells to bulge up to 3 millimeters a year on average between May 2007 and November 2010, Science noted. Over time, excess fluids seeped away from the injection point into tiny spaces in surrounding subsurface rocks, boosting water pressure—aka pore pressure. The ever-expanding pore pressure then reached fault zones, thus triggering earthquakes.

Authorities: 44 cited, 1 jailed in Iowa pipeline protest…(AP) — Authorities say 44 people were cited and one person was jailed during a weekend protest intended to block construction of a $3.8 billion, four-state oil pipeline in southeast Iowa. Lee County Chief Deputy Sheriff Scott Bonar said Monday that 38 adults were cited for trespassing and released from the county jail after authorities removed them from the work-site entrance of the Dakota Access pipeline in Sandusky. Six juveniles also were cited and released, and one was held on charges of trespassing and interference with official acts. About 200 people protested on Saturday, Bonar said, but were peaceful. Those cited were removed after walking through a line of private security and sheriff’s deputies who stood in front of the driveway. A larger protest over the pipeline, which would transport oil from North Dakota’s Bakken formation to Illinois, was been taking place in North Dakota.

Dakota Access Pipeline construction temporarily halted - A U.S. federal appeals court ordered for a portion of the Dakota Access Pipeline to halt construction on Friday, while the court considers an emergency request from the Standing Rock Sioux Tribe arguing that the pipeline’s construction would damage sacred lands.  The order applies to any portion of the pipeline within 20 miles of Lake Oahe, which the Standing Rock Sioux tribe has argued has deep historical significance to the tribe and has been a crucial component of legal action against the pipeline. The appeals court will now consider whether or not to issue a longer delay on construction of the pipeline. On September 9, U.S. District Judge James Boasberg said that while the site has “undeniable importance” to the tribe, they had failed to adequately show that the pipeline’s construction would damage the area, and denied the tribe’s request to halt construction. That same day, however, the federal government said it would not authorize construction on federal lands around Lake Oahe. A U.S. federal appeals court ordered for a portion of the Dakota Access Pipeline to halt construction on Friday, while the court considers an emergency request from the Standing Rock Sioux Tribe arguing that the pipeline’s construction would damage sacred lands.  The order applies to any portion of the pipeline within 20 miles of Lake Oahe, which the Standing Rock Sioux tribe has argued has deep historical significance to the tribe and has been a crucial component of legal action against the pipeline. The appeals court will now consider whether or not to issue a longer delay on construction of the pipeline.

Tribes open new front in fight over pipelines | TheHill: The Obama administration is launching a review of energy permits on American Indian lands, opening a new front in the fight over oil pipelines in the United States. Obama officials promised the review after pausing construction on the contentious Dakota Access Pipeline earlier this month. The stakes are high for both sides.  For Indian activists, the review raises the possibility federal officials could consult more with tribes and lead to fewer projects — energy and otherwise — that they oppose. The energy industry and its backers in Congress worry about that outcome, accusing President Obama of threatening energy projects on federal lands around the country. The Obama administration has hinted the review could be wide-ranging and have a major impact on federal permitting, saying that the Dakota case "highlighted the need for a serious discussion on whether there should be nationwide reform with respect to considering tribes’ views on these types of infrastructure projects.” Federal officials haven’t said what that review will entail, or how far the administration is thinking of going. Lawmakers were in the dark about the scope of the review this week. Sen. Heidi Heitkamp (D-N.D.) said officials told her “they’ll need a couple weeks” before they could detail what information they need for their review. For Indian rights groups, the review carries a big promise, especially in light of the Dakota Access fight.

Easy resolution unlikely for contentious Dakota pipeline | Reuters: A potential rerouting of a long-anticipated pipeline at the center of a protest in North Dakota would be a laborious and costly task, possibly delaying a startup by months and provoking further opposition from Native American and environmental groups who were instrumental in halting construction. The 1,172-mile (1,886 km) Dakota Access pipeline was slated to start up by the end of the year, transporting more than 470,000 barrels per day of crude oil through four states into Illinois before it hooks up to another pipeline down to Texas. But in a stunning twist last week, the U.S. Justice Department and other federal agencies intervened to delay construction in what industry and labor representatives called an "unprecedented" move. The halt on the $3.7 billion project was the result of a groundswell of protest from Native American tribes and environmentalists, some of whom now are vowing to continue the fight until the project is permanently suspended. While there are a few options for rerouting the line, most still cross either culturally important lands to Native Americans or large waterways. The more extensive a reroute, the more likely it is that regulatory obstacles crop up. "We're entering unchartered waters if a reroute happens at this stage and I can't think of another example of a case where this has happened," said Afolabi Ogunnaike, a senior analyst at consultancy Wood Mackenzie. "Should a reroute take place, there are some major challenges."

 Memo to Briefcase Warriors: Be Bold! -- The Standing Rock lawsuit presents an opportunity to critique how Indian Nations represent themselves in legal battles. In this case, the picture looks depressingly familiar. Standing Rock was nowhere near as strong in litigation in the U.S. legal arena as they and the other protectors were on the ground. The Motion for a Preliminary Injunction—which the federal court denied— focused almost solely on a U.S. statute about historic preservation. The motion barely mentioned Treaty rights and did not challenge the notion that the U.S. Congress can override treaties. International law—especially the United Nations Declaration on the Rights of Indigenous Peoples—was not mentioned at all. The Complaint was somewhat broader than the motion. Though it mentioned the Treaty (only four times) it did not mount a vigorous defense of Treaty rights; and it presented the threat to water in terms of U.S. statutes rather than Indigenous Peoples' rights. Some might say the fault lies with Standing Rock's choice of legal counsel: Earthjustice, an environmental law organization based in Seattle. But the Earthjustice motion and complaint actually follow a familiar pattern we see in Indian cases, where lawyers for Indians not only fail to defend Native Nations against American claims of "overriding sovereignty," but actually embrace the "domestic dependent" status and "plenary power of Congress" doctrines decreed by federal Indian law. We have seen this pattern in so many cases that it now appears to be the “normal” way to litigate an Indian case. Lawyers have been trained inside the figurative box of federal Indian law thinking and cannot seem to find their way out. Though they are sometimes called "briefcase warriors," these lawyers repeatedly fail to do battle with the most basic parts of their adversaries' attacks on Indigenous Peoples' existence and rights.

AFL-CIO Bucks Progressive Allies, Backs Dakota Access Pipeline - HuffPo - On Thursday, the AFL-CIO announced that it was formally supporting development of the Dakota Access oil pipeline, a project fiercely opposed by Native American tribes and environmentalists. The $3.7 billion development has prompted mass protests led by members of the Standing Rock Sioux Tribe, who say their sovereignty will be trampled and their water supply imperiled if the project goes through.The AFL-CIO has said in recent years that it wants to link arms with other major liberal players on issues like civil rights and racial and environmental justice. But it also must answer to its member unions. Some of those unions ― particularly in the construction trades ― support energy projects like the Dakota Access pipeline because they create jobs for union members. There has been a similar friction within labor throughout the Keystone XL controversy.The Laborers’ International Union of North America, or LiUNA, has been the most vocal supporter of the Dakota Access pipeline within the AFL-CIO. LiUNA has accused the protesters of being “extremists” who trespass, intimidate and endanger its members working on the project.In its statement Thursday, the AFL-CIO said the pipeline provides “high-quality jobs” and makes the U.S. “more competitive.” It also argued that the project “addresses the threat of climate change.”“Pipelines are less costly, more reliable and less energy intensive than other forms of transporting fuels, and pipeline construction and maintenance provides quality jobs to tens of thousands of skilled workers,” reads the statement attributed to AFL-CIO President Richard Trumka. The federation took heat on Twitter for its support of the Dakota Access project:

 Chip Ward, Peace Pipes, Not Oil Pipes - TomDispatch - In our new political world, the phrase "follow the money" has real meaning.  Consider the $1,530,000 that, according to OpenSecrets.org, billionaire Kelcy Warren has personally given away in the 2016 election cycle to influence your vote (or someone’s vote anyway).  One hundred percent of his dollars, just in case you were curious, have gone to “conservative” candidates, including key congressional Republicans.  Warren is a Texas oil pipeline magnate who's wildly rich.  According to the Wall Street Journal, “his 23,000-square-foot Dallas mansion, bought for $30 million in 2009, includes a bowling alley and a baseball diamond that features a scoreboard with ‘Warren’ as one of the teams.”  As Sue Sturgis of the Institute for Southern Studies wrote recently, “With business partner Ray Davis, co-owner of the Texas Rangers baseball team, Warren built Energy Transfer Equity into one of the nation's largest pipeline companies, which now owns about 71,000 miles of pipelines carrying natural gas, natural gas liquids, refined products, and crude oil. The company's holdings include Sunoco, Southern Union, and Regency Energy Partners.” And as Dr. Seuss used to say, that is not all, oh no, that is not all!  Don’t forget Energy Transfer Partners, part of the Energy Transfer Equity empire.  It's building the embattled Dakota Access Pipeline, which is supposed to bring fracked oil from North Dakota to the Gulf Coast.  Through a PAC, it has given at least $288,000 to a bevy of Republican House and Senate candidates.  In other words, election 2016 will, among other things, be an oil spill of an election.  And should Donald Trump, a man who gives “conflict of interest” new meaning, take the Oval Office by storm and so ride to the rescue of the oil and coal magnates of America with his drill-baby-drill environmental policies, that “investment” will matter even more.  In the meantime, Warren’s latest project -- that pipeline across the Dakotas -- has run smack into resistance of an unexpected kind as it approached the Standing Rock Sioux Reservation.  Faced with the prospect of fracked oil in their drinking water, the tribe rallied other tribes (including tribes of environmentalists) and, as of this moment, has miraculously stopped the pipeline dead in its tracks.  Think of what’s been going on as an Indian version of Occupy Wall Street.  As environmentalist and TomDispatch regular Chip Ward points out today, Native Americans, long ago discarded as the dispossessed and forgotten losers of American culture, have returned with a vengeance to protect not just the last wild places on our continent but the rest of us as well.  It’s one hell of a story and on an overheating planet that, as is increasingly said, needs to “keep it in the ground,” it’s not just a heartwarming tale, but a matter of life or death. Tom

 As Dakota Access Protests Escalated, Obama Admin OK’d Same Company for Two Pipelines to Mexico -- Steve Horn   On September 9, the Obama administration revoked authorization for construction of the Dakota Access Pipeline (DAPL) on federally controlled lands and asked the pipeline's owners, led by Energy Transfer Partners, to voluntarily halt construction on adjacent areas at the center of protests by Native Americans and supporters. However, at the same time the pipeline and protests surrounding it were galvanizing an international swell of solidarity with the Standing Rock Sioux Tribe and its Sacred Stone Camp, another federal move on two key pipelines has flown under the radar. In May, the federal government quietly approved permits for two Texas pipelines — the Trans-Pecos and Comanche Trail Pipelines — also owned by Energy Transfer Partners. This action and related moves will ensure that U.S. fracked gas will be flooding the energy grid in Mexico. Within a two-week span in May 2016, as the Sacred Stone Camp was getting off the ground as the center of protests, the U.S.Federal Energy Regulatory Commission (FERC) issued presidential permits for the Trans-Pecos and Comanche Trail Pipelines. Together, the pipelines will take natural gas obtained from fracking in Texas' Permian Basin and ship it in different directions across the U.S.-Mexico border, with both starting at the Waha Oil Field. Similar to the case of North Dakota oil wells whose oil will likely be transported via Dakota Access, and like the name Dakota itself, the Comanche Trail Pipeline's nomenclature originates from a Native American tribe.Today the Comanche Nation is headquartered in the southwestern part of Oklahoma in Lawton, and was removed from Texas in the aftermath of the Comanche Wars. As part of those wars, this nomadic tribe used the Comanche Trail which crossed West Texas and through what is now Big Bend National Park. Like many other tribes, the Comanche Nation has come out in opposition to the Dakota Access Pipeline. Some members have formed a support group called Comanches on the Move, which has taken caravans on the road from Oklahoma to the Sacred Stone Camp in North Dakota.

North Dakota borrowing $6M for pipeline protest costs (AP) — A North Dakota legislative committee has approved an emergency request to borrow $6 million to cover the cost of law enforcement related to the ongoing protest of the four-state Dakota Access oil pipeline. The state’s Emergency Commission, headed by Gov. Jack Dalrymple, voted Wednesday to borrow the funds from the state-owned Bank of North Dakota. The leader of the state’s National Guard says North Dakota has spent about $1.8 million to date on law enforcement and other costs related to the protests, centered in south-central North Dakota. Maj. Gen. Alan Dohrmann says Morton County has spent an additional $400,000 in extra costs. The county may apply for reimbursement from the state. The Republican governor has asked federal officials to reimburse the state for the additional law enforcement costs.

Task force looking into security, pipeline protesters' clash (AP) — A joint task force of North Dakota and federal officials is investigating a clash between Dakota Access pipeline protesters and private security guards earlier this month, a county sheriff announced Tuesday. The Morton County Sheriff’s Department is heading up the probe of the Sept. 3 incident on private land, after which private security guards and protesters reported injuries. Tribal officials say about 30 protesters were pepper-sprayed and some were bitten by dogs at the construction site near the Standing Rock Indian Reservation. The task force includes members of the Morton and Mercer County sheriff’s departments, the state Bureau of Criminal Investigation and the federal Bureau of Indian Affairs. Morton County Sheriff Kyle Kirchmeier said the BIA is representing Native American tribes. Kirchmeier said the investigation will determine which firms were hired to provide security that day and whether they were licensed. The task force also is looking into whether tribal artifacts were disturbed at the site as the Standing Rock Sioux tribe has argued. “I am using all tools possible to insure this investigation is carried out with no bias toward Dakota Access pipeline nor the pipeline protesters,” Kirchmeier said in a statement. The sheriff’s office would not name any of the security firms being investigated. A North Dakota state agency that regulates private investigation and security firms is also looking into the incident. Monte Rogneby, an attorney representing North Dakota Private Investigation and Security Board, did not immediately return a message seeking comment.

Native American tribes back Iowa pipeline fight — Two Native American tribes are supporting the battle against the Dakota Access Pipeline in Iowa, as foes of the $3.8 billion project attempt to broaden their base of opposition. An anti-pipeline rally and protest here Thursday included several representatives of Iowa's Meskwaki tribe, based in Tama, as well as a half-dozen members of the Sisseton Wahpeton Oyate tribe of Agency Village, S.D., which has a reservation straddling both sides of the South Dakota-North Dakota border. In addition, activists from Illinois and Minnesota attended the events along with Iowans who have been fighting the pipeline the past two years. Strong opposition to the pipeline by the Standing Rock Sioux tribe in North Dakota has generated national news coverage in recent weeks as tribes from throughout the U.S. have joined forces against the Dakota Access project. They contend the pipeline will endanger sacred burial grounds and could threaten the tribe's water supply from Lake Oahe on the Missouri River. "We are going back to Standing Rock, and we are going to spread the word," Sylvana Flute, a member of the Sisseton Wahpeton Oyate tribe, told Iowans here. "We are all in this together, and we are here to support you." About 175 people participated in Thursday's demonstration in rural Boone County as they tried to disrupt pipeline construction on the west bank of the Des Moines River. There were no arrests, but 11 protesters received $200 tickets for illegally parking on a county road in front of the construction site, and one vehicle was towed for blocking the construction site entrance. Terrance Robertson, who is also a Sisseton Wahpeton Oyate tribal member, said he is convinced the pipeline will leak, polluting life-sustaining water. "Nothing man-made lasts forever, even if they build it perfectly," he said.

Pipeline developer buys ranch near North Dakota protest camp - (AP) — The company developing the four-state Dakota Access oil pipeline has purchased a portion of a historic North Dakota ranch where a violent protest occurred earlier this month due to what tribal officials said was construction crews destroying burial and cultural sites. Morton County records show Dallas-based Energy Transfer Partners purchased 20 parcels of land on the Cannonball Ranch totaling more than 6,000 acres from David and Brenda Meyer of Flasher. Financial terms of the deal, which was finalized Thursday, were not disclosed. The Meyers did not return telephone calls Thursday or Friday seeking comment. Energy Transfer Partners confirmed the purchase Friday but declined to provide further details. The ranch, which is more than a century old and was the first to be inducted into the North Dakota Cowboy Hall of Fame, is within a half-mile of an encampment on U.S. Army Corps of Engineers’ land where the Standing Rock Sioux Tribe and hundreds of others are gathered to protest the pipeline. The tribe says the pipeline, which is slated to cross Lake Oahe, a Missouri River reservoir, threatens its water supply and violates several federal laws. Corps records show Meyer pays $4,865 annually for exclusive grazing rights at the encampment site, a five-year lease that ends in 2018. The purchase of the ranchland will allow ETP to better access its construction sites and the pipeline, when it is finished.

While CBR Gently Weeps - An Update on Bakken Crude-by-Rail to PADDs 1 and 5  --For the first time since the start of the crude-by-rail (CBR) boom a few years ago, just as much crude oil is being transported by rail to PADD 5—that is, to states in the western U.S.—as to the Eastern Seaboard states in PADD 1. This primarily reflects the facts that 1) CBR deliveries from the Williston Basin/Bakken to PADD 1 continue to plummet and 2) refineries in the West remain reliable buyers of railed-in crude from the Bakken and Western Canada. Will CBR shipments to the East Coast continue to fall, or have we seen the worst of the decline? Today we take a look at recent trends in crude movements by tank car, and a look ahead. As we’ve discussed often in the RBN blogosphere, the volumes of U.S. and Western Canadian crude oil moving out of production areas in tank cars via railroads rose sharply in 2011-12, maintained high levels through 2013-14, and declined through most of 2015 and year-to-date 2016. There are a number of reasons for both the rise and fall of crude-by-rail (CBR). The rise was spurred in large part by the lack of sufficient pipeline infrastructure, primarily out of the Williston Basin/Bakken, and to some extent in the Permian Basin, the Denver-Julesburg and other tight-oil and shale plays where crude production was soaring. Building rail-loading terminals represented a logical, near-term fix—they could be constructed quickly and at relatively modest cost (filling a transportation-capacity gap until pipelines were developed), and using the rails gave shippers destination flexibility (allowing oil to be moved to wherever the netbacks were highest). As we said in our Slow Train Coming Drill Down report on CBR a while back, railed shipments of crude within the U.S. averaged only 55 Mb/d in 2010 and 121 Mb/d in 2011, but rose to an average of 394 Mb/d in 2012, 709 Mb/d in 2013, and 867 Mb/d in 2014 before falling back to 754 Mb/d in 2015.  U.S. CBR averaged only 439 Mb/d (on average) in the first six months of 2016 and had declined to only 363 Mb/d by June 2016.

In North Dakota, hints of US oil industry comeback -- Workers in this oil town in the US state of North Dakota, just an hour from the Canada border, once had their pick of jobs. Many are now looking for any work they can find. “They don’t have very many jobs for us right now,” said Heather Scallion, who travelled some 1,300 miles (2,100 km) from Arkansas, thinking there was still low-skilled work here. “Hurting for money, honestly,” she explained. Nearby, a ragged man in his 30s slept on a couch. Scallion was fairly certain he was homeless, because he slept on the same spot every day, wearing the same clothes. Just minutes from this temporary work site, at the state-run employment agency Job Service North Dakota, it is a far different world. There is a shortage of workers for highly skilled positions in drilling and oil pump maintenance, among others. “There were layoffs when oil really tanked,” said Cindy Sanford, who heads the agency’s Williston branch. “Now what’s happening is those companies are bringing people back.” North Dakota is now seeing hints of a recovery from the bust. As crude prices have rebounded to the US$40 range after a stunning crash, there are signs that the industry is slowly regaining its footing.But the recovery has been uneven, a distinct case of the haves and the have-nots, as skilled labourers see their prospects improving, while the less desirable workforce feels little optimism.

Update On The Bakken -- Lynn Helms -- September 23, 2016  Data points from The Williston Herald and a radio interview, September 23, 2016:

  • North Dakota production will likely dip below 1 million bopd but not below 900,000 bopd
  • wells continue to get better and better
  • Bakken is 94% oil (important fact to remember when comparing the Bakken with the Permian and the Eagle Ford)
  • if IPs used to average 1,100, now they are averaging 1,500
  • at the beginning of the boom, Bakken wells were estimated to continue producing for 30 years; now it is estimated that Bakken wells will produce for 35 years
  • Bakken wells EURs have increased 25%
  • 8,000 to 8,500 wells drilled using old technology might be good refrack candidates
  • oil in the $50 to $60 range: 900 DUCs highly economical
  • frack crews now average in the range of five to eleven (5 - 11)
  • at peak prices, there were 50 frack crews operating in the Bakken
  • at $60 oil, the Bakken is superior to the Permian and the Eagle Ford
  • today's rigs average 25 wells/year vs 8 or 9 wells in 2009
  • multi-well pads, new bit technology, new motor technology, new mud technology
  • recently an operator drilled a 3-mile lateral with one bit and one motor (previously reported at the blog); typically, an operator would require three bits/well
  • Lynn Helms does not sound optimistic about the DAPL
A reminder: tight oil plays in the US -- EIA -- annual energy outlook (2016) -- out to 2040: graphic here

 Settlement reached in damages from Exxon's Yellowstone spill  (AP) — Exxon Mobil Corp. will pay $12 million for environmental damages caused by a pipeline break that spilled 63,000 gallons (238,474 liters) of crude into Montana’s Yellowstone River and prompted a national debate over lax pipeline safety rules, officials said Wednesday. The payment settles claims from the U.S. and state governments that the 2011 spill harmed natural resources as it fouled an 85-mile (137-kilometer) stretch of the famous river that flows through southern Montana. Court approval is pending. The pipeline break upstream near the town of Laurel killed fish and wildlife and prompted a monthslong cleanup. A U.S. Transportation Department investigation found Exxon workers failed to heed warnings that the 20-year-old pipeline was at risk from flooding. Gov. Steve Bullock, Attorney General Tim Fox and representatives of the U.S. Justice Department announced the deal Wednesday morning at the site of the pipeline break in Laurel. The Associated Press obtained details in advance. “All of us as Montanans lost something when that spill occurred,” Bullock said. “This money is to make sure not just that we’re compensated but the pelicans are where they should be, the fish are where they should be.” Assistant U.S. Attorney General John Cruden said restoration of the river is not done.

Federal Bill Seeks First Native American Land Grab in 100 Years  - Even as the Dakota Access Pipeline protest in Standing Rock has galvanized Native Americans across the U.S., a bill entered in the U.S. House of Representatives by Utah Republican congressmen Rob Bishop and Jason Chaffetz seeks to take 100,000 acres of Ute tribal lands and hand them over to oil and mining companies. Will Bears Ears be the site of the next standoff?  The proposed bill also seeks to remove protection from 18 million acres of land in eastern Utah and prevent President Obama from designating the Bears Ears area a national monument.  Adjoining Canyonlands National Park and the Glen Canyon National Recreation Area, Bears Ears is an unprotected culturally significant region that contains more than 100,000 Native American archeological sites. These sacred sites are subject to continual looting and desecration. More than a dozen serious looting cases were reported between May 2014 and April 2015.  The area has been inhabited for at least 11,000 years. Many Southwestern tribes have longstanding connections to this land, including Navajo, Ute and Paiute peoples. The Navajo Nation and the White Mesa Ute Reservation border Bears Ears. Rock paintings and petroglyphs are found throughout the area. The area is rich in mining deposits including uranium and potash with some deposits of tar sands present as well. Oil and gas companies are eyeing the area for drilling. The area around Bears Ears, as well as Canyonlands and Arches National Park, are already dotted with oil rigs. Writing in the May/June 2015 issue of Sierra , Julian Smith reported on an area just north of Bears Ears. "The air was full of harsh mechanical noises and a petroleum smell," she wrote.

Online Auction Allows Big Oil to Frack Public Lands for as Little as $2 Per Acre -- Have you ever thought to yourself, "I wish it were easier for fossil fuel companies to get their hands on public land so they can drill for oil and gas?" Yeah, neither have I.  Unfortunately, that seems to be what the Obama Administration was thinking when it announced it would move auctions for the rights to exploit public lands for fossil fuels to an online bidding process.  The switch to online auctions is a direct result of pressure built by the keep it in the ground movement over the past year.  Fossil fuel lease auctions—organized by the Bureau of Land Management (BLM)—had been relatively dull events conducted in person for years. But recently, activists have taken the events by storm, converging on lease sales across the country in peaceful protest to make it clear that our public lands are not for oil and gas profit. Since this time last year, the BLM has cancelled or postponed nine of 15 scheduled sales due to mounting public pressure.   But instead of hearing the concerns of the 1 million people who want the U.S. fossil fuels to stay in the ground, the BLM is listening to the fossil fuel industry and simply changing venues.  Enter today's online auction.  More than 4,000 acres of land will be made available across Missouri and Kansas, but what's at stake goes beyond this individual sale.  Fossil fuel executives see online auctions as a way to " end the circus " created by keep it in the ground activists mobilizing in the thousands at recent lease sales. Never mind that these auctions are for our public land and that this "circus" is what the right to assembly and freedom of expression look like in practice.  To make the switch online, the BLM has turned to a company called EnergyNet , dubbed "eBay for oilfields" by Forbes Magazine . EnergyNet has been in the business of auctioning private land for oil and gas exploitation for years, but this is its first foray into selling off federal land.  Starting today, fossil fuel representatives can follow EnergyNet's simple 8-step bidding process to lease the rights to drill and frack for as little as $2 per acre. If no else bids, a company could buy the entire parcel available for the price of a used Camry. Meanwhile, the Environmental Protection Agency found last year that inaction on climate change could cost the country $180 billion by the end of the century.

After Early Losses, Industry Stops Anti-Fracking Measures - — The oil and natural gas industry in Colorado was losing the public relations game. One industry association executive said it was “caught flat-footed” as oil and gas companies watched voters in Longmont pass a ban on fracking and other drilling activities in November 2012. A year later, voters approved four more citizen initiatives, imposing fracking moratoriums in Boulder County, Broomfield and Fort Collins and a permanent ban in Lafayette.  Oil and gas producers knew it was time to respond. They quickly invested in the creation of new issue committees and information campaigns designed to beat back bans. They stressed the importance of energy exploration and production to the state economy.  Meanwhile, environmentalists and community activists accused the industry of rigging the political process, creating “disinformation” campaigns and even harassing volunteers who were out in public gathering signatures in support of the proposed drilling restrictions.  Industry groups outspent them by a 15-to-1 ratio, paying freelancers to write paid newspaper commentaries and flooding radio and TV outlets with pro-industry messages, environmental advocates said.  In the 2016 election cycle, one of the new issue groups, Protecting Colorado’s Economy, Environment, and Energy Independence, launched a counter-campaign urging voters to “Decline to Sign” petitions in support of two proposed anti-fracking ballot measures it described as “job-killing” and “too extreme” for the state. The strategy worked. At the end of August, Colorado Secretary of State Wayne Williams (R) announced that the campaigns behind the two measures had failed to gather enough signatures to qualify the initiatives for the ballot.  Environmentalists and community activists who promoted the two proposals, Initiatives 75 and 78, say they were outmaneuvered by industry’s disinformation effort designed to confuse voters and make them second-guess signing the petitions to put the measures on the ballot. “They hired people to go out there and harass signature gatherers,” Micah Parkin of 350Colorado, one of the groups driving the petition campaign, told Bloomberg BNA. “They followed our petition circulators around, holding signs that said, ‘Don’t destroy Colorado’s economy’ and ‘Don’t take my job,’” she said.

