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Saturday, October 18, 2014

week ending Oct 18

Fed's Balance Sheet 15 October 2014 Again at Record High  - The Fed’s Balance Sheet week ending balance sheet was $4.432 trillion – above the record $4.417 trillion for week ending 24 September 2014, and above last week’s $4.414 trillion. As you can see from the above curve, the rate of growth is slowing. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows on the next page… Read more >>

FRB: H.4.1 Release--Factors Affecting Reserve Balances--October 16, 2014: Federal Reserve statistical release:  Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed’s Evans: Biggest Risk to U.S. Now is Premature Rate Hikes - Federal Reserve Bank of Chicago President Charles Evans said Monday the “biggest risk” to the economy right now is that the central bank would raise interest rates sooner than it should. “History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap,” Mr. Evans said in a speech to a local group in Indianapolis. “If we were to presume prematurely that the U.S. economy has returned to a more business-as-usual position and reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position” of having just raised rates off of near-zero levels, having to lower them in short order, the official said. Mr. Evans’s comments stood as a pushback to the rising speculation about the timing of Fed rate increases. Most central bank officials believe the economy will have improved enough to boost rates off of near-zero levels at some point next year. Key officials like New York Fed leader William Dudley and others believe it won’t be until the middle of 2015 until the central bank pulls the trigger. Meanwhile, a small group of regional Fed leaders believe the unemployment rate has dropped enough for the Fed to consider rate rises early in the year. Mr. Evans has been a strenuous advocate for keeping monetary policy as stimulative as it can be. He argued in his speech that as much as the economy has improved, it still has some ways to go before it has been healed. With inflation low, the Fed simply faces no urgency to raise rates, he said.

Chicago Fed’s Evans Wants Zero Rates Until 2016 Despite Stronger Growth - The Federal Reserve can afford to keep interest rates at zero at least until inflation rises to its 2% target, which will probably not happen in the next two years, Chicago Fed President Charles Evans said Saturday. While Mr. Evans sees the U.S. economy strengthening in coming quarters, he said the central bank shouldn’t raise interest rates until early 2016 since much ground needs to be made up on inflation and employment. He spoke at an event sponsored by Goldman Sachs. He added a rising U.S. dollar could create a “headwind” for the economy by creating a drag on exports and putting downward pressure on import prices, which could lower overall inflation further below the Fed’s aim. Mr. Evans says he sees the U.S. economy, which has been stumbling along at an annual rate of growth of around 2% since the start of the recovery from the recession, picking up to a pace closer to 3% over the next year and a half. However, he noted unemployment remains elevated and inflation is still well below the central bank’s official 2% target. He said the Fed should be symmetric about hitting its inflation target, and that staying below it for a prolonged period was equally problematic as hovering above it. Inflation has stayed below 2% for most of the economic recovery, despite zero interest rates from the Fed and over $3 trillion in asset buys.

Fed officials say global slowdown could push back U.S. rate hike - (Reuters) - Federal Reserve officials on Saturday took stock of a slowdown in the global economy and said it could delay an increase in U.S. interest rates if serious enough. Most notably, Fed Vice Chairman Stanley Fischer said the effort to finally normalize U.S. monetary policy after years of extraordinary stimulus may be hampered by the global outlook. "If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise," he said at an event sponsored by International Monetary Fund. Nevertheless, he said betting in financial markets on the timing of a U.S. rate hike appeared "roughly" on the mark given the Fed's current expectations on how the economy's recovery would unfold. The IMF trimmed its global growth forecast ahead of its fall meetings this weekend, where discussions focused on ways to stimulate global demand and prevent the euro zone from slipping back into recession. "I am worried about growth around the world, there are more downside risks than upside risks," Fed Governor Daniel Tarullo said at a conference the Institute of International Finance sponsored on the sidelines. "This is obviously something we have to think about in our own policies."

With Stock Prices Tumbling, Investors See Fed Pushing Back Rate Hikes - A world-wide equities sell off is driving investors to expect the Federal Reserve will wait longer to start raising short-term interest rates from near zero.Participants in the fed funds futures market, where investors go to bet on possible movements in the Fed’s benchmark federal funds rate, shifted on Wednesday to project the central bank will begin raising interest rates sometime in the late third quarter or perhaps the fourth quarter of 2015.Markets now see almost no chance of a Fed increase in rates coming next September, down from even odds a few weeks ago, said TD Securities economist Millan Mulraine in a note to clients. He noted investors are now putting a 50-50 chance on the Fed raising rates in October, and a 63% chance the move comes at the 2015 December Fed policy meeting.The shift in market expectations comes as Fed officials are debating when to start raising rates. Several Fed officials expect lift off by the summer of 2015. Some want to move sooner and others want to wait until 2016.

Fed’s Bullard Says He Would Consider Continuing Bond Program After October-- The Federal Reserve may want to extend its bond-buying program beyond October to keep its policy options open given falling U.S. inflation expectations, Federal Reserve Bank of St. Louis President James Bullard said Thursday.“It would keep the program alive,” and the Fed’s options “open as to what we want to do going forward,” Mr. Bullard said during an interview on Bloomberg TV.The Fed has been winding down its bond-buying program, also called quantitative easing, which aims to stimulate the economy by lowering long-term borrowing costs. It decided at its September meeting to reduce the purchases to $15 billion a month, and officials agreed to end the program after its Oct. 28-29 meeting if the economy continued to improve as expected.The Fed has repeatedly cautioned in its policy statements that the purchases “are not on a preset course,” and that the pace of reductions is contingent on policy makers’ “outlook for the labor market and inflation.” But no other Fed official has indicated he or she might favor continuing the bond-buying programs after this month. Several officials opposed the purchases from the start and some who have supported them in the past believe the benefits diminish over time and might be outweighed by the risk of fueling financial instability.

Bullard: FOMC should consider “a pause on the taper” -- From the transcript of St Louis Fed president James Bullard’s interview with Bloomberg Television:  I also think that inflation expectations are dropping in the U.S. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December. So… continue with QE at a very low level as we have it right now. And then assess our options going forward. …

Bullard’s surprise suggestion of continuing QE lifts markets -  — A comment from a hawkish Federal Reserve official on Thursday that central-bank bond buying should continue beyond its scheduled end lifted stock markets and surprised many observers. The Federal Reserve should consider extending its bond-buying program beyond October due to the market selloff to see how the U.S. economic outlook evolves, said James Bullard, the president of the St. Louis Fed, on Thursday. At the moment, the Fed is buying $15 billion in securities each month, having tapered the so-called QE3 plan by $10 billion at each meeting this year. The U.S. central bank has said it expects to end its quantitative easing at the end of October, but Bullard noted that the timing was always data-dependent. Bullard said the Fed cannot “abide” the recent drop in inflation expectations seen in the Treasury Inflation Protected Securities. “We have to make sure inflation and inflation expectations remain near our target. And for that reason, a reasonable response of the Fed in this situation ... we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December,” Bullard said in an interview on Bloomberg TV.

Fischer Says Fed Acts Locally but Thinks Globally - Federal Reserve Vice Chairman Stanley Fischer said Saturday the U.S. central bank, which has been criticized for ignoring the impact of its policies overseas, is very much cognizant of the global repercussions of its actions. Mr. Fischer, whose vast international experience at the International Monetary Fund and the Bank of Israel make him the Fed’s de facto diplomat, said an interconnected world economy makes it impossible for U.S. policy makers to assess the country’s economic outlook in a vacuum. “The tightening of U.S. policy will begin only when the U.S. expansion has advanced far enough, in terms both of reducing the output gap and of moving the inflation rate closer to our 2% goal,” Mr. Fischer said at an event on the sidelines of the International Monetary Fund meeting. “If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.”

Fed’s Plosser Says U.S. Can Withstand European, Market-Related Stress - Federal Reserve Bank of Philadelphia President Charles Plosser again called on the U.S. central bank to prepare the way for interest-rate increases, in a speech that also shrugged off the threat posed by slowing overseas economies and unsettled financial markets. “I feel pretty good about the domestic economy,” Mr. Plosser said on Thursday in response to audience questions after a speech in Allentown, Penn. He acknowledged “there are risks in Europe” but added the U.S. exposure to that region is relatively small, so a recession in Europe is “not enough in and of itself” to derail the U.S. recovery. Mr. Plosser also downplayed the threat that unsettled markets might pose to the broader economy. Over recent days, global equities markets have registered significant declines, and U.S. bond yields have fallen dramatically as investors seek out a safe place to park their cash. For the central banker, the important thing to keep in mind is a realization that market volatility isn’t necessarily bad, and that the fate of consumer spending is more driven by job market gains, as opposed to stock market moves. “I think it is a mistake for either the public or the Fed to think we are responsible for movements in the stock market,” Mr. Plosser told reporters after his speech. What more, even with the market losses, “there’s no evidence things aren’t orderly,” which is important to the central bank, he said. In his formal speech, he said “I would prefer that we start to raise rates sooner rather than later.” The official added “this may allow us to increase rates more gradually as the data improve rather than face the prospect of a more abrupt increase in rates to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act,” the official said.

Fed Watch: The Methodical Fed -- Just a few months ago the specter of inflation dominated Wall Street. Now the tables have turned and low inflation is again the worry du jour as a deflationary wave propagates from the rest of the world - think Europe, China, oil prices. How quickly sentiment changes.  And given how quickly sentiment changes, I am loath to make any predictions on the implications for Fed policy. The very earliest one could even imagine a possible rate hike would be March of next year, still five months away. But since that month is the preference of Fed hawks, better to think that the earliest is the June meeting, still eight months away.  Eight months is a long time. We could pass through two more of these sentiment cycles between now and then. Or maybe the story breaks decisively one direction or the other. Given the uncertainty of economy activity, it is clearly dangerous to become too wedded to a particular date for liftoff. At best we can describe probabilities.  But what I think is often missing is a recognition that through all of the ups and downs of last year, the Fed has sent a very consistent signal: The ongoing improvement in the US economy justifies the steady removal of monetary accommodation. Given the consistent, methodological approach to policy normalization witnessed over the past year, is it wonder that inflation signals all look soft? For example:  Fed signaling resulted in consistent, downward pressure on inflation expectations. Hence what they view as a dovish policy stance, I view as a hawkish policy stance. And most remarkable to me is that they never realized what I always thought was obvious - that they were setting the stage for a return trip to the zero bound in the next recession. Matthew C Klein at the Financial Times points us to this from the Fed minutes: respondents to the recent Survey of Primary Dealers placed considerable odds on the federal funds rate returning to the zero lower bound during the two years following the initial increase in that rate. The probability that investors attach to such low interest rate scenarios could pull the expected path of the federal funds rate computed from market quotes below most Committee participants’ assessments of appropriate policy.

The Fed dog is not being wagged by the freshwater or saltwater academic tails - This post replies to a Bloomberg View piece by Noah Smith, which I would caricature as describing the Fed’s economic analysis staff as a dog being wagged alternately by laissez faire freshwater, RBC academics and then activist, sticky-price New Keynesian thinkers. The picture he paints is worrying, because, if, like me, you are convinced that the Fed should be actively using its instruments to smooth the business and inflation cycle, you might worry from his description of things that soon the freshwater lot will win out and the Fed will, well, give up and go home. But I don’t see the Fed economics community like that. I’m not and never have been a Fed insider, so this reply comes with that health warning, but… For starters I see that the activist school of thought holds sway, and has always held sway over the last 30 years, and there’s no danger of the flexible price academics taking over.  I also don’t see the Fed as a passive participant in the battle for ideas, but as an active and, along some dimensions, pioneering and decisive force.  I’d cite several bits of Fed intellectual activism.

Undershooting unemployment is the new overshooting inflation -- How quickly things change, and in this case “things” refers to the dynamics of monetary policy debates. It was in June of this year that Janet Yellen said during a presser, in response to a question from Greg Ip, that the Fed would tolerate a temporary deviation from one of its two objectives (stable prices and full employment) if it was missing sufficiently on the other. Inflation at the time was accelerating quickly towards 2 per cent. Jobs growth did appear stronger, but the monthly figures were erratic and the unemployment rate as of May was 6.3 per cent, declining steadily but still some distance from the FOMC’s estimated range for full employment, which was 5.2 to 5.5 per cent. The labour force participation rate, though also having fluctuated erratically, was at the same level as last October — and some hope remained that it would rebound as the labour market improved, stabilising the unemployment rate and proving the existence of substantial slack in the labour market. In other words, the problem that Janet Yellen seemed more likely to soon face was that inflation would breach the Fed’s 2 per cent target at the same time as the economy remained far from full employment.

Fed Can’t Keep Falling Short of Inflation Goal, Says Evans - The Federal Reserve can afford to keep interest rates at zero at least until inflation rises to its 2% target, which will probably not happen in the next two years, Chicago Fed President Charles Evans said Saturday. While Mr. Evans sees the U.S. economy strengthening in coming quarters, he said the central bank shouldn’t raise interest rates until early 2016 since much ground needs to be made up on inflation and employment. He spoke at an event sponsored by Goldman Sachs. He added a rising U.S. dollar could create a “headwind” for the economy by creating a drag on exports and putting downward pressure on import prices, which could lower overall inflation further below the Fed’s aim. Mr. Evans says he sees the U.S. economy, which has been stumbling along at an annual rate of growth of around 2% since the start of the recovery from the recession, picking up to a pace closer to 3% over the next year and a half. However, he noted unemployment remains elevated and inflation is still well below the central bank’s official 2% target. He said the Fed should be symmetric about hitting its inflation target, and that staying below it for a prolonged period was equally problematic as hovering above it. Inflation has stayed below 2% for most of the economic recovery, despite zero interest rates from the Fed and over $3 trillion in asset buys.

Oil Price War Throws the Fed into Crisis Mode - A nation where the top 10 percent reaps more than 50 percent of the income is doomed to end up in the quicksand of deflation, dragging down the rich along with everyone else. The Federal Reserve’s timidity to address this reality since the crisis of 2008, as the national debt ballooned and its own balance sheet quadrupled, has now put it in a dire pickle at a most inopportune time. The Fed has attempted to assure the world that things are so dandy here in the “Goldilocks economy” that its biggest focus is when it will raise interest rates to keep the economy from overheating and keep inflation in check. That thesis has been quite a bit of a stretch with 45.3 million of its fellow citizens living in poverty and a labor force participation rate of 62.7 percent – a data point that has been steadily getting worse since the financial crisis in 2008. A key component that has allowed both the Fed and Congress to keep from taking strong measures to address a looming deflation has been the price of crude oil. Because oil impacts everything from transportation costs that inflate the price of food and other products to the cost of an airline ticket or heating a home, the high price of this commodity has, to a degree, masked the growing deflation threat. Now the mask has been removed. Oil prices are in freefall and an oil price war has broken out among OPEC members, raising the specter of 1986 when oil prices fell by 50 percent in just an eight month span. A serious global slowdown has effectively turned the oil cartel, OPEC, into a beggar thy neighbor band of go-it-alone dealmakers who hope to sign individual contracts with customers and grab market share before prices decline further.

Disinflation, Here We Come -- Spot prices for oil have dropped 20 percent in the last three months, from $110 to $90 a barrel. If they remain at these levels, inflation in the United States will slow quite a bit, and quickly at that. My estimate is that headline PCE inflation will fall to just under 1 percent within the next three months of data.  The estimate isn't that difficult to reach. Gas prices track closely with Brent crude, and some of the drop has already filtered into average prices at the pump, and some of that might already be in the August PCE data -- it's not clear exactly how much. Suppose gasoline, as counted in PCE, end up 10 percent cheaper in September than in August. And energy goods and services is about 5 percent of personal consumption, of which 3 percentage points of that is directly gasoline. The other energy prices moves in tandem, and there are plenty of other prices in the economy that are sensitive to gasoline -- so that gives you about a half percentage-point drop in PCE inflation. Recall that PCE inflation is 1.5 percent year-over-year. So, one surprise from energy markets, and we could be below one percent. At a time when we are supposed to be a couple months away from a rate hike, this could complicate the exit plan.

What Markets Will, by Paul Krugman -- We have been told repeatedly that governments must cease and desist from their efforts to mitigate economic pain, lest their excessive compassion be punished by the financial gods, but the markets themselves have never seemed to agree that these human sacrifices are actually necessary. ... How have policy crusaders responded to the failure of their dire predictions? Mainly with denial, occasionally with exasperation. For example, Alan Greenspan once declared the failure of interest rates and inflation to spike “regrettable, because it is fostering a false sense of complacency.” But that was more than four years ago; maybe the sense of complacency wasn’t all that false? ... In fact, if you look closely, the real message from the market seems to be that we should be running bigger deficits and printing more money. And that message has gotten a lot stronger in the past few days. .. I’m talking about interest rates, which are flashing warnings, not of fiscal crisis and inflation, but of depression and deflation. Most obviously, interest rates on long-term U.S. government debt — the rates that the usual suspects keep telling us will shoot up any day now unless we slash spending — have fallen sharply. This tells us that markets aren’t worried about default, but that they are worried about persistent economic weakness, which will keep the Fed from raising the short-term interest rates it controls. ... It’s also instructive to look at interest rates on “inflation-protected” or “index” bonds, which are telling us two things. First, markets are practically begging governments to borrow and spend, say on infrastructure; interest rates on index bonds are barely above zero, so that financing for roads, bridges, and sewers would be almost free. Second, the difference between interest rates on index and ordinary bonds tells us how much inflation the market expects, and it turns out that expected inflation has fallen sharply over the past few months, so that it’s now far below the Fed’s target. In effect, the market is saying that the Fed isn’t printing nearly enough money. ...

Inflation Derp Abides - Paul Krugman  - Via Business Insider, Zero Hedge directed its readers to an “excellent interview” in which Jim Rogers declared that “we are all going to pay a terrible price for all this money-printing and debt.” And I asked the obvious question: How long has Rogers been predicting a printing-press-and-deficits disaster?The answer is, a very, very long time. Here he is in October 2008 — six full years ago — declaring that we were setting the stage for a “massive inflation holocaust.”Now, you might have thought that after years of being completely wrong (with a diversion into inflation trutherism), one of two things would happen: 1. Rogers would question his own premises 2. People would stop taking his views on macroeconomics seriously.  But no. His views haven’t changed (and given what we’ve seen from others of similar views, he would deny that anything was amiss with his predictions); and he’s still treated by financial media as a source of deep wisdom. The ability of inflation derp to persist, even flourish, in an age of disinflation remains remarkable.

Fed Is Silent on Doomsday Book, a Blueprint for Fighting Crises - It’s called the Doomsday Book — though by now, officials at the Federal Reserve Bank of New York probably regret they ever came up with that catchy nickname.It’s a collection of legal opinions that describe and delineate the Federal Reserve’s ability to fight financial crises, along with a variety of related documents.And the Fed would really prefer to tell the public nothing more than that.The Doomsday Book has popped into public view because a group of investors suing the government over the terms of its bailout of the American International Group say some of the memos inside show the Fed broke its own rules.Last week, in a courtroom overlooking the White House, government lawyers took a break from defending the government against the $40 billion lawsuit, and instead pressed a judge to keep the contents under seal and to limit references to its contents by lawyers and witnesses participating in the weekslong trial. “Of the tens of thousands of documents that we have produced in this case, the Federal Reserve Bank of New York has sought to retain confidentiality because of the internal sensitivity of only this one,” a lawyer for the New York Fed, John S. Kiernan of Debevoise & Plimpton, told the United States Court of Federal Claims. Even the plaintiffs have managed only photocopies of the indexes from the 2006, 2012 and 2014 versions — each a stack of papers more than an inch high. Nevertheless, a portrait of the book has emerged from the back-and-forth, as detailed in transcripts of the trial that were first highlighted by The Wall Street Journal.

It makes sense for the Fed to speak out about dollar - FT.com: Once upon a time, nobody spoke about the dollar. Washington’s omertà was total, except when the Treasury secretary made some pointed remark and everybody understood policy had changed. Any US Federal Reserve or other official who was so foolish as to remark on the dollar in public got taken to the woodshed. It was so well drummed in that even in private, officials would talk in circumlocutions to make sure the fatal word never crossed their lips. That has all changed. As the trade-weighted value of the dollar rose about 4 per cent against a basket of currencies over the past few months – driven by a stronger US economy, struggles in the eurozone and the weakness of emerging markets – there has been a stream of remarks from Fed officials.  “The exchange rates are changing to reflect what is going on,” said Fed vice-chair Stanley Fischer before last week’s annual meetings of the International Monetary Fund. “That is appropriate.” The stronger dollar is a “headwind”, said Charles Evans of the Chicago Fed. This running commentary makes it easier to understand what the Fed is up to at home but harder to extract the signal from the noise about Washington’s views on its currency. Those views mix tolerance and concern. The US wants struggling economies in Japan and the eurozone to get themselves going again: it recognises that after five years of quantitative easing at home weakened the dollar, it has no case to complain – in fact reasons to cheer – when others do the same thing. There is little sense that the dollar is suddenly badly overvalued. On the other hand, there is much concern that under the guise of stimulating their domestic economies, countries will revert to mercantilist policies of currency undervaluation. The US could wake up in three years to find it is once again the consumer of last resort, has a yawning current account deficit and the whole trauma of “global imbalances” is back in force.

Dollar Strength May Be Irritating Washington -- Earlier this week, U.S. Treasury Secretary Jacob Lew didn’t seem all that bothered about the dollar’s recent rise. But Friday he reminded his counterparts meeting at the annual IMF and World Bank meetings here that they need to stick to their currency commitments against competitive devaluation. “In light of the weakening global backdrop, it is especially important that all G-7 and G-20 countries adhere steadfastly to their exchange rate commitments,” he said in prepared remarks to the IMF’s steering committee. “G-7 countries should stand by their commitment to orient fiscal and monetary policies toward domestic objectives using domestic instruments and not target exchange rates,” Mr. Lew said. “G-20 members should move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility reflecting underlying fundamentals, avoid persistent exchange rate misalignments, refrain from competitive devaluation, and not target exchange rates for competitive purposes.” Amid a weaker global outlook, the strengthening U.S. recovery has attracted investors and bolstered the greenback’s valued against a host of other currencies. Adding to Washington’s headaches, officials in U.S. allies Europe and Japan have in recent months appeared to be talking down the value of their exchange rates. Those currency differentials essentially exports their problems overseas, with the U.S. economy having to do the heavy lifting as its products become more expensive in the global market place.

Fed's Beige Book: Economic Activity Expanded "modest to moderate" pace -- Fed's Beige Book "Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before October 6, 2014." Reports from the twelve Federal Reserve Districts generally described modest to moderate economic growth at a pace similar to that noted in the previous Beige Book. Moderate growth was reported by the Cleveland, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco Districts, while modest growth was reported by the New York, Philadelphia, Richmond, Atlanta, and Kansas City Districts. In the Boston District, reports from business contacts painted a mixed picture of economic conditions. In addition, several Districts noted that contacts were generally optimistic about future activity. Residential real estate is "mixed', although nonresidential is seeing some growth.

The Fed’s Beige Book: We Read It So You Don’t Have To -- The Federal Reserve’s “Beige Book” report, released Wednesday, offered a generally upbeat outlook on the U.S. economy in September and October from anecdotes offered from its 12 regional banks.  Price gains remained subdued and wage growth has been modest outside of a few high-demand fields, the report found. Hiring for skilled workers appeared strong nationwide, though businesses in some districts had problems matching jobs to workers. Shoppers bought back-to-school items, and the cool fall weather has helped sell warmer-weather clothing. Tourism was stronger than expected in many parts of the country. And while the housing market remains mixed nationwide, particular demand for new homes has at least one builder hiring armed guards at construction sites to keep the firm’s staff from being poached.  Here are 10 other details we learned about the economy from the report:

Wall Street Might Know Something the Rest of Us Don’t -  By a lot of measures, the United States economy is looking pretty good right now. The unemployment rate has fallen below 6 percent for the first time in half a dozen years, and jobs are being added at the fastest rate since before the Great Recession.Things are looking better, that is, unless you turn your eye to Wall Street. There, the stock market’s main gauge, the Standard & Poor’s 500-stock index, fell 0.8 percent on Wednesday after a wild ride during the day. It is off 7.4 percent since mid-September.Moreover, longer-term interest rates are down sharply, which normally signals pessimism in the bond market about the nation’s economic future. A measure of expected volatility hit its highest level since 2011 on Wednesday, signaling that more manic days could lie ahead.This apparent contradiction — and how it is resolved — points to the basic question for the United States economy and for Federal Reserve policy makers right now. How powerful is that underlying economic strength? And will the recent market volatility prove ultimately inconsequential, or does it presage harder times ahead for a nation still trying to muddle its way out of a downturn that technically ended more than five years ago?

Lousy Economic Growth Is a Choice, Not an Inevitability -   - The Federal Reserve has done a lot, more than some Fed policymakers would have liked, not enough for its critics. But fiscal policy in the U.S. at the local, state and federal levels has been a restraint on growth. (See the Hutchins Center’s Fiscal Impact Measure for the facts.) And gridlock in Congress is an obstacle to anything that might give the economy a lift–be it a dose of infrastructure spending (which has the double benefit of boosting demand and supply) or thoughtful corporate tax reform or your favorite remedy. Matters are even worse in Europe. Mario Draghi is stepping up his efforts at the European Central Bank with resistance from Germany. German politicians appear reluctant to take the widespread advice that a country with strong government finances, a trade surplus, decaying infrastructure, a slowing (if still low-unemployment) economy, and a huge stake in the European project should be investing more in infrastructure, considering pro-investment tax cuts, and raising wages.  Europe as a whole desperately needs a coherent fiscal policy, along with more movement on some of those much-discussed structural reforms, particularly those that would make doing business easier. “There is a real risk of subpar growth persisting for a long period of time, but what is important is that we know it can be averted,” Ms Lagarde said  at the end of the weekend meetings of economic policymakers from around the world. “We know it can be averted. And, it will require some political courage, some will, some degree of realism on the part of national legislatures, but it can be done.” In other words, settling for the “new mediocre” is a choice.

And The GDP Downgrades Begin: Goldman Slashes Q3/Q4 GDP | Zero Hedge: Remember the data-dependent recovery, which until the NFP report two weeks ago, could seemingly do no wrong. Well, according to Goldman the recovery party just ended. From Goldman's Kris Dawsey: Business inventories rose less than expected in August. In light of the disappointing September retail sales report and slower-than-expected inventory growth in August, we reduced our Q3 GDP tracking estimate by three-tenths to +3.2%. We also moved our Q4 GDP forecast down a quarter point to +3.0%.

  • 1. Business inventories rose 0.2% in August (vs. consensus +0.4%). Retail inventories—the only component of the report not already known for the month—declined 0.3%. Auto and auto parts inventories declined 0.7%, while ex-autos inventories were flat.
  • 2. In light of the disappointing September retail sales report and slower-than-expected inventory growth in August, we reduced our Q3 GDP tracking estimate by three-tenths to +3.2%. We also moved our Q4 GDP forecast down a quarter point to +3.0%, due to weaker momentum in consumer spending heading into the quarter.

Citigroup Sees $1.1 Trillion Stimulus From Oil Plunge - The lowest oil price in four years will provide stimulus of as much as $1.1 trillion to global economies by lowering the cost of fuels and other commodities, according to Citigroup Inc. Brent, the world’s most active crude contract, closed at $83.78 a barrel in London yesterday. That’s more than 20 percent below its average for the past three years, amounting to savings of about $1.8 billion a day based on current output, Citigroup estimates. Savings will climb to $1.1 trillion annually as the slide cuts costs of other commodities, leaving consumers and companies with extra cash to spend and bolstering growth, according to Ed Morse, the bank’s head of global commodities research in New York. Crude prices are plunging amid signs that OPEC, supplier of 40 percent of the world’s oil, won’t act to eliminate a surplus as global growth slows. Combined supplies from the U.S. and Canada rose last year to the highest since at least 1965 as producers tapped stores locked in shale-rock formations and oil sands. The global economy will rebound next year, with growth quickening to 2.98 percent, the fastest since 2010, according to analyst forecasts compiled by Bloomberg.

U.S. Debt Held by Foreigners Hits Record $6.07 Trillion - Foreign holdings of U.S. Treasury securities hit a  record high $6.07 trillion in August, up nearly $70 billion from July, as the dollar began its climb to five-year highs and the U.S. recovery showed signs of gaining steam. Japan added more than $11 billion to its stockpile – largely in bonds and notes – while China and Belgium, a proxy trader for Beijing, added a net $12 billion to its holdings. The figures came in a monthly Treasury Department report released Thursday afternoon. The U.S. Treasury said in its semi-annual currency report published late Wednesday that China bought roughly $135 billion in foreign currencies in the year through August to keep the value of the yuan down as growth in the Asian powerhouse slowed. There’s a good chance that September and October could continue to set new records for foreign holdings of U.S. debt, as indicated by the steady strengthening of the dollar since August and plummeting bond yields. Amid increasing worries about slowing emerging-market growth slowing and recession risks in the eurozone rising, investors have plowed their cash into the relative safety of U.S. debt.

The real reasons why the US Treasury’s debt maturity has been rising -- Depending on whom you ask, the lengthening maturity of US government debt is either a smart response to unusually loose financial conditions or an unhelpful countervailing force to Federal Reserve policy. Either way, the assumption is that the chart below (from page 23 the Treasury’s most recent Quarterly Refunding Report) reflects the deliberate choices of policymakers rather than anything else: Reality is a little more complicated. Just look at the footnote accompanying the chart to explain the forecast embedded in the green line: This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. You might think that the weighted average maturity has risen so much — and is expected to keep rising — because the new debt the Treasury has been issuing since 2009 has a longer average maturity than the existing debt. You would be wrong. The average maturity of the new debt issued each year has consistently been shorter than the average maturity of the total stock of debt — and was actually shorter in the 2012 fiscal year than it was in the 2011 fiscal year. The following chart from Win Smith illustrates this clearly, even if it is slightly out of date: The key point is that the initial maturity structure of your debt affects how the debt maturity changes over time. In particular, the more front-loaded your debt repayment schedule, the more the average maturity of your debt increases as you pay it down.

US budget deficit falls below 3% of GDP - FT.com: The US public finances have staged a dramatic turnround as the budget deficit fell below 3 per cent of gross domestic product for the first time since 2007. The deficit for fiscal year 2014 came in at just 2.8 per cent of GDP, far below peak recession levels of more than 10 per cent, as tax revenues recovered and spending fell in real terms. It shows how aggressive austerity policies have tamed the US budget deficit but at the cost of a feeble economic recovery. The return to business-as-usual deficits has already transformed Washington politics, with the anti-tax Tea Party losing steam, and less intensity to the savage battles over the budget. The Obama administration was eager to take credit. “The president’s policies and a strengthening US economy have resulted in a reduction of the US budget deficit of approximately two-thirds – the fastest sustained deficit reduction since World War Two,” said US Treasury secretary Jack Lew. A 29 per cent fall in the deficit to $483bn for the 2014 fiscal year – which runs to the end of September – reflected a 9 per cent increase in tax receipts and a 1 per cent rise in outlays. The economic recovery led to a 6 per cent increase in income tax receipts, a 13 per cent rise in corporate taxes, and a 10 per cent boost to customs duties. The US Federal Reserve’s third round of quantitative easing meant its contribution rose by 31 per cent to $99bn. On the spending side, the aggressive across-the-board caps imposed by Congress under the ‘sequester’, combined with the winding down of war spending and less demand for out-of-work benefits, kept a tight lid on outlays. Defence spending was down 5 per cent. Agricultural outlays, which include food stamps, were down 9 per cent.

What QE4: US Monetizable Deficit Drops To Just $483 Billion, Or 2.8% Of GDP - Remember that in addition to its primary function, which is to push stocks higher i.e., the "wealth effect", the Fed's Quantitative Easing has another just as important role: to monetize the US deficit. Which is why the news that was released moments ago from the Treasury, namely that the US deficit for Fiscal 2014 has just fallen to a meager $483 billion, or 2.8% of GDP (mostly thanks to the GSE inbound receipts which in turn were courtesy of the latest dead cat bounce in housing), and down from $680 billion a year ago, is hardly what the BTFDers were hoping for.