Encana said to be hanging 'For Sale' sign on Colorado assets -  Encana Corp., the Canadian oil and gas company that has its U.S. headquarters in Denver, is exploring the sale of all of its “non-core” assets, including its operations in Colorado’s Piceance Basin on the Western Slope, according to Reuters.  Reuters quoted two unnamed sources the news agency said were familiar with the matter.  The sale of Encana’s assets in North America and the United States could bring the company $1 billion, helping to reduce the company’s roughly $5.4 billion in fixed and revolving debt, the sources told Reuters. Encana officials have listed as its “core” focus the company’s Montney and Duvernay assets in Western Canada, along with the Permian Basin and Eagle Ford assets in western part of Texas and the southeastern part of New Mexico. According to Reuters, the sources said Encana is open to offers on all of its non-core assets including its Piceance Basin assets in western Colorado, its San Juan Basin assets in New Mexico, its Tuscaloosa Marine Shale assets in Mississippi and Louisiana, the Deep Panuke offshore gas field in Nova Scotia and its Horn River and Wheatland assets in western Canada.

Rail Industry Requests Massive Loophole in Oil-by-Rail Safety To Extend Bomb Trains Well Beyond 2025 --In the most recent oil-by-rail accident in Mosier, Oregon the Federal Railroad Administration (FRA) concluded that the tank cars involved — the jacketed CPC-1232 type — “performed as expected.” So an oil train derailing at the relatively slow speed of 25 mph should be “expected” to have breached cars resulting in fiery explosions. Current regulations allow those tank cars to continue rolling on the track carrying volatile Bakken crude oil and ethanol until 2025 with no modifications.Yet industry lobbying group the Railway Supply Institute (RSI) has now requested the Federal Railroad Administration to essentially allow these jacketed CPC-1232 tank cars to remain on the tracks for decades beyond 2025. This was just one of the troubling facts that came to light at the National Transportation Safety Board (NTSB) roundtable on tank car safety on July 13th, and perhaps the one of greatest concern to anyone living in an oil train blast zone like Mosier, Oregon. Just Re-Stencil It and Call It a DOT 117  One of the biggest risks with Bakken oil train accidents is that often the only way to deal with the fires is to let them burn themselves out. This can result in full tank cars becoming engulfed in flames for hours or days in what is known as a pool fire. This can lead to a “thermal tear” in the tank and the signature mushroom cloud of fire so often seen with these derailments. The new regulations address this issue by requiring tank cars to have a layer of ceramic insulation covering the entire tank car to prevent the oil from heating up to the point of creating a thermal tear (ceramic shown in pink in the image below.)

Montana board to decide on fracking chemicals disclosures (AP) — Montana regulators are to consider a petition that would force companies to divulge more information about fracking chemicals they use to produce oil and gas. A 2011 state rule allows companies to conceal chemicals considered trade secrets. A group of landowners, environmentalists and health advocates oppose the trade secrets exception. They say it violates the public’s right to know about chemicals that threaten public health. The group petitioned the Montana Oil and Gas Conservation Board in July to tighten its rules. Board administrator Jim Halvorson says a decision is expected following a public hearing Thursday in Billings. The Montana Petroleum Association has said the public should not have access to proprietary company information.

US Study Confirms Rapid Increase of Methane Emissions by Oil and Gas - Another U.S. scientific study has confirmed that methane emissions from oil and gas activity are increasing more rapidly than previously estimated, and that these increases were happening at the same time that the North American shale gas boom and related fracking frenzy took off.The latest study, one of several major scientific papers on growing global methane emissions published this past year, found that methane venting and leaks from oil and gas activity stabilized in the early 1980s and ‘90s and then dramatically escalated between 2000 and 2008.“Overall fossil fuel emissions didn’t change a lot until 2000, and then it really ramps up,” reported Andrew Rice, a climate scientist at Portland State University.Although the timing corresponds with the shale gas and fracking boom, the study did not identify shale gas sources or distinguish emissions from hydraulic fracturing in North America from other fugitive fossil fuel sources.Methane is a much more dangerous greenhouse gas than carbon dioxide. It can be 34 times more potent than CO2 as a disruptive climate changer over a 100-year frame, and 86 times more potent than CO2 over a 20-year time horizon.The increase in methane from the fossil fuel sector identified by the study corresponds with increases in coal mining in China and the fracking of shale gas in the U.S.The study, published by the Proceedings of the National Academy of Sciences, was based on an analysis of archived air samples from Oregon and other places between 1977 and 2009.Researchers then used the isotopic fingerprint data on methane from different sources to infer how the sources may have changed total methane levels over time.

 EIA now provides estimates of drilled but uncompleted wells in major production regions -- Starting this month, EIA's Drilling Productivity Report (DPR) includes monthly estimates of the number of drilled but uncompleted wells (DUCs) in the seven DPR regions. Estimates will go through the prior month; the September DPR includes estimates through August.  Current EIA estimates show DUC counts as of the end of August totaling 4,117 in the four oil-dominant regions (Bakken, Eagle Ford, Niobrara, and Permian) and 914 in the three natural gas-dominant regions (Haynesville, Marcellus, and Utica) that together account for nearly all U.S. tight oil and shale gas production. In the oil regions, the estimated DUC count increased during 2014 and 2015, but the count declined by about 400 over the past five months. The DUC count in the gas regions has generally declined since December 2013.  DUCs are wells that have been drilled by producers, but have not yet been made ready for production. The full completion process involves casing, cementing, perforating, hydraulic fracturing, and other procedures to make the well ready to begin producing oil or natural gas. Following the large decline in oil prices since mid-2014, new drilling and completion activity slowed, and the number of DUCs in oil-dominant regions increased. A high inventory of DUCs has implications for the size and timing of the domestic supply response to changes in oil prices, with or without significant changes in the number of active drilling rigs.  Although both drilling and completion activity have declined since late 2014, the completions have experienced a deeper decline than drilling in oil-dominant regions. The differences in drilling and completion rates in these oil regions may be attributed to several factors. For instance, some long-term contracts for drilling rigs and lease contracts may mandate drilling or producing in order to fulfill commitments made to the landowners and mineral-right owners.   Estimates of the number of DUCs have been available from other sources. These estimates often vary significantly because of differences in methodology and operational assumptions, or, in some cases, insufficient data. EIA develops its estimates of DUCs for all seven regions in the Drilling Productivity Report using a consistent methodology and uniform assumptions.

Greens urge Obama to block new Arctic, Atlantic drilling - Key environmental groups are pushing President Obama to block any potential offshore drilling operations in the Atlantic and Arctic Oceans.  In a Tuesday letter to Obama, the groups said the world “needs leadership on policies that help limit global warming by addressing fossil fuel supply," starting with public lands and waters.   Blocking drilling in the Atlantic and the Arctic, they said, would “present a key opportunity for you to complete major first steps on this front before leaving office.” "No existing oil drilling jobs are at stake,” said the letter, signed by the heads of seven environmental groups.“The current lack of infrastructure for drilling either oceans’ outer continental shelves means oil production — if feasible at all — would be decades away, arriving too late to fuel America’s transition to a low carbon economy. It would also require massive public and private investments that should instead go into clean energy.”The heads of the Natural Resources Defense Council, NextGen Climate, League of Conservation Voters, Earthjustice, Sierra Club, Environment America and Defenders of Wildlife signed on to the letter. The Obama administration hopes to finalize a five-year offshore drilling plan before the end of his term. The proposed plan would block drilling in the Atlantic Ocean despite an earlier proposal to allow operations there, and it would allow up to two drilling lease sales in the Arctic Ocean.  Oil industry groups have urged the Obama administration to at least allow drilling in the Arctic as part of the plan.

Donald Trump Promises Deregulation of Energy Production - WSJ: —Republican presidential candidate Donald Trump promised sweeping deregulation of natural-gas, oil and coal production as part of an “America-first energy” plan. Speaking on Thursday to a conference of 1,500 gas-industry executives, managers and salespeople, Mr. Trump said he would lift restrictions on America’s “untapped energy—some $50 trillion in shale energy, oil reserves and natural gas on federal lands, in addition to hundreds of years of coal energy reserves.” He promised to end “all unnecessary regulations, and a temporary moratorium on new regulations not compelled by Congress or public safety.” Mr. Trump named an $850 million coal export terminal in Washington, a $3 billion Northwest gas pipeline and a $6.8 billion gas-export terminal as examples of the fossil-fuel projects that have been rejected by regulators or withdrawn by supporters since 2012. A recent tally found about $33 billion in projects have been derailed by regulations, grass-roots opposition and falling energy prices, a figure that Mr. Trump cited in his speech.  Democratic nominee Hillary Clinton has called for investment in renewable energy and steep reductions in U.S. carbon emissions as part of an effort to address global warming. Mr. Trump promised new prosperity in the gas industry via deregulation, which he said his friends in the business were more enthusiastic about than tax cuts. He said deregulation would lift gross domestic product by $100 billion a year and add 500,000 jobs annually in the next seven years.  Some conference delegates noted that on the campaign trail, Mr. Trump has focused more on coal than on gas. In his speech Thursday, Mr. Trump also promised to “end the war on coal,” including rescinding a coal-lease moratorium and conducting “a top-down review” of all coal regulations issued by the Obama administration. This year is the first in which gas will supply a larger percentage of U.S. electricity than coal.

Alaska emergency crews study up for nation’s first LNG by rail - Starting tomorrow, the Alaska Railroad will be the first in the nation to carry liquefied natural gas by rail. With the Federal Rail Administration’s blessing, LNG will travel the tracks from Anchorage to Fairbanks. As with any new venture, safety is always a topic of discussion. Cappel said he’s training the Anchorage Fire Department in case the worst happens. “It’s very important for everyone to understand how rail cars work, especially the fire department,” said Cappel. “If they are responding to any kind of disaster they need to know how these cars work so they don’t get hurt and the people they are rescuing don’t get hurt.” Over the next four weeks, the Alaska Railroad will complete eight round-trip test runs of liquefied natural gas shipments from Anchorage to Fairbanks. It’s a big first, for Alaska and the U.S. — LNG has never been shipped by rail before. Fairbanks Natural Gas hopes this will be a cheaper, safer way to move the fuel. Recent oil train explosions in the lower 48 have some people worried about moving train cars filled with fossil fuels through communities. Lois Epstein, an engineer who works for The Wilderness Society, says shipping LNG by rail is generally safer than carrying it in a truck, which is how the LNG is being shipped to Fairbanks now. “Where I would be concerned, however, is places where the railroad crosses the road because that’s where there are some very real safety issues,” said Epstein.

First Nations across North America sign treaty alliance against the oilsands - The thunderous pounding of indigenous drums echoed in the air on Thursday as more than 50 indigenous nations across North America rallied together to sign a historic, pan-continental treaty alliance against oilsands expansion in their traditional territory. The collaboration, formalized at simultaneous ceremonies in Quebec and B.C., aims to block all proposed pipeline, tanker, and rail projects affecting First Nations land and water, including TransCanada's Energy East pipeline, Kinder Morgan's Trans Mountain expansion, Enbridge's Line 3 pipeline, and Enbridge Northern Gateway. At the signing on Musqueam land in Vancouver, the lineup of chiefs waiting to put their names down filled up an entire room. It was a powerful ceremony, and participants clad in the regalia of their nations travelled from across B.C. and northern Washington to be part of the growing movement. Grand Chief Stewart Phillip of the Union of BC Indian Chiefs, who also signed the document, said indigenous people will no longer stand for dangerous projects on their territory that advance the threat of climate change."In this time of great challenge we know that other First Nations will sign on," he said, extending the invitation to Indigenous communities far and wide."Based on our sovereign, inherent right to self-determination, we have collectively decided that we will pick up our sacred responsibilities to the land, waters, and people. We will come together in unity and solidarity to protect our territory from the predations of big oil interests, industry, and everything that represents." It's a movement that's already happening, he added, with no better example than in North Dakota, where the Standing Rock Sioux have forced the federal government to pause Dakota Access pipeline construction.

Natural Gas Prices Rise on Historic Heat - WSJ: Natural gas prices surged to their highest point since the winter of 2015 as hot weather reports keep stoking expectations for strong demand. Historic heat has caused record demand for gas-fired power at a time of declining drilling activity, persuading many that a glut leftover from last winter is easing. Bearish traders had been expecting that heat to wane as summer nears an end, but weather forecasts show extreme heat as much as 15-degrees-Fahrenheit above normal until the end of this week, and more warm temperatures covering most of the country into next month. “Demand is supposed to drop. And it has not. It has gone up,” said Scott Shelton, broker at ICAP PLC. “It’s still much better than everyone anticipated.” Natural gas for October delivery settled up 11.3 cents, or 3.9%, at $3.047 a million British thermal units on the New York Mercantile Exchange. That is the highest settlement since Jan. 16, 2015 and the first settlement above $3/mmBtu since May 18, 2015. Heat is the big driver for gas futures in the summer because demand is closely tied to power. Intense heat leads to higher consumption as people turn on their air conditioners. This September is on pace to be the hottest on record or second-hottest trailing only last September, according to Commodity Weather Group LLC in Bethesda, Md. “Weather is undefeated in the natural gas market,” said Zane Curry, a gas analyst at Mobius Risk Group in Houston. Futures have also been boosted by higher spot prices in recent sessions, themselves a beneficiary of the heat and high demand for gas-fired power near the Henry Hub benchmark, analysts and brokers have said. Data showing recent production declines in the Gulf of Mexico and Louisiana’s Haynesville shale have also probably helped spot prices, Mr. Curry said. It is rare for them to be higher than futures in September, analysts said.Physical gas for next-day delivery at the Henry Hub in Louisiana traded Tuesday from $3.06/mmBtu to $3.10/mmBtu, compared with $2.92 to $2.99 on Monday. Cash prices at the Transco Z6 hub in New York traded from $1.73/mmBtu to $1.83/mmBtu, compared with Monday’s range of $1.50 to $1.60.

Natural Gas Prices Are at a 19-Month High: What Does It Mean? -  In the last five trading sessions, natural gas October futures have risen 5.8%. They closed at ~$3.06 per MMBtu (million British thermal units) on September 21, 2016. This is ~0.3% more than the previous session. On September 21, 2016, active natural gas futures hit a high of $3.06 on closing price basis—the highest level since January 2015. The rise in natural gas could be attributed to record-high temperatures. This led to higher demand for natural gas at gas-fired powerplants to satisfy the cooling demand. The natural gas–targeted drilling activity has been weak. We’ll discuss natural gas and crude oil rigs in the next part. The market also expects the gap between the current inventory levels and historical averages to close. We’ll discuss this in detail in Part 3. Last winter, natural gas usage for heating was weak due to mild weather. As a result, prices were weak. At the end of March 2016, US natural gas inventories were at 2.5 trillion cubic feet—67% higher than the levels in 2015 and 53% higher than their five-year average. Natural gas futures hit a 2016 and 17-year low of $1.64 on March 3.The EIA (U.S. Energy Information Administration) projects that natural gas inventories will be ~4,042.4 Bcf (billion cubic feet) at the end of October 2016. This would be the highest level on record at the end of October. During the week ending September 2, natural gas inventories were at 3,437 Bcf—10% higher than their five-year average and 6% higher than the level last year.On September 21, natural gas futures were trading ~17.8% above their 100-day moving average and 6.7% above their 20-day moving average. This indicates the bullishness in natural gas prices. The above graph shows the price performance of natural gas futures relative to key moving averages.

Natural Gas Price Dips on Inventory Build -  The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 52 billion cubic feet for the week ending September 16. Analysts were expecting a storage addition of around 52 billion cubic feet. The five-year average for the week is an injection of around 83 billion cubic feet, and last year’s storage addition for the week totaled 105 billion cubic feet. Natural gas inventories rose by 62 billion cubic feet in the week ending September 9. Natural gas futures for November delivery traded down about 1% in advance of the EIA’s report, at around $3.06 per million BTUs, and traded near $3.03 after the data release. Natural gas closed at $3.13 per million BTUs on Wednesday, a five-day high. The 52-week range for natural gas is $2.05 to $3.02. One year ago the price for a million BTUs was around $2.99.  Natural gas prices rose to a recent high on Tuesday and Wednesday on forecasts for continued warm weather and higher demand for natural gas through the end of this month. But summer’s high temperatures are pretty much behind us now and more gas is likely to be headed for storage. The concern is that natural gas could threaten the country’s physical storage limit of around 4.3 trillion cubic feet by the time the winter heating season begins. Stockpiles remain about 4.1% above their levels of a year ago and more than 8% above the five-year average. The EIA reported that U.S. working stocks of natural gas totaled about 3.551 trillion cubic feet, around 268 billion cubic feet above the five-year average of 3.283 trillion cubic feet and 140 billion cubic feet above last year’s total for the same period. Working gas in storage totaled 3.411 trillion cubic feet for the same period a year ago.

 NGL-to-crude ratio pricing heading back to pre-2012 level. The ratio of NGL-to-crude oil prices looks like it will be rebounding, and over the next two or three years could rise to levels not seen since the Shale Revolution brought down NGL prices at the end of 2012, a signal that all of the new NGL-consuming petrochemical cracker projects now under construction may not be as lucrative as their developers had once hoped. Several factors are driving the ratio’s rise: increasing U.S. demand for NGLs; more exports; stubbornly low crude oil prices and a lower trajectory of NGL production growth. Today, we examine the historical relationship between NGL and crude oil prices and the reasons why that ratio may be headed back above 50%.  The Shale Revolution has had many market effects –– it’s made fortunes, transformed regions like the Marcellus/Utica and Bakken into energy and economic powerhouses, and given the U.S. a degree of energy independence that few would have predicted a decade ago. It’s also wreaked havoc on what for years had been reliably consistent relationships or ratios between different types of hydrocarbons. The NGL-to-crude ratio is a case in point. First, an explanation. As we at RBN define the measure, the NGL-to-crude ratio is a weighted average of OPIS/Mont Belvieu natural gas liquids (NGLs) prices divided by CME/NYMEX front month crude oil futures. The weighted average for the NGL mix that we use to calculate the ratio is 42% ethane, 28% propane, 11% normal butane, 6% isobutane, and 13% natural gasoline. 

Over, Under, Sideways, Down - KM's Tejas Crossover to Help Move Gas to Export Markets - Planned liquefaction/LNG export facilities along the South Texas coast and growing demand from Mexico’s electric power sector together will require several billion cubic feet/day of additional U.S. natural gas over the next three to five years. Gas producers from the Marcellus/Utica to the Permian are targeting these markets, but there are questions regarding whether the Lone Star State’s existing pipeline infrastructure is sufficient to deliver all that gas to these critically important export markets. Part of the solution will be optimizing the use of Texas’s impressive—but sometimes misunderstood intrastate pipeline networks, particularly the far-reaching systems operated by Enterprise, Energy Transfer and Kinder Morgan. Today, we discuss one part of the solution, an inexpensive but impactful Kinder Morgan project that will enable about 1 Bcf of natural gas from various sources to reach South Texas LNG exporters and Mexico on KM’s intrastate system. For some time now, three of the more frequent topics in the RBN blogosphere have been rising natural gas production; the potential for liquefied natural gas (LNG) exports from the Gulf Coast and pipeline gas exports to Mexico; and the infrastructure needed to deliver gas to these markets. Most recently, we addressed all three of these topics in Part 1 of “Miles and Miles of Texas,” a two-part Drill Down report on Marcellus/Utica gas being piped to Louisiana and Texas to help meet export demand—and on the challenges inherent in moving all that gas to Gulf Coast liquefaction/LNG export terminals and south of the border into Mexico. (Part 2 of the Drill Down will be published in the next couple of weeks.) In Part 1 we noted that while Texas still produces more natural gas than any other state (20.1 Bcf/d of marketed production as of June 2016, according to the Energy Information Administration, or EIA), the three states in the Marcellus/Utica plays (Pennsylvania, Ohio and West Virginia) together produce even more (21.8 Bcf/d as of June) and because of favorable economics could—and probably will—produce a lot more in the years ahead.

European buyers may bring US LNG to 'home' markets in 2018/19: Cheniere - Contracted buyers of US LNG in Europe, such as France's Engie and Spain's Gas Natural, could bring their volumes to their own home markets in the next few years as an expected widening of the Henry Hub/oil spread makes US LNG more attractive, a senior official from US LNG pioneer Cheniere said Wednesday. Speaking at the LNGgc conference in London, Cheniere Marketing's Genevieve Solomon also conceded that US LNG exports were "less compelling" now because of the oil price fall than had been the case when most of the US LNG export projects were sanctioned. Cheniere began exporting LNG in February this year, but out of the 30 or so cargoes exported to date, only two have come to Europe. This is partly due to the low gas prices in Europe and a pick-up in Russia, Norwegian and Algerian pipeline supplies.Solomon said that by 2018 or 2019, US LNG is expected to be cheaper than the oil-indexed gas in Europe. This, she said, should incentivize some of Cheniere's contracted buyers to bring gas to Europe. "If you consider where the oil price is expected to be, they should want to take some of their US LNG over oil-indexed gas," she said. "So I wouldn't rule out US LNG being taken into the home markets of those that have signed the contracts," she said.

Coal's cost advantage over LNG slipping, but not yet enough: Russell | Reuters: Thermal coal has been one of the commodity success stories this year, but there is a risk that it becomes a victim of its own success by eating into its advantage over liquefied natural gas (LNG) in generating electricity. The benchmark Australian thermal coal price, the Newcastle Index, rose to $70.76 a tonne in the week to Sept. 16, its highest in 18 months and taking its gain since the start of the year to almost 40 percent. In contrast, the price of spot LNG in Asia was $5.60 per million British thermal units (mmBtu) on Sept. 16, down almost 19 percent from the end of last year. The two fuels are at different stages in their price cycle, with thermal coal likely to snap five years of losses in 2016, while LNG is on track to notch up a third consecutive down year. The difference is mainly because the market for coal used in power stations has finally started to balance, with the prior years of oversupply coming to an end as mines shut down or cut back output and demand gains in Asian markets, with China proving a standout so far this year. LNG is still some way from this point, with more supply expected to reach the market this year and for the next few years, coupled with question marks over whether demand growth will rise sufficiently to absorb the new production. Nine liquefaction trains are expected to start up in 2016, adding 35 million tonnes of LNG to the market, ANZ Banking Group said in a research note published on Sept. 13. The additional capacity is largely from new plants in the United States and Australia, which is poised to become the world's largest producer of the super-chilled fuel as it completes eight new projects that have been under construction.

Algeria's Skikda resumes LNG exports after two-month shutdown - Maintenance at Algeria's Skikda LNG export facility has now been completed, with the first cargoes shipped out in the past week. The two-month shutdown was partly to blame for a slump in exports of LNG to Spain in August, while Spanish gas demand was also lower. The 4.7 million mt/year Skikda plant was closed for planned maintenance in mid-July, according to industry sources, with the final cargo before the shutdown loaded on July 11, data from Platts Analytics' Eclipse Energy showed.The first LNG cargo to leave Skikda after the restart was aboard the Cheikh Bouamama, which took 45 million cu m of gas equivalent to the Fos Cavaou LNG import plant in southern France last weekend. A second cargo loaded from Skikda aboard the Cheikh el Mokrani is taking 45 million cu m of gas equivalent to the Sagunto terminal in Spain and is expected to arrive Friday, according to Platts Analytics. Skikda has been a steady supplier of LNG to Spain over the past 12 months, supplying close to 2 Bcm of gas equivalent to the Spanish market since September 1, 2015, according to Platts Analytics data. That equates to around 15% of Spain's total LNG imports of 13.3 Bcm over the past year.

In Ohio, frackers are drilling. Soon Ineos will be doing the same in Britain -   Ineos is planning as many as 30 applications for fracking sites in the UK within the next year. As part of its campaign to win over critics, Ineos invited journalists to tour fracking sites in Pennsylvania operated by Consol, a Pittsburgh-based producer of natural gas and coal and, supposedly, an example of why fracking will be good for the UK.What’s in store for the UK can be seen about an hour southwest of Pittsburgh, in the town of Switzerland, Ohio, where a rig stands near a farm. The well is in its earliest stages: drilling goes on 24 hours a day, seven days a week. Sitting in a big armchair surrounded by screens, “T-Ball”, a burly 6ft drill operator, works 12-hour shifts, controlling the drilling like a video game. He does this for two-week stints. At night, another person takes over – also working a 12-hour shift. Ineos estimates that it will be at least five years before any of its UK wells are actually producing shale gas. Fracking will be good for Britain, according to Ineos, making it more independent and creating jobs. By 2018-19, about 69% of UK gas will be imported. Fracking, Ineos says, would help the UK become less dependent on other nations and would supplement dwindling North Sea resources. A 2014 Ernst & Young report predicts that fracking could create more than 64,000 jobs. There has been no fracking in the UK since 2011, when Cuadrilla Resources’ operations were said to be a “highly probable” cause of two earth tremors in northwest England. The moratorium on fracking was lifted in May 2013, but no fracking well proposals were actually approved until earlier this year, when North Yorkshire county council gave the go-ahead to an application by Third Energy.  But the consequences of unfettered fracking are clear in the US. A study by the US Geological Survey showed that increased fluid pressure in geological fault zones from disposal wells has increased earthquake vulnerability in a some states. As a result, parts of Oklahoma and Kansas now face earthquake risks on a par with California.  There is no way fracking can be done responsibly, “no matter what regulations are proposed”, according to John Detwiler of the Marcellus Protest coalition, an environmental pressure group in Pennsylvania. He said many company-sponsored fact-finding trips to Pennsylvania were “merely window-dressing for decisions being made in back rooms”.

 First U.S. shale gas shipment to arrive in Britain, serenaded by a Scots piper | Reuters: The first shipment of gas fracked from U.S. shale will arrive in Britain next week, upping pressure on Scotland to reassess its opposition to fracking. Chemicals giant Ineos will be importing ethane, obtained from rocks fractured at high pressure, in a foretaste of larger deliveries of liquefied natural gas (LNG) from shale set to reach Europe in 2018. The shipment of ethane, used to make plastics, anti-freeze and detergents, will arrive in Scotland's Firth of Forth on Tuesday, accompanied by a lone Scots piper at sunrise, the company said. The Zurich-headquartered group is against a Scottish moratorium on fracking. It is Britain's biggest shale gas company in terms of acreage and it has promised to share six percent of future shale gas revenue with local residents. Chairman Jim Ratcliffe, one of Britain's wealthiest men, argues he is offering the potential from shale fracking to create tens of thousands of jobs, putting pressure on the Scottish government grappling with an economy expected to be weakened by Britain's decision to leave the EU. "Shale gas can help stop the decline of British manufacturing and this is a first step in that direction," he said in a statement.While the British government backs shale gas extraction, Scotland, under its devolved powers, imposed a moratorium on fracking in early 2015. It said more research was needed before a final decision.