Beware of Policies and Legislation Based on the Generational Accounting Scam -- The Peter G. Peterson Foundation (PGPF) and its allied army of associated deficit hawks want the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation. Generational Accounting is an invalid long-range projection method that doesn’t take into account inflation, the projected value of the Government’s capability to issue fiat currency and reserves in the amounts needed to fulfill Congressional appropriations, and re-pay its debts, the projected non-Government assets corresponding to government liabilities, the likely economic impacts of Government spending, surpluses, and deficits, the impact of accumulating errors on projections, and the biases inherent in pessimistic AND contradictory assumptions. It is a green eye shade method that ignores both economic and political reality. If you want America to end deficit terrorism and austerity, and to have the fiscal policy space it needs to begin to restore the American Dream, then you need to defeat proposed policies or legislation which puts building blocks in place to bias fiscal policy towards austerity and the economic decline it will surely produce for ourselves, our children, and for their children. Proposed policies and legislation of this kind must be defeated for the following seven reasons.

U.S. Air Force probed for scrapping costly planes bought for Afghans (Reuters) - A U.S. government watchdog agency is asking the Air Force to explain why it destroyed 16 aircraft initially bought for the Afghan air force and turn them into $32,000 of scrap metal instead of finding other ways to salvage nearly $500 million in U.S. funds spent on the program. John Sopko, special inspector general for Afghanistan reconstruction, asked Air Force Secretary Deborah James to document all decisions made about the destruction of the 16 C-27A aircraft that were stored at Kabul International Airport for years, and what the service planned to do with four additional planes now in Germany. "I am concerned that the officials responsible for planning and executing the scrapping of the planes may not have considered other possible alternatives in order to salvage taxpayer dollars." Sopko said in a letter to James that was dated Oct. 3 and released Thursday by his office. true Sopko also asked if any other parts of the planes had been sold before they were destroyed by the Defense Logistics Agency.

Bill Gates has a big idea for tax reform — and it’s excellent - On his gatesnotes blog, Microsoft cofounder and philanthropist Bill Gates offers his thoughts about inequality, particularly concerning economist Thomas Piketty’s Capital in the Twenty-First Century. Among his insights: (a) extreme inequality is a societal problem, and government has a ameliorative role, (b) Piketty underplays how much of American superwealth comes from entrepreneurs rather than passive rentiers, (c) inequality analysis need to look at consumption data, not just wealth and income, (d) Piketty understates the many forces that decay wealth. Gates: Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone—through instability, inflation, taxes, philanthropy, and spending. Gates, perhaps not surprisingly, also disagrees with Piketty’s inequality fix: extremely high wealth taxes: I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today. But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it’s hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.

Scale, progressivity, and socioeconomic cohesion -- Today seems to be the day to talk about whether those of us concerned with poverty and inequality should focus on progressive taxation. Edward D. Kleinbard in the New York Times and Cathie Jo Martin and Alexander Hertel-Fernandez at Vox argue that focusing on progressivity can be counterproductive. Jared Bernstein, Matt Bruenig, and Mike Konczal offer responses offer responses that examine what “progressivity” really means and offer support for taxing the rich more heavily than the poor. This is an intramural fight. All of these writers presume a shared goal of reducing inequality and increasing socioeconomic cohesion. Me too.  I don’t think we should be very categorical about the question of tax progressivity. We should recognize that, as a political matter, there may be tradeoffs between the scale of benefits and progressivity of the taxation that helps support them. We should be willing to trade some progressivity for a larger scale. Reducing inequality requires a large transfers footprint more than it requires steeply increasing tax rates. But, ceteris paribus, increasing tax rates do help. Also, high marginal tax rates may have indirect effects, especially on corporate behavior, that are socially valuable. We should be willing sometimes to trade tax progressivity for scale. But we should drive a hard bargain.  First, let’s define some terms...

Volckerized Wall Street Dumping Bonds With Rest of Herd - Corporate bond values are swinging the most in more than a year and here’s one reason why: Wall Street’s biggest banks are following the crowd and selling, too. Take junk bonds, which have lost 2 percent in the past month. Dealers, which traditionally used their own money to take bonds off clients desperate to sell during sinking markets, sold about $2 billion of the securities during the period, according to data compiled by Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Banks have cut debt holdings in the face of higher capital requirements and curbs of proprietary trading under the U.S. Dodd-Frank Act’s Volcker Rule. Their lack of desire to take risks has had the unintended consequence of exacerbating price swings amid the rout now, “There just isn’t the appetite and ability to warehouse the risk anymore,” he. “Everyone is afraid to catch the falling knife.”

Fears That Pimco and Other Big Firms Could Be Unable to Unload Risky Bonds - When it comes to high-risk bonds, the asset management giant Pimco has pretty much cornered the global market.Be it bonds issued by the automotive financier Ally Financial or the student loan financier SLM in the United States, or government bonds in Spain and Italy, Pimco holds a commanding position in these high-yielding securities.But as Pimco’s portfolio managers double down on their bet that high-risk bonds will thrive in a world of low interest rates, a growing number of global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system.These concerns were amplified this week as stock markets gyrated, the yields of high-risk corporate and European bonds spiked upward and, crucially, trading volumes evaporated.Regulators and bank executives have cautioned that an accumulation of hard-to-trade, risky bonds by a small group of fund companies could turn a bond market hiccup into a broader rout, in light of how illiquid many of these securities have become.

AIG Bailout Trial and the Deadbeat Borrower Defense -- Yves Smith -- It’s déjà vu all over again.  I’m only starting to dig into the AIG bailout trial by reading the transcripts and related exhibits. That means I am behind where the trial is now. However, that gives me the advantage of contrasting what is in the documents with the media reporting to date. And what is really striking is the near silence on the core argument in this case.The Starr International v. the United States of America suit is, at its core, about whether an insolvent borrower still has the right to the protection of law. It’s thus a high-end, big-ticket replay of the same form of arguments that homeowners fighting foreclosure often tried in court to obtain a mortgage modification: we don’t dispute that we aren’t able to meet our obligations, but the party foreclosing on us needs to go through the proper steps to take possession of our house. In the mortgage borrower’s case, that meant establishing standing, as in proving that they really were the proper party to initiate the foreclosure. In the case of Starr, the AIG executive enrichment vehicle controlled by former CEO Hank Greenberg, the argument is that even though AIG was insolvent, the bailout, which included through a series of maneuvers getting control of 79.9% of AIG stock, was impermissible.

AIG Bailout Trial Bombshell III: Paulson Lied to Congress About TARP -- Yves Smith - I’ve gone through only the first day of testimony from the AIG bailout trial, and we are already up to our third bombshell.The first witness called by the plaintiff, Starr International (an investment vehicle controlled by Hank Greenberg), was Scott Alvarez, general counsel for the Federal Reserve Board of Governors. Part of the testimony covered a discussion that took place late in the evening of September 15, the day Lehman declared bankruptcy in the wee hours of the morning. The topic was AIG. The participants included Alvarez, Timothy Geithner, Fed governors Don Kohn and Kevin Warsh, Ken Wilson, a senior investment banker advising the Treasury, Dan Jester, a recent ex-Goldmanite advising Treasury, and others. One of the remedies they discussed was legislative solutions, which Alvarez states became the TARP and resolution authority in Dodd Frank.However, notice the disconnect between what the Fed and Treasury officials were seeking to accomplish and what they told Congress and the public about the TARP.  Alvarez’s testimony makes clear that the plan was always to inject equity into the banks. But that was not what they said to Congress. The plan was called “Troubled Assets Relief Program” and was sold as a way to rescue the banks by getting toxic paper off their balance sheets.  As we said from the very time the scheme was first mooted, on September 19, it couldn’t possibly work as advertised:

Regulators Are in the Dark on Shadow Banking, Says BOE’s Cunliffe - Regulators don’t know enough about the so-called shadow banking system to conclude that it is likely to be the next threat to the stability of the financial system, but they need to do “a lot more work” before they can conclude that it isn’t, Bank of England Deputy Governor Jon Cunliffe said Saturday. Earlier Saturday, Federal Reserve governor Daniel Tarullo said regulators are watching to see whether risky activity migrates outside the banking system to so-called shadow banks now that banks are facing tighter post-crisis rules. Speaking at a separate panel during the annual meeting of the Institute of International Finance, Mr. Cunliffe said that while the shadow banking system had grown “quite quickly,” that didn’t in itself mean that it posed a threat to the wider financial system. “We don’t know enough yet,” said Mr. Cunliffe, who is the deputy governor responsible for financial stability at the regulator. “It’s too early to say that this is the next crisis waiting to happen. We need to do a lot more work.” Mr. Cunliffe said assets managed by non-banking financial institutions had doubled over the past 10 years, but that didn’t necessarily reflect a migration of risky activities from institutions that are regulated. “We shouldn’t start with the presumption that it should be regulated,” he said.

We Now Know what Form of Bank Fraud at JPMorgan it Takes to Alarm President Obama -- William K. Black  President Obama called no emergency meeting when he learned that JPMorgan and 15 other of the world’s largest banks had rigged LIBOR for years – distorting the prices on over $300 trillion in transactions.  He called no emergency meeting when he learned that JPMorgan and over 20 other huge lenders fraudulently sold Fannie and Freddie hundreds of billions of dollars in toxic mortgages.  Same non-result when JPMorgan and a dozen huge banks rigged bids on the issuance of municipal debt to rip off hundreds of government entities.  Same non-result when the big banks filed hundreds of thousands of fraudulent affidavits in order to foreclose on homeowners illegally.  Same nothing when he learned that over 20 huge lenders made the Office of the Comptroller of the Currency’s (OCC) list as the “worst of the worst” lenders and that Attorney General Eric Holder refused to prosecute any of their senior bank officers who led the frauds.  Same nothing when he learned that our home mortgage lenders had created “an open invitation to fraud” through making millions of fraudulent liar’s loans.  Another big nothing when Obama learned that the same banks controlled by fraudulent officers had deliberately created a “Gresham’s” dynamic by blacklisting honest appraisers who refused to inflate appraisals. And then a huge nothing that has continued for his entire term when Obama learned that the banking regulatory agencies had stopped making criminal referrals so senior bankers were able to become wealthy by leading all these frauds with total impunity.  The sound of silence at the Department of Justice has grown ever more deafening throughout Obama’s term as it refuses to prosecute or even bring civil suits against any of the senior bankers that led the three most destructive fraud epidemics in history – epidemics that caused the financial crisis and cost our Nation over $21 trillion in lost GDP and over 10 million jobs.  But now we know from a New York Times article what criminal events at JPMorgan are capable of rousing Obama from nearly six years of hibernation and torpor when it comes to massive bank frauds.  When Obama became afraid that JPMorgan’s defective cyber security had been exploited by a hacker he immediately began meeting with his national security advisors fearing that Russian President Putin might be behind the attacks.  So, all we have to do to get Obama to restore the rule of law for elite banksters is to convince Obama that they are Putin’s secret agents working for the FSB (the rebranded KGB).  Obama will be meeting with his national security team within minutes and fighting the banksters will become a priority.

Can Rehabilitating Prisoners Repair Wall Street's Broken Reputation: Bank of America spends a lot of money trying to be good — and wants you to know about it. The Charlotte-based megabank, the second largest by assets behind JPMorgan Chase, donated $267 million to charity in 2013. Over the next 10 years it plans to donate $2 billion, and last year its employees spent 2 million paid work hours on volunteer projects. It’s also spending big dollars atoning for past sins. This August, the bank reached a $16.65 billion settlement with the Justice Department, several states, and other regulators over its behavior before the financial crisis. It’s a sum far larger than similar settlements reached by its megabank peers Citigroup or JPMorgan. And that wasn’t the only deal reached in 2013 involving the bank and the justice system. It also agreed to help fund a nonprofit that helps former prisoners get job training and, eventually, full-time jobs so they don’t go back to jail. The bank raised $13.5 million for the charity, and wants it to be the first of many deals that can get investors to fund social projects lured by the promise of a healthy return if the projects succeed. As the bank gradually clears away the lingering mess from the financial crisis, it is also mounting a charm offensive to convince its clients and the public that too-big-to-fail institutions like itself can also be positive actors in society. It’s a task complicated by the toxic reputation of Wall Street that still prevails in much of American life, but made somewhat easier by the giant sums of money available to be spent making it succeed.

Banks accept derivatives rule change to end 'too big to fail' scenario - (Reuters) - The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilising markets. The International Swaps and Derivatives Association (ISDA) and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday. A delay would give regulators time to ensure that critical parts of a bank, such as customer accounts, continue smoothly while the rest is wound down or sold off in an orderly way. That would help to avoid the type of market chaos sparked by the collapse of Lehman Brothers in 2008 and also end the problem of banks being considered too big to fail. The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), had asked the ISDA to make the changes with the aim of ending the too-big-to-fail scenario in which banks are propped up with taxpayer money to avoid market disruption. Under the new contract terms, default clauses in derivatives contracts such as interest rate or credit default swaps would be suspended for a maximum of 48 hours.

Change in Derivatives Doesn't Resolve Question of Safe Harbors - The big Wall Street banks have now agreed that they won’t be able to flee the scene when another big financial institution undergoes a resolution proceeding. Other large investors might also be reluctantly dragged along.This leaves ordinary corporations as the only ones who will be subject to the safe harbors. How does that make any sense?The safe harbors is a catch-all name for various bits of the bankruptcy code that exempt derivative contracts from three of the main engines of the bankruptcy process: the automatic stay, the power to assume and reject contracts and the prohibition on termination of a contract solely because of a bankruptcy filing.The original justification for the safe harbors was systemic risk. The fear was that a small dealer or fund could file for bankruptcy, and the entire system would grind to a halt because nobody would know precisely what the status was of their trades with the debtor.But the problem was that the creation of the safe harbors also created an incentive to run. It is an incentive that several legal scholars, including myself, have noted for a while.Finance types tended to ignore this literature, painting it as the work of a bunch of bankruptcy fanatics, and the safe harbors arguably grew even broader in 2005, just before the crisis. Three years later, when American International Group was on the brink of collapse, it became quite clear that this was a serious drawback to the bankruptcy code.So now we don’t have safe harbors for the big broker-dealers anymore. So what precisely is the justification for having them? After all, one would presume that any big dealer’s exposure to a single end user should not be the cause of any systemic risk — assuming some normal risk management, of course.

Too-Big-to-Fail Banks Face Up to $870 Billion Capital Gap - Too big to fail is likely to prove a costly epithet for the world’s biggest banks as regulators demand they increase holdings of debt securities to cover losses should they collapse. The shortfall facing lenders from JPMorgan Chase & Co. to HSBC Holdings Plc could be as much as $870 billion, according to estimates from AllianceBernstein Ltd., or as little as $237 billion forecast by Barclays Plc. The range is so wide because proposals from the Basel-based Financial Stability Board outline various possibilities for the amount lenders need to have available as a portion of risk-weighted assets. With those holdings in excess of $21 trillion at the lenders most directly affected, small changes to assumptions translate into big numbers. “The direction is clear and it is clear that we are talking about huge amounts,” said Emil Petrov, who heads the capital solutions group at Nomura International Plc in London. “What is less clear is how we get there. Regulatory timelines will stretch far into the future but how quickly will the market demand full compliance?” The FSB wants to limit the damage the collapse of a major bank would inflict on the world economy by forcing them to hold debt that can be written down to help recapitalize an insolvent lender. For senior bonds to suffer losses under present rules the institution has to enter bankruptcy, a move that would inflict huge damage on the financial system worldwide if it happened to a global bank.

Living Wills or Phoenix Plans: Making sure banks can rise from their ashes — The Dodd-Frank Act of 2010 requires systemic intermediaries (and many others) to create “living wills” to guide their orderly resolution in bad times. In August, these Dodd-Frank living wills made front-page business news when the FDIC and the Fed rejected those submitted by the biggest banks as inadequate. That should come as no surprise. In their current form, we doubt that living wills would do much to secure financial stability. In the absence of special arrangements, the legal system creates a will for every company. When a firm dies, established bankruptcy procedures prescribe a court-tested priority of claims on which to base the distribution of its assets, allowing either liquidation or, where the firm still has value as a going concern, restructuring. For a financial intermediary, the going-concern value collapses faster in death than that of a nonbank – with potential damage to the financial system as a whole. As a result, traditional bankruptcy procedures are widely viewed as ineffective for financial firms. Instead, beginning in the 1930s, U.S. laws established customized administrative techniques (like the now-established practices of the FDIC) to resolve small, simple, domestic banks. But even these special mechanisms don’t work for large, complex, international ones.

Good Governance Curbs Excessive Bank Risks - iMFdirect  In our latest Global Financial Stability Report we take stock of recent developments in executive pay, corporate governance, and bank risk taking, and conduct a novel empirical analysis. Using a sample of 830 banks from 72 countries, several definitions of risk, and four different empirical methods we  found that when banks align their compensation practices with long-term performance (for example, by paying bonuses with restricted stock), they also show lower levels of risk taking. Our analysis supports some of the policy measures currently being implemented in that area, and recommends new ones.

  • First, banks should better align compensation with risk. Banks could link compensation better to their overall financial health by paying managers partly with long-term bank bonds. Tying compensation to the bank’s default risk that way may help prevent managers and shareholders making risky bets when banks are financially weak.
  • Second, banks should make sure variable compensation becomes available to executives only with a lag. They should also include clawback provisions that would force managers to return past bonuses if, for example, their decisions cause losses over the longer term.
  • Third, the boards of directors of banks need to be independent of bank management and should establish risk committees.
  • Finally, policymakers should consider measures to ensure that boards effectively represent not only the interests of shareholders but also those of the creditors of the bank. For instance, they could consider granting board representation to certain types of bond holders. This could improve the ability of these creditors to monitor bank managers

How Do Liquidity Conditions Affect U.S. Bank Lending? – NY Fed - The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidityrisks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study, detailed below, is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks.

Unofficial Problem Bank list declines to 429 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Oct 10, 2014. Changes and comments from surferdude808: Minimal changes to the Unofficial Problem Bank List with only one removal. After the deduction, the list count moves down to 429 institutions with assets of $136 billion.A year ago, the list held 683 institutions with assets of $238.3 billion. . Next week we expect the OCC will provide on update on its enforcement action activity. CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 429. The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.) As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest. When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.

CoStar: Commercial Real Estate prices increased in August - Here is a price index for commercial real estate that I follow.   From CoStar: Commercial Property Prices Sustain Upward Climb in August Fueled by better than expected job growth, demand continues to outstrip supply across major property types, resulting in tighter vacancy rates and continued investor interest in commercial real estate. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—increased by 1% and 1.5%, respectively, in August 2014. ..The value-weighted U.S. Composite Index, which is heavily influenced by larger, core transactions, has now reached prerecession peak levels, and price gains have naturally slowed as a result. The Index increased 8.7% for the 12 months ending in August 2014, following 12% growth in the prior 12 months. Meanwhile, price growth in the equal-weighted U.S. Composite Index, which is influenced more by smaller non-core deals, accelerated to an annual rate of 13.6% in August 2014, up from an average of 8.7% in the prior 12 months....Just 10.5% of all repeat sale transactions involved distressed assets in the first eight months of 2014, down from one-third of all repeat sale transactions in 2010.

Americans Face Post-foreclosure Hell As Wages Garnished, Assets Seized - Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets. By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago. Using a legal tool known as a "deficiency judgment," lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes. "Just because they don't have the money to pay the entire mortgage, doesn't mean they don't have enough for a deficiency judgment," said Florida foreclosure defense attorney Michael Wayslik. Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt — and that the banks bear culpability because they made the unsustainable loans in the first place.

Staggering Loss of Black Wealth Due to Subprime Scandal Continues Unabated: Driving through Prince George’s County, Maryland, it’s not obvious that its towns and cities are at the epicenter of the foreclosure crisis in the Washington, D.C., region. In the town of Bowie, for instance, large colonial-style homes with attached two-car garages, spacious apartment buildings designed for families, and modern shopping centers line the streets. As in any other middle-class community, school-aged children chase each other in front yards while their parents monitor from the porch, and twentysomethings in workout gear jog the tree-lined streets. There’s no shortage of schools, community centers and places of worship, and if any homes are abandoned, it’s not glaringly obvious. What sets Prince George’s County apart from other upscale regions is that most of its citizens are black. No other majority-black counties in the United States are even comparable in terms of numbers of educated citizens and middle-class incomes, but when the economy crumbled, so did the dreams of many homeowners living in Prince George’s. And despite promises of help by President Barack Obama and lawmakers, seven years after the housing bubble burst, the county’s foreclosure crisis has only slowed, not abated.

Bernanke’s failed mortgage application exposes the flaw in banking - FT.com: Banks enjoy tremendous support from governments. During the financial crisis, that assistance went well beyond protecting depositors – even long-term creditors and shareholders of banks received large taxpayer-financed bailouts. President George W Bush said in September 2008 that he understood the frustration of responsible Americans who were “reluctant to pay the costs of excesses on Wall Street” but added: “not passing a bill now would cost these Americans much more later”. So what is the justification for bailing out the shareholders of financial institutions? Stemming bank runs is not a good enough reason on its own, because it is easy to protect depositors and other short-term creditors without bestowing taxpayer gifts on bank shareholders. Part of the rationale comes from research in 1983 by Ben Bernanke, former chairman of the Federal Reserve, who in studying the Great Depression argued that banks have a unique ability to intermediate credit, because of the valuable information they gather and hold. As he put it, “the real service performed by the banking system is the differentiation between good and bad borrowers.” If we do not save the banks, the argument goes, this function will disappear, causing further misery as good firms cannot get credit.It seems a little ironic, then, that Mr Bernanke was recently unable to refinance his mortgage, a fact he recounted to a conference earlier this month. Apparently, banks are unable to tell whether the former head of the world’s most powerful central bank – someone who can earn $250,000 per speech – is a good or bad borrower. Mr Bernanke added that he thought credit conditions were too tight. The better explanation is that banks are bad at the job that is supposedly their main source of value.  The modern banking system does very little of the information gathering that many economic models have in mind. When an individual applies for a credit card or a mortgage, their characteristics are put into a computer with a score produced by a credit bureau, and the computer spits out a decision. There are few face-to-face meetings. Little additional information is collected.

Why Mortgage Demand Was Better Than Initially Reported Last Year - New data suggest activity for home purchase mortgages was stronger than previously believed last year, raising questions about a leading measure of demand that has shown broad-based housing weakness this year. Every year, mortgage lenders file data on every mortgage-loan application they take as part of federal reporting requirements under the Home Mortgage Disclosure Act, or HMDA. The Federal Reserve releases an annual summary of the previous year’s data in September. Of course, nine months is a long time to wait to get a picture of mortgage volumes. For a timelier look, many market participants rely on an index of mortgage applications maintained by the Mortgage Bankers Association. That survey, released weekly, showed that mortgage applications for home purchases were running last week around 10% below last year’s level, using a four-week moving average. Things looked even bleaker during the spring and summer. Here’s why there’s a disconnect: The HMDA data shows that mortgage applications for home purchases rose 13% in 2013 from the prior year, and by 10% in 2012. But the MBA’s mortgage applications index went up 5% on average in 2013 and 3% in 2012. This suggests mortgage demand—excluding refinances—was better than most initial estimates suggested it was last year. Growth in loan originations ran slightly above the growth in applications. The HMDA data shows that mortgage originations rose 14% in 2013 and 13% in 2012. If reported loan applications and originations have been better than the MBA’s real-time index has indicated during the first two years of the housing recovery, that could temper some of the pessimism from this year’s purchase-applications index, which has been dismal.

Lawler: Early Read on Existing Home Sales in September, Table of Distressed and All-Cash Share -  From economist Tom Lawler:  Based on realtor association/MLS reports across the country, I estimate that existing home sales as measured by the National Association of Realtors will come in at a seasonally adjusted annual rate of 5.14 million in September, up 1.8% from August’s pace but down 2.3% from last September’s pace. Local realtor/MLS data suggest that the NAR’s inventory estimate for September will be down by about 3.0% from August, and up by about 3.2% from last September. Finally, I expect that the NAR’s median existing SF home sales price in September will be about 4.5% higher than last September.Lawler also sent me the table below of short sales, foreclosures and cash buyers for several selected cities in September.On distressed: Total "distressed" share is down in these markets due to a decline in short sales. Short sales are down in all these areas. Foreclosures are up slightly in several of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 5.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 10, 2014. ...The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 0.3 percent compared with the previous week and was 4 percent lower than the same week one year ago. ......“Growing concerns about weak economic growth in Europe caused a flight to quality into US assets last week, leading to sharp drops in interest rates. Mortgage rates for most loan products fell to their lowest level since June 2013,” said Mike Fratantoni, MBA’s Chief Economist. “Refinance application volume reached the highest level since June 2014 as a result, with conventional refinance volume at its highest since February 2014.”...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.20 percent, the lowest since June 2013, from 4.30 percent, with points decreasing to 0.17 from 0.19 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.The first graph shows the refinance index. The refinance index is down 72% from the levels in May 2013.  Refinance activity is very low this year and 2014 will be the lowest since year 2000. The second graph shows the MBA mortgage purchase index.   According to the MBA, the unadjusted purchase index is down about 4% from a year ago.

US mortgage rates fall after Bill Gross’s departure from Pimco - FT.com: Bill Gross’s abrupt departure from Pimco, the world’s biggest bond manager, may be rippling across the financial system and affecting the mortgage rates paid by millions of Americans. Yields on government-backed mortgage securities – which move inversely to prices – fell to their lowest in 16 months last week following a flight to higher quality assets and speculation that Mr Gross’s move may heighten demand for mortgage debt. The rally in mortgage bonds helped fuel a decline in home loan rates, with the average rate on Freddie Mac 30-year fixed-rate mortgages slipping to 4.12 per cent last week – down from 4.53 per cent at the start of the year. Under Mr Gross’s direction, Pimco’s flagship Total Return Fund was underinvested in agency mortgage-backed securities compared with more indexed funds. According to its last investment report the fund’s underweight position in agency MBS had resulted in “negative or neutral” returns over the second quarter.

Mortgage Rates: Close to 4%, No Significant Increase in Refinance Activity Expected - With the ten year yield falling to 2.23%, mortgage rates should move lower. Based on a historical relationship (see 2nd graph below), 30-year rates will probably fall close to 4%. However I do not expect a refinance boom due to lower rates. This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index. The refinance index dropped sharply last year when mortgage rates increased. Historically refinance activity picks up significantly when mortgage rates fall about 50 bps from a recent level. Borrowers who took out mortgages last year can probably refinance now - but that is a small number of total borrowers. For a significant increase in refinance activity, rates would have to fall below the late 2012 lows (on a monthly basis, 30 year mortgage rates were at 3.35% in the PMMS in November and December 2012. The second graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey. Currently the 10 year Treasury yield is at 2.23% and 30 year mortgage rates were at 4.12% according to the Freddie Mac survey last week. Mortgage rates should fall further this week. Based on the relationship from the graph, it appears mortgage rates will be close to 4% soon. However, to have a significant refinance boom, the 30 year mortgage rate (Freddie Mac survey) would be have to fall below the 3.35% of late 2012, and that means 10-year Treasury yields would have to fall well below 2%. So I don't expect a significant increase in refinance activity any time soon.

Mortgage Rates Hit High 3's - Mortgage rates continued living the dream today, falling decisively past last week's lows to claim another instance of "best rates since June 2013." Today's move was exceptional compared to last week's (or just about any other move lower of 2014 for that matter). After heading into the weekend in relatively conservative territory, the bond markets that underlie mortgages were greeted with massive movement in broader financial markets over the 3-day weekend.Some of that movement took place late on Friday--too late for rate sheets to experience much benefit--but most of it occurred in global bond markets during Asian and European trading overnight. Motivation varies depending who you ask, but the concept of "global growth concerns" is the common thread running through most of the reasons offered for the drop in rates. Last week's best moments saw the most prevalently-quoted conforming 30yr fixed rates hover between 4.0 and 4.125% for top tier borrowers. Today's rates all but eliminated 4.125% from that list. In fact, 3.875% would now be more common than 4.125% (assuming a flawless loan file, 75% or lower Loan-to-Value, and a competitive lender). Rates haven't been any lower since the first half of June 2013.

Mortgage Rates Fall To Lowest Level Since June 2013 - Mortgage rates fell to a 16-month low last week, reprising a familiar turn of events in which concerns about the global economy have sent investors seeking the safety of U.S. bonds. The upshot is that American borrowers could once again benefit from global growth jitters. The Mortgage Bankers Association reported Wednesday that the rate on the average 30-year fixed-rate loan fell to 4.2% last week, from 4.3% the week before. Rates stood as high as 4.72% at the beginning of the year. Mortgage rates tend to track Treasury yields, which have tumbled over the past two weeks reflecting investors’ unease, first over a possible slowdown in China and more recently in Europe. The yield on the 10-year Treasury fell to 2.2% late Tuesday, near its lowest level since June 2013. Mortgage rates spiked in June 2013 as investors braced for the Federal Reserve to pull back from its bond-buying program. The so-called “taper tantrum” sent mortgage rates from around 3.6% in early May 2013 to 4.75% by July 2013. The Federal Reserve did announce plans to taper its purchases of mortgage-backed securities and Treasurys last December, and it is on pace to end those purchases this month. But even as investors have braced for the Fed to raise interest rates next year, Treasurys have fallen. Over the past week, some mortgage lenders have been advertising rates of less than 4%, though those typically require borrowers to pay fees equal to at least 1% of the loan amount. The MBA’s weekly average rate of 4.2% last week, meanwhile, carried fees equal to around 0.17% of the loan amount.

WSJ: "Fannie, Freddie Near Deal That Promises to Boost Mortgage Lending" -- From Joe Light at the WSJ: Fannie, Freddie Near Deal That Promises to Boost Mortgage Lending Mortgage giants Fannie Mae and Freddie Mac , their regulator and lenders are close to an agreement that could greatly expand mortgage credit while helping lenders protect themselves from charges of making bad loans, according to people familiar with the matter...The new agreement would clarify what mistakes should constitute fraud, giving greater confidence to lenders that they won’t be penalized many years after a loan is made...Separately, Fannie Mae, Freddie Mac and the FHFA are considering new programs that would allow them to guarantee some mortgages with down payments of as little as 3%.  CR Note: There are two parts: 1) less risk to lenders of being forced to buyback faulty loans, and 2) a lower downpayment in certain circumstances. According to the article the agreement could be announced next week.

Banks make progress over expanding access to home loans - FT.com: US regulators and lenders have made significant progress in clarifying rules that could make banks more open to providing loans to people with lower credit scores, as worries about a slow housing recovery linger, people familiar with the issue said. Banks, which have been hit with record fines in relation to their mortgage practices, have been reluctant to lend to borrowers who have lower credit scores out of fear that they will have to bear the cost of soured loans.  At the same time, government officials have expressed concerns about the pace of the housing recovery, which has been a disappointing outlier amid the overall strengthening economy. To expand home loans to a wider swath of the population, banks have told regulators they need more certainty and clarity on rules that would force them to repurchase a bad loan, known as a “putback risk.” Federal Housing Finance Agency director Mel Watt is expected to announce progress on that issue, including provisions for life of loan exemptions, at the Mortgage Bankers Association conference next week, according to people familiar with the issue. The Wall Street Journal first reported the news of the progress. The FHFA, mortgage finance companies Fannie Mae and Freddie Mac, and the Mortgage Bankers Association have been in talks to come up with conditions that would make lenders feel more comfortable in expanding access to home loans. The parties are still working through other issues, such as third party arbitration, the people said. But it remains to be seen whether lenders will feel reassured enough to open the lending spigot. Some government officials think banks have tightened lending too much in reaction to the financial crisis and overreacted to regulations.

Home Values Have Seen Starkly Disparate Recoveries by Race - Though it is widely believed that home values have stabilized in most areas during the recovery, a recent report by the Federal Reserve found that between 2010 and 2013, the inflation-adjusted median home value for all homeowners declined 7 percent. Even more startling, however, is how unevenly home values have recovered by race of the homeowner.This 7 percent decline in the inflation-adjusted median home value breaks out into a 4 percent decline for both non-Hispanic whites and nonwhites (including Hispanics). But public data from the Survey of Consumer Finances—which provide more detailed race categories—show even starker differences among racial and ethnic groups. Between 2010 and 2013, inflation-adjusted median home values fell by 4.6 percent for white households and 18.4 percent for African American households, but increased by 3.7 percent for Hispanic households. Since respondents reported their highest home values in the 2007 survey, the median value reported by whites has declined 20.3 percent, compared to 37.7 percent for African Americans and 25.8 percent for Latinos.

Invitation Homes Tenant Abuse Shows Incompetence as Well as Malfeasance - Yves Smith  - Readers may recall that we’ve been writing regularly about the single family home land grab by private equity firms. Blackstone has been far and away the biggest, though its Invitation Homes business. Readers and many institutional investors have been skeptical of PE landlords’ claims that they can manage single family homes cost effectively; it’s hard enough for mom and pop landlords, who often have some relevant maintenance skills, like plumbing or construction, to make a go of it. But as reports come in from abused tenants, Blackstone looks not only venal in its efforts to shift costs on to tenants, but positively incompetent. As we’ve written, in most jurisdictions, even in red states, residential landlord can’t shift property maintenance obligations onto the tenant. They are required to keep the rental at least habitable. There’s good reason for these provisions: communities like to encourage homeownership, since they are considered to have a stake in their town and owned homes are almost always at higher price points than rentals, providing for a better tax base. Badly maintained rentals quickly drag down property values in the ‘hood and can lead to middle class flight. So local communities have strong economic incentives to come down hard on slumlords.

RealtyTrac Ranks U.S. County Housing Markets Based on Prevalence of Man-Made Environmental Hazards - RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its first-ever report ranking all U.S. counties based on the prevalence of man-made environmental hazards.  The report evaluates five man-made environmental hazards tracked by RealtyTrac subsidiary Homefacts (www.homefacts.com) in all 3,143 U.S. counties: percentage of bad air quality days, along with the number of superfund sites, brownfield sites, polluters, and former drug labs per square mile. An aggregate score based on these five factors was created for each county, with a higher score representing a higher prevalence of man-made environmental hazards (see full methodology below). The report also includes real estate trends — median home values, one-year, five-year and 10-year home price appreciation — along with unemployment rates and median household incomes in each county housing market. “Somewhat surprisingly, short-term home price appreciation over the past year and five years is stronger in the 50 housing markets with the highest prevalence of man-made hazards,” said Daren Blomquist, vice president at RealtyTrac. “However, the 50 housing markets with the lowest prevalence of man-made hazards have higher median home values and much stronger long-term home price appreciation over the last 10 years along with lower unemployment rates and slightly higher median incomes.

Housing Starts increase to 1.017 Million Annual Rate in September  From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,017,000. This is 6.3 percent above the revised August estimate of 957,000 and is 17.8 percent above the September 2013 rate of 863,000. Single-family housing starts in September were at a rate of 646,000; this is 1.1 percent above the revised August figure of 639,000. The September rate for units in buildings with five units or more was 353,000.Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,018,000. This is 1.5 percent above the revised August rate of 1,003,000 and is 2.5 percent above the September 2013 estimate of 993,000. Single-family authorizations in September were at a rate of 624,000; this is 0.5 percent below the revised August figure of 627,000. Authorizations of units in buildings with five units or more were at a rate of 369,000 in September. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased in September (Multi-family is volatile month-to-month). Single-family starts (blue) also increased slightly in September. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years. This was at expectations of 1.010 million starts in September.

Don’t Hold Your Breath for Double-Digit Increases in Housing Starts - Friday’s report on housing starts does little to change the overall trajectory of the sector’s uneven recovery. Single-family construction, after ramping up from extremely depressed levels in 2011 and 2012, appears to have recovered from last year’s slowdown. Single-family starts rose 7% in the third quarter compared with one year ago. Starts fell 2% in the first quarter from a year earlier and rose just 5% in the second quarter. Many economists had looked for double-digit increases in starts this year. Don’t hold your breath. Starts are running just 3.8% ahead of last year’s levels through the first nine months of the year. Building permits, a leading indicator of new construction, are running just 0.8% ahead of last year’s levels. Multifamily construction, which is nearly all rental apartments these days, is still hot. The multifamily sector is volatile on a month-to-month basis, but over the last 12 months, developers have started construction on more apartments than at any time since 1989.

Single-Family Housing Permits Drop To Lowest Since May, Starts Rebound Due To Rental Unit Increase - September was another month in which US single-family housing starts stagnated, and in fact declined when it comes to permits, only to see a strong rebound in both permits and starts when it comes to multi-family, aka rental housing. At the top line, September housing starts rebounded from last month's revised drop to 957K, rising just above the 1,008K expected to 1,017K, while permits also rebounded from the August print of 1,003K, if missing expectations of 1,030K printing at 1,018K. As for the breakdown:housing starts fof single family housing were essentially unchanged at 646K from last month's 638K, while rental housing starts rebounded strongly from 298K to 353K as America continues its conversion to a house-renter nation:  As for permits, single-family housing permits decline for yet another month, dropping from 627K to 62$K, which was the lowest print since May, however offseting this contraction was another expected bounce in multi-family, i.e., rental, construction, which rose to 369K from last month's drop to 345K.All of which makes sense: increasingly only those who can afford the cash up can purchase single-family houses, which is also why builders are increasingly not building this bedrock of the US economy. For everyone else: we hope you can at least afford your monthly payment. Source: Census

A few comments on September Housing Starts - There were 761 thousand total housing starts during the first nine months of 2014 (not seasonally adjusted, NSA), up 9.5% from the 695 thousand during the same period of 2013.  Single family starts are up 4%, and multifamily starts up 23%.  The key weakness has been in single family starts. The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts.  I expect to further growth in starts over the next several years.This graph shows the month to month comparison between 2013 (blue) and 2014 (red). Starts in 2014 have been above the same month in 2013 for six consecutive months. Click on graph for larger image. Starts in Q1 2014 averaged 925 thousand SAAR, and starts in Q2 averaged 985 thousand SAAR, up 7% from Q1. Starts in Q3 averaged 1.024 million SAAR, up 4% from Q2 (and up 16% from Q3 2013). This year, I expect starts to mostly increase throughout the year (Q1 will probably be the weakest quarter, and Q2 the second weakest). However the year-over-year growth will slow in Q4 because the comparisons will be more difficult. 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).

NAHB: Builder Confidence decreased to 54 in October - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 54 in October, down from 59 in September. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Four-Month Upturn Ends as Builder Confidence Falls in October After four consecutive monthly gains, builder confidence in the market for newly built single-family homes fell five points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. “While there was a dip this month, builders are still positive about the housing market.” “After the HMI posted a nine-year high in September, it’s not surprising to see the number drop in October,” said NAHB Chief Economist David Crowe. “However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market.”  All three HMI components declined in October. The index gauging current sales conditions decreased six points to 57, while the index measuring expectations for future sales slipped three points to 64 and the index gauging traffic of prospective buyers dropped six points to 41. Looking at the three-month moving averages for regional HMI scores, the Northeast and Midwest remained flat at 41 and 59, respectively. The South rose two points to 58 and the West registered a one-point loss to 57.

Homebuilder Sentiment Slides, Biggest Miss Since Feb As Buyer Traffic Plunges - Surprise! Having been fooled twice before in the last housing bubble by the NAHB's persistent optimism in the face of dismal realities, it appears October was the beginning of a breaking point in realtor confidence. The headline sentiment index dropped to 54, missing extrapolated expectations of 59, led by a collapse in prospective buyers traffic (from 47 to 41). The headline 54 level is below the lowest estimate of 56 from 52 economists surveyed. Both present and future sales sub-indices also dropped but have no fear, as the NAHB notes, "while there was a dip this month, builders are still positive about the housing market," as cheaper borrowing costs may help draw more prospectiev buyers into the market (umm yeah that hasn't worked).

Retail Sales decreased 0.3% in September --On a monthly basis, retail sales decreased 0.3% from August to September (seasonally adjusted), and sales were up 4.3% from September 2013. Sales in August were unrevised at a 0.6% increase. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $442.7 billion, a decrease of 0.3 percent from the previous month, but 4.3 percent (±0.9%) above September 2013. ... The July to August 2014 percent change was unrevised from 0.6% (±0.2%). This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos were down 0.2%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 5.2% on a YoY basis (4.3% for all retail sales). The decrease in September was above consensus expectations of a 0.1% decrease.

September Retail Sales: Even Worse Than Economists's Low Forecasts -- The Advance Retail Sales Report released this morning shows that sales in September came in at -0.3% (-0.32% at two decimals) month-over-month, down from 0.6% in August. Core Retail Sales (ex Autos) were -0.2%, down from 0.3% in August.  Today's numbers came in well below the Investing.com forecast of -0.1% for Headline Sales and 0.3% for Core Sales.  The two charts below are log-scale snapshots of retail sales since the early 1990s. Both include an inset to show the trend over the past 12 months. The one on the left illustrates the "Headline" number. On the right is the "Core" version, which excludes motor vehicles and parts (commonly referred to as "ex autos"). Click on either thumbnail for a larger version. The year-over-year percent change provides a better idea of trends. Here is the headline series. Here is the year-over-year version of Core Retail Sales. The next chart illustrates retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. I've highlighted the values at the start of the two recessions since the inception of this series in the early 1990s.  For a better sense of the reduced volatility of the "Control" series, here is a YoY overlay with the headline retail sales.   Bottom Line: The Advance Retail Sales for September, both headline and core, were below expectations and quite disappointing. However, the Advance numbers are subject to substantial revisions, as I've illustrated here.

September Retail Sales Disappoint -- September 2014 Retail Sales decreased -0.3% for the month.  August was revised to a 0.6% increase.  Retail sales have now increased 4.3% from a year ago.  September's decline was due to autos and gas, yet many sales categories were down for the month.  Even Online retailers declined while Electronics and Appliance stores had an unusual 3.4% monthly increase.   Retail sales are reported by dollars, not by volume with price changes removed.Retail trade sales are retail sales minus food and beverage services and these sales decreased -0.4% for the month.. Retail trade sales includes gas. Total retail sales are $442.7 billion for September. Below are the retail sales categories monthly percentage changes. These numbers are seasonally adjusted. General Merchandise includes super centers, Costco and so on. Below is a graph of just auto sales. We see how the recession just decimated auto sales and also how autos have a 10.4% increase for the year. Budget cuts and government shutdown games can impact auto sales as governments use large fleets of autos and trucks. Autos have been going strong and one month's decline does not a trend make. Below are the retail sales categories by dollar amounts. As we can see, autos rule when it comes to retail sales. We also see online retailers are really making a dent in their importance to the economy. Graphed below are weekly regular gasoline prices, so one can see what happened to gas prices in September. Believe this or not, but gasoline station sales are down -2.5% from a year ago.

Retail Sales Bloodbath: Control Group Has First Decline Since "Polar Vortex" - It may come as a shocker to some, but hopefully not to anyone here, that September retail sales were arguably the worst of the year excluding the "abortion" that was the Polar Vortex. The simple reason: after the US consumer loaded up on debt in the spring and the summer, the payback hangover has finally hit with the payment due in the mail resulting in a collapse in revolving credit as reported previously, and as the September retail sales just confirmed:

  • Headline retail sales: -0.3% missing expectations of a -0.1% decline, and down from the 0.6% in August
  • Retail sales ex-Autos -0.2%, missing expectations of a +0.2% increase, and down from +0.3%.
  • Retail sales ex-Autos and gas: -0.1%, missing expectations of a solid 0.4% rebound and down from 0.5%

And not just that: clothing stores dropped -1.2%, sporting goods dropped -0.1%, furniture was down -0.8%, miscellaneous retailers -0.2%, and, sorry Jeff Bezos, online "non-store retailers" such as Amazon declined -1.1%.

iPhone Couldn’t Save September’s Disappointing Retail Numbers - Sales at electronics and appliance stores in September posted their largest monthly gain since April 2013, with sales rising 3.4%, the Commerce Department reported on Wednesday.  That likely reflects a big boost in sales from Apple’s iPhone 6. But the iPhone bump couldn’t make up for big declines at other retailers. Retail sales fell for their first time since January on a seasonally adjusted basis, down 0.1% even after excluding autos and gas, which both declined. Sales at building material and garden supply stores fell 1.1%, the largest such decline since last October. Sales at clothing retailers fell 1.2%, the largest such drop since October 2012. Still, the iPhone may have been a drag on a different category of sales: non-store retailers. That segment, which includes Internet purchases, declined 1.1% in September. While the iPhone was surely a popular online purchase last month, it only counts as a sale in the Commerce Department’s book if the item was delivered before the end of the month. Keep in mind the new phones only went on sale Sept. 20. Those backordered phones dropped in mailboxes after September 30? They’ll show up in the October figures.

What’s the punishment for ripping off consumers? — It won’t come as any surprise to you, I’m sure, that large financial institutions lie to their customers and rip them off. It would probably be more of a surprise if they didn’t. Let’s just take it as a given. The question then arises: what should be done about it? I’m not talking about “move your money” campaigns, I’m talking about the regulatory response. What should the government do, when they catch banks and lenders in such behavior? In the US, the typical response seems to be a fine — and, what’s more, a fine which barely covers the excess profits made by the malefactors. Exempli gratia: The Consumer Financial Protection Bureau has just forced M&T Bank to refund $2.9 million to some 59,000 account holders who were charged for their “free checking” accounts. I’m sure those account holders are happy — but M&T must be happier. It promised “no strings” free checking, it broke that promise, and the full extent of its punishment is that it has to give back the fees that it promised it wouldn’t charge. A rational bank, faced with such a regulator, will continue ripping off consumers at every available opportunity: if they don’t get caught, they get to keep all of the money, and if they do get caught, they just revert to the state they would have been in had they never even tried. The rip-off is all upside, no downside.

Are your Facebook friends the future of your FICO score? “The old saying largely remains a truism. You are defined by the company you keep,” Gi Fernando told the Daily Mail.. Fernando, who sold his last start-up to Experian in 2011, launched Free:Formers, a digital training firm for banks among other businesses, a year later. Fernando predicts that banks could begin to ask potential borrowers for access to their Facebook, Twitter, and other social media accounts as part of the underwriting process for mortgages, credit cards and other credit products because users with a stable social network would be seen as a lower risk than those with an unstable social network. “You could easily have a scenario in 10 years where a customer’s chances of credit are determined not only on their spending, but also on their friends, family members and their social profile,” Fernando said. “By giving up a bit more information to the banks, you might stand to benefit in a wider choice of products.”

Michigan Consumer Sentiment at Highest Level Since July 2007 -  The Preliminary University of Michigan Consumer Sentiment for October came in at 86.4, a rise from the September Final of 84.6. This is the highest level since July 2007. Today's number was above the Investing.com forecast of 84.1. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 2 percent above the average reading (arithmetic mean) and 3 percent above the geometric mean. The current index level is at the 46th percentile of the 442 monthly data points in this series. The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 17.1 points above the average recession mindset and 1.0 points below the non-recession average. Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest month is a somewhat smaller 1.8 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

Consumer Sentiment: Cheaper Gasoline Seems to Trump Ebola Fears - Real Time Economics - WSJ: U.S. consumers feel more confident about the economy in early October, according to a survey of households released Friday. Optimism about the future fueled the gain. The Thomson-Reuters/University of Michigan preliminary October sentiment index unexpectedly increased to 86.4 from the final September reading of 84.6, according to a source who has seen the numbers. Getty ImagesThe early October reading is above the 84.0 reading forecasted by economists surveyed by The Wall Street Journal. This month’s preliminary current conditions index was unchanged from 98.9 at the end of September. The expectations index increased to 78.4 from 75.4. Consumers’ collective view of the economy has been edging higher since the spring. In early October, falling gasoline prices and better labor statistics likely are offsetting more downbeat events, including the steep drop in stock prices, fears over the spread of Ebola and global economic-slowdown news. Even so, consumers are still not spending freely. The Commerce Department reported Wednesday that September retail sales fell 0.3% and were down 0.2% when vehicle buying is excluded. With gasoline prices down, inflation expectations remain well-anchored. According to the Michigan survey, the early October one-year inflation expectations fell to 2.8% from the final September reading of 3.0%. Inflation expectations covering the next five to 10 years remained at 2.8%.

Weekly Gasoline Price Update: Down Nine Cents -- It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both nine cents cheaper than my last weekly update. Regular is now up only one cent and Premium three cents from their interim lows during the second week of last November.  According to GasBuddy.com, only one state (Hawaii) has Regular above $4.00 per gallon. The highest continental average price is in California at 3.59. South Carolina has the cheapest Regular at $2.88.

US gas prices at lowest in nearly 4 years: According to GasBuddy, nationwide gas prices in the US now average $3.15. This is a 3 year 8 month low (i.e., the lowest since February 2011): Just pennies, right? No. There are 250 million vehicles in the US, averaging 24 miles per gallon, and typically driven over 11,000 miles per year. A drop of just 5 cents YoY averaged for a year (the YoY decline overall so far in 2014) adds over $6 Billion in disposable income that can be saved or spent for other purposes by US consumers. The next graph shows US gas prices as a share of disposable income through August (the last month we have income data): Gas prices have declined about 10% since then. If disposable income simply has held steady for the last two months, that will mean US consumers are now spending less on gas since they have in late 2009 and 2010. This is going to be a boon for US consumer spending. And if typical seasonal gas price patterns hold, we are still 1 to 3 months away from the bottom.

Fed: Industrial Production increased 1.0% in September -- From the Fed: Industrial production and Capacity Utilization Industrial production increased 1.0 percent in September and advanced at an annual rate of 3.2 percent in the third quarter of 2014, roughly its average quarterly increase since the end of 2010. In September, manufacturing output moved up 0.5 percent, while the indexes for mining and for utilities climbed 1.8 percent and 3.9 percent, respectively. For the third quarter as a whole, manufacturing production rose at an annual rate of 3.5 percent and mining output increased at an annual rate of 8.7 percent. The output of utilities fell at an annual rate of 8.5 percent for a second consecutive quarterly decline. At 105.1 percent of its 2007 average, total industrial production in September was 4.3 percent above its level of a year earlier. The capacity utilization rate for total industry moved up 0.6 percentage point in September to 79.3 percent, a rate that is 1.0 percentage point above its level of 12 months earlier but 0.8 percentage point below its long-run (1972–2013) average.This graph shows Capacity Utilization. This series is up 12.4 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 79.3% is 0.8 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. . The second graph shows industrial production since 1967. Industrial production increased 1.0% in September to 105.1. This is 25.5% above the recession low, and 4.3% above the pre-recession peak. The monthly change for Industrial Production was above expectations.

Industrial Production Beats, Rises At Fastest Rate In 4 Years On Air-Conditioning Demand - The last time Industrial production growth was higher than this was May 2010 as IP rose 1.0% against expectations of a 0.4% rise. Last month's print was revised lower, so we swung from worst in 2014 to best in 4 years. Manufacturing rose at a modest 0.5% but it was Utilities that stole the show, surging 3.9% (due to unseasonably high demand for air conditioning). This is the biggest MoM surge in Utilities for a September in at least 10 years. Not exactly sustainable, unless we once again are at the mercy of the weather for US economic growth.

Industrial Production Up 1.0% on Utilities - The Federal Reserve Industrial Production & Capacity Utilization report shows a 1.0% increase in industrial production for September.  Manufacturing alone grew by 0.5%, cancelling out last month's -0.5% decline.  Utilities exploded with a 3.9% monthly increase.  Mining grew by 1.8%, also a sizable amount for a month.  The G.17 industrial production statistical release is also known as output for factories and mines.  This is the largest industrial production monthly gain since September 2012. Total industrial production has increased 4.3% from a year ago.  Currently industrial production is 5.1 percentage points above the 2007 average.  Below is graph of overall industrial production's percent change from a year ago.  For Q3, overall industrial production increased 3.2% annualized.  The breakdown is manufacturing production increased 3.5% annualized, the output from mines was an annualized 8.7%, while utilities dropped -8.5%.  Utilities output has contracted for two quarters in a row. Here are the major industry groups industrial production percentage changes from a year ago.  We can see the sudden jump up from utilities this month isn't a trend at all.

  • Manufacturing: +3.7%
  • Mining:             +9.1%
  • Utilities:           +0.9%

NY Fed: Empire State Manufacturing Survey indicates "business activity grew modestly" in October  - Earlier from the NY Fed: Empire State Manufacturing Survey The October 2014 Empire State Manufacturing Survey indicates that business activity grew modestly for New York manufacturers. The headline general business conditions index fell twenty-one points to 6.2, signaling that the pace of growth slowed significantly from last month. The new orders index dropped nineteen points to -1.7, indicating a slight decline in orders, and the shipments index fell twenty-six points to 1.1, indicating that shipments were flat. The employment index rose seven points to 10.2, pointing to an increase in employment levels, while the average workweek index fell to a level just below zero, suggesting that hours worked held steady ... Most of the indexes assessing the future outlook were down from last month. Nevertheless, they remained fairly high by historical standards, and conveyed an expectation that activity would continue to grow in the months ahead. The index for future general business conditions fell five points to 41.7.  This is the first of the regional surveys for October.  The general business conditions index was well below the consensus forecast of a reading of 20.0, and indicates significantly slower expansion (above zero suggests expansion).

Empire State Manufacturing: Huge Drop in Rate of Expansion - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions continues is expanding at a much weaker pace. The headline number dropped 21 points to 6.17, down from 27.54 last month. That's the largest monthly decline since November 2011 and the second largest drop in the history of this series. The Investing.com forecast was for a reading of 20.5. The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The October 2014 Empire State Manufacturing Survey indicates that business activity grew modestly for New York manufacturers. The headline general business conditions index fell twenty-one points to 6.2, signaling that the pace of growth slowed significantly from last month. The new orders index dropped nineteen points to -1.7, indicating a slight decline in orders, and the shipments index fell twenty-six points to 1.1, indicating that shipments were flat. The employment index rose seven points to 10.2, pointing to an increase in employment levels, while the average workweek index fell to a level just below zero, suggesting that hours worked held steady. Both price indexes fell this month—a sign that the pace of growth had moderated for input prices and selling prices. Indexes for the six-month outlook were somewhat lower than last month, but continued to convey a high degree of optimism about future business conditions.  Here is a chart illustrating both the General Business Conditions and Future General Business

Empire Fed Manufacturing Plunges, Biggest Miss In Over 3 years -- From 5 years highs to 6-month lows in one month  - Empire Fed manufacturing missed expectations by the most since June 2010 as New orders collapsed. The employment sub-index rose but workweek tumbled. Yet again, as we have described in greast detail, US economic data surges into the end of Q3 (government fiscal year-end) on spend-spend-spend year-end budget flushes, then collapses and disappoints.

21-Point Plunge in Empire State manufacturing Index, New Orders Contract; Future Expectations Remain in Stratosphere  -- The Empire State Manufacturing Survey (a diffusion index) hit a multiyear high last month, then promptly crashed this month.  The first problem with diffusion indices is they do not distinguish between big companies and small companies. The second problem is they record expansion or contraction in companies surveyed, but all expansions (and all contractions) are treated equally. Barely growing and wild growth are treated alike. Nonetheless, let's take a peek inside the survey.

  • General business conditions (the overall index) fell twenty-one points to 6.2

  • New orders dropped nineteen points to -1.7
  • Shipments fell twenty-six points to 1.1
  • Unfilled orders rose 6 points but remains in negative territory at -4.55
  • Employment rose seven points to 10.2
  • The average workweek fell 4 points to -1.11
  • Prices paid fell thirteen points to 11.4, its lowest level in more than two years
  • Prices received fell eleven points to 6.8
  • Inventories rose 10 points to 2.27

Philly Fed Manufacturing Survey declines to 20.7 in October - Earlier from the Philly Fed: October Manufacturing Survey The diffusion index for current activity edged down from a reading of 22.5 to 20.7 this month ... The current shipments and employment indexes also declined but remained positive, while the current new orders index increased 2 points [to 17.3].... Although positive for the 16th consecutive month, the employment index decreased 9 points. [to 12.1] ...The survey’s indicators for future manufacturing conditions fell from higher readings but continued to reflect general optimism about growth in activity and employment over the next six months.This at the consensus forecast of a reading of 20.0 for October.Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September. The average of the Empire State and Philly Fed surveys declined in October, but still suggests another decent ISM report for October.

Philly Fed Business Outlook: Slightly Slower Growth - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 20.7, a small decrease from last month's 22.5. The 3-month moving average came in at 23.7, down from 24.8 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook slipped to 54.5 from last month's 56. Here is the introduction from the Business Outlook Survey released today: Firms responding to the October Manufacturing Business Outlook Survey indicated continued growth in the region’s manufacturing sector this month. Most broad indicators of current growth, while positive, weakened from higher readings last month. The current activity, shipments, and employment indexes declined, while the index for new orders was at a higher level compared with September. A larger percentage of firms reported higher prices for their own manufactured goods this month. The survey’s indicators for future manufacturing conditions fell from higher readings but continued to reflect general optimism about growth in activity and employment over the next six months. (Full PDF Report) Today's 20.7 came in fractionally above the 20.0 forecast at Investing.com. The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.

Philly Fed Drops To 4-Month Lows, Employment Tumbles - Despite a small beat of expectations at 20.7 vs expectation sof 19.8 but down from 22.5 , Philly Fed fell for the 2nd month from 3-year highs to 4-month lows. Under the surface things were even less agreeable with employment and average workweek tumbling notably. As the table below shows, the number of employees was whacked in half to just 12.1, while the employee workweek actually dipped into negative territory at -1.3 Forward-looking expectations dropped driven by a fall in capital spending expectations, which slid as now has become the norm, from 23.7 to 18.9. The punchline from the Philly Fed's summary: The October Manufacturing Business Outlook Survey suggests continued expansion of the region’s manufacturing sector. Firms reported continued increases in new orders but slower growth in activity, shipments, and employment this month. The survey’s future activity indexes remained at high readings, suggesting continued optimism about manufacturing growth. Firms were less optimistic about employment increases over the next six months, but one-third of the firms still expect to hire additional workers.

Producer Price Index: First Decline in 13 Months -- Today's release of the September Producer Price Index (PPI) for Final Demand came in at -0.1% month-over-month seasonally adjusted. That's the first monthly decline since August of last year. Core Final Demand (less food and energy) was also lower at -0.2% from last month.  The unadjusted year-over-year change in Final Demand is up 1.6%, a decline from last month's YoY of 1.8%. Here is the essence of the news release on Finished Goods: The Producer Price Index for final demand decreased 0.1 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in August and advanced 0.1 percent in July. On an unadjusted basis, the index for final demand increased 1.6 percent for the 12 months ended in September....  In September, the 0.1-percent decrease in final demand prices can be traced to the indexes for both goods and services, which moved down 0.2 percent and 0.1 percent, respectively. More…  The Headline Finished Goods for September dropped 0.25% MoM and is up 2.13% YoY, a bit lower than last month's 2.23% YoY. Core Finished Goods rose 0.15% MoM (which the BLS rounds to 0.2%) and is up 2.05% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increased in 2011 and then eased during 2012 and most of 2013, falling as low as 1.15% last August. It shot up in the early winter near the 2% benchmark and has hovered below that level for the past six months.

Warehouse Empire - Moreno Valley and Mira Loma lie in the vast sprawl east of Los Angeles known as the Inland Empire. Three decades ago, the area was a bastion of orange groves, military bases, and light manufacturing. But in recent years, a number of Inland Empire cities, which even many Southern California residents couldn’t locate on a map, have quietly become pivotal to a transformation in the global economy. More than 40% of all shipping containers imported to the United States enter through the ports of Los Angeles and Long Beach. Most of that cargo then moves through the Inland Empire. It either passes through or stops off at distribution centers serving Amazon, Wal-Mart Stores, Target, Costco, Home Depot, Restoration Hardware, Baskin-Robbins, Nike, Nordstrom, Kraft Foods, Toys ‘R’ Us, Ford, BMW… the list goes on and on. If you live anywhere in the United States west of about Chicago, and you eat, wear, watch, play, sit on, or drive a product bought retail in recent years, chances are good that it came through this area. And if you live in the Inland Empire, you’ve watched giant flat-roofed buildings that resemble alien spaceships march across the landscape with a speed some compare to a raging forest fire. There is now enough industrial space in Riverside and San Bernardino counties — the two counties that make up the Inland Empire — to enclose almost half of Manhattan. Industry experts estimate that the area needs at least 15 million additional square feet every year just to keep pace with demand. That, in and of itself, might not be so bad for the air. But getting the goods in and out of these warehouses requires trucks and trains. Thousands upon thousands of them, passing through in a ceaseless tide, creating a dull background roar, and contributing to some of the worst pollution in America.

Business inventories rise 0.2% in August, versus 0.4% gain estimate: U.S. business inventories rose less than expected in August, which might lead economists to lower forecasts for economic growth in the third quarter. The Commerce Department said on Wednesday inventories increased 0.2 percent, the smallest rise since June 2013. Read MoreTheFed is 'behind the curve': BlackRock's Fink Economists polled by Reuters had forecast inventories, which are a key component of gross domestic product changes, climbing 0.4 percent. Retail inventories excluding autos, which go into the calculation of GDP, were flat in August. Business sales fell 0.4 percent during the month, and at August's sales pace, it would take 1.29 months for businesses to clear shelves, unchanged from July.

Shariah financing growing popular in the West: Ahmed Irfan Khan was poised to transform his family's small but successful slaughterhouse into a specialty-meat selling juggernaut. Just one thing stood in his way: His faith. Khan's thriving business in Chicago's old stockyards -- which sells halal meat -- protein slaughtered in a way prescribed by Islamic law -- might have made him attractive to Main Street investors. But his strict adherence to his Muslim faith made going down that path complicated. Under Islamic law, collecting or paying interest is prohibited, making it difficult for Khan to borrow the roughly $2 million needed to expand his company, Barkaat Foods. But Khan was ultimately able to get the capital for his business — and stay true to his faith -- with the help of a traditional bank and a boutique venture capital firm willing to hammer out arrangement that Khan said was "Shariah compliant." "This shows there are ways to follow your principles," said Khan, who plans to use the money to double the size of his 40-person operation. "Other entrepreneurs are going to be inspired by this." Big and small investors are increasingly dipping their toes in the world of Shariah-compliant financing, a sector that has grown to more than $1.6 trillion in assets worldwide over the past three decades. It's one that analysts see as having the potential for even greater growth as the Muslim population grows in the U.S. and Europe.

NFIB: Small Business Optimism Index Declines in September - From the National Federation of Independent Business (NFIB): Small Business Optimism Index Declines in September September’s optimism index gave up 0.8 points, falling to 95.3. At 95.3, the Index is now 5 points below the pre-recession average (from 1973 to 2007). ...NFIB owners increased employment by an average of 0.24 workers per firm in September (seasonally adjusted), the 12th positive month in a row and the largest gain this year. Hiring plans decreased to 9 (still solid). And in a positive sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 14, down from 17 last year - and "taxes" at 21 and "regulations" are the top problems at 22 (taxes are usually reported as the top problem during good times).

Small Business Optimism Stuck in ‘Second Gear,’ NFIB Says - Small-business owners remained wary about economic conditions in September, according to a report released Tuesday. The caution has caused a cutback in equipment spending and hiring plans. The National Federation of Independent Business‘s small-business optimism index fell to 95.3 in September from 96.1 in August. Back in May the index reached a cycle-high of 96.6 but lost momentum over the summer. “Optimism can’t seem to get out of second gear,” the report said. Economists surveyed by the Wall Street Journal expected the latest index to slip to 95.9. The top-line index’s September decline can be traced to steep drops in two components. The subindex covering hard-to-fill job openings fell 5 percentage points last month to 21%, while the capital outlays subindexes tumbled 5 points to 22%. In addition, small business owners are cautious about their sales activity. The positive earnings trend declined 2 points to -19%, while the sales expectation subindex fell 1 point in September to 5%. “Overall, these readings are more like a recession period than one of expansion,” the NFIB said. News on the labor front was more positive. Small firms hired more people in the three months ended in September. On average, NFIB members increased employment by 0.24 worker per firm, the largest net gain so far in 2014.