Big Oil Flocks To Argentina As Permian Land Prices Skyrocket -- The Permian Basin has become so hot that some oil companies are starting to stay away, instead looking at frontiers that are less picked over. BP is one such company. The British oil giant’s CEO Bob Dudley said that land in the Permian has become too expensive, and instead he is looking to expand operations in Argentina, where the vast Vaca Muerta shale basin offers appetizing opportunity. In an interview with Bloomberg TV from Buenos Aires, Dudley said BP is planning on acquiring more assets in the Vaca Muerta. And it isn’t just the “enormous potential” from the oil and gas reserves in the shale basin, but also the friendly policy put forth by the new Argentine government led by President Mauricio Macri. “I’m really encouraged by what I see,” Dudley said. “There’s a lot of future here.” BP has a joint venture with Bridas Corp. – BP owns 60 percent of Pan American Energy LLC and Bridas controls the other 40 percent. BP will expand its presence in Argentina through this JV. Argentina is quickly becoming one of the few countries that has achieved shale development outside of North America. One of the biggest incentives the government has offered is regulated oil prices, set at levels higher than the international price. Several of BP’s peers are already drilling in the Vaca Muerta, including Chevron, ExxonMobil, and Royal Dutch. The state-owned YPF said that it would need investments totaling about $200 billion to fully exploit the Vaca Muerta. Exxon said earlier this year that it might spend more than $10 billion in Argentina, building on several pilot projects. The investments would span decades. “I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Exxon’s CEO Rex Tillerson said in June. More and more companies are starting to build up their presence in Argentina.

Petrobras divestment plan opens door for other players: analysts - Oil | Platts News Article & Story: Brazilian state-led oil company Petrobras will expand asset sales and partnerships in several key segments, including refining, in moves that will further open Brazil to foreign oil companies and other players, according to analysts and industry observers. The company's 2017-21 investment plan, unveiled Tuesday, forecasts a jump in divestments and partnerships to $19.5 billion in the 2017-18 period. That total is on top of the $15.1 billion target set for divestments in 2015-16, a mark that Petrobras has struggled to reach amid a market flooded with assets as companies adjust to the low oil price environment. So far, the company has sold about $4.1 billion.Petrobras is refocusing on oil and natural gas exploration and production, especially in the promising subsalt frontier, after years of being used by Brazil's government as a tool for broader economic development. The company plans to exit segments such as biofuels, LPG distribution, fertilizers and petrochemicals, officials said.

How Bad Off Is Oil-Rich Venezuela? It’s Buying U.S. Oil — One oil rig was idle for weeks because a single piece of equipment was missing. Another was attacked by armed gangs who made off with all they could carry. Many oil workers say they are paid so little that they barely eat and have to keep watch over one another in case they faint while high up on the rigs. Venezuela’s petroleum industry, whose vast revenues once fueled the country’s Socialist-inspired revolution, underwriting everything from housing to education, is spiraling into disarray. To add insult to injury, the Venezuelan government has been forced to turn to its nemesis, the United States, for help.“You call them the empire,” said Luis Centeno, a union leader for the oil workers, referring to what government officials call the United States, “and yet you’re buying their oil.”The declining oil industry is perhaps the most urgent chapter of Venezuela’s economic crisis. Oil accounts for half of the Venezuelan government’s revenues, what former President Hugo Chávez once called an “instrument of national development.” The state oil company poured its profits, more than $250 billion in all from 2001 to 2015, into the country’s social programs, including food imports.  But those profits have evaporated with mismanagement and the drop in global oil prices over the past two years. Now, even Venezuela’s subsidized oil shipments to its vital ally Cuba are slowly being phased out, oil executives with operations in Venezuela contend, forcing Havana to look to Russia for cheap oil. For President Nicolás Maduro — like Mr. Chávez, who died in 2013, before him — Venezuela’s oil wealth has been essential to the nation’s identity and sovereignty, the financial might behind its regional ambitions and its angry defiance of the United States.

Can India Become An LNG Juggernaut? - In the world of liquefied natural gas (LNG), no market is watched with more interest or more potential excitement than India. In 2015 the country with the second-largest population on earth imported 15 million tons of LNG, but some forecasters predict it will import nearly 50 million by 2030.  LNG faces a critical juncture, with some 40-50 million tons reckoned to be “homeless” by 2020 unless new contracts are signed; this has placed buyers like India and Japan in privileged positions, with the leverage to re-negotiate existing LNG contracts (which are generally signed for long-term, fixed amounts) and take advantage of a global glut to make short-term and spot price buys, minimizing divergence with market prices. India, currently the world’s fourth largest LNG importer, may turn into an LNG juggernaut, taking in the new production from Australia, the U.S., Iran and elsewhere. It has announced plans to increase re-gasification capacity to 55 million metric tons in order to feed demand. But the key question remains: is that demand reliable?  Indian Oil, the state-run refining company, has announced that it expects to earn 15 percent of its total revenue from gas-related projects by 2021. At the moment, gas trading contributes only 5 percent to the company’s bottom line, and India overall relies on gas for 6.5 percent of its energy needs, lagging behind the global average of 23.8 percent. India Oil is set to invest $27 billion in oil and natural gas inside India, including a planned “mega refinery” in partnership with foreign capital. The company has reportedly secured 13 million tons of LNG regasification capacity across terminals in India, and has retained a commitment to importing two cargos of LNG from the Dahej import terminal every month. The terminal is run by Petronet, the country’s single largest LNG importer, which has been exploiting low prices to feed a “buying binge:” it’s expanding Dahej’s capacity from 10 million cubic meters a year to 15 million and is constructing a brand new terminal in the Indian province of Gangavaram on the East coast. These projects come with a high price tag, but Petronet can apparently afford it: the company reported a 55 percent increase in net profit for the first quarter (ending June), though the increase amounts to total net profits of $56 million, chump change for energy majors.

Tanker Returns to Libya’s Ras Lanuf Port to Load Oil After Clash - Bloomberg: A tanker returned to Libya’s third-biggest oil port to load a cargo a day after clashes between rival armed forces forced it to sail away to safety, in what would be the first overseas crude shipment from the terminal of Ras Lanuf since 2014. The vessel Seadelta was to resume loading 781,000 barrels of oil for shipment to Italy within four hours, Nasser Delaab, petroleum operations inspector at Harouge Oil Operations, said Monday by phone. The ship would be full 18 hours after that, he said. Another tanker, the Syra, would arrive in Ras Lanuf later on Monday to ship 600,000 barrels of crude to Italy, he said. The Seadelta halted loading amid fighting that complicated efforts to end a five-year conflict that has slashed Libya’s oil exports. Forces loyal to eastern-based military commander Khalifa Haftar repulsed a local Petroleum Facilities Guard unit that tried on Sunday to seize control of Ras Lanuf and the country’s largest oil port of Es Sider in east Libya, Mohammad Al-Azoumi, spokesman for a battalion under Haftar’s command, said by phone. Five petroleum guards were killed during the clashes, he said.The OPEC country is seeking to boost crude exports after fighting among rival militias slashed oil production following the 2011 ouster of former dictator Moammar Al Qaddafi. The conflict halted exports from the nation’s main oil ports of Es Sider, Zueitina and Ras Lanuf as the country struggled to form a unified national government. The National Oil Corp. planned to resume exports from the ports after reaching an accord with Haftar, who seized control of the facilities last week. The Seadelta had been loading crude from onshore storage tanks on Sunday before being interrupted, said Delaab, who helps organize oil movements at Ras Lanuf. The vessel arrived there from Trieste, Italy, according to tanker tracking data compiled by Bloomberg. The Syra was navigating off the Libyan coast as of Monday evening local time, according to the tracking data.

Oil bet gone wrong: rusting tankers and rigs clog up Asian waters | Reuters: Some 15 km (9 miles) from the bustling port of Singapore,a rusting tanker as big as the world's largest aircraft carriers lies idle in a muddy estuary flanked by mangrove trees on the coast of southern Malaysia. The 340-metre (1,115 ft) "FPSO Opportunity", a hulking so-called Floating Production, Storage and Offloading (FPSO) vessel capable of drilling for oil in deep waters, is currently surplus to requirements along with scores of other rigs, tankers and support vessels in an era of cheap oil. The fleet of mothballed giant vessels anchored around Southeast Asian waters is the physical fallout of an oil downturn heading into its third year, and a stark reminder of how badly the industry miscalculated market conditions. "There was a misguided focus‎ on scarcity in the supply side from the early 2000s," said David Fyfe, head of research at oil and commodity trading firm Gunvor. "As an industry, they were complacent. They thought because cost was high, prices will remain high ... (but) then there was the advent of shale. Since that period, there is a realization that there is no scarcity of oil." The shale revolution turned the United States into one of the world's biggest oil producers, at a time when exporters in the Middle East and Russia were also pumping out record volumes, causing oil prices LCOc1 to more than halve since mid-2014 to under $50 per barrel. The FPSO Opportunity, which has been laid up for over two years, was built in 1972 and operated by Chevron CV.N and Australia's Woodside Petroleum (WPL.AX) before being taken over by a Bermuda-registered FPSO Opportunity Inc in 2011. The newest owner could not be reached for comment.

Libya oil chief fears 'financial collapse' unless exports rise - Conflict-hit Libya could run out of money next year without a swift resumption of oil exports, the head of the country's National Oil Corporation (NOC) warned on Thursday."It is no secret we are on the road to financial collapse," NOC chairman Mustafa Sanalla told AFP in the capital Tripoli."We are running a budget with a huge deficit and we have spent half our reserves in the last few years."Sanalla was speaking after an oil tanker left the key Libyan port of Ras Lanuf on Wednesday with the first crude shipment from the terminal in two years. The cargo of 776,000 barrels was also the first to leave the country since oil terminals were seized last week by military strongman Khalifa Haftar, who handed control of the ports to the NOC. Libya has Africa's largest oil reserves, estimated at 48 billion barrels, but production and exports have slumped dramatically through years of crisis. Libya pumped around 1.6 million barrels of crude a day before longtime strongman Moamer Kadhafi's overthrow in 2011, but the ensuing chaos slammed production, which fell as low as 290,000 in recent months, according to the NOC.

Libyans Who Once Opposed Gaddafi Now Regret US-Led Regime Change - Who actually benefits from American-led wars across the globe? The aftermath of American-led conflicts shows it is not the common people, though the military and politicians vow they are liberating and protecting them. The Sunday Mail, Zimbabwe’s “leading family newspaper,” has published accounts of a number of Libyans who expressed regret over Muammar Gaddafi’s overthrow in 2011, despite the fact some of them even took up arms against him. As one said: “‘I joined the revolution in the first days and fought against Gaddafi,’ former revolutionary fighter Mohammed, 31, said from the southern city of Murzuq. ‘Before 2011, I hated Gaddafi more than anyone. But now, life is much, much harder, and I have become his biggest fan.’”In 2011, we were told Gaddafi was going to commit grave bloodshed against his own people and that as a result, the international community needed to intervene to protect Libyan civilians. This proved to be false, according to an analysis of statistics obtained by Human Rights Watch. Further, an investigation conducted by Amnesty International also found a number of claims against Gaddafi were fabricated, as noted by the Independent: “Nato leaders, opposition groups and the media have produced a stream of stories since the start of the insurrection on 15 February, claiming the Gaddafi regime has ordered mass rapes, used foreign mercenaries and employed helicopters against civilian protesters. “An investigation by Amnesty International has failed to find evidence for these human rights violations and in many cases has discredited or cast doubt on them. It also found indications that on several occasions the rebels in Benghazi appeared to have knowingly made false claims or manufactured evidence.” The so-called “no-fly zone” the U.N. Security Council Resolution authorized did not allow for regime change, something NATO representatives further promised their Eastern counterparts would not happen.

Swiss traders blame governments for dirty fuel in Africa (AP) — Swiss commodity traders accused of deliberately blending toxic fuel and dumping it in West Africa say African governments are to blame for low standards and failure to invest in refineries and newer vehicles to lower exhaust emissions that cause respiratory and other diseases. “What is very clear is that the role of improving fuel quality in Africa clearly rests with African governments, not with the fuel suppliers,” the Geneva-based African Refiners Association representing many traders said in a letter obtained Monday by The Associated Press. It was responding to allegations from Swiss watchdog Public Eye accusing traders of deliberately adding toxic products that lower fuel quality to increase profits at the expense of Africans’ health. Public Eye said traders including Vitol and Trafigura provide Europe with fuel meeting European Union standards of 10 parts per million of sulfur while creating what’s called “African Quality” fuel that has 2,000 ppm or more of sulfur. Nigeria, for example, allows up to 3,000 ppm of sulfur in petrol.  Nigeria’s Department of Petroleum Resources called the Public Eye report “grossly exaggerated.” The refiners’ association noted traders’ essential role in “the survival and growth” of economies in Africa, which imports more than 50 percent of its fuel. “If Swiss traders followed the report recommendation today their role would be filled by traders from other nations who would simply supply the quality required to meet the official specifications. The result would be that nothing would change in Africa,” it said.

Onlookers drawn to flare with gas company Origin fracking exploratory well in Northern Territory - ABC Rural (Australian Broadcasting Corporation): The Northern Territory Government says a large flame burning from an exploratory gas well is standard exploration practice. Media player: "Space" to play, "M" to mute, "left" and "right" to seek.Audio: Ross Evans from Origin Energy says government approval for well testing at the Amungee NW-1H was received four days before the NT election. (ABC Rural) Origin Energy Resources has recently fracked a horizontal shale gas well on Amungee Mungee station, east of Daly Waters, as part of a government-approved testing process. But the flare has pastoralist Daniel Tapp concerned. He said he and a friend drove to the area and filmed the gas flare from the Carpentaria Highway. He's worried it's a sign of things to come. "We've just been promised a moratorium on fracking. They're ([he NT Government] going to do an inquiry that's going to cost us more money," Mr Tapp said. "The well integrity issue has not been resolved, and by the time this inquiry gets lodged the [gas] infrastructure will already be in place and ready to frack." Ross Evans, Origin's general manager of exploration and new resources, said well testing at the Amungee NW-1H well site was permitted to continue until late November, however it was likely to be completed earlier. He said the production testing for gas quality and gas flow began last week.

 OPEC ‘Very Close’ to Agreement to Stabilize Market, Maduro Says - Bloomberg: Maduro held ‘positive discussions’ with fellow OPEC members Share on FacebookShare on TwitterShare on LinkedInShare on RedditShare on Google+E-mailShare on TwitterShare on WhatsAppOPEC members are close to reaching an agreement on how to stabilize the market, Venezuelan President Nicolas Maduro said after speaking to his counterparts from Iran and Ecuador. Maduro held “positive discussions” with fellow members of the Organization of Petroleum Exporting Countries who attended the Summit of the Non-Aligned Movement, he said Sunday at a press conference following the event, in which 15 heads of state gathered in the South American country. Maduro said he spoke with Ecuadorian President Rafael Correa and Iranian President Hassan Rouhani at the summit and that he hopes an accord can be reached by the end of the month. “We are close to an agreement between OPEC and non-OPEC countries to stabilize the market,” state oil company Petroleos de Venezuela SA wrote on Twitter, citing Maduro. A “definitive answer” for market stability could come this month, he said, according to PDVSA. Ministers from all 14 member nations of OPEC, as well as the energy minister of Russia plan to have informal discussions about the oil market in Algiers on Sept. 27 on the sidelines of the International Energy Forum. News of the meeting has fanned speculation that producers may agree on an output cap to shore up prices that are languishing below $50 a barrel nearly two years into the largest market crash in a generation. If the ministers reach a consensus in Algeria, OPEC may call a special meeting, Secretary General Mohammed Barkindo said on Sunday, according to Algeria’s official news agency. Brent crude, the global benchmark, was up 1.8 percent at $46.57 a barrel as of 11:22 a.m. Singapore time.

 Oil Slide Extends As OPEC SecGen Sees No Production Freeze This Month -- With just a few days before the highly anticipated OPEC meeting in Algeria, WTI Crude prices are tumbling once again as OilPrice.com reports a top official from the group threw cold water on the possibility of a production freeze.  Expectations for a deal have gone up and down since they were first floated in August, taking oil prices on a volatile ride. But, as OilPrice's Charles Kennedy notes, rumors of a possible deal were enough to spark a 20 percent rally in oil prices in August, ending what had become a bear market. Since then, a cavalcade of comments, opinions, and seemingly off the cuff remarks from OPEC officials and oil ministers have fueled market speculation about the possibility of a production freeze. But the latest comment from OPEC’s Secretary-General is arguably the most definitive to date, and it doesn’t bode well for a production freeze in Algiers. Secretary-General Mohammed Barkindo said over the weekend that the group wouldn’t be making a decision on any limits. “It is an informal meeting, it is not a decision-making meeting,” Barkindosaid to Algerian state media. On the other hand, Venezuelan President Nicolas Maduro said that they were closing in on a deal, which could be announced before the end of the month. "We had a long bilateral meeting with Rouhani. We're close to a deal between OPEC producer countries and non-OPEC," Maduro said at a news conference, referring to a meeting with Iranian President Hassan Rouhani on the sidelines of a summit in Venezuela for the Non-Aligned Movement. Venezuela is one of the countries that is most desperate for a deal, so those comments should be taken with a large dose of skepticism.

Long Term Consequences Of The Oil Price Crash -- The World Energy Investment study released by the IEA on September 14 confirmed what analysts have been prophesying for months: the current decline in oil-and-gas investment is the biggest one in half a century. The current bout of low prices has gotten so deep and remained there for so long that capital investment in new projects, and hence new production, has taken a major hit.But in an era of shifting energy policies, surging interest in renewables and uncertainty over the consistency of demand, what does this drop in investment really signify? And what could it mean, over the long term? There are a lot of factors to keep in mind when taking a look at this new report from the global energy watch-dog.The IEA found that worldwide investment in energy in 2015 was $1.8 trillion, a fall in real value of 8 percent from 2014. Investment in oil and gas fields, according to IEA’s executive director, by 25 percent in 2015 to $583 billion, with a further decline of $450 billion expected for 2015. The decline in oil and gas, which has otherwise retained the largest share (46 percent) of total investment, was partially off-set by growth in renewables, electricity networks and energy efficiency (see a handy pie chart here).The largest contributor to the decline was cost deflation, or falls in supply and equipment costs, which accounted for about two-thirds of the total fall in investment.Other notable aspects of the IEA report: investment in energy efficiency rose by 6 percent and reached $220 billion, a further sign that increased efficiency remains a “fuel” in its own right. The IEA had estimated in October 2014 that energy efficiency could potentially be worth $310 billion worldwide.

WTI Crude Jumps After Surprise Massive Inventory Draw -  Following last week's unexpected draw (following the huge storm-driven draw from the week before), traders expected a 3.25mm build this week but API reported another surprise draw (massive 7.497mm draw!) . The Colonial pipeline leak/shutdown likely had some exogenous effect as Cushing saw a large build but Gasoline drewdown as Distillates inventories rose. WTI prices are surging back to yesterday's highs on the surprise. API:

  • Crude -7.497mm (+3.25mm exp)
  • Cushing +407k (+100k exp)
  • Gasoline -2.5mm (-1.4mm exp)
  • Distillates +1.4mm

For the 3rd week running (including the epic draw from the storms), Crude inventories declined... but Distillates inventories rose for the 6th week in a row... While prices are expected to remain somewhat rangebound ahead of Algiers, the surprise draw sent the mahcines ramping WTI above $44.50 (to yesterday's highs)...

 S&P sees oil prices recovering to just $55/b by 2019 as industry costs fall - S&P Global Ratings has revised upward its price assumptions for Brent and West Texas Intermediate crude oil this year to $42.50/b but said it does not expect average prices to rise above $55/b before the end of the decade. The ratings agency said it expects the global oil market to remain oversupplied "well into 2017" with high oil and product inventories continue to drag on spot oil values. It said its long-term price assumptions, however, mostly reflect the expected impact of significant industry cost deflation, which is lowering the long-term cost of producing a marginal barrel.Assigning its first oil price assumption for 2019, S&P said it sees prices climbing gradually to average $47/b next year before rising to $50/b in 2018 and $55/b in 2019. "Declining costs come after a decade of inflation, thanks to engineering optimization, improved drilling efficiencies, and production cost reductions, especially in the once high-cost US shale formations," S&P said. "Drillers, forced to improvise because of the low prices, have introduced new drilling methods, fracking, and well-completion techniques that have resulted in more permanent cost reductions." Citing its assessment of current oil futures price curves, S&P said it has raised its estimate for the two benchmark oil prices by $2.50/b from $40/b for the rest of 2016. Its previous 2016 estimate of $40/b was published in mid-January.

Crude Extends Gains After Bigger Than Expected Inventory Draw (Despite Production Rise) --Following last night's surprisingly large API-reported crude draw, DOE confirmed the drop with a 6.2mm draw (less than API's 7.5mm though) with some wondering if the Colonial Pipeline closure affected inventories. Cushing saw a notable build and Distillates inventories rose for the 6th week in a row. While gasoline inventories fell (Pipeline?), production rose for the second week in a row. DOE:

  • Crude  -6.2mm (+3.25mm exp)
  • Cushing +536k (+100k exp)
  • Gasoline  (-1.4mm exp)
  • Distillates

Crude drewdown for the 3rd week in a row (and a large draw)... Production rose for the second week - seemingly stabilizing at around 8.5mm bbl/day

Oil price rebound could create headaches for bankrupt drillers: Most oil producers would welcome higher crude prices, after a two-year downturn has pushed more than 100 U.S. energy companies into bankruptcy. But for some distressed drillers, a rebound could actually make things worse. Throughout the rout in oil prices, senior lenders have largely been able to dictate the terms of energy bankruptcy proceedings as drillers' assets have fallen in value. But when oil prices rise, so does the value of a company's reserves. That can in turn can prompt so-called junior creditors to challenge restructuring plans in a bid to get a bigger piece of what's left of the pie. Those junior classes include holders of the company's stock, who may see the value of their shares go to zero, and unsecured creditors, lenders or vendors the debtor owes money, but whose loans are not backed by collateral. In a bankruptcy, senior lenders have a legal claim to recover their investment before other more junior classes of debtholders. High oil prices "embolden junior classes to fight harder, meaning possibly fewer agreements, and hence more need for a court process to resolve the issues," said Patrick Hughes, a Denver-based bankruptcy lawyer at Haynes and Boone. Creditors at all levels have a lot to lose in the current bankruptcy cycle.  Last year, creditors recovered just 21 percent of the capital they lent to 15 bankrupt oil and gas exploration and production companies with at least $100 million in debt, Moody's Investors Service reported this month. That compares with a historical average recovery rate of nearly 59 percent.  There is nothing abnormal about shareholders and unsecured creditors challenging restructuring plans in order to seek a better deal from the indebted company. Stock owners and junior creditors are first in line to take losses when drillers buckle under debt, so it makes sense that they would try to claw back what they can.

MidEast Gulf Officials Reportedly Say There'll Be "No Formal Deal" In Algiers Next Week --  Following this morning's endless stream of rumors and denials regarding OPEC/NOPEC freezes, Argus Media is reporting that there will be no formal deal at next week's Algiers meeting clarifying that the meeting "will be informal, so will not result in any formal decisions." Via ArgusMedia.com, There will be no formal deal at a meeting of oil producers in Algiers next week, a Mideast Gulf official close to Saudi Arabia told Argus today. And asked if Saudi Arabia had offered Iran a deal on production levels, the official said this is "not an issue". "Saudi Arabia's goal is to create consensus amongst oil producers to reach a credible agreement that will help stabilise the market," he said. He stressed the Algiers meeting, to be held amongst Opec members and with major non-Opec producers on the sidelines of the International Energy Forum (IEF), will be informal, so will not result in any formal decisions. This echoes the views of Opec secretary-general Mohammed Barkindo. Saudi Arabia wants the Algiers meetings to lead to consensus over arrangements that can be drafted into a formal agreement in November, when the next Opec meeting will take place. A meeting of technical experts at Opec headquarters in Vienna yesterday "looked at different scenarios for Opec production", and those scenarios will be discussed at the informal talks in Algiers, he said. Of course, it's just another source, and for now oil is unchanged...

OilPrice Intelligence Report: OPEC Deal Look Bleak After Saudi Comments - Oil prices jumped in the second half of this week on larger-than-expected drawdowns in U.S. crude oil and gasoline inventories. The record drawdown a few weeks ago due to storms in the Gulf of Mexico was thought to be a one-off. But last week’s drop adds more momentum to the narrative that the oil market is adjusting. Crude oil inventories are now at their lowest level since the beginning of 2016 and more declines are expected. Crude prices, however, crashed on Friday, aided by Saudi comments that a decision will not be forthcoming from next week's OPEC meeting in Algiers. And things got worse for crude after the Federal Reserve confirmed it is looking to restrict bank involvement in physical commodities.... The latest news on the Algeria meeting set to take place this weekend and into the early part of next week is that Saudi Arabia reportedly sent an offer to Iran, proposing a cut to its output if Iran agreed to limit production at its current level of 3.6 million barrels per day. "They (the Saudis) are ready for a cut but Iran has to agree to freeze," a source told Reuters. Discussion took place in Vienna at OPEC headquarters this past week, but so far reports suggest there has been no agreement. Bloomberg surveyed oil analysts and 21 out of 23 respondents said that there would be no agreement in Algeria.   Meanwhile, rising output in Nigeria and Libya make the production freeze negotiations look even less important. Several hundred thousand barrels per day from the two troubled OPEC members would more than outweigh any effect from an output cap.  The FT published a must-read article on Russia’s campaign to boost oil production from aging oil fields in Siberia. Ramping up drilling in existing brownfield sites, as opposed to drilling in frontier regions like the Arctic, is a shift of focus for Russia’s oil industry. But the more aggressive approach to maintaining and even increasing oil flows from some of Russia’s old but still massive oil fields could allow it to increase output in the next few years, defying expectations of steady declines. Rosneft will more than double its drilling rate from 750 wells in 2014 to 1,700 per year beginning in 2017. It is also improving its drilling techniques, incorporating fracking and horizontal drilling. But the quest also raises questions about the wisdom of elevating production at all costs, which could damage long-term output. In any event, Russia’s need for tax revenue has it going down this path, but that could also make it difficult for Russia to sign on to any OPEC production freeze agreement.

Oil suffers worst loss since mid-July, but manages weekly gain - Oil futures on Friday suffered from their worst one-day loss since mid-July, paring a weekly gain, after a Saudi Arabian delegate reportedly said oil producers aren’t likely to make a decision on production levels at a meeting next week. Instead, the meeting planned for the last day of the International Energy Forum, which will be held in Algeria Monday through Wednesday, will only offer a chance for the Organization of the Petroleum Exporting Countries and other oil producers to consult with each other about production levels, Bloomberg reported Friday. The Wall Street Journal, citing Saudi and Iranian sources, said both countries see an agreement as unlikely. The news follows a report from Reuters which said Saudi Arabia offered earlier this month to scale back production to levels seen earlier this year, if rival Iran agrees to freezing production at the current level of 3.6 million barrels a day. Tehran is weighing the offer, according to Reuters. Prices also saw pressure after the Federal Reserve proposed restrictions on commodity trading among banks.November West Texas Intermediate crude CLX6, -3.73% dropped $1.84, or about 4%, to settle at $44.48 a barrel on the New York Mercantile Exchange. That was the sharpest one-day dollar and percentage loss since July 13, FactSet data show.  WTI oil had traded higher for four days in a row and managed to book a weekly gain of 2%.

Oil Tumbles To $44 Handle After Saudis Confirm "No Decision" Next Week, Fed Crackdown On Bank Commodity Holdings -- We hinted earlier and now Saudi Arabia has confirmed that it "doesn't expect any decision" next week when oil producers meet in Algiers. Oil's reaction was swift with WTI tumbling to a $44 handle very quickly:  This move was exaggerated by the report that The Fed is clamping down on bank holdings of commodities:  As we detailed previously...

    • 1) the ban on 'investing in non-financial companies', which is highly ironic given that other central banks are directly buying massive stakes in the world's corporate entities; and
    • 2) restrictions on physical ownership of commodities, which raises eyebrows on both oil manipulation and the hoarding of precious metals ahead of The Fed losing control.

But The Fed expanded it today: The Federal Reserve Board on Friday invited public comment on a proposed rule that would strengthen existing requirements and limitations on the physical commodity activities of financial holding companies. The proposal would help reduce the catastrophic, legal, reputational, and financial risks that physical commodity activities pose to financial holding companies. A limited number of firms supervised by the Board engage in physical commodity activities and investments. Some firms are permitted by law to engage in a broad range of physical commodity activities, including the extraction, storage, and transportation of commodities. Others may engage in more limited activities, such as commodities trading. The possibility of an environmental accident due to these activities presents significant risks to the firms. Based on a broad review of firms' physical commodity activities as well as comments received on the Board's 2014 advance notice of proposed rulemaking on this matter, the proposed rule would:

  • Require firms to hold additional capital in connection with activities involving commodities for which existing laws would impose liability if the commodity were released into the environment;
  • Tighten the quantitative limit on the amount of physical commodity trading activity firms may conduct;
  • Rescind authorizations that allow firms to engage in physical commodity activities involving power plants;
  • Remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and
  • Establish new public reporting requirements on the nature and extent of firms' physical commodity holdings and activities

Rig count sees small gain amid double whammy for oil | Fuel Fix: The amount of rigs in the U.S. drilling for oil jumped slightly by two this week in advance of bad new for oil prices on Friday. The double whammy for oil prices included Saudi Arabia indicating it’ll only freeze production levels if Iran does the same — an unlikely scenario between the two rivals — as well as domestic news that the Federal Reserve is considering making it harder for banks to trade physical commodities like oil and gas. The news sent U.S. oil prices plummeting back below $45 a barrel on Friday morning. Still, the nation’s drilling rig count is continuing to slowly tick up. The U.S. saw a net gain of five rigs for the week — two primarily drilling for oil and three seeking natural gas — according to data collected by the Baker Hughes oilfield services firm. Two rigs were gained in Texas, but the active Permian Basin actually saw a loss of one rig. The total count of 511 rigs is up from an all-time low of 404 in May, according to Baker Hughes. Of the total, 418 of them are primarily drilling for oil. But the oil rig count is down 74 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.

WTI Extends Losses As US Oil Rig Count Rises To 7-Month Highs -- With oil prices plunging after Saudis stole the jam out of the oil freeze hopers donut, US oil rig count (at seven month highs) rose 2 to 416 (the 13th week in a row) and the total rig count rose to 511.  Rig count has risen for 13 straight weeks to 7-month highs... Given the extremely high correlation between rig counts and lagged oil prices, the chart above suggest we are getting close to rolling over in rig counts. For now oil is holding losses below the week's API inventories ramp levels... Charts: Bloomberg

BHI: US rig count up 5 to 511 - The overall US drilling rig count gained 5 units to 511 rigs working during the week ended Sept. 23, according to Baker Hughes Inc. data. Three gas-directed and 2 oil-directed units began operations.  Up in 14 of the last 17 weeks, the overall count has now added 107 units since the week ended May 27 (OGJ Online, Sept. 16, 2016). Compared with the week ended Dec. 5, 2014, after which began a steep dive in US drilling activity, the count is still down 1,409 units. The recent drilling rebound has been characterized by steady increases devoid of major rig and equipment constraints. With the overall count expected to continue to rise over the next 2 years, however, analysts at financial services firm Raymond James & Associates Inc. foresee “meaningful bottlenecks” emerging due to low spending on oil field infrastructure during the downturn.The primary culprit is expected to the beleaguered pressure pumping industry, whose readily workable US frac fleet is forecast to be down 35-50% by 2017 compared with 2014 levels, the analysts said in an industry brief this week. Some 3-4 million hp has been removed permanently during the downturn while another 3-4 million hp will require major investment to be refurbished into working condition.“With modest attrition on the nearly 2,000 rigs running in 2014, the market should be able to supply additional drilling rigs—of varying qualities—beyond 1,000 active rigs,” they said. “The problem will be, if wells cannot be completed, why drill them?”  US oil-directed rigs have now risen in 15 of the last 17 weeks, adding 102 units over that time to total 418 rigs working, down 1,191 units since their peak on Oct. 10, 2014. Gas-directed rigs now total 92, and have stayed within a range of 81-97 units since the beginning of March. The overall increase comprised onshore units, which are up 6 to 488. Rigs engaged in horizontal drilling gained 8 units to 402, a rise of 88 units since May 27 but down 970 since their peak on Nov. 21, 2014. Directional drilling rigs edged up a unit to 49. Several of the major oil-and gas-producing states made either a modest increase or modest decrease. Texas and Oklahoma led the way in increases, each gaining 2 units to 246 and 67, respectively. Texas is now up 65 units since May 13 but down 712 since a peak on Aug. 29, 2008. The Cana Woodford and Mississippian each added a unit to hit respective totals of 33 and 3. The Eagle Ford also was down a unit, settling at 37. Down 1 unit to 201, the Permian declined for just the second time in 19 weeks.

Gulf budget deficits to peak this year - Gulf Arab oil exporters are expected to see their budget deficits peak this year owing to the plunge in energy revenues, a report said Tuesday. The combined deficit of the six Gulf Cooperation Council (GCC) states is forecast to hit $153 billion in 2016, up from $119 billion last year, Kuwait's investment firm KAMCO Research said. OPEC kingpin Saudi Arabia is expected to account for 55 percent, or more than $84 billion, of the shortfall. Last year, the world's top crude exporter posted a record deficit of $98 billion. The GCC deficit will start easing from next year but the six nations are forecast to post an average annual shortfall of $100 billion until 2021, the report said. The GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates, which together pump more than 18 million barrels per day of crude oil. GCC total revenues, mainly from hydrocarbons, dropped from a peak of $735 billion in 2013 to just $443 billion in 2015, the lowest in five years, KAMCO said. They are forecast to slide further to $365 billion this year, the report said.

Lost Trillions Haunt Russian Budget Keeper in Cheap-Oil Era - Bloomberg: To get a snapshot of a budget in crisis, visit any of the 10,700 abandoned construction sites that litter Russia, all that’s left after a trickle of state funding ran dry. The costly clutter is one reason the head of the Audit Chamber, a government agency that monitors the budget, says Russia’s finances are in for a “test” next year. Tatyana Golikova, 50, whose prior roles included a top Finance Ministry post and advising President Vladimir Putin, paints a picture of a budget riddled with waste, ranging from 1 trillion rubles ($16 billion) “lost” as a result of budget “inefficiency” to the unfinished construction that’s left the government on the hook for another 2.2 trillion rubles.The world’s biggest energy exporter can ill afford to squander more wealth as it adapts to the lean days after the crash in crude prices. What’s visiting fiscal grief on Russia is that its budget is derived from an old base formed during the boom times, according to Golikova, who took charge of the watchdog three years ago. “The budget faces a clear test in 2017,” she said in an interview. If the issue of fiscal efficiency “isn’t dealt with in the new three-year cycle, we’ll have all the same problems that existed with budget execution in 2015 and probably will continue in 2016.” It’s a sentiment increasingly heard from Putin. Speaking at a government meeting on Monday, a day after his party’s dominant showing in parliamentary elections, the president called for policies aimed at “increased efficiency” and changing the structure of the economy. While urging more targeted measures to help those in need, Putin said he rejects “shock therapy” as authorities rethink the distribution of social support.

Indonesia's plan to use more domestic crude hampered by current tax system - Indonesia's plan to process more domestic crude is hampered by a tax system that discourages the country's foreign producers to sell domestically and state-owned Pertamina has urged the government to change that if it wants to cut reliance on imports, a senior company official said this week. "In 2016, we have only been able to buy 12,000 b/d of domestic crude supply [from international companies operating in the country], when in fact the total potential figure that we can buy is around 150,000-200,000 b/d," senior vice president of Pertamina's Integrated Supply Chain Daniel Syahputra Purba said late Wednesday. So far in 2016, Pertamina has imported an average 430,000 b/d and consumed 440,000 b/d of domestic crude -- most of which came from its own net production and the government's entitlement, according to data from Pertamina. Crude and condensate exports averaged 358,000 b/d over January-July 2016, up 19% from 301,000 b/d over the same 2015 period, according to data from Statistics Indonesia. Indonesia in 2015 said that it planned to cut its crude exports by slightly more than half in 2016 and keep those barrels at home to cut reliance on crude imports.Gusti Wiratmaja Puja, director general at the energy and mines ministry, said then that Jakarta was planning to cut exports by about 200,385 b/d starting 2016. But an unfavorable tax system has discouraged international companies producing crude in Indonesia to sell it domestically. International companies operating in Indonesia, but with overseas trading arms, currently have to pay a 3% tax on crude sales within the country. If the trading arm is located within Indonesia, they pay a 1.5% tax.

Former OPEC President Optimistic There Will Be Deal in Algiers - Bloomberg: Chakib Khelil, the former Algerian energy minister who steered OPEC the last time it decided to cut supply, said he’s confident the group will reach an accord next week as low oil prices force members to act. With most of the Organization of Petroleum Exporting Countries now producing near full capacity, it should be straightforward to promise no further increases, said Khelil, who was the group’s president in 2008 when it agreed a record output cut that reversed a collapse in crude prices. “I am optimistic about an oil freeze,” he said in a phone interview Thursday. “They’re already feeling pain. Why add to the pain when they can avoid it just by saying something? Most producers have already reached their maximum level and their largest share of the market. There’s not much cost.” Brent futures traded near $47 a barrel on Friday, less than half the price two years ago. Crude rallied last month on speculation OPEC and Russia might announce a pact in the Algerian capital, but has since retreated on doubts there will be any serious steps to reduce the world oil surplus. “They need to do something, if they don’t the market will react negatively,” Khelil said. OPEC’s last attempt to strike a production deal with Russia collapsed in Doha in mid-April when Saudi Arabia insisted at the last minute that Iran had to join in. While Iran refused then because it was starting to restore exports after the end of sanctions, it’s now producing near full capacity and should have fewer objections to a cap, Khelil said.

Saudis offer oil cut for OPEC deal if Iran freezes output: Sources: Saudi Arabia has offered to reduce oil production if rival Iran agrees to cap its own output this year, in a major compromise ahead of talks in Algeria next week, three sources familiar with the discussions told Reuters. The offer, which has yet to be accepted or rejected by Tehran, was made this month, the sources told Reuters on condition of anonymity. Riyadh is ready to cut output to levels seen early this year in exchange for Iran freezing production at the current level, which is 3.6 million barrels per day, the sources said. "They (the Saudis) are ready for a cut but Iran has to agree to freeze," one source said. Two more sources confirmed the offer was presented to Tehran. The first source did not say by how much Riyadh would cut if Iran agreed to freeze at 3.6 million bpd, which has been the OPEC nation's output for the past three months.Riyadh's production has spiked since June due to summer demand, reaching a record high in July of 10.67 million bpd and edging down to 10.63 million bpd in August. From January to May, Saudi Arabia produced around 10.2 million bpd. Two sources said Saudi Arabia's Gulf OPEC allies the United Arab Emirates, Qatar and Kuwait were expected to contribute to any reduction if an agreement were reached.

Iran unlikely to agree to oil freeze, pre-sanctions output still aim: source  -- Iran would be unlikely to agree to freeze its crude output at current levels as part of any deal among OPEC and other major oil producers, an Iranian official told S&P Global Platts on Friday. Reuters reported earlier that Saudi Arabia has told Iran it would be willing to reduce its output if Iran agreed to freeze its production at current levels of around 3.6 million b/d, citing unnamed sources. The Iranian official, who spoke on condition of anonymity, as oil minister Bijan Zanganeh has final say over policy decisions, declined to confirm whether Iran had received any such proposal from Saudi Arabia. But he said Iran continues to insist on regaining its pre-sanctions output levels before agreeing to any restrictions on its output. "I think it's unlikely that Iran will even consider 3.6 million b/d," the official said. "It is very, very unlikely that Iran agrees to this figure or negotiates it." He added: "As far as the oil ministry's principal policy is concerned, we have always stressed that we want our pre-sanctions level of 4.2 million b/d back." Representatives from the two countries have been meeting in Vienna the past few days ahead of next week's International Energy Forum in Algiers, where OPEC is scheduled to informally meet and possibly discuss an output freeze, according to media reports. Saudi Arabia pumped a record 10.66 million b/d in August, according to the latest Platts OPEC production survey. Many observers expect the kingdom's output to decline in the coming months anyway, as the peak summer air conditioning season ends, reducing its domestic crude burn. Iran produced 3.63 million b/d in August for the third straight month, according to the Platts survey, as recovery from sanctions imposed on its oil sector by western powers over its nuclear program appears to be plateauing.

Iraq's Aug oil output revised down to 4.622 mil b/d, still at record levels: SOMO - Oil | Platts News Article & Story: Iraq's oil production in August averaged 4.622 million b/d, slightly down from a previous estimate of 4.638 million b/d but still a new production record, according to revised estimates from Iraq's State Oil Marketing Organization released Tuesday. The latest estimate is represents a 16,000 b/d increase from July and is the fourth time Iraq has passed the 4.5 million b/d threshold, according to official data. SOMO did not provide a breakdown of production between the federal government and semi-autonomous Kurdistan Regional Government in its statement. The data includes output from state-owned North Oil Co., Midland Oil Co., and an estimated output from KRG.Analysts told S&P Global Platts that the oil ministry has consistently overestimated KRG production, and hence the country's total, since December 2015. According to Iraqi oil industry experts, the ministry could be hoping to use the higher numbers as a bargaining tool for possible production freeze talks among OPEC members, as the producer group prepares to meet in Algeria next September. But Iraqi exports from the southern Basrah terminals along with a substantial increase in its domestic refining have contributed to higher production this summer for OPEC's second-largest oil producer.

    AP Exclusive: Iraq oil fires could jeopardize Mosul mission - (AP) — A fire at one of Iraq’s major oil fields could hinder military and humanitarian efforts as operations to recapture the Islamic State stronghold of Mosul get underway. Black smoke continues to billow into the air from the Qayara oil field, damaged by IS militants last month as they fled the town, creating health risks for civilians and troops amassing there. The fires are also clogging up the skies in the area, where critically important airstrikes and aerial reconnaissance missions are taking place almost daily. Located on the west bank of the Tigris River, about 40 miles (65 kilometers) south of Mosul, Qayara has since become an important staging ground for military and humanitarian efforts ahead of the Mosul operation since it was recaptured by Iraqi forces last month. “Everything for the Mosul operation hinges on Qayara,” she said. “It’s the staging ground for military forces and it’s where 350,000 of the 1 million people who are expected to flee (Mosul) will either find shelter or pass through.” There are slow-going Iraqi efforts to contain the fires, but nearly a month after the town was recaptured from the militants, smoke and toxic fumes continue to pollute the air in and around Qayara. The Iraqi Oil Ministry spokesman, Assem Jihad, said Wednesday that IS militants set fire to 11 oil wells in Qayara to derail security forces and wreak havoc in the area as they fled. He said fires at nine of the wells have been extinguished, but two continue to burn powerfully. Kourosh Kian, an expert in petroleum drilling and reservoir engineering, said the simplest method to extinguish these types of fires is to inject water under high pressure at the base of the fire. Since Qayara is on the Tigris River, there would be no problem with the water supply, he said. The two main fields in the area, Qayara and Najmah, had been producing about 30,000 barrels per day of crude before the Islamic State took control of Iraq’s Nineveh Province in June 2014.

 The US War On Terror Has Cost $5 Trillion And Increased Terrorism By 6,500% - On September 11, 2001, one of the most tragic events in recent American history took place. Close to 3,000 civilians lost their lives in horrific terror attacks that took place on American soil. Fifteen years later, it is time to ask the question: have our counterterror efforts helped to reduce the amount of terrorism in the world? Or at the very least, have they tried to make the world safer?According to a report released by Dr. Neta Crawford, professor of political science at Brown University, spending by the United States Departments of Defense, State, Homeland Security, and Veteran Affairs since 9/11 is now close to $5 trillion USD. Before we have the chance to ask how a country that has racked up over $19.3 trillion USD in debt can spend $5 trillion USD on war, the focus of this article is to ask: What has all of this spending achieved?  As Reader Supported News reported at the end of last year, terrorism has increased 6,500 percent since 2002 (they probably should rename it “the war of terror”). In 2014, the outlet noted, it was reported that 74 percent of all terror-related casualties occurred in Iraq, Nigeria, Afghanistan, Pakistan, or Syria. As stated by Paul Gottinger, a staff reporter for Reader Supported News, out of the aforementioned countries, “only Nigeria did not experience either U.S. air strikes or a military occupation in that year.” Omitted from that assessment is the fact that the U.S. has been meddling in Nigeria for some time now. Why wouldn’t they? Until recently, Nigeria was Africa’s largest oil producer, as well as the continent’s largest economy until last month

Supplying White Phosphorus to Saudis? New Claims Reinforce US War Crimes Complicity in Yemen -- Further damning the United States government's planned sale of $1.15 billion worth of weapons to Saudi Arabia, evidence has emerged that the kingdom may be using white phosphorus supplied by the U.S. in its campaign in Yemen, according to reporting Monday by the Washington Post. The Post reports that the evidence comes from "images and videos posted to social media."  White phosphorous munitions—sometimes compared to napalm as they can cause nearly unstoppable burning that can reach the bone—are not covered by a blanket ban by international law. They are allowed (pdf) to be used in open areas as a smoke screen for military operations, but, as they can ignite spontaneously in air, are prohibited from use against civilians and in civilian-concentrated areas. U.S. regulations also prohibit their sale unless their use will be solely for "signaling and smoke screening." Thomas Gibbons-Neff writes for the Post: U.S. officials confirmed that the American government has supplied the Saudis white phosphorous in the past but declined to say how much had been transferred or when. After reviewing a social media image taken from the battlefield that showed a white phosphorous mortar shell, a U.S. official said it appeared to be American in origin but could not trace it to a particular sale because some of the markings were obscured. [...]  The image the anonymous official looked at was first posted to Instagram in November 2015, Gibbons-Neff writes, while the most recent image posted to social media purportedly showing their use by the U.S.-backed coalition in Yemen was take Sept. 9, 2016. Gibbons-Neff also points out that the U.S. has directly used white phosphorus "including in 2004 in Fallujah, Iraq, and sporadically in Afghanistan over the course of the war there. In 2009, Israel used the weapon in populated areas in the Gaza Strip." Human Rights Watch said that use by Israel was evidence of war crimes.

Amnesty: US bomb used in Saudi-led strike on Yemen hospital that killed 19: Amnesty International says it has evidence that a Saudi-led coalition battling Yemeni rebels dropped a U.S.-made bomb on a hospital, and is calling for a halt to arms sales to the coalition. The airstrike in question hit a hospital run by Doctors Without Borders, known by its French acronym MSF, in northern Yemen last month, killing 19 people. Amnesty says in a report released Monday that a picture analyzed by a munitions expert reveals that a U.S.-made precision-guided Paveway-series bomb was dropped on the site. The attack — the fourth on the MSF's facilities— prompted it to withdraw from northern Yemen due to what it described as "indiscriminate bombings and unreliable assurances" from the U.S.-backed coalition.

Exclusive: Battered by war, Syria's wheat crop halved this year to new low | Reuters: The government of President Bashar al-Assad was forced to tender this summer for an unprecedented 1.35 million tonnes of imported wheat from political ally Russia to ensure supply of the flat loaves that are a staple for the Syrian people. Before the five-year-old civil war, Syria was a wheat exporter producing four million tonnes in a good year and able to export 1.5 million tonnes. Now wheat and bread have become an integral part of the war, with wheat farms, seed distribution, milling and bakeries all affected. The Damascus government subsidizes bread for the areas it controls and aid agencies offer supported prices in some areas, but Syrians in other parts of the country suffer bread shortages and high prices.The Syrian war has killed more than 250,000 people, created the world's worst refugee crisis, allowed for the rise of the Islamic State group and drawn in regional and major powers. "You know why most people carry weapons? Because of bread," said Mahmoud al Sheikh, a health worker from a besieged part of Damascus. "Hunger makes people sell themselves to the armed groups so they can eat and bring food to their families." Al Sheikh, speaking to Reuters by telephone from the capital's Eastern Ghouta suburb, said earlier in the year his besieged area scarcely saw bread. "Sometimes there's no bread at all. People start to make bread from barley ... It goes on like this for months. People eat cabbage instead - it's enough to test your faith. Really, people's situations become miserable," he said.

 Never Ending War: Why The Cease-Fire in Syria Won't Help – SPIEGEL  -- First came two quiet nights. Then another 48 hours without bombs, a few days in which the people trapped in Aleppo and elsewhere could live without the constant fear of approaching jets. So great is the yearning for peace that people everywhere rejoiced in the peace this week -- despite coming just a short time after markets and hospitals had been bombed, leaving dozens dead. The cease-fire that went into effect on Monday night in Syria is fueling the wish around the world for an end to this war. The desire is so great that each additional day of calm is being commented on as if it were a break in the weather, a natural dynamic trending toward peace. But it's not. In contrast to the three previously announced agreements, the American and Russian negotiating partners have limited the duration of this cease-fire to seven days. Not with the intention of immediately beginning further negotiations, but instead to conduct joint air strikes against all groups they will have by then identified as terror groups. Starting at the beginning of next week, the plan calls for Russian and American military leaders to meet in the Joint Implementation Center to exchange target coordinates, voice objections and then deploy warplanes from both air forces to conduct strikes. As such, the agreement represents a reversal of Western policy. If implemented, the US will be flying sorties together with Russia against Assad's enemies.

Syria Accuses US Of Airstrike Killing 62 Soldiers In "Serious And Blatant Aggression" -- If the latest news out of Syria are confirmed, one can not only kiss last weekend's so-called "ceasefire" goodbye, but a full blown war may be about to erupt. The reason: moments ago the Syrian Army General Command reported, and shortly thereafter the Russian military confirmed, that US-coalition forces struck the Syrian airbase at Deir el-Zour, killing at least 62 Syrian army troops, "paving the way" for ISIS militants to advance in the fiercely contested area.. #Syria State TV: U.S. warplanes hit Syrian army base in Deir ez-Zorpic.twitter.com/Ont9tEuBi7 According to Syria’s official SANA news agency, the bombing took place on al-Tharda Mountain in the region of Deir ez-Zor and caused casualties and destruction on the ground. Sixty-two Syrian soldiers were killed and over 100 injured in the airstrike by the US-led coalition, Russia’s Defense Ministry spokesman, Major-General Igor Konashenkov, confirmed citing information received from the Syrian General Command. There was no immediate comment from Washington. If confirmed, the attack could be tantamount to an act of war as it would be the first time the coalition has targeted Syrian government forces.  Subsequently, the Pentagon told RT that it is “aware of the reports and checking with Centcom and CJTF (Combined Joint Task Force)."

 Furious Russia accuses US of supporting ISIS after airstrike kills 62 Syrian troops  - Enraged Russian officials have accused America of backing ISIS [I-CIA-SIS] after a deadly airstrike killed at least 62 Syrian troops and allowed the twisted terrorists to take a key military position. Syria's military claim the Americans have bombed an eastern base surrounded by ISIS militants - allowing the extremists to advance...62 Syrian soldiers were killed and over 100 injured in the airstrike. The bombing took place on al-Tharda Mountain in the region of Deir ez-Zor. A Russian spokeswoman blasted: "We are reaching a really terrifying conclusion for the whole world: That the White House is defending Islamic State. Now there can be no doubts about that."    Last week, Moscow and Washington agreed to influence the Syrian government and the so-called moderate rebel forces respectively in order to establish a ceasefire in the country.Since then, Russia has repeatedly complained that the US is failing to keep its part of the bargain.   While the Americans have blamed Russia for not pressuring Damascus enough to facilitate humanitarian access to Syria.  The US Central Command has issued a statement, saying that it had no intention of targeting Syrian government forces near Dier ez-Zor.  "Syria is a complex situation with various military forces and militias in close proximity, but [the] coalition would not intentionally strike a known Syrian military unit,” the statement read.

US Accuses Kremlin Of Lying, Says Russia Bombed Syrian Aid Convoy --The big geopolitical news in the aftermath of yesterday's bombing of a UN humanitarian convoy in Syria, which according to unofficial, UK-funded "Syrian Observatory for Human Rights" was done by Russian or Syrian fighter jets, was this morning's vocal denial by the Russia defense ministry that neither Russian nor Syrian planes were responsible for the bombing raid."No airstrikes were carried out against a humanitarian aid convoy in a southwestern suburb of Aleppo by Russian or Syrian aviation. Seeing as the convoy’s route lied through the territories controlled by militants, the Russian reconciliation center monitored its passage yesterday via drones," Russian Defense Ministry spokesman Maj. Gen. Igor Konashenkov said Tuesday. According to the general, the monitoring finished when all humanitarian aid was delivered at around 10:40 GMT."Further movements of the convoy were not monitored by the Russian side. Only the militants controlling this area know details of the convoy’s location,"Konashenkov added. The examination of video footage reveals no signs of an ammunition strikes on the convoy, he said. "We have carefully studied videos by so-called activists from the site and found no signs of any ammunition striking the convoy. There are no shell holes, cars' bodies are not damaged and there are no construction faults from the bust wave. All shown on the footage is a direct consequence of the cargo being set on fire. The fire strangely coincided with a major offensive by militants in Aleppo."

Syria: Russia to send aircraft carrier -  CNN - Russia has announced it is sending its only aircraft carrier to waters off Syria's coast, as diplomats met at the United Nations in an effort to revive Syria's failing ceasefire. Russian Defense Minister Sergey Shoigu said the Admiral Kuznetsov, carrying dozens of military aircraft, would be sent to the eastern Mediterranean to join other Russian ships off the war-torn country's coast, state news agencies reported. The announcement -- a potential contingency plan for the failure of the ceasefire -- came in the wake of surging violence, including the deadly bombing of a Syrian Arab Red Crescent aid convoy on Monday night.Speaking at the United Nations, US Secretary of State John Kerry said the the ceasefire was "hanging by a thread." He denounced the "outrageous" attack on the aid convoy, and said the international community had been "woefully inadequate" in Syria. Kerry said that all war planes over Syria should be grounded, to "prevent Syria from doing what it so often does in the past -- to target civilians."