US Treasury and Transportation Departments Hold a Privatization Party -- The infrastructure investment summit held last month by the Departments of the Treasury and Transportation appears likely to provide a boost to the privatization industry, ironically, just as privatized infrastructure is filing for bankruptcy. Chances are, whatever you were doing on September 9, 2014, (births and deaths excluded) will not affect your life as much as that summit, "Expanding Our Nation's Infrastructure Through Innovative Financing," did. Living through the era of Jamie Dimon's "creative" financing might rightly make people suspicious of "innovation." Indeed, rational people might want to return to the tried and true processes and relationships that, for decades, have provided our roads, bridges and other transportation infrastructure instead of the "innovations" that now privatize the roads that were the poster children of privatization into bankruptcy, through a process that highway expert Randy Salzman recently exposed. That complex process uses the tax and bankruptcy codes and assumptions that private is always better than public to place as much as 97 percent of the costs on the public. Clearly something has gone wrong with turning to the private sector to provide our roads, bridges and other infrastructure, and this is an odd moment for two federal departments to spend their time and our money to hold a privatization investment summit.

Weekly Initial Unemployment Claims decrease to 264,000, 4-Week Average lowest since 2000 The DOL reports:In the week ending October 11, the advance figure for seasonally adjusted initial claims was 264,000, a decrease of 23,000 from the previous week's unrevised level of 287,000. This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The 4-week moving average was 283,500, a decrease of 4,250 from the previous week's unrevised average of 287,750. This is the lowest level for this average since June 10, 2000 when it was 283,500.  There were no special factors impacting this week's initial claims. The previous week was unrevised at 287,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

New Jobless Claims Hit a 14+ Year Low -- Here is the opening statement from the Department of Labor: In the week ending October 11, the advance figure for seasonally adjusted initial claims was 264,000, a decrease of 23,000 from the previous week's unrevised level of 287,000. This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The 4-week moving average was 283,500, a decrease of 4,250 from the previous week's unrevised average of 287,750. This is the lowest level for this average since June 10, 2000 when it was 283,500.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 264K was substantially lower than the Investing.com forecast of 290K. Sidebar on the BLS's Attention Grabber: The April 2000 claims level mentioned in today's report was sixteen market days after the S&P 500 hit its record close at the top of the Tech Bubble. 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.

Most Americans Don’t Know It, But Their Odds of Getting Laid Off Have Never Been Lower -  This morning the Department of Labor reported that initial weekly jobless claims fell to 264,000. That’s the smallest number of people filing a jobless claim since April 2000. But thanks to population growth, the U.S. labor force is larger now than it was 14 years ago. So adjusted for the number of workers who are covered by unemployment insurance, jobless claims are now the lowest on record. Put another way: In data going back to at least the early 1970s, the odds of getting laid off and filing jobless claims have never been lower. While no economist would describe today’s labor market as the strongest in history — the unemployment rate is still nearly 6% and most workers have seen very little wage growth in years — the odds of getting laid off are stunningly low: lower than the bubbliest months of the housing bubble, and lower than at the end of the 1990s tech boom, which was the longest economic expansion in U.S. history. Even during the “Morning in America” era of the 1980s, the overall odds of getting laid off were never nearly this low. Yet there’s a disconnect between the low rate of layoffs and the way Americans feel about their jobs. Gallup has been surveying workers since 1997 about their fears, and today, their fear of being laid off remains elevated.

Fed Chairwoman Yellen Inquires About How the Unemployed Find Jobs -  Federal Reserve Chairwoman Janet Yellen on Thursday visited a nonprofit group here that helps unemployed people find work, and posed a question at the heart of the central bank’s debate over when to start raising interest rates. “I’d be interested in any observations about what happened when you looked for jobs,” Ms. Yellen told current and former participants of the group’s programs. “Is it that you just couldn’t find things that were available, that the job market seemed weak, or is it particularly that your skills or things that you felt you needed to do in order to qualify for jobs that were there?” The question reflects Fed officials’ competing theories over why many Americans are still having a hard time finding work amid other signs of an improving job market. If it is mostly because of a weak economy that isn’t creating enough jobs, that would argue for keeping short-term interest rates very low for longer to try to spur stronger growth. But if it is primarily because job seekers lack the skills for the openings out there, a so-called structural problem, that is less likely to be helped by keeping rates low. Ms. Yellen sided clearly in the first camp in the first months after she took the Fed’s helm in February, but more recently has shown herself open to considering that conditions might have changed. The answers she got from people who have found work showed job seekers have faced both sets of problems.

How Companies Kill Their Employees' Job Searches - The days of working for only one company for a whole career are over. As a worker moves from one job to the next, their value to their next employer stems, at least in part, from the skills and knowledge he or she gained at work. It may seem like an odd idea, but who owns the skills and knowledge a worker gains on the job? Apparently, the companies you work for do. Even Jimmy John's has a noncompete agreement for sandwich-making. Take Jerry Smith for example: He's an expert on speech recognition, but he can't use his deep knowledge of this technology at work anymore because he had signed a noncompete agreement with his former employer, promising not to work in the industry for two years after leaving the firm.He's not alone. Employers are increasingly taking legal action to prevent former employees from taking their knowledge and skills to new jobs, using trade-secret laws and contracts that cover post-employment activity. The number of lawsuits over noncompete agreements and trade secrets has nearly tripled since 2000. Now Congress is about to go further, giving employers new powers to sue employees under federal law. But many economists and legal scholars are against it, armed with ample evidence showing that such a law would reduce innovation and an employee's incentive to learn.  Currently, laws vary significantly from state to state: Some states allow the enforcement of agreements that former employees will not work for a rival company for a period of time, while other states view such agreements as illegal. But even in those states in the latter case, judges have used trade-secret laws to limit what economists call employee mobility—the ability of workers to move from one job to the next.

A Picture Worth 1000 Words: A Sighting from the McJobs MarketYves Smith -- One of the complaints too often taken seriously by the business press is employer claims that they can’t find workers with the right skills for open job slots. We’ve looked at some of these stories in the past, and when employers complained, it pretty much without exception reflected that because the economy is slack,they expect to be able to hire workers cheaply, which often includes not being willing to spend time to train someone. In fact, there has been a perverse trend starting more than a decade ago of employers putting out incredibly narrow job specifications. They were effectively saying they were willing only to hire someone who had been in precisely the same role at a similar company.  But even as McJobs look to be the fastest growing employment sector, just because they want to hire workers for as little as possible does not mean that prospective employees will hit their bid. This issue got new attention last week as news reports blared that new job openings had hit their highest level in 13 years, surely a bullish economic sign. Higher wages are just around the corner! But then the stories point out even as work postings are rising, the number of actual hirings is down. Notice the contrast in this Wall Street Journal account:  Employers had 4.84 million open positions in August, up from 4.61 million in July and the highest level since early 2001, the Labor Department said Tuesday. Meanwhile, steady job creation has decreased the number of job seekers, a sign the labor market is tightening and raising the prospect of stronger wage growth. In August, there were just under two unemployed workers per job opening, the lowest level since the recession. In 2009, that figure was nearly seven… Despite the pickup in job openings in August, the number of hires actually fell to 4.6 million from 4.9 million in July. That could be a sign that while employers are ready to expand, they are having trouble finding the right workers or they lack urgency to hire immediately.

Right-wing Jimmy John’s forbids employees from making competitors’ sandwiches for two years: lawsuit against Jimmy John’s revealed that the sandwich shop forces all employees — including low-wage sandwich makers and delivery drivers — to sign an employment agreement with a non-competition clause that bars them from working for any competitor for two years after they leave, the Huffington Post reports. Such non-competition clauses are common among managers and other employees whose knowledge of a company’s business practices could be used by a competitor — but Jimmy John’s forces all employees to sign it. According to the agreement, employees must agree “that, during his or her employment with the Employer and for a period of two (2) years after…he or she will not have any direct or indirect interest in or perform services for…any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located with three (3) miles of…any such other Jimmy John’s Sandwich Shop.”

When the Guy Making Your Sandwich Has a Noncompete Clause - If you are a chief executive of a large company, you very likely have a noncompete clause in your contract, preventing you from jumping ship to a competitor until some period has elapsed. Likewise if you are a top engineer or product designer, holding your company’s most valuable intellectual property between your ears.And you also probably have a noncompete agreement if you assemble sandwiches at Jimmy John’s sub sandwich chain for a living. But what’s most startling about that information, first reported by The Huffington Post, is that it really isn’t all that uncommon. As my colleague Steven Greenhouse reported this year, employers are now insisting that workers in a surprising variety of relatively low- and moderate-paid jobs sign noncompete agreements. Indeed, while HuffPo has no evidence that Jimmy John’s, a 2,000-location sandwich chain, ever tried to enforce the agreement to prevent some $8-an-hour sandwich maker or delivery driver from taking a job at the Blimpie down the road, there are other cases where low-paid or entry-level workers have had an employer try to restrict their employability elsewhere. The Times article tells of a camp counselor and a hair stylist who faced such restrictions.

When the Workday Never Really Ends - Sometimes it feels like there aren’t enough hours in the day. And for working people who have to juggle family and work, locked into a rough schedule and the stress of poverty—there really aren’t enough. Take for example a retail sales worker’s typical day: waiting all morning for the boss to call her about her shift time, learning when she’s due at work an hour before her kid gets off school, a frenzied search for a last-minute babysitter, arriving late and getting demerited by the boss, returning home exhausted only to realize she hasn’t seen her child all day and half the day’s earnings are already spent on the nanny. This constant shuffling between impossible choices grows into a bleak routine—what the researchers call “normal unpredictability,” which is becoming the status quo in many industries. The “pervasiveness of routine disruptions,” Clawson and Gerstel write, wreaks “havoc in people’s jobs and families” in historically unprecedented ways.Employers can capitalize on the system by “staffing lean,” hiring fewer workers on the cheap at part-time or just-short-of-full-time hours. Then overtime work practically becomes a de facto mandatory extra shift, even as workers’ schedules remain chaotic. The expanding temp work industry represents an entire labor force founded on this economy of instability and contingent labor: short-term hiring with erratic hours lets employers “outsource” precarity to the most vulnerable and impoverished workers.

Young Adults Getting Squeezed Out of Jobs - Something strange is going on with young adults in the U.S. job market.  In July 2014, the seasonally adjusted number of Americans between the ages of 20 and 24 reached 13,976,000, just 25,000 shy of the 14,001,000 figure recorded in November 2007, when the level of total employment in the U.S. peaked just ahead of the recession.  In the following two months, some 155,000 young adults have been squeezed out of the ranks of the employed in the U.S., reversing the trend of improvement for that particular age demographic. That stands in considerable contrast with the employment situation for U.S. teens, whose numbers have held steady since October 2009, and adults Age 25 or older, whose numbers have been increasing in recent months.  Hopefully, the jobs report for October 2014, which will be released next month, will shed more light on this situation. Until then, if you have any theories as to why the seasonally adjusted U.S. job market has turned south for this particular age group, now would be a good time to trot them out.

Adjective Quibble: The Long-Term Unemployment Rate is NOT “Sticky” or “Stubborn”: A Wall Street Journal blog post this morning describes an Obama administration initiative to combat long-term unemployment. In the opening sentence, the author follows a too-common convention in describing the long-term unemployment rate as “sticky.” Sometimes the adjective is “stubborn.”  I know that this will sound like quibbling, but in this case adjectives really matter for understanding the problem. As a paper I co-wrote shows pretty clearly, the long-term unemployment rate (LTUR) has not been sticky or stubborn for years. In fact, the LTUR has fallen faster than one would expect given the overall pace of labor market improvement. It is true that the LTUR remains too high, but that is because it skyrocketed during the Great Recession and in the six months after its official end. But the LTUR has since then not become resistant to wider labor market improvement. The concrete policy implication of recognizing this is that by far the most important thing that can be done to lower the still too-high LTUR is to maintain support for economic recovery more broadly. In today’s far too narrow macroeconomic policy debate, this simply means the Fed should not boost short-term interest rates until the labor market is much, much healthier (including a much lower LTUR). ...

WalMart Makes Empty Gesture to End Minimum Wage Pay While Cutting Pay Levels -- Yves Smith -- WalMart just announced that it will at some unspecified point down the road end minimum wage-level pay for its workers. As we’ll demonstrate, there is way less here than meets the eye. In fact, all in pay levels, including benefits, are falling for WalMart workers, not rising.  Even a “just the facts’, ma’am” account from Reuters makes clear how few WalMart employees will benefit from the story that the retailer is pushing today:Wal-Mart Stores Inc plans to improve opportunities for its employees so that in the future there will no longer be a few thousand workers on its payroll making minimum wage, the chief executive of the world’s top retailer said on Wednesday. The act of upgrading minimum wage positions would be largely a symbolic move for Wal-Mart. Currently only about 6,000 workers make the minimum out of its U.S. workforce of 1.3 million. Wal-Mart says its average full-time hourly wage is $12.92, compared with the federal minimum wage of $7.25. This move is purely cynical. First, the vague planned measure was announced the day before fallies by OUR Walmart, a labor group pushing for better pay, were scheduled to take place. The announcement is an obvious ploy to take the winds out of the sails of those protests. And how much above minimum wage levels will these pay increases be, exactly? Given WalMart’s famed tight-fistedness, don’t expect more than token increases.  The policy change follows closely on the heels of WalMart announcing that it will eliminate health care benefits to over 30,000 part time workers, coinciding with the Bentonville giant stating that it would start selling health insurance in its stores. Nothing like having captive customers.

Walmart’s cuts to worker compensation are self-defeating -  Walmart is cutting worker compensation — again. The stealthy way the giant retailer is cutting pay for most of its 1.4 million American workers not only throws sand in the gears of the nation’s economic engine but also misleads investors by disguising the company’s weakening finances. In the months ahead, other big companies will likely follow the same inefficient paths as Walmart, the nation’s largest employer, making its compensation policies at all levels especially worthy of scrutiny. Walmart’s decision to force harder times on its already poorly paid workers is intimately connected to two major trends in the U.S. economy, neither of which is good for America or Walmart investors. The first trend: flat to falling incomes for the vast majority of Americans, especially the lower half who are Walmart’s customer base. Their meager pay translates into weak retail sales. The second trend: executive compensation plans that focus on short-term measures that separate the interests of executives from shareholders and work against building long-term value. Both trends can be reversed, which would get our struggling economic engine humming smoothly again.

The Score: Does the Minimum Wage Kill Jobs?  - Throw a rock into the punditsphere and you’ll hit someone arguing that minimum-wage increases kill jobs. We shouldn’t boost the wage, these people argue, because companies will hire fewer of the lowest-paid workers—the very workers who are supposed to be helped. Meanwhile, social movements like Fight for 15 demand a higher minimum wage in order to raise the living standards of these workers. To a degree, the relationship between the minimum wage and employment is still debated among economists. When thirty-eight of them were polled last year, they were split as to whether a $9 hourly wage would cost jobs, with about a quarter unable to say one way or another. The debate pits the Congressional Budget Office, which found that a $10.10 wage would reduce employment by 0.3 percent, against economists like David Cooper, who found that a higher minimum wage would support the creation of 85,000 new jobs. So which is it: Does raising the minimum wage boost living standards for workers, or does it kill jobs for those who need them most?

Raising the Federal Minimum Wage to $10.10 Would Save Safety Net Programs Billions and Help Ensure Businesses Are Doing Their Fair Share - After rising in line with economy-wide productivity in the three decades following its inception in 1938, the federal minimum wage has been raised so inadequately and so infrequently since the late 1960s that today’s minimum-wage workers make roughly 25 percent less in inflation-adjusted terms than their counterparts 45 years ago. Indeed, a full-time, full-year minimum-wage worker with one child is paid so little that income from her paycheck alone leaves her below the federal poverty line.1This failure to adequately raise the wage floor has contributed strongly to the stagnation of wage growth at the bottom of the wage distribution. This wage stagnation has, in turn, been the single greatest impediment to making rapid progress in poverty reduction in recent decades. Indeed, all of the decline in poverty reduction in recent decades can be accounted for by safety net and income-support programs (Bivens et al. 2014). In fact, managers at some of the largest and most profitable corporations in the United States today actively encourage their employees to seek public assistance to supplement meager paychecks (Eidelson 2013). All of this has led many to conclude that American employers are too often dodging their responsibilities as partners in the social contract—the understanding that Americans who work hard should be paid enough to make ends meet. Instead, too many low-wage employers are leaving both taxpayers and, more importantly, low-wage workers themselves to pick up the slack. This issue brief examines the use of public assistance programs by low-wage workers and assesses how raising the federal minimum wage to $10.10 over three years—as proposed by the Fair Minimum Wage Act of 2014, a bill introduced by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.)—could affect utilization rates, benefit amounts, and government spending on these programs.

U.S. median wealth up from 27th to 25th - Yesterday Credit Suisse released its Global Wealth Databook 2014 to go along with the Global Wealth Report issued Monday. Global wealth hit another new record of $263 trillion as of mid-2014, up 8.3% from mid-2013 (Report, p. 3). Rich people are doing well, but how about the middle class? One measure of this is median wealth per adult, the exact midpoint of the wealth distribution.  In the United States, mean wealth per adult reached $347,845, and median wealth per adult hit $53,352 (Databook, Table 2-4). This represents an increase in median wealth of 18.8% over 2013, enough to move the U.S. up two places to 25th in the world. Before we congratulate ourselves too much, we need to remember that $53,352 is not all that much money, especially for retirement (don’t forget that figure includes home equity). With 49% of Americans in the private sector having no retirement plan at all, and only 20% having a defined-benefit pension, a retirement crisis is looming for younger baby boomers and all later middle-class retirees. The relatively low median wealth also points to persistent inequality in the United States. While only 25th in median wealth per adult, the U.S. ranks 5th in mean wealth per adult. With a ratio between mean and median wealth per adult of 6.5:1, this is higher than any of the other top 25 countries. Number one Australia has a ratio of less than 2:1. Without further ado, here is the list of all countries with median wealth per adult above $50,000.

Inequality, opportunity, and growth are all really important. So is wage stagnation. - Starting back in the mid-1980s, veterans of this debate, including yours truly, would point to graphs showing the increase in inequality, talk a bit about why we thought it was happening, link it to stagnant real wages and sticky poverty rates (meaning poverty rates that were less responsive to growth than they used to be), and call it a day. In other words, rising inequality was an outcome variable of great concern. Eventually, people reasonably started wondering “what’s wrong with rising inequality?” That is, it wasn’t enough to point to the rising share of income accruing to the top 1 percent. In fact, some market-oriented types argued that such an increase was a) good, because by raising the relative returns to winning and the costs to losing, it would boost incentives to win, and b) it represented greater economic freedom, reduction of distortions caused by unions, minimum wages, the unleashing of the free hand, yada, yada. The stagnant wage story got a bit lost in the mix. Also, in the latter 1990s, though inequality kept rising at the top of the scale, full employment actually boosted real earnings for middle and low-wage workers as well. What evolved out of this debate was an interest in inequality not as an outcome variable but as an input variable. For example, questions were raised about its impact on growth, typically through the channel of its impact on opportunity.

Companies Warn That Income Inequality Is Hurting Their Business - After decades as the dominant economic theory in American politics, trickle-down economics is starting to lose its grip on the debate. For evidence of that slippage, look no further than the business community’s own communications with investors. Two thirds of the largest retail companies in the country say falling incomes for their customers threaten their business, according to an analysis of corporate filings by economists at the Center for American Progress (CAP). That is double the proportion that cited slack earnings for the masses among their business risks in 2006. And seven out of every eight major American retail companies “cite weak consumer spending as a risk factor to their stock price,” the authors write. The report examined formal corporate filings with the Securities Exchange Commission by the 100 largest American retail companies. The analysis is based on filings from 65 of the companies, as the other 35 did not have to file the forms publicly. In the documents, the companies are explicit about tying their future prosperity to earnings for their customers. Burger King’s 10-K mentions “decreased salaries and wage rates…decreasing consumer spending for restaurant dining occasions” as a risk factor. J.C. Penney’s says that “the moderate income consumer, which is our core customer, has been under economic pressure for the past several years.” Wall Street analysts have also taken notice of the retail business’ focus on customer earnings. The report quotes analysts from Morgan Stanley, Bank of America, Citigroup, Wells Fargo, and a half-dozen other major business analysis firms that are not household names. Each of them points to weak consumer spending and the economic weakness afflicting the middle class as factors hindering the recovery.

The World’s Richest Man Tries To Defend Income Inequality --Dean Baker -- A review of French economist Thomas Piketty’s best-selling book “Capital in the 21st Century” by the world’s richest man is too delicious to ignore. The main takeaway from Piketty’s book, of course, is that we need to worry about the growing concentration of capital, in which people like Microsoft co-founder turned megaphilanthropist Bill Gates and his children will control the bulk of society’s wealth. Gates, however, doesn’t quite see it this way. From his evidence, he actually has a good case. If the issue is the superrich passing their wealth to their children, who will become the next generation’s superrich, he is right to point out that the biographies of the Fortune 400 — the richest 400 Americans — don’t seem to support this concern. We find many people like Gates, who started life as the merely wealthy (his father was a prosperous corporate lawyer), who parlayed their advantages in life into enormous fortunes. The ones who inherited their vast wealth are the exception, not the rule. Gates tells readers of his plans to give away the bulk of his fortune. His children will have to get by with the advantages that accrue to the children of the ultrarich, along with whatever fraction of his estate he opts to give them. That will undoubtedly ensure that Gates’ kids enjoy a far more comfortable life than the bottom 99 percent can expect, but it likely will not guarantee a place among the Fortune 400. As he points out, many of his fellow billionaires feel the same way about passing on their wealth. This means that we may not need to fear the perpetuation of great fortunes through generations as Piketty warns.

Define Irony: Janet Yellen Talks Inequality, Has Some Advice - Start A Business, Get Rich Parents - With no mention of the current turmoil in markets - or suggestion of QE99 - Janet Yellen's speech this morning on "Inequality and Opportunity" in America explains how the poor can get rich. After admitting that widening inequality resumed in the recovery (and "greatly concerns" her), as the stock market rebounded (driven by Fed's free money) and cost-conscious share buying-back companies defer wage growth as the healing of the labor market has been slow; she turns her attention to how the poor can beat the vicious cycle. Rather stunningly, she notes the 4 sources of income opportunity in America: The first two are widely recognized as important sources of opportunity: resources available for children and affordable higher education (so more student debt and servitude). The second two may come as more of a surprise: business ownership and inheritances. As she concludes, "this is how individuals and their families can improve their economic circumstances."

Alternative Poverty Rate Declines to 15.5% from 16% -- Poverty in America declined in 2013 from the year before, according to an alternative measure released by the Census Bureau on Thursday that many economists consider more comprehensive than the nation’s official rate. According to this “supplemental” measure, the poverty rate dropped from 16% to 15.5%. However, roughly 48.7 million people were still below the poverty line in 2013—not statistically different from 2012, Census said. The drop echoes the recent fall in the official poverty rate, reported in September. That rate dropped from 15% to 14.5%, thanks entirely to reduced poverty among Hispanics. Nearly 45.3 million Americans were living in poverty last year, according to the official rate. The official poverty line was $23,624 for a family of four. Economists have long criticized the nation’s official poverty figures, which were developed in the 1960s and haven’t changed all that much since—though they’re updated to account for rising prices of food Americans buy. The supplemental measure is more comprehensive because, among other things, it accounts for the effects of anti-poverty programs such as food stamps; regional differences in housing costs; and necessary out-of-pocket medical expenses. A list of the major differences between the official and supplemental rates:

Safety Net Cut Poverty Nearly in Half Last Year, New Census Data Show - Safety net programs cut the poverty rate nearly in half in 2013, our analysis of Census data released today finds, lifting 39 million people — including more than 8 million children — out of poverty.  The data highlight the effectiveness of cash assistance such as Social Security, non-cash benefits such as rent subsidies and SNAP (formerly food stamps), and tax credits for working families like the Earned Income Tax Credit (EITC).  They also rebut claims, based on poverty statistics that omit non-cash and tax-based safety net programs, that these programs do little to reduce poverty.Accounting for government assistance programs and taxes cuts the poverty rate for 2013 from 28.1 percent to 15.5 percent, we found (see chart).  These figures are based on Census’ Supplemental Poverty Measure (SPM), which — unlike the official poverty measure — accounts for taxes and non-cash benefits as well as cash income.  (The SPM also makes other adjustments, such as taking into account out-of-pocket medical and work expenses and differences in living costs across the country.)Safety net programs cut the poverty rate for children from 27.5 percent to 16.4 percent, we found. Because the SPM includes taxes and non-cash benefits, it gives a more accurate picture of the impact of anti-poverty programs than the official poverty measure, which counts only cash income.  Non-cash and tax-based benefits now constitute a much larger part of the safety net than 50 years ago, so the official poverty measure’s exclusion of them masks the nation’s progress in reducing poverty over the last five decades.

How 14 People Made More Money Than the Entire Food Stamp Budget for 50 Million People - For the second year in a row, America's richest 14 individuals  made more from their annual investments than the  $80 billion provided for  people in need of food. Nearly half of the food-deprived are children. Perversely, the food stamp program was  CUT because of a lack of federal funding.   In a testament to the inability -- or unwillingness -- of Congress to do anything about the incessant upward re-distribution of America's wealth, the  richest 14 Americans increased their wealth from $507 billion to $589 billion in ONE YEAR from their investment earnings. As stated by  Forbes, "All together the 400 wealthiest Americans are worth a staggering $2.29 trillion, up $270 billion from a year ago."   Billions of dollars of wealth, derived from years of American productivity, have been transferred to a few financially savvy and well-connected individuals who have spent a generation shaping trading rules and tax laws to their own advantage. It's so inexplicably one-sided that the 2013 investment earnings of the richest 1% of Americans  ($1.8 trillion) was more than the entire  budget for Social Security ($860 billion), Medicare ($524 billion), and Medicaid ($304 billion).

Are Poor People Consuming More than They Used To? Six Graphs - “Poor people today have air conditioners and smart phones!” You hear that a lot. “You should be looking at poor people’s consumption, not their income. By that measure, they’re doing great.” The basic point is very true. If poor people today have more and better stuff, can buy more and better stuff each year, maybe we should stop worrying about all those other measures that show stagnation or decline.  Does this measure tell a different story? Curious cat that I am, I decided to go see. I had no idea what I’d find. The first thing I found: this simple data series isn’t available out there, at least where I could find it. Notably, the people who claim it’s so revealing don’t seem to have assembled it. Consistent, high-quality expenditure data is available going back to 1984, from the BLS Consumer Expenditure Survey (CES). (Pre–2011 here. 2012 and after here. See “Quintiles of income before taxes.”) But you have to open a table for each year and pull out these numbers, which I did. The spreadsheet’s here. It’s simple, clear, and easy to work with, so please have your way with it. (Note: CES measures “consumer units” —“households” precisely defined for the purpose of measuring consumption. All the CES terms are defined here.) The household spending measure is in nominal dollars. I converted the values to 2013 “real” dollars using the BEA’s deflator for Personal Consumption Expenditures. Here are the results (mean values; medians would be somewhat lower).

Another Measure of the Staggering Wage Gaps in the United States: Comparing Walton Family Wealth to Typical Households by Race and Ethnicity - Last week, I noted that two recent data releases—the Federal Reserve’s Survey of Consumer Finances and the Forbes 400—painted a stark picture of growing wealth concentration in the U.S. economy. Specifically, I looked at the single largest conglomeration of family financial wealth in the Forbes 400, the combined net worth of the six Walmart heirs, and compared it to that held by typical American families. If you arrange American families by net worth in ascending order, you would have to aggregate the net worth of the bottom 42.9 percent (52.5 million) of American families to equal the net worth held by the six Waltons. Further, you would need to add together more than 1.7 million American families that all had the median U.S. net worth ($81,200 in 2013) to equal the Walton family holdings.1 In this post, I’ll do the same calculations, but look just at non-white families. It is a stark fact that racial wealth gaps in the U.S. economy are enormous. For example, the median white family had net worth of roughly $142,000 in 2013, while the median net worth of non-white families was just $18,100. So, arranging non-white families by ascending order of net worth, one would need to aggregate the net worth of the bottom 67.4 percent of non-white families to match the net worth of the Waltons.2 And it would take 7.9 million families that had the median net worth of non-white families to match the Waltons’ wealth.

The riddle of black America’s rising woes under Obama - FT.com: A paradox haunts America’s first black president. African-American wealth has fallen further under Barack Obama than under any president since the Depression. Yet they are the only group that still gives him high ratings. So meagre is Mr Obama’s national approval rating that embattled Democrats have made him unwelcome in states that twice swept him to power. Those who have fared worst under Mr Obama are the ones who love him the most. You would be hard-pressed to find a better example of perception-driven politics. As the Reverend Kevin Johnson asked in 2013: “Why are we so loyal to a president who isn’t loyal to us?” The problem has taken on new salience with the resignation of Eric Holder. America’s first black attorney-general has tried to correct the gulag-sized disparities in prison sentencing between blacks and whites. His exit leaves just two African-Americans in Mr Obama’s cabinet. Given the mood among Republicans, it is hard to imagine the US Senate confirming a successor to Mr Holder who shares his priorities.  Mr Obama shot to prominence in 2004 when he said there was no black or white America, just the United States of America. Yet as the continuing backlash to the police shooting of an unarmed young black man in Ferguson has reminded us, Mr Obama will leave the US at least as segregated as he found it. How could that be? The fair answer is that he is not to blame. The poor suffered the brunt of the Great Recession and blacks are far likelier to be poor. By any yardstick – the share of those with subprime mortgages, for example, or those working in casualised jobs – African-Americans were more directly in the line of fire.

Aggressive police take hundreds of millions of dollars from motorists not charged with crimes | The Washington Post: After the terror attacks on Sept. 11, 2001, the government called on police to become the eyes and ears of homeland security on America’s highways. Local officers, county deputies and state troopers were encouraged to act more aggressively in searching for suspicious people, drugs and other contraband. The departments of Homeland Security and Justice spent millions on police training. .The effort succeeded, but it had an impact that has been largely hidden from public view: the spread of an aggressive brand of policing that has spurred the seizure of hundreds of millions of dollars in cash from motorists and others not charged with crimes, a Washington Post investigation found. Thousands of people have been forced to fight legal battles that can last more than a year to get their money back.  Behind the rise in seizures is a little-known cottage industry of private police-training firms that teach the techniques of “highway interdiction” to departments across the country.

Trillions in Global Cash Await Call to Fix Crumbling U.S. - The concrete piers of two new bridges are rising out of the Ohio River between Louisville, Kentucky, and southern Indiana, as crews blast limestone and move earth to build the roads and tunnels that will soon connect the twin spans to nearby interstate highways. For more than two decades, the project languished. Business and political leaders on both sides of the river couldn’t agree on how to relieve snarled traffic, improve safety and spur development that was bypassing the region for Indianapolis and Nashville. The Ohio River Bridges project is an American anomaly that has the potential to become a model while lack of money and political will are allowing many of the nation’s roads and bridges to crumble. Along the shores of the Ohio, Democrat-led Kentucky and Republican-run Indiana have forged a partnership to rebuild U.S. infrastructure at a time of partisan gridlock and untapped trillions in private dollars. "It’s an enduring irony that the U.S., allegedly the home of innovation, is absolutely block-headed and backwards in this one respect,” former Indiana Governor Mitch Daniels, now the president of Purdue University in West Lafayette, Indiana, said in an interview. “America needs the upgrade and modernization of our infrastructure, and I don’t think you’ll get there if you keep excluding, or at least discouraging, private capital.”

Early Childhood Education Boosts Lifetime Achievement, Paper Finds - Investments in early childhood education can pay for themselves because they substantially boost students’ chances of educational and economic achievement over the course of their lives. That was the finding of a paper presented at a conference on economic opportunity and inequality sponsored by the Boston Fed. The paper argues that strong educational guidance in the early stages of life has huge long-term payoffs. “We demonstrate that increasing enrollments for preschoolers in the year before school entry is a worthwhile investment that will have important economic payoffs in terms of increased human capital accumulation and later earnings,” write Katherine Magnuson of the University of Wisconsin, Madison and Greg Duncan, a professor at the University of California, Irvine. “The benefits of even a moderately effective early childhood education program are likely to be substantial enough to offset the costs of program expansion,” the authors say. The Boston Fed’s two-day research conference represents a rare effort by a central bank to address this controversial topic. The paper’s authors say their findings are rooted in scientific studies that back the importance of early brain development.