Syria conflict: US-Russia plans 'must be saved' - Lavrov - BBC News: US and Russian plans to end Syria's conflict must be saved as there is no alternative, Russia's Foreign Minister Sergei Lavrov has told the UN. He was speaking as the northern city of Aleppo endured a day of relentless air strikes, with the Syrian military determined to retake rebel-held areas. A seven-day US-Russian brokered truce collapsed on Monday. Mr Lavrov laid the blame on the US for failing to control the rebel groups it backs. He said a key condition of the truce was for moderate rebel groups backed by the US to separate themselves from militants. "Unfortunately the coalition led by the United States, which committed itself to make sure that this separation happens, has not been able to do this," Mr Lavrov said, although he said his "good friend" Secretary of State John Kerry had indicated this remained the commitment of the United States. Mr Lavrov said that if the location of militants of the Nusra Front could be pinpointed, he remained convinced a cessation of hostilities and a delivery of humanitarian aid would be possible. He said it was "now essential to prevent a disruption" of the US-Russia agreements.

Obama Puts Syria at Arm’s Length as Carnage Drags On - — When Secretary of State John Kerry took the floor at the United Nations on Wednesday to deliver a searing denunciation of the airstrike on an aid convoy headed for the Syrian city of Aleppo President Obama was crosstown, at his Manhattan hotel, preparing for a day of diplomacy that included Africa, Israel and Colombia — but, conspicuously, not Syria.It was typical of the arm’s-length approach the president has taken toward the Syria conflict on the world stage in recent weeks. At a summit meeting in China this month, he studiously avoided negotiating a cease-fire with President Vladimir V. Putin of Russia, leaving the diplomacy to Mr. Kerry and his Russian counterpart. At the United Nations, he scarcely mentioned Syria in a wide-ranging farewell address to the General Assembly.Mr. Obama’s public distancing, White House officials insist, does not reflect a lack of concern. On the contrary, they say the president is desperate for Mr. Kerry to negotiate a viable agreement with Russia that would halt the relentless bombing of civilians in Aleppo and elsewhere in Syria — if only because he does not see a viable Plan B to stop the carnage.But as Mr. Obama’s presidency enters its final months, the negotiations with Russia have become a threadbare exercise, leaving a president who has long avoided military entanglement with Syria backing a policy that he himself believes is destined to fail.This week, his frustration boiled over publicly. The situation in Syria “haunts me constantly,” the president said in an interview with the historian Doris Kearns Goodwin, published Thursday in Vanity Fair.

US Officials Claim ISIS Attacked US, Iraqi Troops With Mustard Gas - Shortly after Russia's accusations that a US drone was coincidentally overhead when the UN convoy was struck, CNN reports that US officials are stating that ISIS is suspected of firing a shell with mustard agent that landed at the Qayarrah air base in Iraq Tuesday where US and Iraqi troops are operating. Luckily, no US troops were hurt or have displayed symptoms of exposure to mustard agent.  For some context, this happened earlier (as Reuters reports)The Russian Defence Ministry said on Wednesday that a U.S. Predator drone was in the area where a U.N. aid convoy was partially destroyed in Syria on Monday and had appeared on the scene minutes before the incident.Repeating denials of Russian involvement in the episode, Igor Konashenkov, a spokesman for the ministry, said Western allegations that Moscow was responsible were an attempt to distract attention from the U.S.-led coalition's bombing of Syrian soldiers near Deir al-Zor airport on Saturday. And now, as CNN reports, ISIS is suspected of firing a shell with mustard agent that landed at the Qayarrah air base in Iraq Tuesday where US and Iraqi troops are operating, according to several US officials.

30 Israeli, Foreign Intelligence Officers Killed in Russia's Caliber Missile Attack in Aleppo : The Russian warships stationed in Syria's coastal waters targeted and destroyed a foreign military operations room, killing over two dozen Israeli and western intelligence officers. "The Russian warships fired three Caliber missiles at the foreign officers' coordination operations room in Dar Ezza region in the Western part of Aleppo near Sam'an mountain, killing 30 Israeli and western officers," the Arabic-language service of Russia's Sputnik news agency quoted battlefield source in Aleppo as saying on Wednesday. The operations room was located in the Western part of Aleppo province in the middle of sky-high Sam'an mountain and old caves. The region is deep into a chain of mountains. Several US, Turkish, Saudi, Qatari and British officers were also killed along with the Israeli officers. The foreign officers who were killed in the Aleppo operations room were directing the terrorists' attacks in Aleppo and Idlib. Earlier in September, the Syrian army units launched a preemptive strike on the terrorists of the so-called Aleppo Operations Room in their gathering centers near Castello road in the Northern areas of Aleppo and Mallah farms, foiling their plots to attack the region's supply route, a source said. The source said that the army's artillery units attacked the terrorists' gathering centers near Castello and Mallah farms in Zahra Abdo Rabbah, Kafar Hamra and Hurayatyn which killed and wounded dozens of militants.

“US Special Forces sabotage White House policy gone disastrously wrong with covert ops in Syria” - One of the major points of this article is that the CIA doesn’t give a rat’s ass about the Islamic State in Syria or Iraq. By the end of 2014 there were only twenty CIA targeting officers and analysts were dedicated to IS. By early 2016, it was not much better. Instead, the CIA neurotically focused on removing Assad from power by any means possible. This laser focus was established by Brennan. I surmise this focus is shared by most in the Obama Administration.  In spite of this focus, the CIA’s efforts in Syria is plagued by bureaucratic infighting. The CIA has three elements jockeying for power. The Syria Task Force is similar to the Iraqi Task Force and Iranian Operations Group that preceded it. It is Brennan’s baby. Damascus X is the Syrian CIA station now operating in Amman. And then there is the CTC/SI (Counterterrorist Center/Syria-Iraq), which is tragically focused on the Assad government rather than the terrorists. I have seen this kind of food fight for resources and prestige in the CIA and even in the DIA during the fat money days of the GWOT. I’m sure this cat fight is even more intense in today’s leaner fiscal environment. As many of you know, the CIA conducts a lot, perhaps most, of their operations through liaison with host nation services. While I’m comfortable with working with the Jordanian services, the thought of depending on the current Turkish intelligence service scares the bejeezus out of me. For several years now,the CIA has relied on Erdogan’s boys to determine which unicorns and jihadis were worthy of getting all the TOWs and other goodies doled out by Brennan under his Title 50 authorities(intelligence/covert ops).

Washington's Hawks Push New Cold War - Alastair Crooke - Does the failure of the U.S.-backed, major insurgent August “push” on Aleppo – and the terms of the consequent ceasefire, to which some in the U.S. only irascibly agreed – constitute a political defeat for the U.S. and a “win” for Russia? Yes, in one way: Moscow may, (just may) have cornered America into joint military air attacks on Al Qaeda in Syria, but in another way, one would have to be somewhat cautious in suggesting a Russian “win” (although Foreign Minister Sergey Lavrov’s diplomacy has been indeed tenacious). Secretary of State John Kerry’s Syria agreement with Lavrov though, has sparked virtual open warfare in Washington. The “Cold War Bloc,” which includes Defense Secretary Ash Carter and House Speaker Paul Ryan, is extremely angry. The Defense Department is in near open disobedience: when asked in a press teleconference if the military would abide by the terms of the agreement and share information with the Russians after the completion of the seven-day ceasefire, Lt. Gen. Jeffrey Harrigian, the commander of the U.S. Air Forces Central Command, which is directing the bombing campaign in Iraq and Syria, responded: “I think … it would be premature to say we’re going to jump right into it. And I’m not saying yes or no.” But President Obama wants to define some sort of a foreign policy historical “legacy” (and so does Kerry). And the President probably suspects (with good cause possibly) that his legacy is set to be trashed by his successor, whomsoever it be – the minute he steps down from office.

Russia Views Hillary Clinton As An "Existential Threat" To Peace - When it comes to the two front-runners in the current presidential race, the media often attempts to paint Donald Trump as a crazy, unpredictable president who will lead us down a path of terror. However, the truth remains that despite Trump’s overall nonsensical rhetoric, he is the only leading candidate who has said anything sane regarding American foreign policy. Statements to the effect that the Middle East would have been safer with Saddam Hussein and Muammar Gaddafi still in power are probably the most profound things ever spoken by the wildly racist billionaire mogul. Hillary Clinton, on the other hand, voted in favor of the Iraq war in 2003 and was instrumental in bringing about the fall of Muammar Gaddafi in Libya in 2011. She even laughed hysterically about the despot’s death in an interview despite the fact she single-handedly plunged the rich democracy that was Libya into an extremist war zone.  In the eyes of the Russian establishment, this is especially worrying given that it was Clinton who convinced Russia not to use their veto power at the United Nations Security Council level to stop the NATO onslaught of Libya; she promised the so-called “no-fly zone” would not be used to pursue regime change. Russian President Vladimir Putin was very critical of NATO motives when it became clear that NATO forces had, indeed, designated Gaddafi a military target, asking the important and necessary question: “Who gave NATO the right to kill Gaddafi?” After Gaddafi was murdered on the streets of Sirte, Putin astutely stated: “The whole world saw him being killed; all bloodied. Is that democracy? And who did it? Drones, including American ones, delivered a strike on his motorcade. Then commandos – who were not supposed to be there – brought in so-called opposition and militants and killed him without trial. I’m not saying that Gaddafi didn’t have to quit, but that should have been left up to the people of Libya to decide through the democratic process.

Senate Approves Sale Of $1.15 Billion In Weapons To Saudi Arabia - For a few weeks, it seemed as if the previously reported sale of 130 Abrams Tanks, 20 armored recovery vehicles and various other military equipment to Saudi Arabia in exchange for $1.15 billion may not go through due to another round of highly theatrical opposition by US congressmen. However, late this afternoon, the Saudis - ostensibly the most generous donor to the Clinton Foundation - once again showed who pulls the strings in Congress, when despite all the populist rhetoric, the Senate backed the $1.15 billion arms sale to Saudi Arabia. More amusingly, this happened even as Congress is preparing to override an expected presidential veto of a different bill allowing 9/11 victims’ families to sue the Saudi government. As Politico reported, the Senate voted 71-27 to kill a resolution from Sens. Rand Paul (R-Ky.) and Chris Murphy (D-Conn.) that would have blocked the $1.15 billion sale of Abrams tanks to Saudi Arabia, which the State Department, best known these days for handing out "pay to play" favors under Hillary Clinton, approved last month.

Saudi Arms Deal Backed By US Senators Who Got Cash From Weapons Contractor That Will Benefit - The U.S. Senate on Wednesday blocked a bipartisan initiative to suspend a $1.15 billion arms deal to Saudi Arabia, clearing the way for a massive resupply of the Kingdom’s military as it continues its incursions into neighboring Yemen. The victory over lawmakers who were trying to stop the deal will benefit General Dynamics — a defense contractor whose employees and corporate executives have spent millions of dollars on lobbying and campaign contributions in the lead-up to the vote. Last month, the Obama administration greenlit the sale, which includes 130 Abrams battle tanks and 20 armored recovery vehicles. The arms will help replenish those lost or destroyed in the war in Yemen, where the Saudi military is trying to reinstall the country’s ousted president, who is a close Saudi ally. A bipartisan coalition of senators, including Kentucky Republican Rand Paul, Utah Republican Mike Lee, Connecticut Democrat Chris Murphy and Minnesota Democrat Al Franken, moved to block the transaction. They cited concerns about Saudi Arabia’s human rights record, and questioned the wisdom of U.S.-supplied arms race in the region. In a 71-27 procedural vote Wednesday afternoon, the Senate decided to table the senators’ objections to the deal — effectively destroying any chance at blocking the arms sale. The approval of the arms deal comes at a pivotal time for General Dynamics, which manufactures the armaments at issue. Last quarter, its combat division experienced a 7 percent dip in sales, and the company has been slashing jobs at its Ohio tank manufacturing center.General Dynamics has been spending big on politics in recent years. Since 2008, the company has pumped over $1 million dollars into both Democratic and Republican senatorial campaigns. According to data from the Center for Responsive Politics, the company in the 2016 election cycle has so far donated over $300,000 to 49 senatorial campaigns on both sides of the aisle: $134,835 to Democrats and $171,555 to Republicans, with an average contribution of around $6,400.  General Dynamics’ political action committee has also donated $165,000 to the political parties’ congressional election committees: $90,000 to the GOP and $75,000 to the Democrats.

European Union asks Obama to stop 9/11 Saudi bill | Reuters: The European Union on Wednesday called on President Barack Obama to block a U.S. bill allowing survivors and families of victims of the Sept. 11 attacks to sue Saudi Arabia, saying it was in violation of international law. "The possible adoption and implementation of the (bill) would be in conflict with fundamental principles of international law and in particular the principle of State sovereign immunity," the European Union delegation to the United States said in a letter to the U.S. Department of State seen by Reuters. The letter said the EU considers that the bill's adoption and its implementation could have unwanted consequences, as other states adopt similar legislation. Congress has overwhelmingly passed the Justice Against Sponsors of Terrorism Act, known as JASTA, in reaction to long-running suspicions, denied by Saudi Arabia, that hijackers of the four U.S. jetliners that attacked the United States in 2001 were backed by the Saudi government. Obama in coming days is expected to veto the bill on grounds that other countries could use the law as an excuse to sue U.S. diplomats, service members or companies. But Congress could have the last word if the Senate and House of Representatives each override that veto by a two-thirds vote.

Siding With Saudi Arabia, Obama Vetoes Sept 11 Bill Passed Unanimously In Congress - It has been a day of Friday afternoon surprises: just one hour after Ted Cruz's pretended to endorse Donald Trump when he really meant don't vote for Hillary, president Obama denied what all Americans citizens demanded - and got - when Congress unanimously passed the Sept 11 law several weeks ago, when he decided to veto the bill. As The Hill reports, Obama on Friday vetoed legislation that would allow families of 9/11 victims to sue Saudi Arabia in U.S courts, setting up a high-stakes showdown with Congress. Obama’s move opens up the possibility that lawmakers could override his veto for the first time with a two-thirds vote in both chambers. Worse, it appears that Obama has now sided not with the US population but with a small minority of Saudi emirs. Republican and Democratic leaders have said they are committed to holding an override vote, and the bill’s drafters say they have the support to force the bill to become law. The Justice Against Sponsors of Terrorism Act (JASTA) unanimously passed through both chambers by voice vote.  But the timing of the president’s veto is designed to erode congressional support for the bill and put off a politically damaging override vote until after the November elections.  Obama waited until the very end of the 10-day period he had to issue a veto, hoping to buy time to lobby members of Congress against the measure.  More details: White House officials also hope congressional leaders will leave Washington to hit the campaign trail before trying for an override, kicking a vote to the lame-duck session after the election. But Senate Majority Leader Mitch McConnell (R-Ky.) has said the upper chamber will remain in session until the veto override vote is done. Under current law, 9/11 victims' families may sue a country designated as a state sponsor of terrorism, such as Iran. JASTA would allow U.S. citizens to sue countries without that designation, including Saudi Arabia. The measure has touched a political nerve ahead of an election in which terrorism has emerged as a central issue. It has strong bipartisan support and is backed by 9/11 families’ organizations.  Those families have sought damages from Saudi Arabia, since 15 of the 19 hijackers on Sept. 11, 2001 hailed from that country.  Critics have long been accused the Saudi government of directly or indirectly supporting the attacks, though a concrete link has never been proven. 

Turkey won’t take part in Raqqa operation if Kurdish militants do: Presidential spokesman - MIDEAST: Turkey will not take part in a U.S.-led coalition operation to liberate the Islamic State of Iraq and the Levant’s (ISIL) de facto capital of Raqqa if Syrian Kurdish fighters are also involved, Presidential Spokesperson İbrahim Kalın said. Kalın ruled out the possibility of Turkey joining an operation by coalition forces against ISIL militants in Syria’s Raqqa if the Syrian Kurdish Democratic Union Party (PYD) or its military wing, the People’s Protection Unit (YPG), which Turkey regards as terrorist organizations, also take part. “Negotiations are still ongoing, there is nothing certain yet. Our principled stance is the same as it was with Manbij and Jarablus. It is out of the question for us to take part in an operation in which the PYD/YPG are present,” Kalın said in an interview on state-run news channel TRT Haber on Sept. 22. Turkey considers PYD and YPG as closely linked to the outlawed Kurdistan Workers’ Party (PKK) and deems all groups to be terrorist organizations. “In principle, we support Raqqa and the other Syrian cities being cleansed from Daesh, but as we said before, we have principles and conditions on the issue,” Kalın said, using an Arabic name for ISIL. While U.S.-backed Kurdish and Arabs fighters liberated Manbij in early August, Turkey-backed Syrian rebel forces and Turkish troops took control of Jarablus in late August.

75,000 Syrian Refugees Trapped, Dying Near Border, Amnesty Says: — Around 75,000 refugees are stranded in a no-man's land on the Syria-Jordan border, and hundreds are dying because they are cut off from food and medical aid, Amnesty International said Friday. The alert came ahead of two high-profile summits in the United States on the global refugee crisis. The human rights group obtained rare video footage from the border area showing upturned rocks scattered across the desert landscape — makeshift graves that mark the untold suffering of tens of thousands of refugees seemingly forgotten by the outside world. In less than a year, the number of people stranded on this desolate frontier has soared from a few hundred to its present level. "People that we were able to speak to described some really desperate conditions," Amnesty's Sara Hashash told VOA. "They said food is running out, diseases are spreading, some people are dying because of preventable illnesses. And what's truly tragic is that if they really did have access to medical care, some of those people's lives would be saved." The border between Syria and Jordan, known as the "berm," has been closed since June, when six Jordanian soldiers were killed in a suicide car bomb attack by suspected Islamic State militants. Hashash said the added border security was understandable, but Jordanian authorities must abide by humanitarian law. "At the very least, in the interim what they need to be doing is allowing humanitarian operations at the berm area on that Syrian-Jordan border to resume," she said.

The Other Front Line: Iraqi Schools Need Our Help - Young Iraqis are pushing to reclaim their country from extremism and intolerance, not just by joining the military offensive to oust ISIS from Mosul, but also by enrolling at the American University of Iraq in Sulaimani. These paths are more closely linked than they may seem. In their way, they are both front lines in the battle to stabilize Iraq — and they suggest how policymakers and defense leaders should lay their own plans. One front line lies at the edges of Mosul, where Iraqi forces have for months been waging a grueling and bloody campaign to retake the country’s second-largest city from ISIS. A generation of young people has been devastated by the group’s reign, which has closed eight universities in northern Iraq, shuttered many schools in eastern Syria, and imposed hyper-fundamentalist curricula on the rest. Roughly half of Syrian children can no longer attend school; many are among the roughly 1.5 million refugees under the age of 18. These disruptions can have stark implications: as one Syrian professor put it in a 2014 study by the Institute for International Education: young men will either “continue their studies, or they will join” ISIS. A second, figurative front line exists 140 miles away from the looming battle in Mosul. The American University of Iraq in Sulaimani (AUIS) is a bold effort to train the next generation of leaders and thinkers. There, a diverse mix of 1,400 students – including Kurds, Arabs, Turkmen, Yezidis, Christians, Sunni and Shi’a Muslims, about 40 percent of whom are women – study under an American-style liberal arts curriculum. Founded in 2007, AUIS has steadily worked to become a pillar of institution-building in Iraq, overhauling its board in 2012, adopting increasingly detailed financial and governance controls, hiring Ernst & Young as the auditor, and undergoing rigorous accreditation processes.

 Chinese propane imports to rise in Q4 on startup of two PDH plants - Chinese propane imports are likely to climb faster in the fourth quarter, thanks to the expected startup of two new propane dehyrogenation plants, giving a much-needed boost to the recovering LPG market in Asia, sources said Wednesday. China's Oriental Energy aims to start up its second PDH plant with a propylene capacity of 660,000 mt/year next month, when test runs at the Ningbo facility are completed, a source with knowledge of the matter said. The startup date has been slightly pushed back from the original plan of third quarter due to the G20 summit in Hangzhou over September 4-5, when China ordered plants and factories in Shanghai, Jiangsu and Zhejiang provinces to stop production ahead of the summit in order to reduce pollution levels. The new plant is expected to add 66,000 mt/month to Oriental's overall LPG requirements when run at full capacity. But in the initial phase of the startup, the company would likely import just one more cargo of 44,000 mt/month, the source said.Oriental currently has LPG supply from existing US term contracts to feed the first 600,000 mt/year PDH plant at Zhangjiagang, eastern Jiangsu province, which was started up in May last year. The company also imports from Iran. To meet propane requirements for its second plant, Oriental is understood to be talking to Middle Eastern producers such as Saudi Aramco and Qatar's Tasweeq. Separately, Hebei Haiwei is still doing test runs at the first phase of its PDH plant with a propylene production capacity of 500,000 mt/year. When run at full capacity, the plant requires up to 730,000 mt/year or 60,000 mt/month of LPG feedstock. It has the ability to run upto 115% of its nameplate capacity. The second phase of the project will see another 500,000 mt/year of propylene capacity coming onstream. The startup date for this phase is still unknown.

China facing full-blown banking crisis, world's top financial watchdog warns: China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog. A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late. The Bank for International Settlements warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia's speculative boom on 1997 or in the US subprime bubble before the Lehman crisis. Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring. The credit to GDP gap measures deviations from normal patterns within any one country and therefore strips out cultural differences. It is based on work the US economist Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can often take longer than assumed. Indicators for what would happen to debt service costs if interest rates rose 250 basis points are also well over the safety line.

Is China Building a Road to Ruin? - — Even the harshest critics of authoritarian rule generally concede that when it comes to building infrastructure China wins hands down over the rich democracies. America has practically given up. Every four years, The American Society of Civil Engineers reviews the condition of the country’s crumbling schools, chronically congested major airports, potholed roads and decrepit transit systems and offers an overall grade. Its latest, in 2013: D+. Meanwhile, China can’t build fast enough. Having recently finished the sixth ring road around Beijing, construction crews are now working on a seventh—100 miles out in some places—part of plans to merge the capital with surrounding municipalities to create a “supercity” of 130 million people, slightly larger than the population of Japan. The national high-speed rail network, nonexistent a decade ago, is now more extensive than the European Union’s—and expanding rapidly. New dams, bridges, tunnels and subways are all in a day’s work for state planners. But at what cost? A report by four academics at the University of Oxford’s Saïd Business School has created a stir by arguing that what outside observers often hail as a towering strength of the Chinese system has instead led to colossal waste. All this construction, they say, has produced cost overruns equal to one-third of China’s $28.2 trillion debt pile in 2014, and unless China scales back it is “headed for an infrastructure-led national financial and economic crisis” with global ramifications. Examining data on 95 road and rail projects, the authors say cost overruns are typically about the same as in democracies, and although China handily wins on speed it comes at the expense of quality, safety and the environment. Most of the finished routes carry paltry traffic; a few are clogged. Either way, the outcome is grossly inefficient.

China chalks up $667-billion debt pile over toll roads | Reuters: China's toll roads have stacked up a debt pile of 4.45 trillion yuan ($666.96 billion), with almost 80 percent of their annual income last year going to repay loans, the transport ministry said, as the country accelerates road building. Beijing has cranked up state spending on infrastructure to support economic growth as private sector investment falters, and efforts to lure investors into private-public partnerships to build projects such as toll roads have had few successes. The ministry published the 2015 figures late on Tuesday in a report that comes as global investors express growing concern over China's overall credit, much of which has gone to build infrastructure. The toll road network's debt grew an annual 15.7 percent last year, far outpacing income growth of 4.6 percent, the ministry said in the report. "Although China's toll road debt is relatively large, this is just a phase," state newspaper the People's Daily quoted Sun Yonghong, an official of the ministry's highway division, as saying. "In the long run, the risks are controllable." About three-quarters of 2015 revenue of 409.78 billion yuan went to paying down debt and interest, as banks sought payment of the principal one year after project completions, Sun said.

China Risks $375 Billion of Shadow Banking Losses, CLSA Says - Bloomberg: China’s shadow banking could lead to losses of $375 billion, according to CLSA Ltd. estimates of likely levels of bad debt. The brokerage estimated the potential bad debt ratio for “bank-related shadow financing” at 16.4 percent, or 4.2 trillion yuan, in a report released to the media in Hong Kong on Tuesday. Assuming a 40 percent recovery rate left a potential loss of 2.5 trillion yuan. “Shadow financing is banking reform gone wrong given that the key driver of growth has been the banks circumventing regulations to protect their margins,” analyst Francis Cheung wrote in the report. “Shadow financing has grown rapidly, benefiting from implicit government guarantees despite being a channel for credit to higher-risk industries.” The report was a follow-on from CLSA estimates in May that bad debt on banks’ regular loan books could be at least nine times higher than official numbers, with potential losses of more than $1 trillion.  Shadow financing -- including loans facilitated by trust firms, banks’ wealth management products, and asset management plans sold by securities, insurance and mutual fund firms -- expanded at an annual 30 percent pace from 2011 through 2015 to reach 54 trillion yuan, or 79 percent of China’s gross domestic product, CLSA estimated.

China Can Now Organize Its Own (Financial) Coalitions of the Willing - Brad Setser - Just before the global financial crisis, I wrote a paper on the geostrategic implications of the United States’ growing external debt—and specifically about the fact that the U.S.’s main external creditors were increasingly the reserve managers of other states, not private investors. Yes, there were large two-way gross private flows in the run up to the crisis; think U.S. money market funds lending to the offshore arms of European banks who in turn bought longer-term U.S. securities. But, on net, the inflows needed to sustain the United States’ external deficit from 2003 on mostly came from the world’s big holders of reserves and oil exporters who stashed funds away in sovereign wealth funds. With hindsight, I, and the others who speculated about how China’s Treasury holdings might be used for political leverage over-egged the pudding, as Dan Drezner, among others, has pointed out. Greece’s indebtedness to private bond holders and banks proved a bigger constraint on its economic sovereignty than the debt the United States owes to the PBOC and other official investors. Germany was the creditor country that ended up with the leverage, not China. And thinking back even further, Britain’s geostrategic vulnerability to the withdrawal of U.S. financing in the Suez crisis derived from its commitment to maintaining the pound’s external value. Letting the pound float was inconceivable at the time. That as much as anything gave the U.S. leverage over Britain. Worth remembering.