FFRF: Church-funded Bible class in NC public schools teaches kids 7-day creation is ‘literal fact’ - The Freedom From Religion Foundation (FFRF) is calling on the Rowan-Salisbury School District in North Carolina to put a stop to church-sponsored Bible classes in elementary schools.   WBTV reported last week that the FFRF had sent a letter to the district informing them of a “serious constitutional violation” after learning that at least three schools — Cleveland, Woodleaf, and Mount Ulla Elementary — were providing weekly 45-minute Bible classes. According to FFRF, one of the course instructors presented the 7-day creation story and others as “literal fact.” The teacher also told students that the universe was created with a plan, and that the Bible predicted scientific discoveries, the group said.  “These classes are fragrantly unconstitutional,” the letter charged, adding that the class went beyond historical purposes by trying to influence “the District’s youngest, most impressionable students.” Salem Lutheran Pastor Doug Hefner confirmed to Time Warner Cable News that his church helped to fund three Bible teachers for the course.  “I think this program dates back to the 60s as a matter of fact,” he explained. “I’ve only heard great things, and how it’s been a great program and helped the children and the young people learn about history.”

Philadelphia Teachers Hit by Latest Cuts - — Money is so short at Feltonville School of Arts and Sciences, a public middle school here, that a nurse works only three afternoons a week, leaving the principal to oversee the daily medication of 10 children, including a diabetic who needs insulin shots. On the third floor filled with 200 seventh and eighth graders, one of two restrooms remains locked because there are not enough hall monitors. And in a sixth-grade math class of 33 students with only 11 textbooks to go around, the teacher rations paper used to print out homework equations. “When you are given a loaf of bread, you have to make it last as long as you can,” said Michael Adelson, the math teacher. Feltonville serves 541 students, close to 80 percent of whom come from low-income families. Such is the state of austerity across Philadelphia, where this fall, the schools almost did not open on time, and the district has eliminated 5,000 staff positions and closed 31 schools over the last two years. Feltonville alone has lost 15 teachers, two assistant principals, two guidance counselors, an office secretary, three campus police officers, 10 aides who supervised the cafeteria and hallways, and an operations officer, who oversaw most of the school’s day-to-day logistics.

Lasting School Cuts Endanger Critical Reforms: States have imposed large cuts in general education spending —  as our new report details and I explained yesterday — with serious consequences for students, schools, and the economy. Deep state funding cuts have led to job losses, slowing the economy’s recovery from the recession. Such cuts also have counteracted and sometimes undermined important state education reform initiatives. School districts began cutting teachers and other employees in mid-2008, when the first round of budget cuts began taking effect. By 2012, local school districts had cut about 330,000 jobs. Since then they’ve added back some of the jobs, but they’re still down 260,000 jobs compared with 2008 (see chart). Deep cuts in state spending on education — including those job cuts — can limit or stymie education reform efforts. These recent cuts may cost states much more in long-term economic growth than they save.  The cuts that states have enacted will weaken the future workforce by diminishing the quality of elementary and high schools.  At a time when the nation is trying to produce workers with the skills to master new technologies and adapt to the complexities of a global economy, large cuts in funding for basic education undermine a crucial building block for future prosperity.

A Red Privatization Horror Story --  In Florida Governor Rick Scott has made growing for-profit education one of his top priorities. And, in doing so, he helped out his political buddies and donors while screwing over Florida’s students. One of the biggest winners in Scott’s privatization push, for example, was an ALEC-linked company called K12, Inc. that got actually an “F” from Florida’s education department. In Pennsylvania, Governor Tom Corbett has given huge legal contracts for defending his state’s voter ID suppression law to some of his top donors. Corbett is also trying to privatize Pennsylvania’s state liquor stores, a move that would mean big bucks for corporate allies like Walmart and Sheetz, a local gas station chain. And in Michigan, Governor Rick Snyder has handed prison food services over to corporate giant Aramark. While the move has meant big bucks for Aramark, the report suggests it’s been an absolute disaster in every other possible way. Meals are infested with maggots, employees have been caught having sex with inmates, and now there are reports that one Aramark employee actually tried to hire a prisoner to kill someone for him. All in all, not a pretty picture.

Web-Era Trade Schools, Feeding a Need for Code - — A new educational institution, the coding boot camp, is quietly emerging as the vocational school for the digital age, devoted to creating software developers.  These boot camps reflect the start-up ethic: small for-profit enterprises that are fast (classes are two to four months), nimble (revising curriculum to meet industry needs) and unconcerned with SAT scores or diplomas. Most are expensive, but some accept a share of the graduates’ first-year earnings or a finder’s fee from employers as payment. Most important, at a time when so many young people are underemployed, most graduates, especially those from highly selective boot camps, quickly find well-paying jobs. In a recent survey of 48 boot camps, Course Report, an online boot camp directory, found that three-quarters of graduates were employed, with raises averaging 44 percent from their pre-boot camp pay and an average salary of $76,000. Enrolling 20 to 40 students at a time, many boot camps have venture capital backing; in May, Dev Bootcamp, which started here and expanded to New York and Chicago, was bought by Kaplan, the educational services company.

Government Spends More at Private than Public Universities - Robert Reich -- Imagine a system of college education supported by high and growing government spending on elite private universities that mainly educate children of the wealthy and upper-middle class, and low and declining government spending on public universities that educate large numbers of children from the working class and the poor.You can stop imagining. That’s the American system right now.Government subsidies to elite private universities take the form of tax deductions for people who make charitable contributions to them. In economic terms a tax deduction is the same as government spending. It has to be made up by other taxpayers.These tax subsidies are on the rise because in recent years a relatively few very rich people have had far more money than they can possibly spend or even give away to their children. So they’re donating it to causes they believe in, such as the elite private universities that educated them or that they want their children to attend.Private university endowments are now around $550 billion, centered in a handful of prestigious institutions. Harvard’s endowment is over $32 billion, followed by Yale at $20.8 billion, Stanford at $18.6 billion, and Princeton at $18.2 billion.Each of these endowments increased last year by more than $1 billion, and these universities are actively seeking additional support. Last year Harvard launched a capital campaign for another $6.5 billion. Because of the charitable tax deduction, the amount of government subsidy to these institutions in the form of tax deductions is about one out of every three dollars contributed.

Without Social Security Income, A Majority of U.S. Seniors Would Be Poor - A majority of U.S. seniors would be poor if Social Security were excluded from their incomes, according to a report on poverty released by the Census Bureau on Thursday. In its report, Census provided a more comprehensive measure of poverty than its official rate—one that accounts for things such as differences in living costs across the country and antipoverty programs. For seniors, this “supplemental” rate dropped to 14.6% last year from 14.8%. That is good news because the nation’s “official” rate, released last month, suggested poverty among those 65 years old and up jumped from 9.1% to 9.5%. Census’s alternative numbers on senior poverty tend to be higher than the official ones because government economists subtract from seniors’ income the cash they spend on necessary, out-of-pocket medical expenses—expenses that reduce the income they have available to pay for food. The latest figures show how important America’s social policies—everything from Social Security to the Earned Income Tax Credit—are for the incomes of Americans, especially seniors and children. If Census were to exclude Social Security benefits from income, the poverty rate for American seniors would jump from 14.6% to a whopping 52.6%—roughly 23.4 million people. The nation’s overall poverty rate (based on the alternative measure) would rise to 24.1% from 15.5%. Looking at the numbers on children gets you to a similar conclusion. Census’s alternative child-poverty rate tends to be lower than the official one, partly because it accounts for antipoverty programs and tax credits. According to this supplemental rate, child poverty dropped last year from 18% to 16.4%—well below the 20.4% rate in the official numbers.

Facebook, Apple pay to freeze employees' eggs -  Facebook and Apple are telling their female employees: We will pay to freeze your eggs. Facebook is already covering the procedure as part of its insurance benefits, the company said. Apple plans to offer coverage starting in January, according to report by NBC News. The relatively new practice of freezing eggs allows women to put their fertility on hold so they can still have children later in life. It's an unusual "perk" and the technology giants appear to be the first major employers to offer such coverage for non-medical reasons. Egg freezing allows women to focus on advancing their careers during peak childbearing years without sacrificing their fertility. But some critics argue that companies are encouraging women to put work ahead of motherhood.

Health Premiums And Costs Set To Rise For Workers Covered At Work - Fall is enrollment season for many people who get insurance through their workplace. Premium increases for 2015 plans are expected to be modest on average, but the shift toward higher out-of-pocket costs overall for consumers will continue as employers try to keep a lid on their costs and incorporate health law changes.Recent surveys of employers suggest that premiums will rise a modest 4 percent in 2015, on average, slightly higher than last year but lower than typical recent increases."That's really low," says Tracy Watts, a senior partner at benefits consultant Mercer.Even so, more employers say they're making changes to their health plans in 2015 to rein in cost growth; 68 percent said they plan to do so in 2015, compared with 55 percent just two years earlier, according to preliminary data from Mercer's annual employer benefits survey. They are motivated in part by upcoming changes mandated by the health law. Starting in January, companies that employ 100 workers or more generally have to offer those who work at least 30 hours a week health insurance or face penalties.

Many insured struggle with medical bills, poll shows -- They have health insurance, but still no peace of mind. Overall, 1 in 4 privately insured adults say they doubt they could pay for a major unexpected illness or injury. A new poll from The Associated Press-NORC Center for Public Affairs Research may help explain why President Barack Obama faces such strong headwinds in trying to persuade the public that his health care law is holding down costs.  The survey found the biggest financial worries among people with so-called high-deductible plans that require patients to pay a big chunk of their medical bills each year before insurance kicks in. Such plans already represented a growing share of employer-sponsored coverage. Now, they’re also the mainstay of the new health insurance exchanges created by Obama’s law.

Obamacare website won't reveal insurance costs for 2015 until after election - Those planning to purchase health insurance on the Obamacare exchange will soon find out how much rates have increased — after the Nov. 4 election. Enrollment on the Healthcare.gov website begins Nov. 15, or 11 days after the midterm vote, and critics who worry about rising premium hikes in 2015 say that’s no coincidence. Last year’s inaugural enrollment period on the health-care exchange began Oct. 1. Robert Laszewski, president of Health Policy and Strategy Associates, said in a Monday column in USA Today that “when it comes to a lack of openness and transparency about Obamacare, this administration has no peer.” Even so, details about cost increases are trickling out in states with pivotal Senate contests: Alaska, Iowa and Louisiana. All three states are wrestling with double-digit premium hikes from some state insurance companies on the exchange, which has fueled another round of Republican attacks on the Affordable Care Act.

American Households are Getting Wrecked by Medical Debt - As the chart above from the article shows, health care debt is now the number one form of debt collected from Americans, trumping mortgages by an astounding ratio of 38-to-1. For that kind of cash, one would think that Americans would enjoy an immaculate level of medical care rather than be besotted with an Orwellian, broken system that works great for rich people and those lucky enough to have good insurance but is an absolute nightmare for everyone else: Medical debt triggers more than 60% of bankruptcy filings in the U.S. According to a September Bankrate survey, 44% of consumers making less than $30,000 a year say they have more medical debt than emergency savings.  As I stated in my recent posts about my battle with cancer, I am one of those fortunate enough to have "good" health insurance. And yet, even for me the co-pay I have to make for every office visit or procedure has increased in the past decade from $10 to $30 dollars, which is just a TAD higher than the rate of inflation. Still not that big a deal for me, but for someone making less than $30,000 a year per the above citation, that's not an insubstantial amount of cash, especially if they have a chronic illness that requires frequent attention.

Dallas Hospital Worker Diagnosed With Ebola, First to Catch Deadly Virus in U.S. - The diagnosis of a U.S. health-care worker who contracted Ebola after being in contact with an infected patient in Dallas raises the possibility that other caregivers may have been exposed to the deadly virus. The unidentified worker at Texas Health Presbyterian Hospital registered positive in a preliminary test late yesterday. The results were confirmed today by the Centers for Disease Control and Prevention, the Atlanta-based CDC said in a statement today. It’s the first time someone is known to have contracted Ebola inside U.S. borders, and only the second known case of an infection outside Africa. The diagnosis adds pressure on the U.S. government to tighten controls aimed at stemming the spread of the virus that’s killed more than 4,000 people this year in three African nations. “At some point there was a breach in protocol,” said Thomas Frieden, the CDC’s director, at a press conference in Atlanta today. “It is possible that other individuals were exposed.” The caregiver had been in contact with the patient, Thomas Eric Duncan, on multiple occasions, Frieden said. She wasn’t among the 48 people that had been under monitoring who may have been in contact with Duncan before he was placed in isolation, Frieden said.

"We Have A System Failure" CDC Chief Blasted For Scapegoating Ebola 'Protocol Breach' -- Do not panic. Ebola is not very contagious at all. That remains the mantra from health and political officials in America.. and as far as the nurse who was treating now-dead Dallas Ebola patient Thomas Eric Duncan, it was user error, according to CDC Director Frieden. As Reuters reports, some healthcare experts are bristling at the assertion by a top U.S. health official that a “protocol breach” caused the Dallas nurse to be infected with Ebola while caring for a dying patient, saying the case instead shows how far the nation’s hospitals are from adequately training staff to deal with the deadly virus, "you don't scapegoat and blame when you have a disease outbreak... We have a system failure. That is what we have to correct."

McCain Calls for Ground Troops in Syria and an Ebola Czar; Secret Friends --  I am seriously starting to wonder if Senator John McCain has lost his mind. In 2009, the Senator complained "Obama has more czars than the Romanovs." Today, John McCain, Czar Hater, Calls For Ebola Czar. Sen. John McCain (R-Ariz.) believes President Barack Obama should appoint a "czar" to lead America's response to Ebola. "From spending time here in Arizona, my constituents are not comforted. There has to be more reassurance given to them. I would say that we don't know exactly who's in charge. There has to be some kind of czar," McCain said Sunday on CNN's "State of the Union." Other Republicans have also seemingly changed their minds on the issue. Rep. Jack Kingston (R-Ga.), who once introduced the "Czar Accountability and Reform Act" to cut off funding for czars, said earlier this month that Obama needed to appoint such an official to help unify the government's response to Ebola.Why Don't We Have an Ebola Czar? The correct answer should be "We don't have an ebola czar because we do not need one. If created, the position would never go away once created, and we have too many czars already". Instead, let's assume ebola control belongs in the hands of the surgeon general. With that assumption, we do not have an ebola czar because the NRA put the kibosh on Obama's Surgeon Gen. nominee, Regina Benjamin.

US warns of possible rise in Ebola cases - FT.com: US medical investigators were on Monday seeking to identify how a Texas healthcare worker became the first person to contract Ebola in America after her infection shook confidence in the US’s ability to contain the virus. The US authorities launched an investigation and rushed to tighten safety protocols after disclosing on Sunday that the healthcare worker had tested positive for Ebola having treated a Dallas patient who was infected in Africa.  Thomas Frieden, head of the US Centers for Disease Control and Prevention, the agency leading the Ebola response, has blamed the infection on a “breach” in safety procedures. “We’re deeply concerned,” he said. “Unfortunately, it is possible that in the coming days we will see additional cases of Ebola.” He said the infected worker had provided care on “multiple occasions” to Thomas Eric Duncan, who became the first case of Ebola diagnosed on US soil after contracting the virus in Liberia. He died last Thursday. A hospital official said the healthcare worker was wearing protective gear – including a gown, gloves and mask – when she came into contact with Duncan. The latest case comes as the International Monetary Fund and the World Bank pledged interest free loans to Guinea, Liberia and Sierra Leone to help fight the virus. The IMF made $130m available while the World Bank, which is providing $400m, said financial support was critical to contain the crisis. The US case mirrors that of a Spanish nurse in a Madrid hospital, who was the first person to contract Ebola in the west having treated a missionary who was infected in west Africa.

Doctors Nationwide Slam CDC Handling of Ebola -- Healthcare experts throughout the U.S. are strongly criticizing the Centers for Disease Control for its handling of Ebola. For example:

Who's in Charge of Ebola at Hospitals? 'Screaming That We're Not Prepared' - Hospital staff need better training, more funding and sharper oversight to handle Ebola patients, nurses and doctors said after a caregiver in Dallas was confirmed to have caught the deadly virus. The unidentified worker, who cared for Ebola patient Thomas Eric Duncan at Texas Health Presbyterian Hospital, was infected after a “breach in protocol,” said Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention. It’s the first time someone has contracted Ebola inside U.S. borders. Even as the CDC has hastened to reassure the public that the virus won’t spread in the U.S., the agency doesn’t monitor hospitals and has no authority to make sure they comply with official guidelines, according to Abbigail Tumpey, a CDC spokeswoman who is leading the education outreach to hospitals.“There are 5,000 hospitals in the U.S. and I would say probably the number of them that have actually done drills or put plans in place is small,” she said. It’s up to each hospital to enforce infection control, and standards vary depending on funding for infection experts and time devoted to training. “We have been screaming for the past three months that hospitals are not prepared,” said Deborah Burger, co-president of National Nurses United, which represents 185,000 nurses across the country

Texas nurses: 'There were no protocols' about Ebola - (CNN) -- A union made troubling allegations Tuesday about the Texas hospital where a nurse contracted Ebola, claiming "guidelines were constantly changing" and "there were no protocols" about how to deal with the deadly virus." "The protocols that should have been in place in Dallas were not in place, and that those protocols are not in place anywhere in the United States as far as we can tell," National Nurses United Executive Director RoseAnn DeMoro said. "We're deeply alarmed." CNN Chief Medical Correspondent Dr. Sanjay Gupta said the claims, if true, are "startling." Some of them, he said, could be "important when it comes to possible other infections." Officials from National Nurses United declined to specify how many nurses they had spoken with at Texas Health Presbyterian Hospital Dallas. They said they would not identify the nurses or elaborate on how the nurses learned of the details in their allegations in order to protect them from possible retaliation. The nurses at the hospital are not members of a union, officials said. Here's a look at some of the allegations the nurses made, according to the union:

Can You Treat Ebola—And Stay Safe? - The announcement that a second case of Ebola has been diagnosed in Dallas should provide an enormous sense of security for the worried general public—after all, the case has occurred not in casual contacts or even family members but rather, as predicted, in someone who cared for the patient in the late stages of his infection. Against the sigh of semi-relief, though, is the shiver of fear as a collective chill runs down the spine of health-care workers in the United States, Africa, and Spain charged with caring for infected patients. According to reports on Sunday, a female nurse who was involved in the treatment of Thomas Eric Duncan has been confirmed to be carrying the disease, making her the first case of Ebola transmitted in the United States. The case further complicates an already thorny question: Are health-care workers treating Ebola ever really insulated from the disease? The spread of Ebola from patient to health-care worker is a new development here, but it has been raging in West Africa for months. In the World Health Organization’s most recent report, it is identified as “an alarming feature of [the] outbreak.” As of Oct. 8, the WHO reported 8,376 cases worldwide, of which almost half—4,024—had died. Among medical personnel, there were 416 confirmed cases and 233 deaths, a mortality rate of more than 56 percent. While the number of health-care worker deaths may seem small in comparison to the overall death toll, just three physicians are covering six of the hardest-hit counties in Liberia, according to the CDC. The high death rate among doctors and nurses could weigh heavily on prospective volunteers.

New Study Suggests 21-Day Ebola Quarantine Is Dangerously Short: Hospital workers and public health officials in the U.S. have come under fire for a series of missteps in their response to the Ebola crisis,  from initially misdiagnosing Thomas Eric Duncan to allowing a nurse who cared for him at a Dallas hospital to fly on a commercial airliner shortly before she too was diagnosed with the deadly illness. Now an engineering professor with expertise in assessing the risks posed by pathogens claims he's identified another big problem with authorities' response to the crisis.  In a paper published Oct. 14 in the journal PLOS Currents: Outbreaks, Drexel University's Dr. Charles N. Haas argues that there's not enough evidence to support the recommended 21-day quarantine period for people suspected of harboring the virus."Twenty-one days has been regarded as the appropriate quarantine period for holding individuals potentially exposed to the Ebola virus to reduce the risk of contagion, but there does not appear to be a systemic discussion for the basis of this period," Hass said in a written statement. Hass argues in the paper that outbreaks of Ebola in Zaire (1976) and Uganda (2000), as well as data from the first nine months of the current outbreak, suggest that there could be up to a 12-percent chance that someone could begin showing symptoms of Ebola after 21 days, according to the statement.

Calculating the Grim Economic Costs of Ebola Outbreak - While thousands of health care workers seek to control the deadly virus in West Africa, and the Centers for Disease Control and Prevention and other medical professionals seek to prevent its outbreak in the United States, financial analysts and others have been trying to estimate — or “model,” in Wall Street parlance — the potential effect on the global economy. The math is not pretty. The most authoritative model, at the moment, suggests a potential economic drain of as much as $32.6 billion by the end of 2015 if “the epidemic spreads into neighboring countries” beyond Liberia, Guinea and Sierra Leone, according to a recent study by the World Bank.That estimate is considered a worst-case scenario, but it does not account for any costs beyond the next 18 months, nor does it assume a global pandemic. Over the weekend, the topic of Ebola was front and center at the annual meeting of the International Monetary Fund and World Bank in Washington, where central bankers, world leaders and some of Wall Street’s senior executives held a series of meetings and dinners. Christine Lagarde, the managing director of the I.M.F., was seen wearing a button that read: “Isolate Ebola, Not Countries.” She implored the audience: “We should be very careful not to terrify the planet in respect of the whole of Africa.” That’s because the economic cost of fear, far more than medical costs, may be the most expensive outcome.

CIDRAP: "We Believe There Is Scientific Evidence Ebola Has The Potential To Be Airborne" - We believe there is scientific and epidemiologic evidence that Ebola virus has the potential to be transmitted via infectious aerosol particles both near and at a distance from infected patients, which means that healthcare workers should be wearing respirators, not facemasks...  To summarize, for the following reasons we believe that Ebola could be an opportunistic aerosol-transmissible disease requiring adequate respiratory protection: i) Patients and procedures generate aerosols, and Ebola virus remains viable in aerosols for up to 90 minutes; ii) All sizes of aerosol particles are easily inhaled both near to and far from the patient; iii) Crowding, limited air exchange, and close interactions with patients all contribute to the probability that healthcare workers will be exposed to high concentrations of very toxic infectious aerosols; iv) Ebola targets immune response cells found in all epithelial tissues, including in the respiratory and gastrointestinal system; v) Experimental data support aerosols as a mode of disease transmission in non-human primates.

Madrid hospital staff quit over Ebola fears -- Concerns about a lack of training and safety standards have left some staff refusing to attend to possible Ebola cases at Madrid’s Carlos III hospital, where the first known person to contract the disease outside west Africa is being treated. Fourteen people are in quarantine at the hospital, including four health workers who treated Teresa Romero Ramos, the Spanish nurse who contracted the virus after treating an Ebola patient repatriated from Sierra Leone. Seven people, including two hairdressers who had given Romero a beauty treatment before she was diagnosed, entered the isolation unit on Thursday. None has tested positive for the disease except Romero, whose condition was described by the hospital as serious but stable. Her treatment has included injections with antibodies extracted from the blood of Ebola survivors. Making a surprise visit to the hospital on Friday, the prime minister, Mariano Rajoy, did not comment on allegations of substandard practices, but said a special commission had been set up to discuss measures to stop the disease spreading. At the end of Rajoy’s visit health workers gathered around his convoy, jeered and threw surgical gloves in protest at the government’s handling of Romero’s case. While no official numbers were available, Elvira González of the SAE nurses’ union said fear of Ebola had caused some staff to refuse to treat certain patients, while others had resigned.

16 Members of Doctors Without Borders Infected with Ebola, Nine Dead - (AP) — International aid organization Doctors Without Borders said that 16 of its staff members have been infected with Ebola and nine of them have died. JEMS Ebola Outbreak Coverage Speaking at a press conference in Johannesburg Tuesday, the head of Doctors Without Borders in South Africa Sharon Ekambaram said medical workers have received inadequate assistance from the international community. "Where is WHO Africa? Where is the African Union?" said Ekambaram who worked in Sierra Leone from August to September. "We've all heard their promises in the media but have seen very little on the ground." Four of the organization's medical workers who had just returned from Sierra Leone and Liberia said they were frustrated, "chasing after the curve of the outbreak," according to Jens Pederson, the aid organization's humanitarian affairs adviser. "To manage Ebola is not rocket science. It's very basic infection control and very basic protection of staff," said Pederson who said clean water, chlorine and soap were enough to disinfect an affected area.

Health-care worker with Ebola flew on commercial flight a day before being diagnosed - The second health-care worker diagnosed with Ebola had a fever of 99.5 degrees Fahrenheit before boarding a passenger jet on Monday, a day before she reported symptoms of the virus and was tested, according to public health officials. Even though there appeared to be little risk for the other people on that flight, she should not have traveled that way, Thomas Frieden, director of the Centers for Disease Control and Prevention, said during a news conference Wednesday. “She should not have flown on a commercial airline,” Frieden said. This health-care worker flew on a Frontier Airlines flight from Cleveland to Dallas-Fort Worth with more than 130 other passengers. She did not have nausea or vomit on the plane, so the risk to anyone around her is “extremely low,” Frieden said. The health-care worker was not named by public health officials, but a spokesman for  Cleveland identified her Amber Vinson. Family members told Reuters and the Dallas Morning News that Vinson is a nurse at Texas Health Presbyterian Hospital. She was part of a team that had cared for Thomas Eric Duncan, a Liberian man who flew to Texas and was diagnosed with Ebola last month, during his hospitalization in Dallas. Duncan died last week. Nina Pham, a nurse who also cared for Duncan, was diagnosed with Ebola on Sunday and was in good condition Wednesday, the hospital said. Vinson, who flew from Dallas to Cleveland on Friday, flew back to Texas on Monday, a day after Pham was diagnosed. She reported a fever on Tuesday and was isolated and tested for Ebola.

Second Ebola-infected nurse ID'd; flew domestic flight day before diagnosis | Fox News: The second nurse infected with Ebola at a Texas hospital was identified Wednesday as 29-year-old Amber Vinson, while authorities expressed concern that she took a domestic flight — reportedly to prepare for her wedding in Cleveland — just one day before coming down with symptoms of the deadly disease. "The second health care worker should not have been allowed to travel by virtue of being in an exposed group," Centers for Disease Control and Prevention (CDC) director Dr. Thomas Frieden said in a telebriefing Wednesday. "Although she had no symptoms or fever [that met the threshold] of 100.4, she did report that she took her temperature and found it to be 99.5."  Vinson, who like Nina Pham is a nurse at Texas Health Presbyterian Hospital, was identified to Reuters and the Dallas Morning News by a relative. Vinson went to the hospital displaying symptoms of the disease on Tuesday morning, after taking a Frontier Airlines flight from Cleveland to Dallas/Fort Worth on Monday night. Federal health officials are now tracking down all of Vinson's fellow passengers, the CDC said Wednesday. “The patient traveled to Ohio before it was known that the first health care worker was ill," Frieden, said. "At that point, that patient, as well as the rest of the health care team, were undergoing self-monitoring.” Ohio health officials aren't sure how many people came into contact with a Texas nurse as she visited family in the Akron area days before being diagnosed with Ebola in Dallas.

Ebola outbreak: Jet passenger alert over US nurse: US health officials are seeking 132 people who flew on a plane with a Texas nurse on the day before she came down with symptoms of Ebola. The second person infected in the US, Amber Vinson, 29, fell ill on Tuesday. Both she and nurse Nina Pham, 26, had treated Liberian Thomas Eric Duncan, who died a week ago in Dallas. A nurses' union has said those treating Duncan were not given full protection and had parts of their skin exposed More than 70 healthcare workers who may have come in contact with him at the hospital are being monitored for symptoms, the hospital's director has said. Meanwhile, the UN's Ebola mission chief says the world is falling behind in the race to contain the virus, which has killed more than 4,000 in West Africa. On Wednesday, the US Centers for Disease Control and Prevention (CDC) said it wanted to interview the passengers on Frontier Airlines flight 1143 from Cleveland, Ohio, to Dallas, Texas on 13 October. It said it was taking the measure "because of the proximity in time between the evening flight and first report of illness the following morning".

Downfall for Hospital Where Ebola Spread - — Some nurses donned layer after layer of protective garb but unknowingly raised their risk of exposure to the Ebola virus when taking the gear off. Some wore gowns that left their necks uncovered and haphazardly applied surgical tape to the bare spots. And it was two days after the Ebola victim Thomas Eric Duncan was admitted before personnel began wearing biohazard suits. For Texas Health Presbyterian Hospital, the last two and a half weeks have been a nightmare without end. And with the announcement early Wednesday that a second nurse who cared for Mr. Duncan had been infected, scrutiny of the hospital intensified as officials sought to calm both workers and patients. Long regarded as one of the finest hospitals in Texas, Presbyterian has faced continuing criticism — first for its initial misdiagnosis of Mr. Duncan, which delayed his care and placed others at risk; then for issuing contradictory statements about why its doctors did not suspect Ebola; and now for failures in safety protocol that led to the infections of two of its own. If the hospital has served as a canary in a coal mine for the country’s Ebola response, the results have not inspired confidence

Texas Hospital Violated Basic Precaution in WHO Ebola Patient Treatment Guidelines - The incompetence of Texas Health Presbyterian Hospital Dallas is staggering. In following today’s rapidly developing story of a second nurse at the hospital now testing positive for Ebola, this passage in the New York Times stands out, where the content of a statement released by National Nurses United is being discussed: The statement asserted that when Mr. Duncan arrived by ambulance with Ebola symptoms at the hospital’s emergency room on Sept. 28, he “was left for several hours, not in isolation, in an area where other patients were present.” At some point, it said, a nurse supervisor demanded that Mr. Duncan be moved to an isolation unit “but faced resistance from other hospital authorities.” The nurses who first interacted with Mr. Duncan wore ordinary gowns, three pairs of gloves with no taping around the wrists, and surgical masks with the option of a shield, the statement said.  “The gowns they were given still exposed their necks, the part closest to their face and mouth,” the nurses said. “They also left exposed the majority of their heads and their scrubs from the knees down. Initially they were not even given surgical bootees nor were they advised the number of pairs of gloves to wear.”The statement said hospital officials allowed nurses who interacted with Mr. Duncan at a time when he was vomiting and had diarrhea to continue their normal duties, “taking care of other patients even though they had not had the proper personal protective equipment while providing care for Mr. Duncan that was later recommended by the C.D.C.”

Dallas nurse Briana Aguirre: ‘We never talked about Ebola’ before Thomas Eric Duncan arrived - Texas Health Presbyterian Hospital nurse Briana Aguirre, who cared for her friend and co-worker Nina Pham after she tested positive for the Ebola virus, says she can no longer defend her hospital over how she claims it responded to the disease once Thomas Eric Duncan arrived.  “I watched them violate basic principles of nursing," Aguirre told TODAY's Matt Lauer in an exclusive interview that aired Thursday. "I would try anything and everything to refuse to go there to be treated. I would feel at risk by going there. If I don’t actually have Ebola, I may contract it there," she said.  Administrators never discussed with staff how the hospital would handle an Ebola case prior to Duncan’s arrival, Aguirre alleged.“We never talked about Ebola and we probably should have,” she said. Instead, “they gave us an optional seminar to go to. Just informational, not hands on. It wasn’t even suggested we go … We were never told what to look for.”

Hospital e-records systems like Presbyterian's cited in failures across U.S. | Dallas Morning News: Electronic record systems similar to the one that was briefly blamed when a Dallas hospital didn’t spot the nation’s first Ebola case have been repeatedly cited in delays in treatment, dosage mistakes and failures to detect fatal illnesses. Frustrated medical professionals across the country told The Dallas Morning News that the expensive systems — the technology used by Texas Health Presbyterian Hospital Dallas, part of a $200 million investment by its parent company — are often unwieldy and problematic. Experts say the cumbersome designs have forced nurses to enter patient information that is crucial for diagnoses into digital systems late, potentially affecting when or how a patient is treated. They have documented cases where patient histories and other information have seemingly vanished from software or ended up in the wrong place. And researchers have found that emergency room doctors are more frenzied in keeping up with data demands because of the complicated systems, even hiring personal scribes to input information for them on the fly. “Over the years, we’ve seen problems with overhype and overenthusiasm of these systems, leading to design and implementation failures, and a total lack of regulation,”

Lax U.S. Guidelines on Ebola Led to Poor Hospital Training, Experts Say - Many American hospitals have improperly trained their staffs to deal with Ebola patients because they were following federal guidelines that were too lax, infection control experts said on Wednesday.  Federal health officials effectively acknowledged the problems with their procedures for protecting health care workers by abruptly changing them. At 8 p.m. Tuesday, the Centers for Disease Control and Prevention issued stricter guidelines for American hospitals with Ebola patients.They are now closer to the procedures of Doctors Without Borders, which has decades of experience in fighting Ebola in Africa. In issuing the new guidelines, the C.D.C. acknowledged that its experts had learned by working alongside that medical charity.The agency’s new voluntary guidelines include full-body suits covering the head and neck, supervision of the risky process of taking off protective gear, and the use of hand disinfectant as each item is removed.Sean G. Kaufman, who oversaw infection control at Emory University Hospital while it treated Dr. Kent Brantly and Nancy Writebol, the first two American Ebola patients, called the earlier C.D.C. guidelines “absolutely irresponsible and dead wrong.”