China Relies On Property Bubbles To Prop Up GDP --naked capitalism -  Yves here. Major financial news outlets, such at the Telegraph yesterday (via Ambrose Evans-Pritchard) and the Financial Times today have reported on a new Bank of International Settlement paper that raises new alarm about China’s debt levels. One reason to take it seriously is that one of its authors, Claudio Borio, was with William White warning about the dangers of housing bubbles in many advanced economies in the runup to the crisis and was ignored.  Some experts have discounted this BIS warning because it raises concerns about China’s overall debt level, which is high by emerging economy standards but not terribly so by those of advanced economies. But its other alarm, about the rapid rise in debt, is harder to ignore since big jumps in borrowings tend to be the result of leveraged speculation and/or unproductive investment.Steve Keen, one of the few economists to predict the financial crisis, also sees a big increase in debt at a national level from a moderate or high base level as a harbinger of at best future zombification. As he explains in a recent presentation, a mere halt in debt growth in that scenario will produce a crisisIlargi:  I’m getting the feeling we have gotten so used to huge and often unprecedented numbers, viewed against the backdrop of an economy that still seems to remain standing, that many don’t know what to make of this anymore. Ambrose Evans-Pritchard ties the BIS report to Hyman Minsky’s work, which is kind of funny, because our good friend and Minsky adept Steve Keen is the economist who most emphasizes the need to differentiate between public and private debt, in particular because public debt is not a big risk whereas private debt certainly is.And that happens to be the main topic where people seem to get confused about China. To quote Ambrose: “..Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP..”The big Kahuna question then becomes: should Chinese outstanding loans and corporate debt be seen as public debt or private debt, given that the dividing line between state and corporations is as opaque and shifting as it is? Even the BIS looks confused. I’ll address that below. First, here’s Ambrose:BIS Flashes Red Alert For a Banking Crisis in China

China’s toxic debt pile may be 10X official estimates: Fitch: Toxic loans in the Chinese financial system could be 10 times as high as official estimates suggest, Fitch Ratings has warned. The international ratings agency said in a report on Thursday that, as a proportion of China's total loan pool, non-performing loans (NPLs) could be as high as 15-21 percent. By comparison, official data put the NPL ratio for commercial banks at 1.8 percent at the end of June 2016. "There seems a high likelihood that banks' NPL ratios will continue rising over the medium term, in light of this discrepancy. There are already signs of stress, most obviously in the increased frequency with which banks are writing off or offloading loans, such as those to asset-management companies," the report said. It warned that the capital gap could rise by another 10-13 percentage points by the end of 2018 "if inefficient credit continues to rise at the same rate as recent years and no additional internal or external capital is raised." Fitch said the Chinese state would likely have to help solve the corporate debt situation – but that this could put pressure on its credit rating. It currently rates China at A+ with a stable outlook. "An upfront resolution of problem credit and recapitalization of the financial system is not Fitch's base case, but it is one scenario that could lead to an unexpected increase in general government debt," the report said. Solving China's bad loan problem would result in a capital shortfall of 7.4 trillion-13.6 trillion yuan ($1.1-2.1 trillion), equivalent to around 11-20 percent of China's economy, Fitch said.

Fitch reveals the $2trillion black hole in China's economy that heralds a lost decade: Bad debts in the Chinese banking system are ten times higher than officially admitted, and rescue costs could reach a third of GDP within two years if the authorities let the crisis fester, Fitch Ratings has warned. The agency said the rate of non-performing loans (NPLs) has reached between 15pc and 21pc and is rising fast as the country delays serious reform, relying instead on a fresh burst of credit to put off the day of reckoning. It would cost up to $2.1 trillion to clean up this toxic legacy even if the state acted today, and much of this would inevitably land in the lap of the government.“There are already signs of stress that point to NPLs being much higher than official estimates (1.8pc), most obviously the increased frequency with which the banks are writing off or offloading loans,” it said. The banks have been shuffling losses off their balance sheets through wealth management vehicles or by classifying them as interbank credit, seemingly with the collusion of the regulators. Loans are past 90 days overdue are not always deemed bad debts. “The longer debt grows, the greater the risk of asset quality and liquidity shocks to the banking system,” said Fitch. Capital shortfalls are currently 11pc to 20pc of GDP, but this threatens to hit 33pc in a worst case scenario by the end of 2018.

China gets steelier about debt restructuring -- China is getting tougher with debt-laden firms in moribund sectors. Metals trader Sinosteel has agreed a $4 billion workout, in a compromise that could be a template for restructuring other troubled outfits. Meanwhile, a smaller miner has been allowed to fail. Sinosteel’s overhaul, as revealed by Caixin magazine, is a fudge because the firm, its shareholders and many of its creditors are all different arms of the government. So politics probably played as big a role as economics in deciding how the deal was structured. Still, it gives the biggest state-owned steel trader a fighting chance of survival. Just under half of the company’s debt to more than 80 Chinese and foreign banks will be swapped for convertible bonds. These will convert into shares over three years from 2019. That drawn-out process gives Sinosteel time for a turnaround, while presumably lowering its debt servicing costs. This setup is better than expected for lenders. Earlier this year, China said it would tackle bad debt in troubled sectors like steel, coal and cement by forcing banks to swap loans into equity. That sparked an outcry from banks and their regulator, who argued any improvement to bad loan ratios was far outweighed by the hit to capital ratios because equity holdings have a higher risk weighting than loans. This deal involves no immediate equity holding, and spreads the pain among various banks, the company, and the central government, which is injecting 10 billion yuan of fresh capital.

China Starts Default-Swap Trading as Buffer Against Failures - Bloomberg: China’s approval of credit-default swap trading for the first time is fueling speculation authorities will allow more bond delinquencies as the economy slows. The People’s Bank of China has approved rules governing CDS trading in the nation’s interbank market, according to a statement from the National Association of Financial Market Institutional Investors, a unit under the central bank. The purpose is to help diversify credit risks and facilitate healthy development of the market, the statement said. The swaps, which provide insurance against bond failures, add an arrow in Premier Li Keqiang’s quiver as he seeks to rid the economy of zombie companies while ensuring failures don’t trigger wider fallout. There is room for defaults to rise. While the number of firms failing to pay debts has soared since the first local note nonpayment in 2014, the nonpayment rate is still low compared with other countries. “The launching of CDS trading shows the government may allow more bond defaults,” said Ivan Chung, head of Greater China credit research at Moody’s Investors Service in Hong Kong. “CDS will help investors mitigate the risk and alleviate market sentiment if investors face more defaults or suffer more losses after defaults.” China’s move covers CDS tied to debt of companies, countries or multi-lateral agencies, according to the NAFMII statement. The central bank also approved trading of credit-linked notes, it said.Goldman Sachs Group Inc. estimated in May that about 0.2 percent of Chinese company bonds are in default, excluding those that were later fully repaid. That pales in comparison to the 0.8 percent of corporate issues that failed in the past 12 months globally, according to data from Moody’s Investors Service.

China’s Tourism Puzzle Has Gone Mainstream - Brad Setser --  Or at least it is on Bloomberg.  I wanted to elaborate on three points: First, the increase in China’s tourism spending, if it is real, is huge. The reported rise in tourism spending by China since 2012 is about equal to the reported fall in Chinese commodity (primary product) imports. A $200 billion move over roughly 2 and a half years (the Chinese data indicates spending by Chinese tourists abroad–imports of travel services in the data–have increased from $120 billion in 2013 to about $315 billion in the last four quarters of data)* is real money.  Second, the timing of the rise corresponds to a change in the methodology used to collect China’s balance of payments data. Most of the jump now shows up in the 2014 data.* SAFE’s presentation to the IMF on the implementation of the IMF’s new balance of payments data standard is remarkably honest; they don’t seem to have any idea if their new data set—based on credit card data and the like—really captures tourism spending abroad, or captures something else.** Under a heading titled “related issues to the new method” SAFE notes: “For example, some remittance reported as travel in ITRS (International Transactions Reporting System) and some overseas purchases via bank card are actually goods transactions, because the money is used for valuables and durable goods, Sometimes, the money is used for investment abroad, which should be included in financial account. However, without further information, it is hard to identify how much should be allocated to goods item or financial account” My argument is simple: in correcting for potential problems in the old data, China introduced a new set of problems—and those problems appear to be quite large.

Suitcases of Cash: China Travel Data Hint at Capital Outflow - Bloomberg: The explosive growth of spending overseas by Chinese tourists dwarfs the increase in the number of Chinese traveling abroad. The most likely reason? Disguised capital outflows. So says former U.S. Treasury official Brad Setser, who drilled into the spending data provided by some of the most popular destinations for Chinese travelers. The nation’s tourism deficit -- a measure of foreign visitor expenditure in China minus what its citizens spend overseas -- soared to $206 billion in the 12 months through June 30, up from $77 billion in 2013, the last year of the yuan’s one-way appreciation trajectory. While outbound tourism has grown decently -- to about 120 million visitors last year from 98 million in 2013 -- that acceleration pales in comparison with the spending figures. Chinese tourists seem to be packing more than just sunscreen and cameras on vacation. The data discrepancy suggests they’re also shifting cash by buying homes while studying abroad, signing up for life insurance products in Hong Kong, or opening deposit accounts to squirrel money offshore, Setser said. That’s bad news for the global economy. "Right now, the world as a whole needs Chinese demand for its goods and services far more than it needs Chinese demand for bank deposits and bonds," said Setser, now a senior fellow at the Council on Foreign Relations in New York. "It helps us understand how the slowdown in China over the past few years is impacting world growth."

Why a President Trump Could Start a Trade War With Surprising Ease - Americans often dismiss populist promises that emerge on the presidential campaign trail because they are unlikely to be passed by Congress. Should Donald J. Trump get elected, Congress most likely would moderate his proposals to cut taxes, increase spending and even to build a border wall.But international trade policy is one area where a President Trump could unilaterally deliver on the changes that he has promised.Mr. Trump has said that as president he would “rip up” international trade deals such as the North American Free Trade Agreement, withdraw from the World Trade Organization and sharply raise the tariffs charged on goods imported from China and Mexico. As president he could pretty much do it. And there’s very little Congress can do to stop him, even if the result is a costly trade war.This may seem surprising given that the Constitution explicitly gives Congress the power to “regulate Commerce with foreign Nations.” But over the years Congress has delegated much of that power to the president. Trade politics reflect an important asymmetry: New trade agreements require congressional approval, but undoing existing commitments does not. And so vast areas of international economic policy can be changed with just a president’s say-so.The result is that the usual checks and balances don’t apply. (For anyone wondering, yes, the same rules would apply to Hillary Clinton if she were elected.) Mr. Trump is proposing a reordering of the global economic system that would fundamentally reshape the structure of American industry. He could start a trade war that would threaten not only American exporters who need access to foreign markets, but also any business that relies on commodities or products made overseas.

Asia's Mythical Middle Class Society: Despite the widespread hype, Asia's "middle class" society remains a myth. Only 15% of Asians could claim to be living middle class lives. It is indeed true that Asian lives have improved enormously these past few decades. But yet, despite much hype about Asia's emerging middle class, the region's human and social development remain stunted. At this point, middle class Asia is still a myth. And the prospects for a continued rapid improvement in Asian lives are fading with the current stagnation of the world economy. There is no universal agreement on what middle class means. Many economists think in terms of how much someone consumes or earns in income. Sociologists tend to reason in terms of education, occupation in a white-collar job or other status. The Asian Development Bank once defined the middle class as those living in the range of $2 to $20 a day. It concluded that the majority of Asia's middle class lived on $2-4 day, and were part of the "lower middle class". Many Chinese just laughed. No-one could live on $2 or even $4 day today in a Chinese city. Shanghai and Beijing are among the world's most expensive cities in which to live. The $10 a day threshold is now increasingly accepted as the beginning of the middle class in emerging economies. At the same time, income or consumption of $10 a day would not be considered middle class in any advanced Western country. In other words, middle class has become a fuzzy concept, and must be interpreted with caution. Using the $10 a day benchmark, some 650 million Asians could today be considered middle class. This sounds like a big number by any score. And it certainly sounds like a good market for businessmen wishing to hawk their wares. But this represents at best some 15% of Asia's population. In short, middle class Asia is still more a promise than reality.

Court dismisses Hanjin’s rehab plans as ‘realistically impossible’ --The future of Hanjin Shipping has been cast further adrift with South Korea’s main news agency Yonhap reporting yesterday that the court overseeing its receivership reckons the line’s rehabilitation plan is “realistically impossible” if key debts, such as backlogged charter fees exceed KRW1trn ($896m). Estimates put Hanjin’s charter costs at $2m a day at the moment. Its total debts are in excess of $5bn and mounting fast since court receivership was announced on August 31. Shares in Hanjin plunged more than 20% to a record low after the report.Hanjin has started returning chartered in ships to tonnage providers. The likes of Danaos, Seaspan and Navios are set to take a combined hit of around $1.2bn from the demise of Hanjin.Hanjin’s early mooted rehabilitation plans saw it look to exit the main east-west trades and become an intra-Asia player. It has until December 19 to submit its plans.

Why Hanjin’s Zombie Collapse Won’t Be the Last One -  Wolf Richter -- Hanjin Shipping Co. filed for the equivalent of bankruptcy protection in South Korea on August 31 and over the past two weeks in the US and dozens of other countries. Some of its ships are still idling at sea, trying to out-wait the uncertainty, and being seized by creditors. Some have made it to port and are being unloaded. Others have already been sold at fire-sale prices. When US Bankruptcy Judge John Sherwood asked Hanjin lawyer Ilana Volkov if the carrier was liquidating, she said: “There is no clear visibility yet on what will happen with this business.”  The seventh largest container carrier in the world is not the only carrier in financial trouble. Another huge Korean carrier, HMM, was restructured and bailed out earlier this year, with creditors, including the Korean taxpayer, taking a big hit. The state-owned Korean Development Bank is now its largest shareholder. Whatever the company-specific reasons, the entire industry has been caught up in a collapse of the rates they charge to transport containers across the seas. This started in early 2015, as a result of a shipbuilding boom of historic proportions, fueled by cheap money, endless liquidity, yield-desperate investors, and over-optimistic projections of demand. It created a vast oversupply of container ships that will continue to get worse through 2017 as a slew of new ships, ordered years ago, are being delivered.It coincided with lackluster demand for shipping goods, particularly a decline of exports from China (-1.8% in 2015) and South Korea (-5.1% in 2015).Having acquired these ships with borrowed money, carriers are now weighed down by enormous amounts of debt, and when cash flow curdled, the math, which had been iffy before, no longer worked at all, turning some of these carriers into zombies. But since Hanjin’s collapse, the meme has started to circulate that container shipping rates would soar, that Hanjin’s ships would be sidelined during peak shipping season and that shippers would have to scramble to find other carriers to transport their containers, and those carriers would jack up rates and get away with it.That optimism may have been largely based on wishful thinking. The Shanghai Containerized Freight Index (SCFI), which tracks only spot-market rates (not contractual rates) of shipping containers from Shanghai to 15 destinations around the world, had started plunging in February 2015. Carriers, desperate to get loads together, were accepting rates far below cost. Last March, there finally were rumors that some carriers quoted rates of “zero.”

Hanjin could be “the 100­year flood in the container industry” -- Admiralty law is old, fun and messy. From CreditSights:  The order of claim seniority is cargo, crew, supplier, mortgage holder. What is unique is a claim against a company or vessel can be enforced against a different asset or bank account. This allows creditors greater scope but also can generate a blizzard of litigation.  In a typical but very simplified case: 1) a mortgage holder receives a judgment in local court for non payment; 2) checks to see where any debtor vessels are steaming; 3) goes to that port with a lawyer and replacement crew; 4) court accepts the judgment; 5) port sheriff, lawyer, and replacement crew “physically” arrest the vessel, pay off the existing crew, cover supplier claims, and deliver the cargo if the vessel is not empty. Problem is the mortgage holder now owns a ship, and that costs cash money every day. If the vessel is not marketable, there usually is an “as is” auction under port sheriff supervision. And South Korea’s Hanjin Shipping — which filed for bankruptcy last month after assumed government support didn’t materialise — is rather more complicated than that simplified case. As the FT said, “Hanjin’s move to seek bankruptcy protection last month was the first time a big container shipping line had done so for 30 years, and it caught out many in the industry. As recently as a couple of months ago, shipping executives considered the failure of Hanjin Shipping — the world’s seventh-largest container line and South Korea’s largest — unthinkable. ”

Bank of Japan, Fed monetary policy decisions set to dominate market sentiment: Monetary policy decisions from the U.S. Federal Reserve and, more importantly, the Bank of Japan (BOJ), are expected to drive investor sentiment in Asia-Pacific this week. While expectations for a Fed hike in September have abated somewhat following a series of soft economic data, growing uncertainty over what the BOJ would do is a likely source of anxiety for investors. They would be seeking clarity from Governor Haruhiko Kuroda to determine how much firepower the central bank has left to support Japan's moribund economy, its appetite to purchase more government debt and its ability to tame a strong yen. Both the Fed and the BOJ would begin their two-day policy meetings on September 20. "It'd better be a very 'comprehensive' assessment from the BOJ," said Sameer Goel, who leads the Asia Macro Strategy team at Deutsche Bank, in a note. "It needs to carry with it either a well explained policy action, or (probably more likely) a strong statement of forward guidance." Convincing skeptics would be a tall order. Goel said the BOJ needed to explain its intent and ability to address "concerns about illiquidity in the bond markets, and the profitability of the financial sector, without risking a perception of 'tapering'." The controversial negative interest rate policy also looked set to be in play once again.

Japanese companies issue record amount of debt to secure cheap funds | Reuters: Japanese companies have sold a record amount of bonds this quarter, taking advantage of negative interest rates and yield-starved investors to lock in cheap long-term funding. For the July-September quarter, Japanese companies are on track to issue over 4 trillion yen ($39.20 billion) in bonds, more than double the 1.5 trillion yen booked in the same period last year, according to data from DealWatch and Thomson Reuters. Strikingly, 1.83 trillion yen of the debt is in maturities of more than 20 years, versus just 70 billion yen in the same period last year. The surge comes after the Bank of Japan adopted negative interest rates in February as part of its stimulus measures.But most are raising funds to rollover or repay debt more cheaply. Tokyu Corp sold 10 billion yen of 20-year bonds and 10 billion yen of 30-year bonds on Friday, following a spate of issues from big names such as Softbank Group Corp and Mitsubishi Corp. "I've never seen this kind of volume in the past," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo. Some companies have issued superlong notes to invest in new plant and equipment, which would stimulate economic growth and highlight what low and negative interest rates are supposed to achieve.

 Will the Bank of Japan cause a global bond tantrum? - As investors anxiously await the key monetary policy decisions from the Federal Reserve and the Bank of Japan next week, there have been signs that the powerful rally in bond markets, unleashed last year by the threat of global deflation, may be starting to reverse. There has been talk of a major bond tantrum, similar to the one that followed Ben Bernanke’s tapering of bond purchases in 2013. This time, however, the Fed seems unlikely to be at the centre of the tantrum. Even if the FOMC surprises the market by raising US interest rates by 25 basis points next week, this will probably be tempered by another reduction in its expected path for rates in the medium term. Instead, the Bank of Japan has become the centre of global market attention. The results of its comprehensive review of monetary policy, to be announced next week, are shrouded in uncertainty. So far this year, both the content and the communication of the monetary announcements by BoJ governor Haruhiko Kuroda have been less than impressive, and the market’s response has been repeatedly in the opposite direction to that intended by the central bank. As a result, the inflation credibility of the BoJ has sunk to a new low, and the policy board badly needs to restore confidence in the 2 per cent inflation target. But the board is reported to be split, and the direction of policy is unclear. With the JGB market now having a major impact on yields in the US, that could be the recipe for an accident in the global bond market. The BoJ’s problems have stemmed largely from the botched decision to move interest rates into negative territory in January. After years of denying that this was possible, Mr Kuroda intended this to be another of his dovish surprises that had been effective in the past. But the market took a different view. Investors believed that the damaging impact of negative rates on bank profitability would more than offset the demand stimulus from negative rates, so inflation expectations refused to rise.

Japan’s Negative Interest Rates Explained - The New York Times: Japan’s central bank is reviewing its economic policies, asking why they have failed to kick-start growth, as intended. Its much-anticipated report is due on Wednesday. One target is negative interest rates — an unconventional tactic adopted in Japan and Europe that turns the usual rules of borrowing and lending upside down. Negative interest rates mean depositors pay money to save their money, a reversal of the normal rules of economics.In this case, the depositors are banks. Like regular people keeping accounts at a local bank, lenders hold their unused cash at central banks like the United States Federal Reserve, the European Central Bank and the Bank of Japan. Normally, they receive a small amount of interest in return.But with negative rates, central banks charge a fee instead. The idea is to encourage banks to put their money to more productive use, lending it to households and businesses. Negative rates are supposed to then ripple through economies by lowering the cost of borrowing for everyone — something that should encourage economic growth. What sort of countries have negative rates?Those with ultra-low inflation or deflation, meaning falling prices associated with weak economic growth. The European Central Bank, which oversees monetary policy for countries that use the euro, introduced negative rates in 2014. Denmark, Sweden and Switzerland, which are not part of the eurozone, also have negative rates. Japan’s central bank followed in January, announcing that it would charge commercial banks a fee of 0.1 percent on a portion of their reserves that they keep with it.The bank is trying to lift consumer prices, which have been sliding for most of the past 20 years. Falling consumer prices hurt corporate revenues, keeping companies from raising wages or spending on new projects. But the bank’s efforts are foundering. Its main tool has been an extensive bond-buying program, similar to policies adopted by the Federal Reserve in the United States and the European Central Bank. Bond-buying injects money into a country’s financial system. From there, it is supposed to flow to the rest of the economy. It worked for a while, but recently the effect has faded. Prices are falling again, and the bank needed to try something new.

The Bank of Japan: Monetary Mastery or Quantitative Quagmire? --The Bank of Japan (BoJ) just launched a new phase in its monetary easing program popularly known as Abenomics. It is doing so in the hopes of shoring up economic growth. This monetary program until today had involved a targeted expansion of the monetary base at ¥80 trillion a year matched by ¥80 trillion in government bond acquisitions. There were also targeted purchases of ETFs and REITs on a smaller scale.1The new phase unveiled today consist of three key developments. First, the BoJ will target the 10-year government bond interest rate at zero percent. Second, it will aim to overshoot its 2% inflation target so that it is truly symmetric. Third, it will drop its quantity target for the monetary base and simply make its expansion conditional on the inflation overshoot. Everything else in Abenomics remains roughly the same. So has the Bank of Japan finally mastered its monetary conditions in a way that will spur economic growth? Or is this just another step into the quantitative quagmire of Abenomics? The short answer: do not get your hopes up. There are two reasons why this probably will not make much difference.  First, the BoJ is pegging the 10-year yield on government bonds at a level it would be at anyways. Because of slow global economic growth and continued uncertainty, yields on safe assets around the world have been falling since 2008. This race to the bottom for safe asset yields can be seen in the figure below:Second, there is a serious credibility issue when it comes to the expansion of the Japan's monetary base. As seen in the figure below, the monetary base has seen a three-fold increase in its size since the beginning of Abenomics. If this expansion were truly permanent, then the price level would also increase threefold over the long-run. There is no way that can happen. The population is aging and depends increasingly on fixed income. Inflation for them is a non-starter.

Global negative-yielding debt shrinks to $10.9 trln -Fitch | Reuters: The global amount of negative-yielding government bonds fell to $10.9 trillion on Sept. 12 from its recent peak of about $11.7 trillion in late June after Japanese debt yields rose in recent months, Fitch Ratings said on Wednesday. Japan still accounted for 63 percent of the total sovereign debt in negative yield territory, but the amount of Japanese government bonds (JGBs) trading at negative yields fell by $1.0 trillion from June 27 to $6.9 trillion. Since late July, the yield on JGBs that mature in 15 years has climbed above zero percent on expectations of more fiscal and monetary stimuli, while that on JGBs that mature in 10 years or sooner has remained in negative territory, according to Reuters data. France, Germany, and Italy are the next largest contributors to the pool of global negative yielding sovereign debt with $1.1 trillion, $1.0 trillion, and $0.5 trillion in negative yielding debt, respectively, Fitch said. The amount of negative yielding debt in Europe of about $4 trillion was above June 27 levels, despite a recent $0.2 trillion decline since Aug. 2, the rating agency said. The Bank of Japan and the European Central Bank's adoption of negative rate policies and their heavy bond purchases in an effort to stimulate their sluggish economies have pushed global sovereign yields to record-low levels this year.

Bank of Japan sets higher inflation goal to revive economy - — Struggling to rejuvenate an ailing economy, Japan's central bank has set a more ambitious goal for raising inflation and announced steps meant to raise the profitability of financial firms. World stocks rose Wednesday after the decision by the Bank of Japan, with Japan's benchmark Nikkei 225 index jumping 1.9 percent. The bank said it would seek to overshoot a 2 percent annual inflation target that it's already failing to meet. By raising the inflation goal, it hopes to convince consumers and businesses that prices are heading up, coaxing them to spend more now and fuel faster economic growth. Analysts expressed doubt that the new target would change the mindset of Japanese shoppers and businesses long used to a stagnant economy and flat or declining prices. "No one believes it," said Sung Won Sohn, an economist at California State University Channel Islands. "They can't get close to 2 percent (inflation). So how are they going to exceed 2 percent?" The Bank of Japan kept short-term rates at negative 0.1 percent and said it will continue its asset purchases at a rate of about 80 trillion yen ($787 billion) a year.

Japandemonium: Government Blasts "Sexual Apathy" Amid Worrying Number Of Virgins -- Japan's demographic challenges are well-known: It's home to the world's oldest population and has a shrinking birthrate and an astonishing number of single people. But, as The Independent reports, it seems that, despite government efforts to incentivize marriage and child-rearing, things aren't quite trending in the right direction. According to the Japan Times, a new survey of Japanese people ages 18 to 34 found that 70 percent of unmarried men and 60 percent of unmarried women are not in a relationship. It gets worse: Around 42 percent of men and 44.2 percent of women admitted that they were virgins.  As The Indepdent explains, the Japanese government under Prime Minister Shinzo Abe has said it wants to raise the nation's fertility rate from 1.4 to 1.8 by 2025. It's offering better child-care services and tax incentives for married couples, though such programs have yet to bear statistical fruit. Most people surveyed said they want to get married at some point. It's just not clear when. "They want to tie the knot eventually. But they tend to put it off as they have gaps between their ideals and the reality," Futoshi Ishii, head researcher for the study, told Japan Times. "That's why people marry later or stay single for life, contributing to the nation's low birthrate."

The Robot Taxi Takeover Is Already Beginning in Singapore: — Autonomous vehicle software startup nuTonomy has made rides on its self-driving taxis available to the general public in Singapore for free, expanding a first-in-the world run that was initially invitation-only.While multiple companies, including Google and Volvo, have been testing self-driving cars on public roads for several years, nuTonomy announced in August that was the first to offer autonomous taxi rides. It beat Uber, which started offering rides in autonomous cars in Pittsburgh last week.The Singapore trial was limited to a 2.5-square-mile (6.5-square-kilometer) business and residential district called “one north.” NuTonomy CEO Karl Iagnemma said Friday that the test area has since been doubled by the government. The approved route does not include any highways.NuTonomy, a spinoff from the Massachusetts Institute of Technology, announced Friday that the public can now book self-driving taxis through an app by Grab, the biggest ride-hailing company in Southeast Asia. The two companies announced a year-long partnership.To book a ride, passengers will have to select the ‘robo-car’ option on Grab’s app, which has been downloaded more than 20 million times. Passengers have to be older than 18, book in advance and sign a liability waiver. Rides will be free for at least two months.“We will be combining nuTonomy’s self-driving car software with Grab’s app, with their proven fleet routing technology and their mapping capabilities,” said nuTonomy CEO Karl Iagnemma.The cars — modified Renault Zoe and Mitsubishi i-MiEV electrics — have a safety driver in front who is prepared to take the wheel and a researcher in back who watches the car’s computers.

Blow for Obama's TPP as Vietnam parliament defers ratification | Reuters: Vietnam will not include ratification of the Trans-Pacific Partnership (TPP) on its agenda for its next parliament session, an official said on Friday, adding to uncertainty over the future of U.S. President Barack Obama's signature trade deal. As arguably the biggest beneficiary of the deal covering 40 percent of the global economy, Vietnam was expected to be among the first to ratify the TPP, the prospect of which helped spur record foreign investment last year in its booming manufacturing sector. "TPP will not be on the assembly's agenda because the government's proposal is not completed," a parliament source familiar with the matter told Reuters. He did not elaborate. Vietnamese ratification was widely considered a formality having already been approved in January by the top brass of the ruling Communist Party. The National Assembly is 96 percent comprised of party members and domestic opposition to the TPP is unheard of. Its next session begins on Oct. 20. The delay means that at the earliest, ratification by Vietnam would be several months after November's U.S. presidential election, the run-up to which has seen its trade policy come under heavy domestic scrutiny.

 America’s Pacific pivot is sinking - Rodrigo Duterte, the president of the Philippines, caused shock and sniggers around the world when he called Barack Obama the “son of a whore”. But the Duterte comment that will have really hurt the White House came a few days later. Announcing that he was ending joint naval patrols with the US in the South China Sea, the Philippines’ president stated: “China is now in power and they have military superiority in the region.” That statement will sting in Washington. Throughout the Obama years, the US has attempted to reassure all its Asian allies that America has both the means and the will to remain the dominant military power in the Asia-Pacific region. President Obama set the tone in a landmark speech in 2011, when he firmly asserted that “the United States is a Pacific power and we are here to stay”. Since then America has transferred more of its navy to the region and Mr Obama has regularly made the long journey from Washington to East Asia.But Mr Duterte has now directly challenged the idea that America is still the hegemon in the Pacific. If others take his view, power could drain away from Washington, as more countries in the region begin to defer to Beijing. The Philippine president’s assessment of the military balance between the US and China is questionable. The Americans currently have 11 aircraft-carriers, while China has one — with another on the way. But Chinese military spending has been rising fast for decades. And Beijing has also invested in the kinds of equipment, including missiles and submarines, that potentially make America’s aircraft carriers very vulnerable. Over the past year, China’s new confidence has been reflected in its programme of “island building” in the South China Sea, designed to reinforce Beijing’s controversial claim that roughly 90 per cent of that sea falls within its territorial waters. The Americans have been unable to stop this clear assertion of Chinese power and have restricted themselves to sailing past the disputed and increasingly militarised “islands” to signal that they do not accept China’s claims.

Bad Loans in Indonesia's Mining Sector Nearly Double to 6.8% in July | Jakarta Globe: Bad loans in Indonesia's mining sector nearly doubled in July from a year earlier, the latest data from the financial regulator showed, despite the efforts of banks to step up provisions and scale back lending. Gross non-performing loans (NPL) in Indonesia's mining and quarrying industry rose for the fourth month in a row to 6.77 percent of total loans in the sector in July, according to Indonesia's Financial Services Authority. That compares with 3.82 percent a year earlier. Overall, non-performing loans made up 3.18 percent of total loans in the banking sector, up from 2.70 percent a year earlier. Still, that was below the 5 percent threshold set by the regulator as a gauge of the health of the country's lenders. Miners of commodities ranging from coal to copper in Southeast Asia's biggest economy have been struggling to service their debt as sluggish demand and an oversupply hurt cash flow. Indonesia's central bank governor Agus Martowardojo told reporters on Thursday (22/09) he was concerned about rising NPLs, without singling out the worst-hit sector. Several lenders have set up "special units" to improve their loan quality, but "there are banks that still need more time", Martowardojo said.

Exclusive: Google may face over $400 million Indonesia tax bill for 2015 - government official | Reuters: Indonesia plans to pursue Alphabet Inc's (GOOGL.O) Google for five years of back taxes, and the search giant could face a bill of more than $400 million for 2015 alone if it is found to have avoided payments, a senior tax official said. Muhammad Haniv, head of the tax office's special cases branch, told Reuters its investigators went to Google's local office in Indonesia on Monday. The tax office alleges PT Google Indonesia paid less than 0.1 percent of the total income and value-added taxes it owed last year. Asked to respond to Haniv's comments, Google Indonesia reiterated a statement made last week in which it said it continues to cooperate with local authorities and has paid all applicable taxes. The move comes at a time when Indonesia is eager to ramp up tax collection to narrow its budget deficit and fund an ambitious infrastructure program. Other governments around the world are also seeking to clamp down on what they see as egregious corporate tax avoidance. Haniv added that the tax office planned to pursue other internet firms for back taxes. If found guilty, Google may have to pay fines of up to four times the amount it owed, bringing the maximum tax bill to 5.5 trillion rupiah ($418 million) for 2015, Haniv said. He declined to provide an estimate for the five-year period.

Loans to households in Malaysia higher than GDP: Allianz Wealth Report - Loans to private households increased at a faster pace than national gross domestic product (GDP) and also their financial assets in 2015, according to the Allianz Global Wealth Report.It said on Thursday the 7.2% growth in loans to the households exceeded the GDP of 4.6% growth and even their financial assets with 4.9% “thus worsening the private debt to GDP ratio and asset to debt ratio further”. “Household debt climbed to 89.1% of GDP, while the financial assets to GDP ratio edged up only marginally to 182.9% from 182.4% in 2014,” it said in the seventh edition of the report. The report also pointed out that at the end of 2015, every inhabitant of Malaysia had debts to the tune of Euros 7,285 (about RM33,500) as against average financial assets of Euros 14,960 (RM68,810). “The assets to liabilities ratio of 2.1 seems to be comfortable, indicating that most households should be able to repay their debts. “However, it has to be pointed out that only Thailand had a lower ratio. In Taiwan, for example, a country with a similarly high debt to GDP ratio of 90.4%, the respective ratio was 5.5,” it pointed out. Allianz also said with net financial assets per capita amounting to Euros 7,670, Malaysia ranked 34th worldwide and 7th in the Asian comparison.

Thailand is recuiting child 'cyber scouts' to report insults about royal family - Business Insider: The Thai government is recruiting its own citizens to spy on each other on social media — and even rewarding child "Cyber Scouts" when they tell authorities about any insulting comments they see others making about the country's royal family. According to a new report released Monday by the human rights watchdog group Privacy International, the information being gathered is helping Thai police bring charges of "lèse majesté" — a long-standing law in Thailand in which anyone who "defames, insults, or threatens" the top members of the royal family faces s prison term of up to 15 years. Following the 2014 coup led by General Prayut Chan-o-cha, there was a significant increase in the level of online surveillance carried out by the National Council for Peace and Order, the junta created to govern Thailand. The introduction of an updated Computer Crime Act in 2014 gave police wide-ranging authority to monitor online activity. What the junta can't do through technology, it's attempting to do through incentives and intimidation. Among the report's more disturbing findings is the continued recruitment of children to spy on the online activity of friends and family. The initiative, called Cyber Scouts, was initially launched in 2010, with the Royal Thai National Police offering 500 Baht ($15) to anyone providing information on anti-coup protesters. Today's Cyber Scouts, however, don't get any money. Instead they earn points for successfully ratting out neighbors in hopes of being featured on the Cyber Scouts website.

Nuns trained in Kung Fu bike the Himalayas to oppose human trafficking - Clad in black sweatpants, red jackets and white helmets, the hundreds of cyclists pedaling the treacherously steep, narrow mountain passes to India from Nepal could be mistaken for a Himalayan version of the Tour de France. The similarity, however, ends there. This journey is longer and tougher, the prize has no financial value or global recognition and the participants are not professional cyclists but Buddhist nuns from India, Nepal, Bhutan and Tibet. Five hundred nuns from the Buddhist sect known as the Drukpa Order, on Saturday complete a 4,000-km (2,485 mile) bicycle trek from Nepal's Kathmandu to the northern city of Leh in India to raise awareness about human trafficking in the remote region. "When we were doing relief work in Nepal after the earthquakes last year, we heard how girls from poor families were being sold because their parents could not afford to keep them anymore," 22-year-old nun Jigme Konchok Lhamo told the Thomson Reuters Foundation. "We wanted to do something to change this attitude that girls are less than boys and that it's okay to sell them," she said, adding that the bicycle trek shows "women have power and strength like men." South Asia may boast women leaders and be home to cultures that revere motherhood and worship female deities, but many girls and women live with the threat of violence and without many basic rights. From honor killings in Pakistan to feticide in India and child marriage in Nepal, women face a barrage of threats, although growing awareness, better laws and economic empowerment are bringing a slow change in attitudes.The bicycle trek, from Nepal into India, is nothing new for the Drukpa nuns. This is the fourth such journey they have made, meeting local people, government officials and religious leaders to spread messages of gender equality, peaceful co-existence and respect for the environment. They also deliver food to the poor, help villagers get medical care and are dubbed the "Kung Fu nuns" due to their training in martial arts.

Indian troops suffer deadly Kashmir ambush - Heavily armed militants crossed the "line of control" with Pakistan before launching an early Sunday raid on the Indian army's 12th brigade infantry base housing hundreds of soldiers in Uri, west of the region's main city of Srinagar, the Indian military said. Indian General Ranbir Singh said all four gunmen were "foreign terrorists" and that initial information suggested they were part of militants group Jaish-e-Mohammed, which is based in Pakistan. He added that the gunmen were carrying "some items that had Pakistani markings."  The assailants were killed, but there were more casualties on the Indian side. "We salute the sacrifice of 17 soldiers who were martyred in the operation," the army said in a statement. It said 25 troops were injured, some of them airlifted for medical treatment. The garrison was hosting more troops than usual, as one battalion was in the process of handing over field duties to another one. As a result, a large number of soldiers were accommodated in tents and temporary shelters. Most of the victims of the Sunday raid died when their tents caught fire.

 Pakistan PM Nawaz Sharif Calls For End to India's Brutal Military Occupation of Kashmir - "A new generation of Kashmiris has risen spontaneously against India's illegal occupation - demanding freedom from occupation. Burhan Wani, the young leader murdered by Indian forces, has emerged as the symbol of the latest Kashmiri Intifada, a popular and peaceful freedom movement, led by Kashmiris, young and old, men and women, armed only with an undying faith in the legitimacy of their cause, and a hunger for freedom in their hearts."  Pakistani Prime Minister Nawaz Sharif.  In an 18 minute speech to 71st session of the United Nations General Assembly today, Prime Minister Nawaz Sharif of Pakistan condemned India's brutal military occupation of Kashmir and demanded a swift end to it.Mr. Sharif called for a UN-sponsored plebiscite under multiple UN Security Council resolutions to let the Kashmiris decide their own future. He said Pakistan is always ready for an unconditional dialogue with India to resolve all outstanding disputes including the core issue of Kashmir. In an apparent reference to India's proxy war against Pakistan, the Prime Minister said, " We will not allow externally sponsored terrorism and threats of destabilization to cause turbulence in Pakistan." In his speech, The Prime Minister asked for an independent inquiry into the continuing extrajudicial killings of innocent Kashmiris by Indian security forces. He said Pakistan is the principal victim of terrorism in South Asia region. He said his country seeks peace, not war or an arms race with its neighbor to the east. The Prime Minister said Pakistan is "ready for talks (with India) to agree on a bilateral nuclear test ban treaty". He said Pakistan meets all the requirements for membership of the Nuclear Supplies Group. Here's the full text of Prime Minister Nawaz Sharif's speech:

Narendra Modi’s Pakistan test - Can India find a way to quell attacks by Pakistan-based jihadists? On Sunday this question acquired new urgency after four attackers, allegedly belonging to the terrorist group Jaish-e-Mohammad, killed 18 Indian soldiers near the de facto border between the Indian and Pakistani controlled parts of Kashmir.The numerous casualties—among the highest on a single day in peacetime for the Indian army—raise tough questions for Narendra Modi. While elected on a development platform, the prime minister has also depicted himself as a no-nonsense leader willing to take the gloves off with Pakistan. India, among others, accuses its neighbor of harboring a plethora of terrorist outfits, including Jaish-e-Mohammad, Lashkar-e-Taiba and the Afghan Taliban. Sunday’s attack raises the stakes for Mr. Modi’s so-far erratic Pakistan policy. To live up to his reputation for toughness, the prime minister needs to show that he can retaliate more effectively against Islamabad than his predecessor, Manmohan Singh, whom Mr. Modi publicly castigated for being weak-kneed in the face of terrorism. For many Indians this means a bare minimum of military strikes against terrorist training camps or Pakistani army posts along the border.

Is Pakistan Ready For War With India? -- Are Pakistanis willing to fight for their country if attacked by India? To answer this question, let's look at a 2015 survey by WIN/Gallup International that asked people in 64 countries if they would be willing to fight for their country. The Gallup survey found 89% of Pakistanis answered in the affirmative, a much higher percentage than the world average of 61%. By contrast, it showed 75% of Indians ready to fight for their country. The results ranked Pakistan 3rd and India 10th among 64 countries surveyed. Only 11% of the respondents in Japan, the only nation to have suffered the atomic bombing of its two major cities in the second war, said they are willing to fight for their country. Though higher than Japan, most Europeans where people have seen the horrors of wars are among the least willing to fight for their countries.There has been a lot of bellicose rhetoric coming out from the Hindu Nationalist government and its compliant Indian media to "teach Pakistan a lesson". It's a clear indication that they continue to suffer from disease described by Congress leader Sashi Tharoor as "India's Israel envy".  If Modi's India takes leave of its senses and decides to launch strikes against Pakistan, the Indian people could suffer the same horrible fate that fell upon the residents of the Japanese cities of Hiroshima and Nagasaki. There should be no doubt in New Delhi that Pakistan will respond forcefully to any provocation against it.  Pakistan will not hesitate to escalate if Modi's India persists in its war path.

First Helmand, then Afghanistan: A trip through the country's beleaguered south reveals demoralized soldiers, corrupt local officials, and sweeping Taliban gains in previously peaceful towns. -- Abdul Hakim seems to have just vanished. The 15-year-old boy left his madrasa across the Pakistani border to visit relatives in Afghanistan. But since crossing into Helmand province on his way to meet his parents in Bolan, a suburb of bustling shops outside the provincial capital, nobody has heard from him.  "There is no security. Our children are being killed," says Habibullah, an elder from Abdul Hakim's family. In Bolan, where Abdul Hakim's family waits for him, the front line is only about three miles away. Worried that government forces might not be able to repel a Taliban assault on the city, the United States has hit Helmand province with about 40 airstrikes since late July and deployed more than 100 U.S. soldiers to Lashkar Gah. Whatever they're doing, it doesn't seem to be working. Fighting in Helmand always ebbs and flows - but never since 2001 have the Taliban been able to surround Lashkar Gah like this. The Taliban have also almost completely captured several districts in the province that have been firmly in government hands for a decade or more. The Taliban's gains in Helmand mirror their progress elsewhere in the country. In the first half of 2016, the Afghan government lost control of almost 5 percent of its territory, according to the Special Inspector General for Afghanistan Reconstruction (SIGAR), a U.S. government watchdog. Its forces now control 65.6 percent of districts throughout the country - meaning they lost control of 19 districts in a few short months. Recently, the largest Afghan news channel, Tolo News, reported that insurgent attacks in Afghanistan had increased 28 percent from June to July. But it's Helmand that holds the greatest symbolic value for the United States. As Barack Obama wraps up his presidency, the province is coming to embody one of his greatest failures as commander in chief.

 Nigeria's foreign exchange reserves fall below $25b - Nigeria’s foreign exchange reserves have plummeted to a new low of $24.88 billion, indicating dwindling confidence in the economy, despite reassurances by authorities. In the last one week, it lost $230 million, understandably due to series of interventions by the Central Bank of Nigeria (CBN), as post recession announcement pressure continued. The previous week, the reserves lost about $123 million, attributed to interventions in the interbank market by the regulator, and aimed at supporting the local currency. This is in contrast with about $93 million the reserves lost in three weeks, also reflecting reactions over the flurry of negative records released recently by the Nigerian Bureau of Statistics. Since affirmation of the country’s slip into recession, last experienced more than 25 years ago, the reserves have lost about $540 million, as speculations and panic for store of value in dollar heightened. CBN has emerged the major player in the interbank market since the inception of the new regime, except when, recently, foreign investors staked about $270 million, while others remained cautious. The reserves have also lost about $1.6 billion since the inauguration of the flexible exchange rate, even as the apex bank steps up modification of its rules, to attract foreign investors, including those associated with investments in government securities. Expected convergence of the interbank and parallel markets exchange rates remain unattainable at the moment, as the liquidity crisis in the currency market persists, pushing both rates apart. At the parallel market, the local unit ended last week at N425/$. Although, no particular date has been announced, the planned $1 billion Eurobonds by the government is being mooted to hold between November and mid-December. The head of the nation’s debt broker, Abraham Nwankwo, has already affirmed that all borrowings would be used for capital projects, while ensuring that local partners to the deal, like banks, are well involved. A new twist, however, has emerged, with sudden downgrade of the country’s credit rating, even as it battles the stigma of recession within the investment community.

 UN fears third leg of the global financial crisis - with prospect of epic debt defaults -- The third leg of the world's intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history. It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity. "Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out," said the annual report of the UN Conference on Trade and Development (UNCTAD). We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare. What is less understood is just how destructive this has been. Much of the money was wasted, skewed towards "highly cyclical and rent-based sectors of limited strategic importance for catching up," it said. Worse yet, these countries have imported the deformities of western finance before they are ready to cope with the consequences. This has undermined what UNCTAD calls the "profit-investment nexus" that ultimately drives growth and prosperity.The extraordinary result is that some countries are slipping backwards, victims of "premature deindustrialisation". Many of them have fallen further behind the rich world than they were in 1980 despite opening up their economies and following the global policy script diligently.

The global economic outlook: dark clouds and few silver linings – dark clouds ahead --  Eight years ago this month, a bank collapsed, Wall Street went into meltdown and the world economy plunged into crisis. Trillions were lost in output ($22tn in the US, within just five years), millions of workers were made redundant (8.8 million in America’s great recession, 1.2 million in the UK) and thousands of promises were made by politicians and policymakers – everyone from Barack Obama and Gordon Brown to David Cameron and Christine Lagarde – that things would change. Yet, nearly a decade later, what is most striking is how little has changed. In the US, the UK and the rest of the developed world, policymakers talk of the “new mediocre”, so tepid is economic performance. And in the developing world things look even worse. Such is the message from two of the world’s leading economic thinktanks, the Organisation for Economic Cooperation and Development (OECD) and the UN Conference on Trade and Development (Unctad). Both their reports on Wednesday were thick with cloud and short on silver lining. Yes, the OECD believes that Brexit Britain will have a slightly easier time this year – but that will be followed by a far choppier 2017. And the Unctad report is even more troubling. The biggest single warning it makes is that the world is on the verge of “entering a third phase of the financial crisis”. What began in the US subprime housing market before roiling Europe’s governments is likely to rear its head again – this time in Latin America, Africa and other poor countries. What will do for them, believe the Unctad researchers, is what also did for America and Europe: debt. Much of the cheap money created by the US Federal Reserve, the Bank of England and the European Central Bank has been pushed by financial speculators into the higher-yielding markets of South Africa, Brazil and India, among others. Economists at the Bank for International Settlements, the central banks’ central bank, reckon that $9.8tn was pumped out in foreign bank loans and bonds in the first half-decade after the Lehman Brothers collapse. Unctad calculates that around $7tn of that was pushed through to emerging markets. By any standards, that is a flood of credit – one that was encouraged by panicky policymakers. Except now developing countries are lumbered with a gigantic private debt mountain to pay down. The private, non-financial sector across the developing world has debt service obligations worth nearly 150% of its income. The comparable figure for the developed world, by contrast, is just above 80%. And now developing countries are hobbling along rather than sprinting ahead, while commodity prices have tanked.

Egypt's Year of Youth: how 'Generation Protest' became 'Generation Jail' | The Independent: According to local media, Ziad Hassan Qenawy cried when he entered the courtroom. ‘I want to keep playing!’, he begged, as his father carried him on his shoulder to the dock. After the verdict, Qenawy told his lawyer ‘I want chocolate, and a Pepsi!’ His lawyer bought sweets for him from a nearby supermarket. Qenawy is three years old. Last month, a Cairo court sentenced him to four years and three months in prison for theft and ‘resisting the authorities’. His lawyer appealed the conviction, and the case continues. In a recent court appearance, Qenawy entered the courtroom asleep on his lawyer’s shoulder. Even by the recent standards of Egypt’s judiciary – this is the second time a toddler has stood trial in Cairo this year, though three-year-old Ahmed Mansour Qorani was fortunate enough to have his life sentence overturned in February – such a turn of events would be absurd enough, but 2016 was, by presidential decree, to be ‘the Year of Egypt’s Youth’. In January, President Sisi promised a renewed focus on education and employment, as well as dialogue between his administration and the country’s restive younger generations. After nine months of this year, it’s not clear what Sisi’s promise has delivered. Instead, the futures of young Egyptians are being swallowed up by stifling, paranoid military rule.

Income Inequality in a Globalizing World -- naked capitalism Yves here. This article makes a radical observation: that if you look at absolute inequality, as opposed to relative inequality, inequality has increased around the world. This calls into question one of the big arguments made in favor of globalization: that the cost to workers in advanced economies are offset by gains to workers in developing economies, and is thus virtuous by lowering inequality more broadly measured.

Debt Mismatch Leaves Emerging Nations Exposed to Shock, BIS Says - Bloomberg: Developing-nation companies including state-owned enterprises have accumulated $3.2 trillion of dollar debt, the Basel-based BIS said in an annual report released Sunday. “In many cases, rising foreign currency debt has not been matched with FX assets and revenues,” according to the report by the BIS, which acts as a global forum for as many as 60 central banks. “There is a great risk that booms and busts in capital flows will cause large shifts in exchange rates.” Leaning on foreign investors so heavily exposes emerging economies to rapid shifts in sentiment and currency markets. Templeton Global Bond Fund, one of the world’s biggest emerging-market investors, led an exodus from Poland in the first half as it scaled back holdings in the $44 billion fund to 3.6 percent at the end of June from 7.4 percent at the end of the third quarter of 2015. Banks that lend to emerging markets also re-evaluate allocations when local currency depreciation creates bigger debts, according to the BIS. Emerging economies, which account for about 80 percent of the growth in global trade and output since 2008, have seen the ratio of dollar debt to exports rise over the period to 49 percent at the end of last year from 30 percent. Dollar liabilities have also increased relative to the stock of official foreign currency reserves, the BIS said.

Russia is now top wheat exporter, proving sanctions won’t work - Wheat, the world-feeding crop whose shortage was Pharaoh’s nightmare, is now at such a global surplus that last month its price was less than two-thirds its level in 2008. Having rebounded in recent days to $4.05 per bushel from $3.62 last month, one might think that the commodity, which last June cost $5.07 per bushel and in February 2008 peaked at $11.94 is U-turning from glut to crunch. It isn’t. Wheat prices have plummeted not for a circumstantial reason, like weather-driven bumper crops, nor for a cyclical reason like a major buyer’s recession. Though some such factors have been at play in this market, they were marginal compared with the structural fact that Russia, once an agricultural laggard, has joined the industry’s leaders — big time. Wheat’s expensiveness last decade was part of a colossal commodity crunch that ranged from rice to zinc. Global shortages were such that food riots broke out from Egypt to the Philippines.  Analysts at the time agreed that the shortages were caused by newly prospering China, India and other emerging economies, where rapidly expanding middle classes were eating more food while also demanding more houses, cars, and highways, thus bolstering demand for practically all commodities, from grains and cattle to metals, timber, and oil.  It was against that alarmist backdrop that many lamented Brazilian farmers’ preference to grow ethanol that fuels cars rather than wheat that feeds people, while environmentalist crusader Lester Brown warned that rising food prices might bring down civilization. That was in 2009. Seven years on, harvested grain is piling up unsold along the roads of Kansas. Demand, it turned out, created supply, and it did so by brandishing a secret weapon: Russia.  Blessed with endless expanses of exceptionally fertile land known as “black earth,” Russia is doing to the grain markets what shale did to oil.  Russia’s annual wheat output, which 20 years ago was just under 35 million metric tons, is expected to cross the 70 million metric ton barrier this year. Nearly half that volume will be exported, making Russian media celebrate Russia’s emergence as the world’s largest wheat exporter.

What does China’s ‘belt and road initiative’ mean for EU trade? - Bruegel - Much has been written about the Belt and Road initiative since Xi Jinping made it Beijing’s flagship initiative in September 2013. There are many interpretations of the initiative’s ultimate objectives, but one objective is clear. The belt and road scheme will bring huge improvements in regional and international connectivity through infrastructure upgrades and trade facilitation across a massive geographic area.  Indeed, the regional potentially affected covers as many as 63 countries (even if vaguely defined), sixty percent of the world’s population and thirty percent of global GDP.  This massive project is centered in two main routes, along which connectivity is to be fostered: land and sea. On land the focus is on transportation infrastructure and energy. For the sea, investment in ports and new trade routes are the main pillars. Both routes will have a major impact on Europe. In fact, the land route ends up in Europe, while the sea route is currently the most heavily used for trade between Europe and China. Undoubtedly, the belt and road initiative will affect Europe and the European Union (EU). More specifically, the huge investments in infrastructure have the potential to ease bottlenecks in cross-border transportation. Among the many benefits of improved connectivity, trade stands out. The idea that improved transport infrastructure should generally foster trade is of course very intuitive. However, it is less sure that such benefits can be spread across countries and, more specifically, which countries stand to win/lose the most depending on their proximity to/distance from the improved infrastructure, among other considerations.  In a working paper recently published by Bruegel, we addressed exactly this question by assessing empirically how the belt and road initiative, through a substantial reduction in transportation costs, may foster trade. Beyond the relevance of trade for Europe, our results show that a reduction in transportation cost can indeed increase international trade. A 10 percent reduction in railway, air and maritime costs would increases trade by 2 percent, 5.5 percent and 1.1 percent respectively (see on this scenario and others below).

WTO ruling coming in Airbus case - : The Office of the U.S. Trade Representative stopped short Wednesday evening of confirming that it won a ruling in the World Trade Organization case against European government support for aircraft manufacturer Airbus, but it did say it will hold a press call today on a “WTO aerospace announcement.” That litigation, which is part of the biggest dispute ever to go before the global trade body, is expected to end with the WTO ruling that the EU has not eliminated billions of dollars in subsidies that were previously ruled illegal, The Wall Street Journal reported. But the newspaper, citing people familiar with the case, said the WTO is expected to follow that case with a ruling faulting the United States for not completely removing subsidies for Boeing in a case brought by the EU. Airbus spokesman Clay McConnell downplayed the significance of today’s expected ruling to Morning Trade. "We only needed to make limited changes in European policies and practices to comply with the Appellate Body's report in this case," he said, referring to a previous WTO ruling in the dispute. "Airbus did what we needed to do, in good faith and in the agreed time frame. We will now see the result in the public release and see along with the EU if there are still remaining points to address.” The case, which has been pending for 12 years, could set the stage for the United States and the EU to impose sanctions on each other's goods. But there are additional steps in the process before that happens, and it remains possible the two sides could reach a negotiated settlement. Stay tuned for more on the case and the WTO ruling later today.