Will Ebola Vanquish the MBAs Who Run Our Hospitals? --  Yves Smith -- Yves here. This discussion from the BBC gives a damning picture of the performance of the supposedly “best of all possible worlds” US health care system has been in dealing with Ebola: The Dallas Presbyterian Hospital treated one Liberian, Thomas Duncan, who died. From caring for him, two nurses have now contracted the disease. Nearly 80 health workers are under observation. It is claimed by the biggest nursing union that those charged with his care did not have the right protective clothing, flesh was exposed, there were no clear guidelines of what to wear, how to wear it, and how to disrobe. The US Centers for Disease Control and Prevention (CDC) concedes that it is possible flesh was left exposed when treating Duncan. And that is why among those nearly 80 still under observation, no one can rule out the possibility that there will be further cases. This is a crude, and damning, statistic but so far Medecins sans Frontieres (Doctors without Borders) has treated thousands of people in West Africa with Ebola, and has seen 16 medical workers contract the disease. This hospital in Dallas has treated just one patient, and has two sick healthcare staff. Note how the BBC contacted an organization with actual experience in treating Ebola. How many US news organizations have interviewed Medecins sans Frontiers? Lambert and I haven’t seen a single mentions of them in the large number of Ebola-related stories we’ve read between us. Given how deeply embedded exceptionalism is in the American psyche, odds are high that the CDC hasn’t talked to them either. This sorry performance looks even worse when you read a New York Times story on how the hospital handled the outbreak. Even with thin details and image-burnishing efforts by PR giant Burson Marsteller, staff clearly had no idea what to do and their improvisations often increased risks. Ironically, Presby, as it is called locally, is also described as the Neiman Marcus of hospitals, with a stellar local image and a Margaret Perot wing. But while it does well with treatments for the affluent, like heart surgeries, emergency care is another matter:

Obama cancels campaign trip; vows Ebola ‘SWAT team’ - Jennifer Epstein - POLITICO.com: President Barack Obama sought to reassure the U.S. public Wednesday that Ebola is under control domestically and that his administration will respond “in a much more aggressive way” to new cases. After meeting with a group of senior advisers who have been involved in the Ebola response, Obama told reporters that the Centers for Disease Control would deploy a “SWAT team” to “go in as soon as a new case is diagnosed,” preferably within 24 hours. Obama, speaking after a meeting with agency officials handling the response, reminded Americans that Ebola can only be contracted through direct contact with the bodily fluids of someone infected with the disease. “Here’s what we know about Ebola: It’s not like the flu. It’s not airborne,” he said, adding that last month in Atlanta he shook hands with, hugged and kissed nurses who had been working on the Ebola response there.

Obama May Name ‘Czar’ to Oversee Ebola Response -  President Obama raised the possibility on Thursday that he might appoint an “Ebola czar” to manage the government’s response to the deadly virus as anxiety grew over the air travel of an infected nurse.Schools closed in two states, hospitals and airlines kept employees home from work, and Americans debated how much they should worry about a disease that has captured national attention but has so far infected only three people here.A federal official said that the Centers for Disease Control and Prevention had broadened its search for contacts of Amber Joy Vinson, the second nurse infected with Ebola at Texas Health Presbyterian Hospital here, after interviewing family members who gave a different version of events from Ms. Vinson’s. The nurse had said she had a slight fever before boarding a flight from Cleveland to Dallas on Monday. But family members said she had appeared remote and unwell during her trip to Ohio over the weekend. The C.D.C. said it was now tracking down passengers on Frontier Airlines Flight 1142 from Dallas to Cleveland, which Ms. Vinson took last Friday. It had already been tracing passengers on her Monday flight. Ms. Vinson’s case raised flags for investigators because the day after she arrived home in Dallas, she reported substantial symptoms. Health experts say those would be unlikely to develop in just one day.

Researchers Expect Over 20 US Ebola Cases In Weeks, "You Don't Want To Know Worst Case" - "We have a worst-case scenario, and you don't even want to know," warns Alessandro Vespignani, a researcher creating simulations of infectious disease outbreaks, but there could be as many as two dozen people in the U.S. infected with Ebola by the end of the month. The projections only run through October because it’s too difficult to model what will occur if the pace of the outbreak changes but, as Bloomberg reports, Vespignani warns if the outbreak becomes more widespread in other regions, it "would be like a bad science fiction movie."

The Ebola Effect Arrives: Half Of Americans Will Avoid International Air Travel Out Of Ebola Fears --Remember when Obama said "Putin was isolated", despite the Russian having the explicit support of the BRIC nations, and thus at least half of the world's population? Well, as irony would always have it with this particular US president, the tables have promptly turned, and paradoxically where ISIS failed to "terrorize" Americans into a state of paralyzed daze, the West African virus has succeeded in isolating none other than America, and as a brand new Reuters poll reveals, nearly half of Americans are so concerned about the Ebola outbreak that they are avoiding international air travel!

WHO Warns Up To 10,000 Ebola Cases Per Week By December -- With more than 4,400 people dead from Ebola - mainly in West Africa - senior WHO official Bruce Aylward told reporters on Monday that the outbreak was continuing to spread geographically to new districts in the capitals of Sierra Leone, Liberia and Guinea. As The BBC reports, the WHO says it is alarmed by the number of health workers exposed to the disease and warned the epidemic threatens the "very survival" of societies and could lead to failed states. "Any sense that the great effort that's been kicked off over the last couple of months is already starting to see an impact, that would be really, really premature," Aylward said, as WHO further warned the number of new Ebola cases may jump to 10,000 a week by Dec. 1 as the deadly viral infection spreads - "the virus is still moving geographically and still escalating in capitals, and that’s what concerns me."

WHO Shocked At 427 Ebola-Infected Healthcare Workers As Cases Top 9000, Deaths Exceed 4500 - If trained professionals (in West Africa and the US) are becoming infected by the deadly Ebola virus, what hope is there for fellow passengers in a tightly-packed metal tube? The World Health Organization expects Ebola cases to top 9000 this week and deaths to exceed 4500 as they shockingly note 427 healthcare workers are now infected. The economic impact of Ebola continues to rise as Liberia slashes its GDP estimate and East African nations discuss strategies to stop the spread from the West. In Europe, Germany is sending aid, the Spanish nurse is stable but Madrid airport activated emergency measures due to a suspected Ebola passenger. US screening restrictions increase as Yale New Haven Hospital is dealing with a patient with Ebole-like symptoms. Politicians begin debating travel bans as Dallas is expected to approve a "state of disaster" today. Contained?

A Layman’s Guide to the Mathematics of Ebola -- Bob Goodwin - Ebola is a very nasty disease, but it is actually fairly easy to understand mathematically, which is why the disease prevention folks are confident in the best ways to manage this epidemic that otherwise seems to be growing exponentially. I was motivated to research and write this because my crude understanding of the disease was that it was doubling every 3 weeks and killing 70% of those infected. It was seeming to drive societies to a militarized quarantine that was doomed to create panic and fail, and the pandemic had long since overwhelmed the health care system in the region.It seemed obvious to me that the pandemic could not be contained within any set of borders, and that there was a point that even our own, more extensive health care system would become overloaded, and our country would soon look like Liberia. However, this is not going to happen, and it can be explained fairly easily.  The most elemental mathematical issue is the transmissibility of the virus. 68% of transmissions occur in the first week of an infection, 26% in the second week, and 5% in the third week. Whether or not you survive, you will not get re-infected (or that is the theory). According to the literature, every infection naturally causes an additional two, but as people learn, the rate of infection declines. Using the published rate of the existing pandemic progression, I calculate that the infection rate is currently 1.66, which is to say that even in Liberia they are learning pretty quickly.If the rate (called R0 in the literature) remains at 1.66, the number of new infections will double every 3 weeks. There is a belief that only 20% of the population is naturally immune to Ebola, and with an exponential pandemic, 70% of the remaining 80% of the population will eventually die. That process would be complete – worldwide – about June of next year. The population will drop in half. Of course things like this have happened in history. But our advantage today is information. We learn faster because information is accurate and flows better.

Ebola epidemic 'could lead to failed states', warns WHO: The Ebola epidemic threatens the "very survival" of societies and could lead to failed states, the World Health Organization (WHO) has warned. The outbreak, which has killed some 4,000 people in West Africa, has led to a "crisis for international peace and security", WHO head Margaret Chan said. She also warned of the cost of panic "spreading faster than the virus". Meanwhile, medics have largely ignored a strike call in Liberia, the centre of the deadliest-ever Ebola outbreak. Nurses and medical assistants had been urged to strike over danger money and conditions. However, most were working as normal on Monday, the BBC's Jonathan Paye-Layleh in Monrovia said. A union official said the government had coerced workers - but the government said it had simply asked them to be reasonable.

WHO incapable of combatting Ebola: That is our fault as much as WHO staff’s - The World Health Organization is coming under attack for failing to control the outbreak of Ebola in West Africa. While one would hope that the United Nations agency most responsible for health had responded more vigorously and with more effect, that is not the agency WHO has become. And member states of the United Nations only have themselves to blame. There was a time when WHO could deploy commando-style medical teams of foreign doctors, who could swoop in, set up mobile clinics, seek out those in need and inoculate or treat as required by an emergency. These teams also established prevention and treatment programs for major killers like malaria, and even achieved the successful eradication of Smallpox in the 70s. But for at least 35 years the organization has become more overtly political – and the politics is driven by member states. The “assessed contributions” based on GDP and other factors of member states, that fund WHO’s general budget were just under a billion dollars annually for the past few years, which is far less than the total budget of over four billion dollars. The remainder of the budget is made up of voluntary contributions, largely funding projects of special interest to various member states and private interests, such as the Gates Foundation and the drugs industry. It is why there have been efforts assessing or campaigning for or against certain activities. So interests have included deep vein thrombosis in travelers, campaigns against obesity, sin taxes on products from cigarettes to sugary drinks and a whole bunch of other activities that take WHO away from its core mission – including limiting its ability to conduct rapid intervention in infectious disease outbreaks, such as Ebola.

Ebola epidemic is a ‘Black Swan’ event, say U of M infectious disease experts -- West Africa’s Ebola epidemic is a “Black Swan” event that is likely to severely alter how the world approaches future global public health crises — even more so than the AIDS epidemic has done — according to a commentary published Friday in JAMA Internal Medicine by Michael Osterholm, director of the University of Minnesota’s Center for Infectious Disease Research and Policy (CIDRAP). The commentary argues that more so than any other infectious disease, Ebola is threatening regional and country stability in West Africa, as well as exposing serious flaws  — driven in large part by budget cuts — in the ability of the World Health Organization (WHO) to lead a coordinated and effective response.The term “Black Swan” was coined in 2007 by risk analyst and scholar Nassim Nicholas Taleb to describe an event that occurs unexpectedly (“because nothing in the past can convincingly point to its possibility”), that has a major — indeed, extreme — impact, and that becomes explained after the fact with “concocted” rationalizations. Osterholm and his commentary co-authors propose that the unfolding Ebola epidemic has all the makings of such an event, although with one exception  — “the global public health community will be working to contain it for months, or years, to come.”

Ebola and the Five Stages of Collapse -- The scenario in which Ebola engulfs the globe is not yet guaranteed, but neither can it be dismissed as some sort of apocalyptic fantasy: the chances of it happening are by no means zero. And if Ebola is not stopped, it has the potential to reduce the human population of the earth from over 7 billion to around 3.5 billion in a relatively short period of time. Note that even a population collapse of this magnitude is still well short of causing human extinction: after all, about half the victims fully recover and become immune to the virus. But supposing that Ebola does run its course, what sort of world will it leave in its wake? More importantly, now is a really good time to start thinking of ways in which people can adapt to the reality of a global Ebola pandemic, to avoid a wide variety of worst-case outcomes. After all, compared to some other doomsday scenarios, such as runaway climate change or global nuclear annihilation, a population collapse can look positively benign, and, given the completely unsustainable impact humans are currently having on the environment, may perhaps even come to be regarded as beneficial.  I understand that such thinking is anathema to those who feel that every problem must have a solution—or it's not worth discussing. I certainly don't want to discourage those who are trying to stop Ebola, or to delay its spread until a vaccine becomes available, and would even help them if I could. I am not suicidal, and I don't look forward to the death of roughly half the people I know. But I happen to disagree that thinking about what such an outcome, and perhaps even preparing for it in some ways, is necessarily a bad idea. Unless, of course, it produces a panic. So, if you are prone to panic, perhaps you shouldn't be reading this.

The "Trouble with Antibiotics" in U.S. animal agriculture production - Frontline last night had an excellent report, the Trouble with Antibiotics, on the plausible link between dangerous antibiotic resistant diseases and the overuse of antibiotics in U.S. meat production. Poultry and hog producers use large amounts of antibiotics even in healthy animals, as a growth promoter and to prevent disease. As bacteria evolve to become resistant to these antibiotics, we lose important tools for treating deadly diseases in humans, including Methicillin-resistant Staphylococcus aureus (MRSA). For readers who want to inspect the scientific evidence for themselves, here are some links to research mentioned in the Frontline report.Jessica Rinsky, Lance Price (interviewed in the report), and colleagues found livestock-associated MRSA in workers from industrial livestock operations but not workers from antibiotic-free livestock operations.Andrew Waters, Lance Price, and colleagues found that MRSA bacteria reaches meat on supermarket shelves. Joan Casey, Brian Schwartz, and colleagues found in the Journal of the American Medical Association (JAMA) that antibiotic-resistant bacteria cases in humans were geographically associated with the proximity of nearby meat producers in Pennsylvania. The Frontline interviewer did a great job questioning the scientists and explaining both the strengths and limits of this type of geographic association.

Exclusive: U.S. pork group counters antibiotics report with online campaign (Reuters) - A leading U.S. pork association will use an online marketing campaign to counter a critical television documentary on antibiotics use in livestock, pointing consumers to industry-funded websites that defend the practice, according to an association email. The National Pork Board sent out an email about the strategy to food and agriculture officials in advance of Tuesday evening's PBS Frontline program entitled, "The Trouble with Antibiotics". The industry was taking steps to "monitor, engage and respond to any and all media coverage of this story," Jarrod Sutton, vice president for social responsibility at the National Pork Board, said in the email seen by Reuters. true One of those steps is to use "Paid Search Engine Optimization (SEO)", according to the email. SEO is a widely employed marketing tactic that aims to get a website to show up higher in a search engine’s results for particular search terms. "The industry will tie any consumer searches for 'PBS Frontline' and 'Antibiotics' to the U.S. Farmers and Ranchers Alliance site, Food Source," the email stated. "Included in these searches will be the terms 'pork, antibiotics and Frontline.' In those cases, users will be directed to the National Pork Board and [National Pork Producers Council] NPPC site PorkCares.org."

Alarming Levels of Toxics Found in Columbia River Fish: The mighty Columbia River rolls down from the Canadian rockies to form the border between Oregon and Washington State. Rolling along in its waters are the fish that have been the backbone of the region’s life for countless centuries. These days the fish are carrying some things the Native tribes of the region didn’t have to worry about back then: high levels of cancer-causing PCBs, heavy metals like mercury and arsenic and toxic flame retardants, chemicals that can disrupt the endocrine and reproductive systems. That’s according to Columbia Riverkeeper, which recently announced phase 2 of its “Is Your Fish Toxic?” study, measuring toxic pollution in five different fish intended for  human consumption. Obviously the answer is “yes.” “Fish advisories are not enough,” said Columbia Riverkeeper‘s water quality director Lorri Epstein. We need immediate reduction and prevention of toxic pollution entering our river to protect the health of our communities.”

For Lake Erie’s Toxic Algae, Blame Climate Change And Invasive Mussels -- Lake Erie is increasingly plagued by toxic algae blooms each summer, and a new study suggests how climate change and mussels, of all things, may be to blame. On Thursday, the Columbus Dispatch reported on the new research and computer modeling, which show neither rising water temperatures nor runoff from fertilizers and sewage — the traditional causes cited — fully account for the blooms. According to the paper, published in Water Resources Research, climate change may be providing cyanobacteria — the toxic blue-green algae that’s been invading the lake — a competitive edge over other species of algae.On top of that, invasive species of mussels which were transported to the Great Lakes in the 1980s by ocean shipping may also be killing off the other beneficial species of algae while avoiding the cyanobacteria, again giving them more room to spread. ;When you have these calmer weather conditions, the cyanobacteria can rise to the surface and create scum layers that shade out other species of algae, which makes cyanobacteria more dominant in the water,” said Daniel Obenour, who was the lead author of the study while still at the University of Michigan Water Center, though now he hails from North Carolina State University. Climate change also contributes to the rising water temperatures and the phosphorous runoff from agricultural fertilizer and sewage treatment plants. The Earth’s natural cycles plow the vast majority of the additional heat from global warming into the oceans and other major water bodies.

Drought Dries Up California Hydropower  - As California’s historic drought dries up the state’s water supplies and withers its crops, it’s also shaking up the way electricity is produced there.There’s so little water available in the state’s reservoirs that California’s ability to produce hydropower has been cut in half, while its use of renewables and natural gas power has spiked, a U.S. Energy Information Administration report published Monday shows. Normally, 20 percent of California’s power comes from hydroelectric sources. But not anymore.For the first six months of 2014, only 10 percent of the state’s electricity was hydropower, roughly between 900,000 megawatt hours in January and 2.3 million megawatt hours in June, EIA data show. The average hydropower generation for January is  about 2 million megawatt hours, and nearly 4 million megawatt hours in June.Most of California has been mired in an extreme or exceptional drought since 2011, a phenomenon that recent studies show has a complicated connection to climate change. As of the latest drought monitor, more than 58 percent of California is experiencing the most intense drought conditions, while the entire state is currently seeing some level of severe or extreme drought.Nearly all of California’s reservoir levels are below average for this time of year, with the water level of Lake Shasta, one of the state’s largest reservoirs, currently sitting at 42 percent of historical average, said California Department of Water Resources spokesman Ted Thomas.

It's Official: California Just Entered 4th Year Of Severe Drought: In California, the start of October brings an anniversary with little cause for celebration. The state ended its its third driest year on record and entered a fourth consecutive year of drought, as the U.S. Geological Survey’s water calendar year came to a close Wednesday. Amid a rare autumn heat wave bringing triple-digit temperatures to the state, officials are warning Californians to prepare for the near certainty that the coming months will do little to relieve the parched state. “Day-to-day conservation -- wise, sparing use of water -- is essential as we face the possibility of a fourth dry winter,” Department of Water Resources Director Mark Cowin said in a press release at the close of the water year.It would take 150 percent of the normal precipitation in the new water year to pull the state out of drought, state climatologist Mike Anderson told California media outlet KQED. KQED also reports that odds are in favor of only a “pipsqueak” El Niño in the coming months, which experts say could bring no rain at all.

The Risks of Cheap Water - This summer, California’s water authority declared that wasting water — hosing a sidewalk, for example — was a crime. Next door, in Nevada, Las Vegas has paid out $200 million over the last decade for homes and businesses to pull out their lawns.  It will get worse. As climate change and population growth further stress the water supply from the drought-plagued West to the seemingly bottomless Great Lakes, states and municipalities are likely to impose increasingly draconian restrictions on water use. Such efforts may be more effective than simply exhorting people to conserve. In August, for example, cities and towns in California consumed much less water — 27 billion gallons less —than in August last year. But the proliferation of limits on water use will not solve the problem because regulations do nothing to address the main driver of the nation’s wanton consumption of water: its price. “Most water problems are readily addressed with innovation,” “Getting the water price right to signal scarcity is crucially important.”The signals today are way off. Water is far too cheap across most American cities and towns. But what’s worse is the way the United States quenches the thirst of farmers, who account for 80 percent of the nation’s water consumption and for whom water costs virtually nothing. Adding to the challenges are the obstacles placed in the way of water trading. “Markets are essential to ensuring that water, when it’s scarce, can go to the most valuable uses,” said Barton H. Thompson, an expert on environmental resources at Stanford Law School. Without them, “the allocation of water is certainly arbitrary.”

Sorry, California. Winter Isn’t Going to Fix Your Drought - California's crippling drought is not expected to improve over the winter, according to new forecast data released today by the National Oceanic and Atmospheric Administration.  Nearly 60 percent of the state is experiencing exceptional drought—the worst category—NOAA reported. The map above shows that the northern California coast could see some improvement. But in the Central Valley, a critical source of fruits, nuts, and vegetables for the whole country, conditions won't be getting better any time soon. A little rain is expected, NOAA forecaster Mike Halpert said in a statement, but not enough to reverse the trend. "While we're predicting at least a 2 in 3 chance that winter precipitation will be near or above normal throughout the state, with such widespread, extreme deficits, recovery will be slow,” he said. The report adds that El Niño, which tends to brings wet weather for the West Coast, is expected to be weak this winter and thus won't provide much relief.  California's winter is also more than 50 percent likely to be warmer than average:

Where Is El Nino? And Why Do We Care? -- That El Niño we’ve been tracking for months on end — the one that is taking its sweet time to form — still hasn’t emerged, forecasters announced Thursday.  The climate impacts typically associated with an El Niño during the months of December, January, and February. But the reason we still care so much about it, following all of its tiny fluctuations toward becoming a full-blown El Niño, is that it can have important effects on the world’s weather, including in the U.S. It can even boost global temperatures, helping set the planet on the course to be the warmest year on record. In their monthly update, scientists at the National Oceanic and Atmospheric Administration’s Climate Prediction Center and the International Research Institute for Climate and Society at Columbia University said there is still a two-thirds chance that a weak El Niño event emerges and that it will likely do so in the October-to-December timeframe, lasting until spring 2015. “I think it’s pretty safe to say that we’re essentially taking one step forward, that is one month forward since last month,” CPC forecaster Michelle L’Heureux told Climate Central.

Climate change alters the ecological impacts of seasons: If more of the world's climate becomes like that in tropical zones, it could potentially affect crops, insects, malaria transmission, and even confuse migration patterns of birds and mammals worldwide. George Wang, a postdoctoral fellow at the Max Planck Institute for Developmental Biology in Tübingen, Germany, is part of a research tandem that has found that the daily and nightly differences in temperatures worldwide are fast approaching yearly differences between summer and winter temperatures. Only recently, the UN Climate Summit came together in New York to further address the necessary measures to protect the Earth from a dramatic climate change. It has long been recognised that an increase of the average temperature will cause rising oceans and thus flooded landscapes. Particularly, regions close to the coasts are endangered. While it is well known that climate change has increased average temperatures, it is less clear how temperature variability has altered with climate change. Postdoctoral fellow George Wang, from Detlef Weigel's Department for Molecular Biology at the Max Planck Institute for Developmental Biology, has now examined this issue in more depth.

2014 Extreme Weather: Looking for Climate Ties - The ongoing, intense drought in California; the nonstop storms that left parts of Great Britain waterlogged all winter; the bitter winter cold in the eastern U.S. — these are just some of the extreme weather events from this year that could be examined in an annual report that looks for the fingerprints of climate change in such occurrences. The report, a supplement published in the journal Bulletin of the American Meteorological Society since 2011, rounds up some of the most notable events from the previous year and tries to answer the question increasingly being asked: Did climate change cause this? Not only that, but it attempts to do so relatively quickly, (in the world of science, anyway) after the event, with the studies coming out in early October of the following year. Extreme event attribution, as the nascent field is called, is a quickly growing one, with more and more researchers publishing studies that aim to tease apart the influences of climate change and natural variability on some of the biggest weather outliers we experience — and do so on shorter timescales.“People are really engaged when events are happening and we’re trying to speak to that by saying something that’s relatively robust” and fairly close to the event, said Peter Stott, a climatologist with the U.K. Met Office Hadley Centre and one of the report’s editors. The effort isn’t without critics, though, who say such efforts can confuse the conversation about what we know about the effects of global warming.

The Planet Just Had Its Hottest September On Record - Last month was the warmest September globally since records began being kept in 1880, NASA reported Sunday. January through September data have 2014 already at the third warmest on record. Projections by NOAA make clear 2014 is taking aim at hottest year on record. Remarkably, this September record occurred even though we’re still waiting for the start of El Niño, which reveals just how strong the underlying trend of human-caused warming is. It’s usually the combination of the long-term manmade warming trend and the regional El Niño warming pattern that leads to new global temperature records. In this country, temperatures were quite hot in the West, and just “normal” or very close to the 1951-1980 average in the East, as this NASA chart shows:

NASA: Hottest September On Record Globally Pushes 2014 Closer To Hottest Year On Record - Last month was the warmest September globally since records began being kept in 1880, NASA reported Sunday. January through September data have 2014 already at the third warmest on record. Projections by NOAA make clear 2014 is taking aim at hottest year on record. Remarkably, this September record occurred even though we’re still waiting for the start of El Niño, which reveals just how strong the underlying trend of human-caused warming is. It’s usually the combination of the long-term manmade warming trend and the regional El Niño warming pattern that leads to new global temperature records. In this country, temperatures were quite hot in the West, and just “normal” or very close to the 1951-1980 average in the East, as this NASA chart shows: For the second month in a row, it was so hot over West Antarctica, that NASA had to put in the color brown to cover the 4°C to 8.7°C (7°F to over 15°F!) anomalous warmth. Sure, recent studies have found that the huge glaciers in the West Antarctic ice sheet “have begun the process of irreversible collapse,” but it’s not like “many of the world’s coastal cities would eventually have to be abandoned” if that keeps up, is it?

Barrow's October temperature increases 7 °C in just 34 years -  If you doubt that parts of the planet really are warming, talk to residents of Barrow, the Alaskan town that is the most northerly settlement in the US. In the last 34 years, the average October temperature in Barrow has risen by more than 7 °C − an increase that, on its own, makes a mockery of international efforts to prevent global temperatures from rising more than 2 °C above their pre-industrial level. A study by scientists at the University of Alaska Fairbanks analysed several decades of weather information. These show that temperature trends are closely linked to sea ice concentrations, which have been recorded since 1979, when accurate satellite measurements began. The study, published in the Open Atmospheric Science Journal, traces what has happened to average annual and monthly temperatures in Barrow from 1979 to 2012.  In that period, the average annual temperature rose by 2.7 °C. But the November increase was far higher − more than six degrees. And October was the most striking of all, with the month’s average temperature 7.2 °C higher in 2012 than in 1979. Gerd Wendler, the lead author of the study and a professor emeritus at the university’s International Arctic Research Center, said he was “astonished.” He told the Alaska Dispatch News: “I think I have never, anywhere, seen such a large increase in temperature over such a short period.” The study shows that October is the month when sea ice loss in the Beaufort and Chukchi Seas, which border northern Alaska, has been highest. The authors say these falling ice levels over the Arctic Ocean after the maximum annual melt are the reason for the temperature rise. “You cannot explain it by anything else,” Wendler said.

The Oceans Are Warming, Expanding, and Becoming Dangerously Acidic - We already know that climate change is warming, acidifying, and expanding the oceans. We just didn't know how fast, or how drastically. We still don't, exactly, but we know this: Things are looking as grim below the ever-rising waves as they are above. This week brought an onslaught of bad news for the planet's oceans—no fewer than four major scientific studies and reports were released detailing the deleterious effect humanity's relentless carbon habit is having on the marine world.  Every time I sat down to write about one of them, it seemed, another one was already making headlines (in the tiny, 'green' corner of the internet where people read about things like the impending collapse of vast ecosystems, anyway). So our oceans haven't exactly turned into hot acid baths—but they're a lot closer to that than they used to be. Two landmark studies revealed that the oceans are warming up to twice as fast as we previously thought—which is a big deal, because oceans absorb some 90 percent of the heat generated by human activity. The 'missing' warming comes from the world's southern oceans, which had never received a proper comprehensive survey—shipping vessels had already collected plenty of data in northern oceans. To fill the void, scientists floated hundreds of ocean-faring drones called Argos, which bob and dive beneath the surface to take measurements, around the globe. As the authors of the Nature Climate Change study note, their findings "have important implications for sea level, the planetary energy budget and climate sensitivity assessments." (The second study, published in the same journal, found that the warming was primarily confined to shallow waters, and that deep sea temperatures seemed largely stable.)

Great Barrier Reef: 'a massive chemistry experiment gone wrong'  -- It has long been known that pollution is having a devastating impact on the Great Barrier Reef but now scientists are warning that it may also be dramatically increasing the rate of ocean acidification in inshore areas of the region. Dr Sven Uthicke, a senior research scientist at the Australian Institute of Marine Science, has with colleagues this week published a paper in the journal PLOS one, on ocean acidification in the reef. The study compares the reef’s inshore and offshore waters, and information on present-day water quality with 30-year-old data. He said there was a complex interplay between chemistry and biology in the ocean, and the team suspected that the increased pollution in inshore areas decreases the light available for organisms to photosynthesise and thus “absorb” excess CO2. “Because it’s darker there might be less productivity and the carbon dioxide levels go up,” he said. The study, Coral Reefs on the Edge? Carbon Chemistry on Inshore Reefs of the Great Barrier Reef,reads as though a massive chemistry experiment has gone wrong on one of the country’s most precious ecosystems. As the researchers explain: “When carbon dioxide from the atmosphere dissolves in water, it causes ocean acidification, slightly lowering the pH of the water and changing its carbonate chemistry. This in turn makes it harder for a range of marine animals to form their carbonate shells and skeletons.” Acidification of seawater is especially harmful to coral reefs and shells but, as scientists have been learning in recent years, its impacts are also far more subtle, changing the homing instincts of fish and even their ability to detect predators.

Federal Watchdog: U.S. Government Not Doing Enough To Stop Oceans From Turning Acidic -- The federal government agencies tasked with studying, monitoring, and preventing the widespread acidification of our oceans have not been doing their job as well as they could be, according to a report released Tuesday by the U.S. Government Accountability Office (GAO). The National Oceanic and Atmospheric Administration, the National Science Foundation, and NASA have indeed been spending money on efforts to study ocean acidification, a phenomenon that happens when oceans absorb the carbon dioxide humans emit from power plants, deforestation, manufacturing, and driving. But more of that money needs to go toward actual strategies to mitigate and stop ocean acidification if detrimental impacts to ocean ecosystems, and by extension the U.S. economy, are to be avoided, the GAO said. “GAO recommends the appropriate entities within the Executive Office of the President take steps to improve the federal response to ocean acidification,” the report said. “[That includes] estimating the funding that would be needed to implement the research and monitoring plan and designating the entity responsible for coordinating the next steps in the federal response.”Ocean acidification is one of the biggest and least-talked-about effects of global warming. More than 25 percent of all human-made carbon emissions are absorbed by the ocean, and because of that, their acid levels have increased by a staggering 26 percent over the last 200 years, according to the U.N. Convention on Biological Diversity.

New Study Details Alarming Acceleration In Sea Level Rise -- Melting polar and glacial ice and thermally expanding ocean water have accelerated sea level rise to the highest rate in at least 6,000 years according to a new study in the Proceedings of the National Academy of Sciences. Using data from ancient sediment samples from around Asia and Australia, researchers looked back at 35,000 years of sea level history, finding that over the last 6,000 years little changed — until 150 years ago. Using indicators of the era’s sea level, like location of ancient tree roots and mollusks, the scientists’ reconstruction found no evidence that sea levels fluctuated by more than about eight inches during the relatively stable period that lasted between 6,000 and about 150 years ago. Then, since the onset of the industrial revolution, sea levels have already risen by about that same amount. The scientists attribute climate change and rising temperatures that cause polar and glacial ice to melt and thermal expansion of the oceans as the primary cause for the rapid and extremely unusual increase in sea level. Water expands as it warms, and there is enough warming water in the ocean to cause a significant impact on sea levels. The 35,000-year time frame was chosen because it represents an interglacial period with warmer global temperatures separating ice ages. The current Holocene interglacial has persisted since the end of the Pleistocene, about 12,000 years ago, with interglacial periods generally experiencing intervals of approximately 40,000 to 100,000 years. The researchers found that ice started melting 16,000 years ago and stopped about 8,000 years ago, but sea levels didn’t start to slow down until about 6,000 years ago.

In 15 Years, Floods Will Be a Part of Everyday Life on the East Coast - Live on the East Coast? Rising sea levels will cause problems for your home and community a lot sooner than you probably think. In a new report, the Union of Concerned Scientists (UCS) forecasts that 30 major cities on the East Coast will face more frequent and extensive flooding in 15 years time. In 30 years, flooding will be a near-daily occurence in nine of these cities. The sea level has risen roughly eight inches globally from 1880 to 2009, largely due to global warming, but the rise has been over 10 inches along parts of the U.S. Atlantic coast. Higher sea level leads to higher tides, which can flood cities' streets, waterfronts, and low-lying properties. As extreme high tides become more common, UCS researchers predict that things like power outages, lost cell phone coverage, and impassable roadways will become challenges of daily life. “Today, when the tide is extra high, people find themselves splashing through downtown Miami, Norfolk and Annapolis on sunny days and dealing with flooded roads in Atlantic City, Savannah, and the coast of New Hampshire," said Melanie Fitzpatrick, a climate scientist at UCS and co-author of the report. "In parts of New York City and elsewhere, homeowners are dealing with flooded basements, salt-poisoned yards, and falling property values, not only because of catastrophic storms, but because tides, aided by sea level rise, now cause flooding where they live.”

Worst-Case Scenario For Sea Level Rise Is 6 Feet By 2100 — Or Is It Worse Than That? -- The worst-case scenario for sea level rise is 6 feet (1.8 meters) by 2100, according to a new study. Unfortunately, this study is already out of date because it is based on expert opinion from back in 2012.  This year, however, we’ve seen multiple bombshell studies on the growing prospect for West Antarctic Ice Sheet collapse — and similar findings that “Greenland will be far greater contributor to sea rise than expected.”   Even so, the plausible worst-case is important to understand because it is what should drive planning and “adaptation.” Also, avoiding the worst-case is typically a driving force behind prevention measures (people quit smoking because it might kill them or cause cancer) — in this case, slashing carbon pollution. In fact, as the study points out, given a sufficient level of risk of high climate impacts, “no cost of mitigation is too high to justify.” Significantly, as the news release for the study notes, the major Fifth Assessment report (AR5) of the U.N.’s Intergovernmental Panel on Climate Change (IPCC) “was not able to come up with an upper limit for sea level rise within this century.” There are five core contributors to warming-driven sea level rise, according to the study:

  • Thermal expansion
  • Glacier ice loss
  • Greenland ice loss
  • Antarctic Ice loss
  • Changes in land water storage

Mystery of Ocean Heat Deepens as Climate Changes -  The oceans are major players in the climate system, absorbing about 90 percent of the heat of global warming. To understand global warming, scientists must first understand the oceans. "When we think about global warming, what we should really thinking about, to be honest, is ocean warming," said Paul Durack, a climate modeler at Lawrence Livermore National Laboratory (LLNL). Improved data about the oceans from the Argo floats caused a splash this week as two studies in Nature Climate Change challenged conventional thinking. Durack and his colleagues at LLNL found that the Southern Hemisphere's oceans have warmed at a higher rate over the past 35 years than previously thought. If that is true, the repercussions would be huge. It would mean that scientists have missed accounting for a portion of the heat resulting from human emissions. Scientists have calculated that a doubling of carbon dioxide concentrations would warm the planet by 1.5 to 4.5 degrees Celsius. Durack's results would place the planet's sensitivity to CO2 toward the higher end of this range. A second study, also published in Nature Climate Change, found that the deepest parts of the ocean, beyond 6,500 feet, have not warmed by very much in the past decade. Much of global warming's impacts are playing out closest to the surface, said Joshua Willis, a scientist at NASA's Jet Propulsion Laboratory and co-author of the study.

Fish failing to adapt to rising carbon dioxide levels in ocean - Rising carbon dioxide levels in oceans adversely change the behaviour of fish through generations, raising the possibility that marine species may never fully adapt to their changed environment, research has found. The study, published in Nature Climate Change, found that elevated CO2 levels affected fish regardless of whether their parents had also experienced the same environment. Spiny damselfish were kept in water with different CO2 levels for several months. One level was consistent with the world taking rapid action to cut carbon emissions, while the other was a “business as usual” scenario, in which the current trend in rising emissions would equate to a 3C warming of the oceans by the end of the century. The offspring of the damselfish were then also kept in these differing conditions, with researchers finding that juveniles of fish from the high CO2 water were no better than their parents in adapting to the conditions. This suggests that fish will take at least several generations to cope with the changed environment, with no guarantee they will ever do so, meaning several species could be at risk of collapsing due to climate change.

UN alarm over shrinking biodiversity - UN Environment Program chief Achim Steiner told conference delegates on Monday that the UN's progress report on biodiversity made for "very sobering" reading. The document should make the "whole world sit up," Steiner said. "We need to do more -- and do it fast -- to protect the very fabric of the natural world," Steiner told delegates gathered in Pyeongchang, South Korea's venue for the 2018 Winter Olympics. The Global Biodiversity Outlook report released as the conference opened said governments were failing to meet most of the 53 goals set for 2020 in the Convention on Biological Diversity (CBD). It aims to protect species, for example, by stalling deforestation and over-fishing. Signatory nations were only on target to meet five goals, the report concludes. One positive trend was the intention to set aside 17 percent of the world's land area for wildlife. But, nations were lagging on many targets such as halving the rate of loss for natural habitats, or preventing extinctions of known threatened species. "Despite individual success stories, the average risk of extinction for birds, mammals and amphibians is still increasing," the report said.

In the Age of Extinction, which species can we least afford to lose? --The threatened extinction of the tiger in India, the perilous existence of the orangutan in Indonesia, the plight of the panda: these are wildlife emergencies with which we have become familiar. They are well-loved animals that no one wants to see disappear. But now scientists fear the real impact of declining wildlife could be closer to home, with the threat to creatures such as ladybirds posing the harshest danger to biodiversity. Climate change, declining numbers of animals, rising numbers of humans and the rapid rate of species extinction mean a growing number of scientists now declare us to be in the Anthropocene – the geological age of extinction when humans finally dominate the ecosystems. Last week a report from WWF, the Living Planet Index 2014, seemed to confirm that grim picture with statistics on the world's wildlife population which showed a dramatic reduction in numbers across countless species. The LPI showed the number of vertebrates had declined by 52% over four decades. Biodiversity loss has now reached "critical levels". Some populations of mammals, birds, reptiles and amphibians have suffered even bigger losses, with freshwater species declining by 76% over the same period. But it's the creatures that provide the most "natural capital" or "ecosystem services" that are getting many scientists really worried. Three quarters of the world's food production is thought to depend on bees and other pollinators such as hoverflies. Never mind how cute a panda is or how stunning a tiger, it's worms that are grinding up our waste and taking it deep into the soil to turn into nutrients, bats that are catching mosquitoes and keeping malaria rates down. A study in North America has valued the loss of pest control from ongoing bat declines at more than $22bn in lost agricultural productivity.

Pentagon Signals Security Risks of Climate Change - — The Pentagon on Monday released a report asserting decisively that climate change poses an immediate threat to national security, with increased risks from terrorism, infectious disease, global poverty and food shortages. It also predicted rising demand for military disaster responses as extreme weather creates more global humanitarian crises.  The report lays out a road map to show how the military will adapt to rising sea levels, more violent storms and widespread droughts. The Defense Department will begin by integrating plans for climate change risks across all of its operations, from war games and strategic military planning situations to a rethinking of the movement of supplies. Defense Secretary Chuck Hagel, speaking Monday at a meeting of defense ministers in Peru, highlighted the report’s findings and the global security threats of climate change.  “The loss of glaciers will strain water supplies in several areas of our hemisphere,” Mr. Hagel said. “Destruction and devastation from hurricanes can sow the seeds for instability. Droughts and crop failures can leave millions of people without any lifeline, and trigger waves of mass migration.”

New report outlines national security threats of climate change - The military is bracing for a global warming crisis that will cause sea levels to rise by at least 12 to 18 inches over the next 20 to 50 years. That will put at risk port facilities around the world, including some that are critical to the military, such as San Diego, Hawaii and Norfolk, Virginia. Inside the U.S., more severe weather — hurricanes, tornadoes and wildfires fueled by drought — will cause catastrophic damage that will likely require more frequent support from the National Guard. Abroad, warming seas will change the face of the map, most dramatically in the Arctic, where polar ice caps are melting. That means the U.S. Navy will face new zones of competition with big rivals like China and Russia as new sea lanes emerge and new fossil fuel and mineral deposits become accessible. In light of those developments, the Pentagon for the first time is laying out a “Climate Change Adaptation Roadmap,” which details how the U.S. military will prepare and respond to the fallout from global warming. “In our defense strategy, we refer to climate change as a ‘threat multiplier’ because it has the potential to exacerbate many of the challenges we are dealing with today, from infectious disease to terrorism. We are already beginning to see some of these impacts,” Defense Secretary Chuck Hagel wrote in the introduction to the 20-page document.

Ready or not: Three unsustainable trends are about to collide - Chris Martenson -- It’s getting more and more difficult to write with interest about the challenges the world economy is currently facing. There are only so many times you can describe the disease, before it becomes too repetitive for both the writer and the reader. Instead, I find it far more interesting to focus on the root causes, because then real solutions can be explored that offer the possibility of actual remedy.  So let’s start here, with a simple grounding in the facts as we know them. No spin, no agenda; just some numbers.  There are approximately 7.2 billion humans on the planet, and consensus estimates put that number at 9.6 billion by 2050. Over the same time period in the U.S., people aged 65 and older will increase from 46 million currently to 84 million, a 82% increase, while the entire U.S. population is projected to swell from its current 319 million to 400 million, a 25% increase.  Next, the net present value of the actual liabilities of the US federal government are somewhere between $69 trillion and more than $200 trillion depending on whether you prefer the Treasury as your source or the CBO.  The real fiscal deficit of the U.S. government, as opposed to what was reported, was just over $1 trillion in FY 2014 (as measured by the actual increase in the federal debt).  One of the more solid economic correlations we know of is that between a growing economy and growing energy usage. And oil is one of the main factors in this relationship, if not the key factor. For now, the U.S. is enjoying a resurgent period of oil production thanks to shale (or “tight”) oil. Now, let’s widen our view back out to 2050. Where is the U.S. tight oil story then? Well, according to the Energy Information Administration, it will be 31 years in the rearview mirror, as the EIA projects that U.S. tight oil production will peak in 2019. That’s right, in just five short years from now, the U.S. “shale oil miracle” will start becoming a historical artifact.

Climate Uncertainty No Excuse for Inaction - Scientific American - Former environment minister Owen Paterson has called for the UK to scrap its climate change targets. In a speech to the Global Warming Policy Foundation, he cited “considerable uncertainty” over the impact of carbon emissions on global warming, a line that was displayed prominently in coverage by the Telegraph and the Daily Mail. Paterson is far from alone: climate change debate has been suffused with appeals to “uncertainty” to delay policy action. Who hasn’t heard politicians or media personalities use uncertainty associated with some aspects of climate change to claim that the science is “not settled”? Over in the US, this sort of thinking pops up quite often in the opinion pages of The Wall Street Journal. Its most recent article, by Professor Judith Curry, concludes that the ostensibly slowed rate of recent warming gives us “more time to find ways to decarbonise the economy affordably.”

Do we dare to question economic growth? - The endless pursuit of economic growth is making us unhappy and risks destroying the Earth’s capacity to sustain us. The good news is that taking steps to make our lives more sustainable will also make us happier and healthier. Would you like a four day weekend – every week? I’ve been to two conferences over the last year with similar basic premises. The first was on ecological economics and the second, just last week, was on steady state economics. The premise sitting behind both of these conferences is simple and undeniably true yet undermines so much that is fundamental to our current way of life: We live on a finite planet. That’s it. How, you might wonder, can such a simple statement of obvious fact undermine the tenets of modern society? The earth is a giant rock, hurtling through inhospitable space surrounded by a very thin film of life sustaining atmosphere. Earth’s life support systems are self-sustaining and self-regulating. However, we humans are slowly and steadily pulling this life support system to pieces. Our planet is very large and can absorb a lot of tinkering with its systems, but there are now over 7 billion of us and the amount of energy and resources we are each using is growing fast. That’s a lot of tinkering. There’s plenty of evidence that we are pushing up against and exceeding several critical boundaries of global sustainability: by which I don’t mean some tree hugging idea of sustainability, I mean we are taking actions that cannot be supported by the earth’s systems in the long term. We’re already exceeding the earth’s adaptive capacity with respect to greenhouse gas emissions, biodiversity loss and the nitrogen cycle and we’re approaching critical limits in both the phosphorous cycle and ocean acidification. Our use of fresh water is also approaching or exceeding sustainable limits in many parts of the world and we’re systematically destroying our arable land. These are critical life sustaining global processes that cannot be ignored without severe consequences.

Study Ties Mountaintop Removal Mining Dust To Increased Risk Of Lung Cancer -- Mountaintop removal mining destroys forest ecosystems and clogs streams with often toxic mining waste. And according to a new study, it also increases a person’s risk of lung cancer. The study, published this week in the journal Environmental Science and Technology, looks at the carcinogenic potential of the particulate matter that enters the air during mountaintop removal mining, a form of surface mining that blasts the tops of mountains away so that underground coal reserves can be accessed. The study found “new evidence” that breathing in this particulate matter over an extended period of time can lead to lung cancer, confirming previous research that has found increased cases of lung cancer in communities that live near coal mining operations in Appalachia. That research noted that smoking rates in these communities are likely also contributing to the lung cancer risk, making exposure to mining operations only one of the variables involved, but this week’s research confirms, for the first time, that dust from mining operations can drive up a person’s risk of lung cancer. “It’s a risk factor, with other risk factors, that increases the risks of getting lung cancer,” study co-author and West Virginia University cancer researcher Yon Rojanasakul told the Charleston Gazette. “That’s what the results show.”The researchers exposed lung cells to dust from mountaintop removal operations over a three-month period. They found that the dust had “cell-transforming and tumor-promoting effects” — it led to certain changes in the cells that promoted lung cancer development.

Update on Fukushima Plutonium Releases to the Pacific Ocean -- This diary reports on the most recent study of plutonium releases from Fukushima to the Pacific Ocean.  The post contributes to an ongoing effort to report peer-reviewed studies on the impact of the triple meltdowns at the Fukushima Dai-ichii nuclear power plant on the health of the Pacific ecosystem and residents of the west coast of North America. Plutonium is an alpha-emitting isotope that carries significant radiological health risks if internalized with risk of exposure increasing with the activity of Pu isotopes in the environment.  Previous work indicates that 239,240-Pu releases from Fukushima were about 100,000 and 5,000,000 times lower than releases from the Chernobyl disaster in 1986 and 20th century weapons testing respectively.  Initial measurements of Pu isotopes in seawater and marine sediments off the coast from Fukushima indicated no detectable change occurred in Pu inventories in the western Pacific after the disaster.  More recent and more expansive work supports earlier studies drawing the conclusion that up to two years after the accident the release of Pu isotopes by the Fukushima accident to the Pacific Ocean has been negligible.

Scientists Say Fracking Will Not Lead to Lower Greenhouse Gas Emissions » The argument  that fracking can help to reduce greenhouse gas emissions is misguided, according to an international scientific study, because the amount of extra fossil fuel it will produce will cancel out the benefits of its lower pollution content.  The study, published today in the journal Nature, recognizes that technologies such as fracking have triggered a boom in natural gas. But the authors say this will not lead to a reduction of overall greenhouse gas emissions. Although natural gas produces only half the CO2 emissions of coal for each unit of energy, its growing availability will make it cheaper, they say, so it will add to total energy supply and only partly replace coal. Advantage nullified Their study, based on what they say is “an unprecedented international comparison of computer simulations,” shows that this market effect nullifies the advantage offered by the lower pollution content of the gas.

Why Natural Gas Won't Help Save the Planet -- A global surge in natural-gas production thanks to hydraulic fracturing would not slash global greenhouse-gas emissions even though the fuel emits much less carbon dioxide than coal when consumed, according to a new peer-reviewed study in the journal Nature.The findings from researchers in several nations, using separate computer models of the effects of abundant global supplies, questions the conventional wisdom that natural gas is a "bridge fuel" to a low-carbon energy system.Natural gas boosters say expanded deployment of natural gas, which is less carbon-intensive than coal and oil, can check rising emissions while carbon-free sources like solar energy achieve greater scale. But the paper projects that if the North American gas boom spreads globally, "Future CO2 emissions are similar in magnitude with and without abundant gas, as the two emission trajectories continue to rise over time at similar rates."The paper released Wednesday, which projects the evolution of global energy use through 2050, concludes that large global gas supplies would not only crowd out some coal, but zero-emissions nuclear and renewable energy as well."The additional gas supply boosts its deployment, but the substitution of coal is rather limited and it might also substitute low-emission renewables and nuclear, according to our calculations," said Nico Bauer of the Potsdam Institute for Climate Impact Research, a coauthor of the paper.In addition, the paper concludes that lower prices driven by abundant supply expands total energy use. "Lower natural gas prices accelerate economic activity, reduce the incentive to invest in energy-saving technologies, and lead to an aggregate expansion of the total energy system: a scale effect," the paper states. It also notes the leakage of the potent greenhouse gas methane from natural-gas development.

NASA Confirms A 2,500-Square-Mile Cloud Of Methane Floating Over US Southwest --When NASA researchers first saw data indicating a massive cloud of methane floating over the American Southwest, they found it so incredible that they dismissed it as an instrument error.But as they continued analyzing data from the European Space Agency’s Scanning Imaging Absorption Spectrometer for Atmospheric Chartography instrument from 2002 to 2012, the “atmospheric hot spot” kept appearing. The team at NASA was finally able to take a closer look, and have now concluded that there is in fact a 2,500-square-mile cloud of methane—roughly the size of Delaware—floating over the Four Corners region, where the borders of Arizona, Colorado, New Mexico, and Utah all intersect. A report published by the NASA researchers in the journal Geophysical Research Letters concludes that “the source is likely from established gas, coal, and coalbed methane mining and processing.” Indeed, the hot spot happens to be above New Mexico's San Juan Basin, the most productive coalbed methane basin in North America. Methane is 20-times more potent as a greenhouse gas than CO2, and has been the focus of an increasing amount of attention, especially in regards to methane leaks from fracking for oil and natural gas. Pockets of natural gas, which is 95-98% methane, are often found along with oil and simply burned off in a very visible process called “flaring.” But scientists are starting to realize that far more methane is being released by the fracking boom than previously thought.

NASA Identifies Horizontally Fracked Greenhouse Gas Hot Spots  And the winner is . . . coal bed methane in the San Juan Basin of Colorado and New Mexico. And how is coal bed methane extracted ? You guessed it.  Why the coal bed methane wells in the San Juan ? Because some of those horizontal wells are decades old. And over time, every one of them will leak. The San Juan basin is the oldest horizontally fracked gas field in the country. It predates the Barnett Shale by a decade. And it’s venting greenhouse gas methane 3.5 times previous estimates. Why am I not surprised ?  U.S. Methane ‘Hot Spot’ Much Bigger than Expected. One small “hot spot” in the U.S. Southwest is responsible for producing the largest concentration of the greenhouse gas methane seen over the United States – more than triple the standard ground-based estimate — according to a new study of satellite data by scientists at NASA and the University of Michigan.  Methane is very efficient at trapping heat in the atmosphere and, like carbon dioxide, it contributes to global warming. The hot spot, near the Four Corners intersection of Arizona, Colorado, New Mexico and Utah, covers only about 2,500 square miles (6,500 square kilometers), or half the size of Connecticut.

Court Files: Coal CEO Robert Murray Unearths Lease from Aubrey McClendon's New Fracking Company -- DeSmogBlog has obtained a copy of a sample hydraulic fracturing (“fracking”) lease distributed to Ohio landowners by embattled former CEO and founder of Chesapeake Energy, Aubrey McClendon, now CEO of American Energy PartnersElisabeth Radow, a New York-based attorney who examined a copy of the lease, told DeSmogBlog she believes the lease “has the effect of granting American Energy Partners the right to use the surface and subsurface to such a great extent that it takes away substantially all of the rights attributable to homeownership.” The American Energy Partners fracking lease was shaken loose as part of the discovery dispute process in an ongoing court case pitting coal industry executive Robert E. Murraycontroversial CEO of Murray Energy Corporation and American Energy Corporation — against McClendon in the U.S. District Court for the Southern District of Ohio Eastern DivisionMurray brought the suit against McClendon back in August 2013, alleging McClendon committed trademark and copyright infringement by using the “American Energy” moniker. Murray’s attorneys used the lease as an exhibit in a Motion to Compel Discovery, filed on September 8, over a year after Murray brought his initial lawsuit.  The case has ground to a slow halt as the two sides duke it out over discovery issues and related protective order issues, making a large swath of the court records available only to both sides’ attorneys and causing many other records to be heavily redacted. Out of that dispute has come the American Energy Partners lease, published here for the first time.

How Oil and Gas Leases for Fracking Rip Off Homeowners - Yves Smith - Yves here. This post by Steven Horn about that shows the typical terms of an oil and gas rights lease for American Energy Partners buries the lead, in that Steve needs to give the context of how the lease came to be public before he turns to explaining how the lease rips off the party who signs it. Among other things, it requires the homeowner to have any mortgage made subordinate to the royalty agreement, something no lender will agree to. If the homeowner can’t get the subordination (a given), no royalties will be paid! As you’ll see, there are other “heads I win, tails you lose” terms in these agreement.

Fracking Triggers More Ohio Earthquakes - A new study connects some 400 micro-earthquakes near the town of Canton, in Harrison County, to hydraulic fracturing wells. The three wells operated from September through October 2013 in the Utica Shale. Ten of the quakes registered between magnitude 1.7 and magnitude 2.2, but the tremors were too deep to cause damage or to be easily felt by people, according to the study, published today (Oct. 14) in the journal Seismological Research Letters. The new study is the second report this year of fracking-linked earthquakes from drilling in the Utica Shale. The shale is a rock formation that is deeper and closer than the Marcellus Shale to the crystalline basement rocks where faults are more common. In March, scientists with Ohio's Department of Natural Resources (ODNR) shut down drilling at seven Utica Shale gas wells in Poland Township after fracking triggered two small earthquakes. The ODNR now requires monitoring of seismic activity at fracking sites near known fault lines, and reducing the flow of water if earthquakes begin to occur. The Harrison case is one of the few scientifically documented incidents of hydraulic fracturing causing earthquakes on a fault,

Study links hundreds of Ohio quakes to fracking - A new study suggests fracking triggered hundreds of small, unnoticeable earthquakes in eastern Ohio late last year, months before the state first linked seismic activity to the much-debated oil-and-gas extraction technique. The report, which appears in the November issue of the journal Seismological Research Letters, identified nearly 400 tremors on a previously unmapped fault in Harrison County between Oct. 1 and Dec. 13, 2013. That included 10 quakes of magnitudes of 1.7 to 2.2. That's intense enough to have temporarily halted activity under Ohio's new drilling permit rules had they been in place at the time, but is still considered minor. The quakes fell along a fault lying directly under three hydraulic fracturing operations and tended to coincide with nearby activity, researchers found. About 190 quakes were detected in a single three-day period last October, beginning within hours of the start of fracking. None of the quakes was reported felt by people. Ohio Department of Natural Resources spokeswoman Bethany McCorkle said the state has installed seismic monitoring equipment throughout eastern Ohio over the past year and is keeping close watch for earthquakes strong enough to be felt.

Fracking Triggered Hundreds of Earthquakes in Ohio, Study Shows - Fracking caused hundreds of earthquakes along a previously undiscovered fault line in Ohio. That’s the conclusion of research by scientists at Instrumental Software Technologies, Inc. (ISTI) and the Ohio Department of Natural Resources (ODNR), who published their findings in the most recent issue of the journal Seismological Research Letters (SRL). “There were earthquakes where there had not been any in the past records,” ISTI’s Paul Friberg, a seismologist and paper co-author, told weather.com. “Not just 10 earthquakes, but about 500 much smaller ones that could only be observed using an advanced data processing technique.” Though many of the quakes were positive magnitude — as in a magnitude of 0.1 or greater — they were all more than two miles below the surface, making them too deep to be felt. To get to these results, Friberg and colleagues looked at data from National Science Foundation seismographs located near the hydraulic fracturing sites. (The seismographs were in place for a different experiment.) They then compared that information to a publicly available ODNR map of oil and gas wells. The earthquakes all coincided with fracking operations nearby. “The remarkable similarity of waveforms between all of the earthquakes detected during the hydraulic fracturing operations and afterward indicates a common source,” the researchers wrote in their paper. “Based on all of these corroborating pieces of evidence, it is most probable that hydraulic fracturing on the Ryser wells induced the 2013 Harrison earthquake sequence.” Friberg notes that the coincidence would be a challenge to explain another way. “The earthquakes started shortly after fracking started on the wells and ended about two months after fracking ended,” he said. “There are no seismologists who have reviewed our work who think they were unconnected.”

Fracking Linked to Series of Earthquakes in Ohio: It turns out that hydraulic fracturing, known commonly as fracking, may be triggering earthquakes. Scientists have found that fracking caused a series of small earthquakes in 2013 on a previously unmapped fault in Harrison County, Ohio.  Between Oct. 1 and Dec. 13, nearly 400 small earthquakes occurred in Harrison County. These included 10 "positive" magnitude earthquakes though none of these were reportedly felt by the public. The 10 positive magnitude earthquakes, which ranged in magnitude 1.7 to 2.2, coincided with fracking practices at nearby wells. Fracking is a method for extracting oil and gas from shale rock.  These cracks then can also result in micro-earthquakes. "Hydraulic fracturing has the potential to trigger earthquakes and in this case, small ones that could not be felt, however the earthquakes were three orders of magnitude larger than normally expected," said Paul Friberg, co-author of the study, in a news release. The earthquakes actually revealed an east-west trending fault that lies in the basement formation at approximately two miles deep and directly below the three horizontal gas wells that were being used. Later analysis actually identified 190 earthquakes during a 39-hour period on Oct. 1 and 2 just hours after fracking began at one of the wells. "As hydraulic fracturing operations explore new regions, more seismic monitoring will be needed since many faults remain unmapped," said Friberg.

Hydraulic fracturing linked to earthquakes in Ohio -  Hydraulic fracturing triggered a series of small earthquakes in 2013 on a previously unmapped fault in Harrison County, Ohio, according to a study published in the journal Seismological Research Letters (SRL).Nearly 400 small earthquakes occurred between Oct. 1 and Dec. 13, 2013, including 10 "positive" magnitude earthquake, none of which were reported felt by the public. The 10 positive magnitude earthquakes, which ranged from magnitude 1.7 to 2.2, occurred between Oct. 2 and 19, coinciding with hydraulic fracturing operations at nearby wells. This series of earthquakes is the first known instance of seismicity in the area.  The process of hydraulic fracturing involves injecting water, sand and chemicals into the rock under high pressure to create cracks. The process of cracking rocks results in micro-earthquakes. Hydraulic fracturing usually creates only small earthquakes, ones that have magnitude in the range of negative 3 (−3) to negative 1 (-1). "Hydraulic fracturing has the potential to trigger earthquakes, and in this case, small ones that could not be felt, however the earthquakes were three orders of magnitude larger than normally expected," said Paul Friberg, a seismologist with Instrumental Software Technologies, Inc. (ISTI) and a co-author of the study. The earthquakes revealed an east-west trending fault that lies in the basement formation at approximately two miles deep and directly below the three horizontal gas wells. The EarthScope Transportable Array Network Facility identified the first earthquakes on Oct. 2, 2013, locating them south of Clendening Lake near the town of Uhrichsville, Ohio. A subsequent analysis identified 190 earthquakes during a 39-hour period on Oct. 1 and 2, just hours after hydraulic fracturing began on one of the wells.

Youngstown: Geology of fracking remains unclear in the Valley - There’s not enough geological data to definitively say Mahoning and Trumbull counties are susceptible to earthquakes, a seismologist said. There are about 25 shale wells in Mahoning and Trumbull counties along with 19 active injection wells. Earthquakes have been attributed to two injection wells and one fracturing site. “Three cases is not quite enough to tell us about the geology there [in the Mahoning Valley],” said Mike Brudzinski, a professor of seismology at Miami University. “It’s a little too early to say that there’s a trend here.” Brudzinski said while it’s clear that the activity at each site induced earthquakes, it’s unclear whether the faults are exclusive to the area. Operators each may have simply chosen an “unlucky location,” he said. The Ohio Department of Natural Resources along with energy companies and researchers are conducting extensive monitoring and analysis, Brudzinski said. ODNR focuses on selected locations that are prone to seismic occurrences, said Matt Eiselstein, a spokesman for the regulatory agency. The department uses the Ohio Seismic Network that has more than 25 seismometers, which detect earthquakes with a magnitude of 2.0 or higher. ODNR’s division of oil and gas resources management receives real time data from seismic monitors placed at the fracking or injection well sites to detect earthquakes with a magnitude of 1.0 or higher. Energy companies may be required to conduct their own seismic monitoring as well, Eiselstein said. There are 15 seismic monitors in Mahoning and Trumbull counties, he added.

Evidence Connects Quakes to Oil, Natural Gas Boom - In the context of climate change and the environment as a whole, today’s crude oil and natural gas boom is the ultimate mixed bag.   A new study from a team of researchers at Stanford and Duke universities, as well as other institutions, weighs the good with the bad of oil and gas development: Natural gas development and consumption, especially for producing electrical power, can boost local economies while reducing air pollution from coal-fired power plants and helping to wean the power grid away from sources of energy that emit huge amounts of climate-changing CO2 when burned.  But the list of environmental challenges fossil fuels development poses is a long one: Methane, a potent greenhouse gas, has been found leaking from oil and gas operations all over the country. Trains that carry crude oil from fields in North Dakota are prone to dangerous derailments. Fracking uses a lot of water in arid regions, and water contamination from fracking has long been a concern of people living near energy development. The Stanford study, published in August in the Annual Review of Environment and Resources, also addresses another shaky issue about fossil fuels development that comes amid a flurry of new research connecting the same dots: Oil and gas operations, including fracking, can cause earthquakes. Some of them can destroy homes and injure people.  A U.S. Geological Survey study published this month found that underground injection of wastewater from a coalbed methane natural gas production field straddling the New Mexico-Colorado border has been causing earthquakes there since 2001. One of those quakes was a Magnitude 5.3 temblor that rattled southern Colorado in 2011.

Shelby Township drilling operation hits close to home: How oil and gas drilling can impact nearby residents came joltingly into focus last July, when a 109-foot well went in Macomb County's Shelby Township less than 500 feet from homes. "They drilled for three weeks, 24-7," said Gail Hammill, a resident of neighboring Rochester Hills and a member of the grassroots Don't Drill the Hills group, opposing drilling on city property planned in Rochester Hills. "The amount of truck traffic when they were drilling the Shelby well was incredible. They were going down side streets because Tienken Road was closed. They were coming through subdivisions. You've got these double-hauler trucks full of water going through subdivisions all day for three weeks." The controversial oil and gas drilling method known as hydraulic fracturing, or fracking, has revolutionized petroleum extraction and led to huge gains in natural gas production in the U.S. But just how safe the controversial practice is for the environment and public health isn't easy to answer. Industry representatives cite decades of safe fracking.  Others, including Jim Nash, Oakland County's Water Resources Commissioner, disagree. Nash regularly speaks before local governments in his county and elsewhere, about the potential harm from fracking and other oil and gas development — particularly in densely populated areas like his county.