That sinking feeling | The Economist: TOO many ships, too little trade. On August 31st Hanjin Shipping, South Korea’s biggest container carrier and the seventh-largest in the world, filed for receivership, after five years of losses and another deficit in the first half of 2016. Hanjin was holed by shipping’s prolonged global slump, the product of vast overcapacity and slow trade growth. Its creditors, led by state-owned Korea Development Bank (KDB), have had enough. Shipping’s malaise is both broad and deep. An earnings index compiled by Clarksons, a research firm, covering the main types of vessel—bulk carriers, container ships, tankers and gas transporters—reached a 25-year low in mid-August. The average for the first half of 2016 was 30% down, year on year, and 80% below the peak of December 2007. Stephen Gordon of Clarksons adds that new orders at shipyards are the lowest in 30 years.As KDB’s loss of patience shows, the industry’s troubles hurt lenders as well as shippers. According to Petrofin, another research group, Asian banks have expanded their shipping loans in recent years. With China’s economy slowing and world trade in the doldrums, they may soon regret that. For their part, European banks have already been tossed this way and that since the financial crisis of 2007-08. Some, notably Landesbanken—public-sector, regional wholesale banks—in northern Germany, are still counting the cost. German banks, traditionally strong in shipping, were eager lenders before the crisis, happily putting up 70% of a vessel’s cost—and even the rest, before borrowers raised the equity. Then the storm broke: Petrofin calculates that between 2010 and 2015 leading German lenders slashed their shipping books from $154 billion to $91 billion. In 2012 Commerzbank, the country’s second-largest lender, decided to quit altogether. Its portfolio has since dwindled from €19 billion ($24 billion) to €8 billion. On August 31st Bremer Landesbank, from the city-state of Bremen, announced loan-loss provisions, mainly for shipping, of €449m—over one-fifth of its equity at the end of 2015—and reported a first-half loss of €384m. At €6.5 billion, its shipping portfolio is around 30% of its loan book. Bremer LB will not be allowed to sink. NORD/LB, its neighbour, which already owns 54.8%, is taking it over fully. The deal values the state government’s 41.2% stake at €262m—far below its worth when Bremen boosted its holding in 2012.

Over 300,000 Germans Protest EU Trade Deals With US and Canada - Mish - Hundreds of thousands of German citizens have taken to the streets in a massive protest against the proposed EU trade agreement with the US and Canada. Bloomberg reports German Protesters Gather to Oppose Transatlantic Trade Deals Protesters gathered in seven German cities on Saturday to oppose transatlantic trade agreements between the European Union and the U.S. and Canada. More than 320,000 people turned out, the organizers said in an e-mailed statement. In Munich, thousands met on the central Odeonsplatz square and adjoining Ludwigsstrasse in heavy rain as the annual Oktoberfest opened just a few miles away. Protesters argue that the trade agreements would favor industrialized agricultural processes over craft-based food production that’s not genetically engineered. They say the deals would cost thousands of jobs and lead to lower standards in employment and food safety. The BBC reports Protests in Germany Against Transatlantic TTIP and CETA Trade Deals Tens of thousands of people have been protesting in cities across Germany against a proposed transatlantic trade deal between the EU and the US. Protesters say the Transatlantic Trade and Investment Partnership (TTIP) will lower European standards on food and environmental protection, and could lead to outsourcing and job-losses. Supporters of the deal say it promises to lower tariffs and promote growth. The demonstrators are also protesting against a similar deal with Canada. There were large crowds carrying flags and banners in seven German cities, including Berlin, Munich, Hamburg and Frankfurt, all braving cool and wet weather. “I want us to get rid of TTIP and for European social and environmental standards to be respected, maintained and improved,” said Peter Clausing in Berlin.

Austria, France to Propose Restarting EU-U.S. Trade Talks Under New Name --Austria and France will on Friday propose ending the current round of trade talks between the United States and the European Union, and starting fresh talks under a new name, Austrian Economy Minister Reinhold Mitterlehner said. “The free trade talks with the USA should begin again under a new title and with different substantive headings,” including greater transparency, Mitterlehner told Germany’s Die Welt newspaper. He said he and French Trade Minister Matthias Fekl would push for a new start to the WTO’s Transatlantic Trade and Investment Partnership (TTIP) at a meeting of EU trade ministers in the Slovakian capital Bratislava. He said the talks should resume after the U.S. presidential election on Nov. 8.  Fekl last month said he would request a halt to TTIP talks at the ministerial meeting after German Economy Minister Sigmar Gabriel declared that they were “de facto dead”.  The French minister told the Handeslblatt newspaper that the United States had demanded too much and not compromised enough. “A crazy machine is moving here, the negotiations are a failure, nobody believes that they will come to a successful conclusion,” he was quoted as saying.

'TTIP has negative connotation': Austria, France want new name for controversial talks - Austria and France have suggested to other European countries that the controversial TTIP free trade agreement between the US and the EU be restarted under a new name to avoid associations with “dealings of big corporations.”  At a meeting of EU trade ministers on Friday, Vienna and Paris pushed for an end to the protracted negotiations between the US and Europe on the Transatlantic Trade and Investment Partnership (TTIP).Austrian Economy Minister Reinhold Mitterlehner said in an interview with Die Welt newspaper that he strongly supports a call by his French counterpart, Matthias Fekl, to re-think the talks and give them a fresh start under a new name.#TTIP negotiations between EU and US have de facto failed’ – German economy minister https://t.co/maHHdSUcUk“The talks on free trade [agreement] with the US should restart under a different name and with different substantive headings,” Mitterlehner said.“TTIP has now become a metaphor for the exuberant dealings of big corporations, which is a negative connotation. We hope to have a good agreement, but it must be approached differently,” he argued. The negotiations should resume after the US presidential elections, Mitterlehner added.

Top German companies say refugees not ready for job market | Reuters: Germany's blue-chip companies will have to explain to Chancellor Angela Merkel on Wednesday why they have managed to hire fewer than 100 refugees after around a million arrived in the country last year. Merkel, fighting for her political life over her open-door policy, has summoned the bosses of some of Germany's biggest companies to Berlin to account for their lack of action and exchange ideas about how they can do better. Many of the companies say a lack of German-language skills, the inability of most refugees to prove any qualifications, and uncertainty about their permission to stay in the country mean there is little they can do in the short term. A survey by Reuters of the 30 companies in Germany's DAX stock market index found they could point to just 63 refugee hires in total. Several of the 26 firms who responded said they considered it discriminatory to ask about applicants' migration history, so they did not know whether they employed refugees or how many. Of the 63 hires, 50 are employed by Deutsche Post DHL, which said it applied a "pragmatic approach" and deployed the refugees to sort and deliver letters and parcels. "Given that around 80 percent of asylum seekers are not highly qualified and may not yet have a high level of German proficiency, we have primarily offered jobs that do not require technical skills or a considerable amount of interaction in German," a spokesman said by email. What is clear is that early optimism that the wave of migrants could boost economic growth and help ease a skills shortage in Germany - where the working-age population is projected to shrink by 6 million people by 2030 - is evaporating.

Merkel party routed in Berlin polls as right-wing AfD gains (AFP) - German Chancellor Angela Merkel's party suffered a historic loss in Berlin state elections Sunday while the right-wing populist AfD gained fresh support, riding a wave of popular anger over her open-door refugee policy. The anti-Islam Alternative for Germany party won around 14 percent, according to public broadcasters' projections, in the capital which has long prided itself on being a hip, diverse and multicultural city. The strong AfD result, thanks to support especially in the vast tower block districts in Berlin's former communist east, meant it has now won opposition seats in ten of Germany's 16 states, a year ahead of national elections. Merkel's centre-right Christian Democratic Union (CDU) won only 17.5 percent -- its worst post-war result in the city, before or after the 1989 fall of the Berlin Wall -- likely spelling the end of its term as junior coalition partner to the Social Democrats (SPD), who won around 22 percent. The election in the chronically indebted city-state of 3.5 million people was dominated by local issues including poor public services, crumbling school buildings, late trains and a housing shortage, as well as problems in coping with the migrant influx.The biggest EU economy took in one million asylum seekers last year, and over 70,000 of them came to Berlin, with thousands still housed in the cavernous hangars of the Nazi-built former Tempelhof airport, once the hub for the Cold War-era Berlin airlift. Berlin's SPD Mayor Michael Mueller had dramatically warned before the polls that a strong AfD result would be "seen throughout the world as a sign of the resurgence of the right and of Nazis in Germany".

Berlin Election Outcome Signals Merkel’s Tenuous Grip on Chancellorship – (intervkew & transcript) naked capitalism Yves here. We’ve been saying for some time that Merkel’s hold on power was weakening. As this Real News Network video shows, the recent election results confirm this slippage. Notice that this interview fails to mention that the huge influx of refugees into Europe is the direct result of the US creating failed states in the Middle East.  Welcome to The Real News Network. I’m Gregory Wilpert, coming to you from Quito, Ecuador. Last Sunday Germany’s governing Christian Democratic Party, the CDU, suffered a tremendous electoral beating in the elections for the parliament of the city of Berlin. Also, the far-right anti-immigrant party, Alternative for Germany, jumped from no representation in the legislature to 14.2 percent. A clearly diminished Chancellor Angela Merkel had the following to say to the press after the results were announced:   Another victor, aside from the Alternative for Germany in these elections was the socialist party, Die Linke, which increased its share of the vote from 11.7 percent in 2011 to 15.6 percent on Sunday.Joining us from Berlin, to analyze these results and what they mean for Germany and beyond, is Victor Grossman. Victor is author of “Crossing the River: A Memoir of the American Left, the Cold War, and Life in East Germany”. Thanks for being on The Real News, Victor.

 Weak energy prices pull down Germany’s producer prices steeper than expected - Producer prices in Germany declined during the month of August, staying steeper than what markets had earlier anticipated, following weak global energy prices that kept the economy muted. Germany’s producer prices fell 0.1 percent from July and dropped 1.6 percent from August last year, data released by the Federal Statistical Office showed Tuesday. Market participants had forecasted a monthly increase of 0.1 percent and an annual decline of 1.5 percent. Excluding energy, producer prices fell 0.3 percent from the prior year and remained unchanged from July. Energy prices decreased 5.5 percent and that of intermediate goods declined 1.6 percent. In contrast, prices of non-durable consumer goods rose 0.7 percent and capital goods prices gained 0.6 percent. Likewise, durable consumer goods prices moved up 1.2 percent. Further, month-on-month, producer prices slid 0.1 percent, which was the first fall in six months. Prices had increased 0.2 percent in July. Meanwhile, the yield on the benchmark 10-year bond, which moves inversely to its price, fell 1-1/2 basis points to 0.002 percent, the yield on long-term 30-year note dipped 4 basis points to 0.596 percent and the yield on short-term 2-year bond slid ½ basis point to -0.654 percent, while the German stock index DAX Index traded 0.45 percent higher at 10,421 by 09:10 GMT.

 German savings banks expect 500 mln euro hit from negative ECB rates -sources | Reuters: Germany's state-owned savings banks and landesbanks expect overall costs of at least 500 million euros ($559 million) per year due to negative European Central Bank interest rates, three people familiar with the situation told Reuters. The public sector lenders, who do not pass on negative interest rates to the majority of their clients, made their calculation based only on certain types of deposits and volumes larger than 10,000 euros, one of the sources said. This would imply overall costs of well over 500 million euros to public sector lenders as a whole. "We're talking about a rough analysis, not something authoritative," a spokesman for the DSGV association of savings banks said. The ECB began charging banks to deposit excess funds with it in 2014 as part of its effort to spur higher bank lending and economic growth but demand for credit in Germany has remained subdued. The deposit rate is currently -0.4 percent.

 Could Germany Ever Allow Deutsche Bank To Go Under?  Deutsche Bank, one of Europe’s behemoths, is in very deep trouble having lost 90% 0f its share price value since 2007, has been falling sharply all this last year (48% loss this year) and, with its $42 Trillion in Derivatives exposure was singled out by the IMF, as the bank which,appears to be the most important net contributor to systemic risks…” Of course Deutsche agues the standard ‘derivatives-aren’t-a-problem’ line, that this 42 trillion all nets out and their real exposure is a fraction of that vast figure. Which is fine as long as you think that in the event of Deutsche coming unstuck, 42 trillions-worth of derivatives contracts can be held in abeyance for the time it would take for all those contracts to be netted out.  As I’ve said before netting out is akin to getting a rowing boat full of people to all change places  without the boat overturning. And now Deutsche has been threatened by the US DoJ with a $14 billion fine for its crimes for selling knowingly over-valued RMBS (Residential Mortgage Backed Securities) in the build up to the financial crash of 2007.  Deutsche cannot pay $14 billion without raising a great deal of cash. Deutsche has put aside $5.5 billion for paying fines. A mere 9 billion short. So could Deutsche go down? Financially yes it could. But politically, I doubt it. And it’s the tension between these two answers, between the parlous financial state and the huge political significance of Deutsche, that I find interesting.

 Deutsche Bank Woes Sparks Concern Among German Lawmakers - According to sources familiar with the matter, German regulators are finally beginning to take a closer look at embattled banking giant Deutsche Bank and its prospects for survival. During a recent meeting out of public view, top finance officials reportedly discussed DB’s massive headwinds, which include steep banking losses, potential fines, and capitalization issues. From Reuters: At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Participants discussed the U.S. fine and the financial reserves at Deutsche Bank’s disposal if it had to cover the full amount, according to the people, who asked not to be identified because the meeting on Tuesday was private. Regulators were unable to come up with any solutions or specific actions in the meeting, however: While the participants — members of the junior party in Chancellor Angela Merkel’s government — didn’t reach any conclusions on the likely outcome, the discussion signals that the risks have the attention of Germany’s political establishment. The German Finance Ministry last week called on the U.S. to ensure a “fair outcome” for Deutsche Bank, citing cases against other banks where the government settled for reduced fines.

Greece needs substantial debt relief, surplus targets unrealistic: IMF | Reuters: Greece needs substantial relief to render its debt load sustainable and help set its ailing economy on a recovery path, the International Monetary Fund said in an annual review on Friday. The review, which is separate from current bailout implementation talks, said debt relief must be calibrated on credible fiscal and growth targets, and noted that current primary budget goals beyond 2018, which exclude debt servicing costs, are unlikely to be reached. "The authorities' current targets remain unrealistic, in that they still assume that Greece will attain and sustain primary surpluses of 3.5 percent of GDP for many decades despite double-digit unemployment rates," the IMF review said. "It cannot be assumed that Greece can simply grow out of its debt problem. Further debt relief will be required to restore sustainability." The IMF, which has yet to decide whether it will participate in Greece's third international bailout, has been pushing for softer fiscal goals before it will contribute some of the 86 billion euros in financing. Athens welcomed the IMF's view that significant debt relief was needed. Greece's leftist-led government and the central bank also want lower primary surplus targets after 2018, arguing this will give Athens room to cut taxes and help the battered economy return to growth after a protracted recession.

France GDP Contracts In Q2: The French economy contracted in the second quarter on weak household spending and investment, according to the detailed report published by the statistical office Insee. Gross domestic product declined 0.1 percent from the first quarter, when it advanced 0.7 percent, Insee reported Friday. The preliminary estimate showed a nil growth for the second quarter. On the expenditure-side, household final consumption expenditure slid 0.1 percent, reversing a 1.1 percent rise in the first quarter. On the other hand, government spending expanded 0.4 percent, the same pace as seen in the first quarter. Gross capital formation decreased 0.2 percent. Imports dropped notably by 1.8 percent, while exports rose slightly by 0.2 percent. Thus, the foreign trade balance contributed positively to GDP growth by 0.6 points. Conversely, changes in inventories contributed negatively to GDP growth, by -0.7 points.

The Terrorism Tax hits Europe - This is big news.  This is the first large scale demonstration that the "Terrorism Tax" I speculated about back in 2004, actually works.    Liz Alderman at the NYTimes reported that terrorism is squashing Europe's first glimmer of recovery since the financial crash.  EU economic growth has been halved since spring, with France now at zero.  Here are some details:

  • Tourism is sinking.  For example:  "In France, growth in nightly hotel room bookings after the Paris attacks fell to single digits from 20 percent. After the Brussels bombings, bookings went negative, and after Nice, bookings fell by double digits."
  • Daily security costs are spiking.  Here's an example from a single venue, "the Paris Plage, a makeshift beach erected along the Seine, a dozen armed police officers guarded an entry checkpoint on a recent day. Army troops marched past families playing in the sand and half-empty activity points along the river. The patrols, cost taxpayers about 1 million euros, or $1.1 million, a day."
  • Broad spectrum economic damage.  For example:  retail sales are slumping due to low traffic in stores and large numbers of entertainment events are being cancelled.  

Although Europe has suffered terrorism before, this time it's different.  Instead of big and relatively infrequent terrorist attacks, these new attacks are small, numerous and geographically dispersed.  This change is a big deal, because it makes it possible for terrorists to turn attacks into "a tax" that depresses economic activity by imposing new costs and changing economic behavior. 

Exclusive: Regulators expect Monte dei Paschi to ask Italy for help – sources - European regulators expect Italian bank Monte dei Paschi di Siena will have to turn to the government for support, three euro zone officials with knowledge of the matter said, although Rome would strongly resist such a move if bondholders suffered losses. Less than two months after the Tuscan lender announced an emergency plan to raise 5 billion euros of fresh capital, having come last in a health check of 51 European banks, there is growing concern among European regulators that the cash bid will fall short. While the bank is determined to see through the capital raising, if it were to disappoint, it would be left with a capital hole. Now euro zone authorities are considering whether state support would have to be tapped after what bankers have described as slack interest in the bank's share offer. "There is clearly an execution risk to the capital raising," said one official with knowledge of the rescue attempt, adding that the bank's value, about one ninth the size of the planned 5 billion euro cash call, would be a turn-off for investors. That person said a "precautionary recapitalization by the Italian state" could be used to make up any shortfall once attempts to raise fresh cash from investors had concluded in the coming months. Monte dei Paschi faces a considerable challenge in convincing investors to back its third recapitalisation in as many years. Further complicating the picture, a constitutional referendum, expected to be held by early December that could decide the future of Renzi, is likely to push the bank's fund-raising into next year, the officials say. The bank's fragile state poses a threat to confidence in other Italian lenders and even to heavily-indebted Italy,  the euro zone's third-largest economy.

 How Italy Might Turn Piles of Bad Debt Into Assets for Banks - Bloomberg Italian banks may end up purging troubled loans from their balance sheets without actually selling them. Banca Popolare di Bari SCpA is set to become the first Italian lender to use a government guarantee meant to help banks securitize bad loans for sale. Instead of selling the whole lot, the small cooperative bank plans to retain the bulk of the notes, which it can use as collateral in other transactions, according to people familiar with the matter. At the same time, it will wipe the full 480 million euros ($539 million) of bad loans from its books, said the people, who asked not to be identified because the information is private. The deal may provide a template for Prime Minister Matteo Renzi’s plan to help banks reduce a pile of about 360 billion euros of troubled loans, equal to a quarter of Italy’s gross domestic product. As part of a deal reached with the European Union in January, banks can bundle bad loans into securities and buy state guarantees for the least-risky portions, provided those notes have an investment-grade credit rating. “The Popolare di Bari deal will set the benchmark for other Italian lenders planning to structure securitizations with state guarantees on senior-ranking notes,” said Jacopo Ceccatelli, chief executive officer of Marzotto SIM SpA, a Milan-based broker-dealer. “It may make the structure more appealing if banks are allowed to remove bad debt from books while keeping the senior tranche.”

That’s what I’m talkin’ about! (Ireland) -  Kenneth Thomas of Angry Bear -I have argued many times (most directly here) that, contrary to the claims of nearly all Irish policymakers, low taxes are not what makes the Irish economy tick. The country experienced 30 years of low taxes with no gain on average European income; it was only after 1987 that other policy changes (education, EU-funded infrastructure, and Social Partnership) led to gains on the EU average. Thanks to a Tax Justice Network blog post, I now have a great illustration to show this in living color.The graph below plots Irish income per capita as a percentage of the EU average from about 1955 to 2012, with important dates noted as vertical lines. Notice that Ireland doesn’t get above 60-65% until after 1990. In addition, the Commission-enforced increase in the corporate income tax rate from 10% to 12.5%, which took effect in the early 2000s, had no impact on the Celtic Tiger’s spectacular rise in income per capita relative to the EU average. This means Ireland had higher growth when the tax rate was 12.5% than when it was 0%!

Moody's: Companies could face cash flow squeeze if forced to plug pension deficits - Cash flows of non-financial companies could come under threat if they are forced to stump up extra money to plug deficits in their UK-based pension plans as a result of triennial funding valuation updates that fall due in 2016-17, according to Moody's. Every three years, companies with UK pension plans have to assess if their investment return assumptions, which play a key role in determining the scale of their pension obligations, remain appropriate. "In today's low-yield environment, companies will likely have to lower these assumptions, which usually means having to pay more cash into the pension plan," the ratings agency said. Pension liabilities reported on balance sheets are rising as sterling interest rates fall – a development given fresh impetus by monetary policy easing from the Bank of England following the Brexit vote – but there is no direct link between the liability on the balance sheet and the cash contributed to funded pension plans in the UK. While many firms voluntarily provide information that is helpful to investors, half of the 20 companies included in Moody's investigation did not quantify the funding deficit, and only two – AstraZeneca and BT – volunteered fully comprehensive information, including the key investment return assumption.

 BOE’s Saunders: Central Bank Isn’t ‘Out of Ammunition’ to Support U.K. Economy - WSJ: —The Bank of England has the scope to loosen policy further if the British economy weakens, the central bank’s newest policy maker was quoted as saying Wednesday, although he added he may consider the need for higher borrowing costs if wage growth accelerates. Michael Saunders, who joined the rate-setting Monetary Policy Committee this month, said in an interview with the Financial Times newspaper that the central bank isn’t “running out of ammunition” to support the economy, despite driving interest rates close to zero. He said there is “substantial scope” for officials to expand their asset purchase program if needed and to cut interest rates further. The BOE cut its benchmark interest rate to a new low of 0.25% in August as part of a package of measures aimed at cushioning the economy following the U.K.’s June decision to exit the European Union. Official data so far suggest the economy has weathered the initial post-vote period well, but BOE officials fret that uncertainty over the U.K.’s future economic ties to the bloc may weigh on spending and investment. Mr. Saunders signaled that he is watching the labor market closely to determine whether further stimulus is needed, or whether officials need to change course should the economy perform better than expected. “At the moment I think the economy still has some slack left in the labor market. You can see that in the subdued pace of pay growth,” Mr. Saunders said. He said a rise in unemployment would strengthen the case for a further cut but added that a pickup in wage growth may be a signal that borrowing costs need to rise.

Theresa May Outs Herself as Wall Street’s Poodle in Brexit Talks - Yves Smith - The only elements that differentiate Theresa May’s latest move from a Monty Python skit is her lack of a pith helmet and safari jacket. The British Prime Minister, per the Financial Times, plans to visit with top executives of major Wall Street firms to “canvass” them on “how Britain should structure its departure from the EU to reassure them that Brexit will not damage their UK business.” Mind you, she is not making this kiss-the-ring trip to New York to “reassure” the financial behemoths. That would mean the UK has a plan and is making the rounds to sell it and perhaps make cosmetic changes around the margins to make them feel important. Nor is it “consult,” which is diplo-speak for, “We’ll listen to your concerns but are making no commitment as to how much if any well take under advisement.” No, “canvass” means they are a valued constituency she intends to win over and is seeking their input for real. This “canvass” is yet more proof of how out of its depth the UK government is in handling the supposedly still on Brexit. There’s a decent likelihood that May is running to the US because her team is short on staff and ideas and those clever conniving Americans might have some useful ideas up their sleeves. After all, they don’t want to go through the bother of getting more licenses and moving some staff to the Continent or Dublin. It’s much simpler to keep everything in London, particularly since top New York execs might face a tour of duty there, and the housing, shopping and schools are much more to their liking. Mind you, most financial services would remain in London with a Brexit, but Euroclearing will require a restructuring (that will have to be done out of an EU entity). The embarrassing part is that May is apparently have to solicit input, when the big issue is obvious and binary: will the UK keep passporting rights for banking? This is binary and not hard to understand. If not, UK and US banks will need to obtain EU licenses to do certain types of business and some customer-facing personnel will need to be domiciled in the EU, not the UK. Numerous estimates have been bandied about, and they vary widely. Note that many important operations, like foreign exchange trading, were centered in the UK long before it entered the EU, are not regulated, and are conducted by phone and electronically, so there’s no reason to think they will need to migrate. But the City has taken a harder look, and a lot of core services, like cross-border lending and deposit-taking, would be vulnerable to a Brexit. And law firms and accounting firms that support these activities are likely to shift their staffing commitments across international offices to follow the financiers.

Theresa May limbers up for a hard Brexit - Martin Wolf, FT - Brexit means Brexit.” As circular as it is concise, this three-word sentence tells us much about the style of Theresa May, the UK prime minister. I take this to mean that the UK will, in her view, formally leave the EU, without the option of a second referendum or a parliamentary override. If so, it seems overwhelmingly likely that the outcome will be “hard Brexit”.By “hard Brexit” I mean a departure not only from the EU but also from the customs union and the single market. The UK should, however, end up with a free-trade arrangement that covers goods and possibly some parts of services and, one hopes, liberal travel arrangements. But the “passporting” of UK-based financial institutions would end and London would cease to be the EU’s unrivalled financial capital. The UK and the EU would also impose controls on their nationals’ ability to work in one another’s economies.This is not the outcome many desire. As the Japanese government has made brutally clear, many Japanese businesses invested in the UK in the justified belief that the latter would provide a stable base for trade with the rest of the EU on terms as favourable as those available to producers anywhere else. These businesses are understandably worried about their prospects. The same applies to many others whose plans were made on the assumption that the UK had a settled policy of staying inside the EU.“Hard Brexit” would disrupt their plans. Should the UK leave the customs union and enter a free-trade agreement with the EU, rules of origin would apply to exports of goods from the UK to the EU. This standard bureaucratic procedure would be needed to ensure that imports into the UK did not become a route to circumvent the EU’s external tariff. Rules of origin would put UK-based exporters at a disadvantage vis-à-vis those based in the EU. The same would be true for, in particular, banks should the UK leave the single market. Why then is a hard Brexit the most likely outcome? My belief rests on the view that this UK government will not seek to reverse the result of the vote and that it will feel obliged to impose controls on immigration from the EU and to free itself from the bloc’s regulations overseen by its judicial processes.