Where to Get Rid of a Few Billion Gallons of Carcinogenic Radioactive Frack Slime ?  A Marcellus Shale operator approached Leong Ying, business development manager at the radiation measurement division of Thermo Fisher Scientific, with a problem. The driller, whom Mr. Ying declined to name, was trying to dispose of oil and gas waste at area landfills but the trucks kept tripping radiation alarms. Rejected trucks had to be sent back to well pads or taken out of state, both costly options. It was happening enough that it started nudging the company’s bottom line, Mr. Ying said. “Once you hit them in the pocket, then they stand up and take notice,” he said. Mr. Ying’s company is marketing a new radiation detector that can instantly categorize the different types of radioactive materials present in waste and their concentrations. Today, the most likely solution to deal with radioactive oil and gas waste is to dilute it with non-radioactive materials, such as soil, and then send it to local landfills. Mr. Ying said his client has built a multimillion-dollar facility specifically designed to treat such waste using a reverse osmosis process, which separates the water from the solids, where the radioactivity is concentrated. Those solids are then either spread out across truck loads, diluted and disposed of at local landfills, or taken to specialty facilities. In the first half of this year, 421 trucks carrying oil and gas waste tripped radiation alarms at Pennsylvania landfills, according to the state Department of Environmental Protection. All but two of those trucks eventually dumped their waste at those landfills.

Waynesburg officials investigate dumping of fracking wastewater: Waynesburg officials and the state Department of Environmental Protection are investigating the dumping of up to 4,000 gallons of what is believed to be fracking wastewater into the Greene County borough’s sewer system. The fluid dump was discovered on the morning of Sept. 30 by workers at the Waynesburg Sewage Treatment Plant who noticed a spike on sewage flow meters and a gray, milky substance flowing through the plant, according to Bryan Cumberledge, assistant borough manager.   The Waynesburg sewage treatment plant, which discharges into Ten Mile Creek, a tributary of the Monongahela River, is not equipped to treat the salty, chemical-laden wastewater produced by the hydraulic fracturing done at Marcellus Shale gas wells. John Poister, a DEP spokesman, said the department learned of the fluid dumping incident late last week and will send inspectors to meet with Waynesburg officials this week to determine how the dumping occurred and who did it. “Waynesburg officials feel they are vulnerable somewhere in their sewer system,” Mr. Poister said. “Someone removed a manhole in a remote location and dumped the fluid.” He said the fluid had a distinctive odor associated with the shale gas drilling and hydraulic fracturing.

Marcellus Shale drillers still tout water impoundments after record fine: When the state Department of Environmental Protection upgraded design standards for Marcellus Shale water impoundments in early 2011, Range Resources had just completed construction of eight centralized frack ponds in the previous two years using now-outdated technology. The ambitious construction timeline by Range in 2009 and 2010 to aid the burgeoning natural gas drilling industry resulted in leaks and other problems at all of the company's centralized water impoundments in Washington County and the largest-ever fine levied by the DEP against a Marcellus Shale driller. Despite the $4.15 million fine against Range on Sept. 18 – and a similar fine now being pursued by DEP against EQT for a leaking impoundment in Tioga County – companies plan to continue to use open-air wastewater pits to hold and eventually recycle the millions of gallons of water needed for hydraulic fracturing. The DEP and drilling companies contend new leak detection technology and better-designed liners will help to prevent the string of problems that the first generation of impoundments experienced at the beginning of the Marcellus Shale boom.

Promoters see energy hub, economic revival in transmission of Marcellus fuel - Philly.com: - Philadelphia's reindustrialization starts 300 miles away at a sprawling processing plant in Southwestern Pennsylvania where liquid fuels extracted from Marcellus Shale gas begin a cross-state journey to the Delaware River. In the last five years, a forest of metal distillation towers has sprung up like a poplar grove from the Washington County countryside, surrounded by rows of cylindrical storage tanks. The complex, owned by MarkWest Energy Partners of Denver, separates high-value liquid fuels such as propane and butane from the "wet" natural gas produced near here, the sweetest spot in the prolific Marcellus Shale formation. Those natural gas liquids will be pumped through a repurposed pipeline to Marcus Hook, where Sunoco Logistics Partners L.L.P. is demolishing the retired Sunoco petroleum refinery and replacing it with new equipment to handle Marcellus liquids. Most of the propane, butane, and ethane will be shipped to European petrochemical plants that are retooling in expectation of decades of plentiful Appalachian supply. Industrial and political leaders in the Philadelphia region hope this initial movement of fuel to Marcus Hook - propane already is being brought in by rail and truck - is only the first trickle in a flood of Marcellus Shale products that will be routed through Southeastern Pennsylvania. Energy-hub promoters envision an industrial revival in a region where manufacturing has been on the ropes for decades. They forecast a proliferation of new businesses built on vacant riverfront brownfields, employing high-paid workers to produce petrochemicals, plastics, fertilizer, methanol, and motor fuels - all from natural gas.

Marcellus Shale production may surpass 16B cubic feet daily in November - The U.S. Energy Information Administration projects that Marcellus Shale gas production will exceed 16 billion cubic per day in November, revising a previous estimate that production might surpass the mark this month. In September, the administration forecasted production would reach 16.06 billion cubic feet per day this month. But in the more recent estimate, issued on Tuesday, it said production might actually be around 15.8 billion cubic feet per day. It projected that production would reach 16.04 billion cubic feet per day next month. The estimates are based on rig counts and production. “The underlying data are often quite volatile, reflecting large variability in the performance of individual wells,” the EIA said. “The final point of actual production data as reported by the states varies, as each state has different reporting requirements and schedules.”

Anti-fracking activist faces fines and jail time in ongoing feud with gas firm -- An oil and gas company is seeking fines and jail time for a peaceful anti-fracking activist in Pennsylvania, according to court documents. In a motion filed this week, lawyers for Cabot Oil and Gas Corporation, one of the biggest operators in Pennsylvania, asked the Susquehanna County court to find longtime activist Vera Scroggins in contempt of an injunction barring her from areas near its well sites. The row between Cabot and Scroggins became notorious in environmental and human rights circles after the company sought last year to ban the activist from an area of about 310 sq miles (803 sq km) – or about half the entire county. The scope of that ban was later reduced. In the latest legal move, lawyers for Cabot argued that Scroggins showed “blatant disregard” for the ban when she escorted a Green Party politician and others on a tour of rural areas subject to heavy drilling. The lawyers noted a contempt finding against Scroggins could trigger fines and jail time. “Ms Scroggins may be subject to the following penalties for violating this court’s order: (i) fines; (ii) assessment of attorney fees; and/or (iii) incarceration”, the lawyers wrote. The lawyers go on to demand Scroggins pay Cabot’s legal costs and attorney fees. Included in the motion are photographs of Scroggins and other activists standing on a roadside which, Cabot alleged, was within 100ft (3om) of an access road leading to one of its wells in Dimock, Pennsylvania. An injunction in force since last March bars Scroggins from approaching within 100ft of access roads – even if she is standing on a public road, or on a homeowners’ private land.

‘Frack-for-the-cure’ breast-cancer awareness campaign offers latest example of corporate ‘pinkwashing’ -- It’s October — Breast Cancer Awareness Month — so we find ourselves once again saturated with “pinkwashing” campaigns, corporate marketing efforts in which companies position themselves as leaders in the fight against breast cancer when they are actually selling products that promote the disease.  Dozens and dozens of companies engage in this cynical practice. In past years, for example, we’ve seen alcohol companies sell pink vodka, without mentioning, of course, that alcohol is generally considered a risk factor for breast cancer. And then there are the cosmetic companies that wrap their products in pink ribbons each October without acknowledging that the ingredients in many of those products are suspected of being carcinogenic.  Companies and organizations that jump on the pink-ribbon bandwagon during Breast Cancer Awareness Month always emphasize, of course, that they are donating proceeds from the sales of their “pink” merchandise “to support the fight against breast cancer.” But very little of the money spent on those products actually ends up being donated to cancer organizations, and even less goes to cancer research. Only 5 percent of the sales of  “pink” products sold by the National Football League (NFL) in 2012 went to the American Cancer Society, for example, and only 70 percent of that money was actually spent by the ACS on research, according to reporters for Business Insider.

Pink Washing Frackers – The Cure To Get Fracked At Steelers Game -  At high noon in Pittsburgh on October 26th. Watch Nancy Brinker shill for fracking – which has been proven to cause cancer. The Immaculate Deception? – The Susan G. Komen Foundation has, once more, riled some of its base — breast-cancer activists, survivors and their families — this time by accepting $100,000 from an oil and fracking company that, in turn, produced 1,000 pink drill bits. Martin Craighead, chairman of Houston-based Baker Hughes Inc., will hand that check to Komen founder Nancy Brinker at Pittsburgh’s Heinz field on Oct. 26, before the Steelers play the Indianapolis Colts.

Exxon, Chevron meet with White House over fracking regs -- Oil giants ExxonMobil, Chevron and Halliburton met with White House staffers last week to talk about an upcoming federal fracking regulation for operations on public lands. Lobbyists for the companies met with White House officials from the Council on Environmental Quality and the Office of Management and Budget (OMB) on Monday, according to a record of the meeting recently posted on the OMB's website.American Petroleum Institute (API), Occidental Petroleum and Marathon Oil lobbyists also joined in on the meeting with the administration officials.  The meeting is one of many the White House has hosted in the last few months on its rule on fracking, a horizontal drilling method for oil and gas that pumps chemicals and water into the ground to break up deposits.  Environmentalists and a number of Democrats have pressured the Interior Department, which proposed the rule, and the administration to issue the "strongest possible" standards for fracking on federal lands.  The oil and gas industry however, has expressed concern about the route the regulation could take, evident in two handouts presented at the meeting with the White House and Interior Department officials this week.  The lobbyists told administration officials during the meeting that the new rule could "discourage" or "delay" new production on federal lands, according to a handout from API.  Additionally, API and energy company Hess both took issue with the term "usable water" in the rule, which the lobbyists argue would require water zones that are "unsuitable for human consumption or agricultural" uses among others.

NY court rejects bid to revive fracking ban case - New York's highest court has rejected an attempt by the oil and gas industry to revive its fight against local fracking bans. In a precedent-setting decision last June, the Court of Appeals ruled that communities have the right to use local land-use authority to prohibit oil and gas operations within their borders. On Thursday, the court denied a motion by the trustee for bankrupt Norse Energy to reargue its case against the town of Dryden. Norse Energy had argued that such local laws were pre-empted by a state law that delegates all authority to regulate oil and gas development to the state. New York has had a moratorium on shale gas development since 2008.

State to first responders: Stay back from burning oil trains —The state is urging first responders to stay away from burning oil trains if more than three cars are on fire and no human lives are at risk, according to documents obtained by Capital.The state Office of Fire Prevention and Control recently revised its guidance for firefighters battling oil train fires. New York responders are now being advised by the state to stay back if an oil train derails and explodes, as trains have done in Virginia, North Dakota and Canada, where 47 people died.“If NO life hazard and more than 3 tank cars are involved in fire, OFPC recommends LETTING THE FIRE BURN unless the foam and water supply required to control is available,” the document says. “Withdraw and protect exposures, including cooling exposed tank cars with unmanned monitors if possible.”  The U.S. and Canadian governments have determined the most frequently used rail car, the DOT-111, is prone to spills when it derails. Those cars have been involved in all of the most significant oil train accidents in the last year.

Environmental disasters lurk in energy pipelines: Michigan's increasing role in petroleum products transport doesn't just pose potential risk; it's already causing problems. An oil pipeline operated by Canadian oil transport giant Enbridge burst near Marshall in July 2010, resulting in the largest inland oil spill in U.S. history. The spill decimated Talmadge Creek, a tributary to the Kalamazoo River, and about 40 miles of the river. It prompted a more than $1-billion cleanup that, more than four years later, is still not complete. As Enbridge works to comply with U.S. Environmental Protection Agency orders to clean the river, it also is expanding pipelines across North America, including in Michigan, to ship greater quantities of heavy tar sands oil from Canada to new and expanded markets. That includes Detroit's Marathon oil refinery, which in 2012 completed a $2.2-billion renovation allowing the refinery to take more of the oil sands product known as diluted bitumen, or "dilbit." "We are in the midst of a very big, fundamental change in the type of fuel we get in this country," said Josh Mogerman, spokesman for the Natural Resources Defense Council. As Michigan and Midwest investment in energy extraction and transport increases, rising threats to the environment and communities have become painfully apparent and worrisome, including potential oil spills in the Great Lakes, aging natural gas pipeline on lands, and clouds of harmful petroleum dust polluting the air in some residential communities.

Fracking drives growth in sand mining, raises new health-risk questions  -- Demand is exploding for the massive amounts of sand used in fracking, creating a windfall for mines from Texas to Wisconsin but leading to worries about the health impacts of breathing silica dust.Drillers are expected to use nearly 95 billion pounds of “frac sand” this year. That’s up 30 percent from last year, according to energy specialists at PacWest Consulting Partners, who expect the market to keep growing as drillers increasingly accept that using more sand increases the oil and gas production from each well.The demand could mean future mines opening from the Carolinas to Maine, according to a new report. In the meantime, the sand mining industry is roaring, with the stock for Emerge Energy Services, based in Southlake, Texas, near Fort Worth, surging some 400 percent since going public a year and a half ago. “The rapidly expanding growth of frac sand mining is a hidden and little understood danger of the fracking boom in the United States ,” Grant Smith, an author of the report, told reporters in a conference call.

Traffic Deaths Climb Amid Fracking Boom - While there’s been anecdotal evidence before, a new in-depth study undertaken jointly by the Houston Chronicle and Houston Public Media News 88.7 draws a strong circumstantial link between the fracking boom in Texas and the greatly increased number of highway deaths in the state. It’s based on an analysis of statistics as well as numerous interviews with people involved with trucking and traffic safety. For decades, traffic deaths in Texas were declining just as they were all across the country, thanks to safety improvements like seat belts, airbags and child seats. Then in 2009—the same time the fracking boom begin—that trend reversed in the Lone Star state, in some areas dramatically. Texas now leads the nation in traffic deaths. And while traffic deaths overall increased 8 percent in the state from 2009-2013, deaths involving commercial vehicles exploded, growing 51 percent in that time. The study says that growth is on track to continue in 2014.  The report cautions that there’s no way to link the accidents specifically to the oil and gas industry, but adds “Records show that fatal accidents increased more in the groups of counties that make up the Permian Basin and in those affected by the Barnett and Eagle Ford shale plays, where busy roads regularly fill with tractor-trailers, tanker trucks and commercial vans hauling water, workers and supplies to oil and natural gas well sites, as well in urban counties that serve as burgeoning hubs for the oil field industry.”

Oil Tankers Leaking into Seattle’s Water - A highly flammable byproduct flowed from oil tankers into an area stormwater system for at least a year before state regulators inspected the problem.Seventy miles north of Seattle , the Tesoro Anacortes rail facility—which daily offloads some 50,000 barrels of Bakken crude from tanker cars—was releasing a highly flammable oil byproduct into a stormwater system that lacked “required controls” for at least a year before state regulators were made aware of the potential hazard. A faulty pipe connection was the source of the problem, according to a Northwest Clean Air Agency enforcement report obtained via an open-records request. As a result of the flaw, hydrocarbon vapors were being produced in the rail facility’s stormwater system that could have ignited under the right conditions, experts say. Tesoro officials insist there was no risk of fire. Yet state regulators never inspected the rail facility to assess the fire risk because it appears those charged with ensuring public safety were caught up in a maze of Catch-22 rules that work against timely assessment of potential worker-safety and fire hazards. NWCAA inspectors did not visit the rail facility until five months after Tesoro had disconnected the problematic pipe. Still, the agency’s enforcement report indicates that vapors containing “volatile organic compounds” were still being released from numerous points in the company’s stormwater system, parts of which are located a stone’s throw from the crude-oil railcar staging area.

Massive Dumping of Fracking Wastewater into Aquifers Shows Big Oil’s Power in California: As the oil industry spent record amounts on lobbying in Sacramento and made record profits, documents obtained by the Center for Biological Diversity reveal that almost 3 billion gallons of oil industry wastewater were illegally dumped into Central California aquifers that supply drinking water and irrigation water for farms. The Center said the wastewater entered the aquifers through at least nine injection disposal wells used by the oil industry to dispose of waste contaminated with fracking (hydraulic fracturing) fluids and other pollutants. The documents also reveal that Central Valley Regional Water Quality Board testing found high levels of arsenic, thallium and nitrates, contaminants sometimes found in oil industry wastewater, in water-supply wells near these waste-disposal operations. The illegal dumping took place in a state where Big Oil is the most powerful corporate lobby and the Western States Petroleum Association (WSPA) is the most powerful corporate lobbying organization, alarming facts that the majority of the public and even many environmental activists are not aware of. An analysis of reports filed with the California Secretary of State shows that the oil industry collectively spent over $63 million lobbying California policymakers between January 1, 2009 and June 30, 2014. The Western States Petroleum Association (WSPA), topped the oil industry lobby spending with $26,969,861.

How To Stop Deliberate Fouling of Aquifers by Frackers --- Yup:  Industry illegally injected about 3 billion gallons of fracking wastewater into central California drinking-water and farm-irrigation aquifers, the state found after the US Environmental Protection Agency ordered a review of possible contamination.According to documents obtained by the Center for Biological Diversity, the California State Water Resources Board found that at least nine of the 11 hydraulic fracturing, or fracking, wastewater injection sites that were shut down in July upon suspicion of contamination were in fact riddled with toxic fluids used to unleash energy reserves deep underground. The aquifers, protected by state law and the federal Safe Water Drinking Act, supply quality water in a state currently suffering unprecedented drought. Now. Will anyone go to jail for this? No. Did they save a lot of money doing this, and therefore make money? Yes. Will they continue doing it? Yes. What will stop this sort of thing from happening? Sending senior executives, CEOs and board members to maximum security prisons, after impounding all their assets under criminal forefeiture laws, thus forcing them to rely on public defenders. Prosecute them under RICO statutes to make sure you sweep the executive suite.)

Money, death, and danger in North Dakota's fracking capital - I went to report on life in the oil fields and ended up working as a cocktail waitress. Here are some of the crazy people I met and the stories they told me. -- At 9 p.m. on that August night, when I arrived for my first shift as a cocktail waitress at Whispers, one of the two strip clubs in downtown Williston, I didn’t expect a 25-year-old man to get beaten to death outside the joint. Then again, I didn’t really expect most of the things I encountered reporting on the oil boom in western North Dakota this past summer. “Can you cover the floor?” the other waitress yelled around 11 p.m. as she and her crop-top sweater sidled behind the bar to take over for the bouncers and bartenders. They had rushed outside to deal with a commotion. I resolved to shuttle Miller Lites and Fireball shots with extra vigor. I didn’t know who was fighting, but assumed it involved my least favorite customers of the night: two young brothers who had been jumping up and down in front of the stage, their hands cupping their crotches the way white boys, whose role models are Eminem, often do when they drink too much. I hadn’t driven nearly 2,000 miles from Brooklyn to work as a cocktail waitress in a strip club. (That only happened after I ran out of money.) I had set off with the intention of reporting on the domestic oil boom that was reshaping North Dakota’s prairie towns as well as the balance of both global power and the earth’s atmosphere. Now, six years later, the region displays all the classic contemporary markers of hell: toxic flames that burn around the clock; ink-black smoke billowing from 18-wheelers; intermittent explosions caused by lightning striking the super-conductive wastewater tanks that hydraulic fracturing makes a necessity; a massive Walmart; an abundance of meth, crack, and liquor; freezing winters; rents higher than Manhattan; and far, far too many men. To oil companies, however, the field is hallowed ground, one of the few in history to break the million-barrel-a-day benchmark, earning it “a place in the small pantheon of truly elite oil fields,” as one Reuters market analyst wrote.

Germans Line Up Against Fracking, Spurred by Fears of a U.S.-Style Boom -—In Germany debate is raging over whether to allow fracking, and America's example is serving as the cautionary tale for both supporters and critics. Germany's biggest energy companies and some politicians are using the U.S. drilling boom to argue the country would benefit from tapping shale gas buried under two of its 16 states. Supporters say Germany must greenlight fracking—especially as calls intensify to end dependency on Russia, which supplies a third of Germany's oil and gas. Meanwhile, environmentalists and others see the United States as a warning of what may be in store if Germany embraces fracking—but for them the lessons from America involve air, water and climate change pollution. The "negative effects connected" to U.S. fracking are "worth gold" to German activists, said Andy Gheorghiu, a member of the citizens' protest group Fracking Free Hesse. Critics worry mainly that developing natural gas production would undercut the Energiewende, Germany's shift away from fossil fuels and nuclear to renewable energy. Environmentalism is deeply ingrained in German society and public protests helped prompt the law. Today solar panels and windmills form a distinctive part of the country's landscape. But this transformation came at a cost: In 2013, Germany's household electricity prices became the second highest in the European Union due to clean energy subsidies and high taxes. Despite that, the Energiewende remains widely popular.

UK to allow fracking companies to use 'any substance' under homes - The UK government plans to allow fracking companies to put “any substance” under people’s homes and property and leave it there, as part of the Infrastructure Bill which will be debated by the House of Lords on Tuesday. The legal change makes a “mockery” of ministers’ claims that the UK has the best shale gas regulation in the world, according to green campaigners, who said it is so loosely worded it could also enable the burial of nuclear waste. The government said the changes were “vital to kickstarting shale” gas exploration. Changes to trespass law to remove the ability of landowners to block fracking below their property are being pushed through by the government as part of the infrastructure bill. It now includes an amendment by Baroness Kramer, the Liberal Democrat minister guiding the bill through the Lords, that permits the “passing any substance through, or putting any substance into, deep-level land” and gives “the right to leave deep-level land in a different condition from [that before] including by leaving any infrastructure or substance in the land”. The trespass law change has attracted controversy before, when the government decided to push ahead despite the opposition of 99% of the respondents to its consultation. Author and activist Naomi Klein said it flouted basic democratic rights. Ministers were also accused of rushing legal changes through parliament at the start of 2014, which removed the need to notify each home in an areas of fracking plans. The new amendment permitting “any substance” was attacked by Simon Clydesdale, a campaigner at Greenpeace UK: “Ministers are effectively trying to absolve fracking firms from responsibility for whatever mess they’ll end up leaving underground.

As Fracking Enters A Bear Market, A Question Emerges: Is The Shale Boom Built On A Sea Of Lies? -- One of, if not the biggest contributors to the improving US trade deficit and thus GDP (not to mention labor market in select states) over the past several years, has been the shale revolution taking place on US soil, which has led to unthinkable: the US is now the biggest producer of oil in the world, surpassing Saudi Arabia and Russia. Which is great today, but what about tomorrow? It is here that problems emerge according to Bloomberg's snapshot of the shale industry. "We're Sitting on 10 Billion Barrels of Oil! OK, Two", the authors look at the two-tiers of reporting when it comes to deposits that America's fracking corporations allegedly sit on, and find something unpleasant: Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators. Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold.

Oil producers enter supercycle's dark side - Oil producers are getting another brutal reminder that theirs is a business characterised by long, deep price cycles. Benchmark Brent futures have dropped below US$90 a barrel, the lowest level since December 2010, but that actually understates the extent of the damage. The problem with using December 2010 as a baseline is that oil prices at the time were hugely distorted by the cyclical downturn in demand caused by the financial crisis and the ensuing recession. Most analysts would agree these effects were temporary and give little insight into long-term oil-market trends. If the period covered by the recession (late 2008 to early 2011) is excluded to give a more representative picture, the price of Brent has not been this low since February 2008, when price increases were still accelerating towards their eventual peak five months later. And if prices are adjusted for inflation (using average US hourly earnings), Brent prices are at the lowest level in real terms since October 2007, exactly seven years ago (http://link.reuters.com/paj23w). The oil industry has always experienced very long, slow and deep cycles in supply, demand and prices: the current downturn is no exception. Both the surge in oil supplies and slowdown in demand are the lagged response to the increase in prices that s in 2002 and lasted until 2012, albeit with a hiatus during the recession between 2008 and 2011. It was the stimulus of high and rising prices that made the application of hydraulic fracturing and horizontal drilling possible in the North American shale oil plays. And it was the panic brought on by rising fuel bills that prompted households, businesses and governments to conserve fuel by turning to energy efficiency and substitutes such as ethanol and natural gas.

Here's why shale oil stocks are tanking -- Why are shale plays getting hit so hard?  The short answer is, because oil is dropping. West Texas Intermediate has gone from $105 to $85 in three months.  But a large part of the problem has to do with the way shale drilling is financed. Let's say you own a shale company and you want to finance drilling a well in, say, the Bakken. You need $10 million (I am just using $10 million as an example). You have a demonstrated reserve value from the well of, say, $20 million. Here's how you might finance the $10 million deal. First, get a line of credit from a bank based on the value of the reserves. In turn, the lender becomes a secured creditor. Let's say that based on a value of $20 million, a secured lender is willing to put up $5 million. You can fund another $2 million from your own cash flow. Now you have $7 million. For the remaining $3 million, you go to the high-yield debt market, which of course is an unsecured creditor. Now, let's look at what happens when oil starts to drop fast, which is exactly our scenario. That secured creditor with the line of credit? He's getting nervous, because now instead of reserves worth $20 million for your project, those reserves are now worth only, say, $16 million. That's a problem. The line of credit you will be able to get will drop because as the price of oil drops banks don't want to lend as much So, instead of $5 million, your secured creditor will only lend $4 million, and at a higher rate. Now you need $6 million more. Another problem: because the price of oil is down, you can't contribute as much from your cash flow, so instead of $2 million that you contribute, you can only contribute $1 million. That's $5 million total. You still need another $5 million, and now you have to go to the high-yield market. Except the high-yield market is aware of your problems, and they want a higher interest rate too. Here's another point: the depletion rate is very high in these wells. You are literally squeezing oil from a rock. It can be on the order of 80 to 90 percent depletion over a couple years. So you have to constantly keep drilling new wells to meet the production quota. And there really isn't a lot of options. They have to drill, or they don't have cash flow. And they still have to make the interest payments!

Oil slump yet to hit US shale output | Arab News — The vast majority of shale oil in the United States is produced at costs far below the current price of crude, the head of the west’s energy watchdog said, which means US projects can withstand the market slump squeezing other producers. Brent oil stands at around $88 per barrel, down more than 23 percent from the year’s peak above $115 in June, raising concern that some shale oil projects will become un-economic. However Maria van der Hoeven, executive director of the International Energy Agency said that only a tiny minority of shale oil production would be affected by the slump in prices to near-four-year lows. “Some 98 percent of crude oil and condensates from the United States have a breakeven price of below $80 and 82 percent had a breakeven price of $60 or lower,” she said in an interview on the sidelines of the launch of the Africa Energy Outlook publication. Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the US shale patch. Van der Hoeven said the fall in the oil price would provide a welcome economic boost for economies which are heavily reliant on oil imports.

U.S. Oil Producers Could Drill Their Way Into Oblivion -  Remember the fall of 2008? As the world spun out of control and the price of everything crashed, a barrel of oil lost 70 percent of its value over about five months. As the oil market has recovered, there have since been three major corrections, when prices have fallen at least 15 percent over a few months. We’re now in the midst of a fourth, with oil prices down more than 20 percent since peaking in late June at around $115 a barrel. They’re now hovering in the mid-$80 range and could certainly go lower. That’s good news for U.S. consumers, who are finally starting to reap the rewards of the shale boom through low gasoline prices. But it could spell serious trouble for a lot of oil producers, many of whom are laden with debt and exaggerating their oil reserves. In a way, oil companies in the U.S. are perpetuating the crash by continuing to drill and push up U.S. oil production to its fastest pace ever. Rather than pulling back in hopes of slowing the amount of supply on the market to try and boost prices, drillers are instead operating at full tilt and pumping oil as fast as they can. Just look at the number of horizontal rigs in the field: Over the past five years, the amount of horizontal rigs deployed in the U.S. has almost quadrupled, from 379 in early 2009 to more than 1,300 today. This is of course purely a fracking story. Almost all the recent gains in U.S. oil production are the result of horizontal drilling techniques being used across much of the Midwest, from Texas to North Dakota. Unlike conventional vertical wells, where more wells do not always equal more oil, the strategy in a shale field appears to be to drill as many as possible to unlock oil trapped in rock formations. As the number of horizontal drill rigs has exploded, the number of vertical rigs in the U.S. has gone in the opposite direction, falling almost 70 percent over the past seven years.

Oil Prices Hit 3-Year Low - The price of crude oil fell to a new three-year low Monday as a split between the world’s most important producers on how to share the pain of lower prices becomes increasingly apparent. Prices for the U.S. and European benchmark blends fell nearly 2% in early trading Monday, on a Reuters reportsuggesting that Saudi Arabia was willing to accept a price of as low as $80 a barrel for the next year or two, in order to defend its share of the global market. The New York Mercantile Exchange’s crude contract traded at $84.65 by 0700 EDT, down from a peak of over $107 a barrel as recently as June.Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries, the cartel which produces a third of the world’s oil supply and essentially keeps the balance of supply and demand in the market. As Saudi Arabia can undercut almost every other country if it wants to, it has a huge influence on regulating OPEC’s overall supply.The price of the world’s most important commodity is under pressure from both directions: demand is weakening as the European and Chinese economies slow down, while global supply is increasing as Iraqi and Libyan exports rebound from war-related disruptions, and the U.S. pumps ever more oil from shale deposits.  )The sharpest decline in recent weeks was due to Saudi Arabia slashing official selling prices for customers in Asia and Europe signalling that it was prepared to remove the floor for prices for the short term. Iran and Iraq have both followed suit in recent days.

Dropping Oil Prices Send Shockwaves Through Energy Sector - A weakening global economy, a surplus in oil supplies and a strengthening U.S. dollar have combined to send oil prices lower in recent weeks.On Oct. 9, the slide continued when Brent crude dropped below $90 per barrel for the first time in more than two years.Poor economic data from Germany raised fears that a renewed European recession could be on the horizon. The S&P 500 lost 2 percent on Oct. 9, and the markets have experienced some of the worst volatility so far this year. The International Monetary Fund (IMF) also revised downwards its projection for global economic growth in 2014 and 2015, warning that “global growth is still mediocre.” China’s oil demand remains weaker than it has been in years. To a certain extent, China’s oil imports have been artificially elevated as it has diverted oil into its strategic stockpile. Oil imports could soften as stockpiles fill up. China even posted a decline in oil imports for the month of July.Elsewhere in Asia, demand is also tepid. Driven by a desire to boost budgets by cutting spending, countries like Indonesia, Vietnam, Thailand, India and Malaysia are all trimming fuel subsidies, according to The Wall Street Journal. That has sent fuel prices up 10 percent in Malaysia and 23 percent in Indonesia, for example. India’s decision to reduce subsidies has pushed demand growth for diesel to near zero for the year, after annual growth rates of 6 to 11 percent in the past. Meanwhile, oil supplies continue to rise. OPEC production for September hit its highest level in almost two years. Libya has lifted its oil production to 900,000 barrels per day, up from just 200,000 barrels per day in June. And Saudi Arabia has yet to significantly cut production.Separately, the U.S. Energy Information Administration (EIA) reported higher than expected crude oil in inventories as refineries cut purchases and close for maintenance. Higher global supplies are pushing down prices.

Lower oil prices -- For the last 3 years, European Brent has mostly traded in a range of $100-$120 with West Texas intermediate selling at a $5 to $20 discount. But in September Brent started moving below $100 and now stands at $90 a barrel, and the spread over U.S. domestic crude has narrowed. Here I take a look at some of the factors behind these developments. Prices of many other industrial commodities have also declined over the last year, silver and iron ore more than oil. One factor has been weakness in Europe and Japan, which means lower demand for commodities as well as a strengthening dollar. The decline over the last year in the price of oil when paid for with Japanese yen is only about half the size of the decline in the dollar price. In terms of factors specific to the oil market, one important development has been the recovery of oil production from Libya. The latest Monthly Oil Market Report from OPEC shows Libyan production up half a million barrels per day since this summer. Libya is hoping to add another 200,000 barrels/day this month and 200,000 more by early next year. This would be a significant addition to the market, though the situation in Libya remains quite unstable. But the biggest story is still the United States. Thanks to horizontal drilling to get oil out of tight underground formations, U.S. field production of crude was 2 million barrels/day higher in 2013 than it had been in 2011. And the EIA’s new Short-Term Energy Outlook released this week expects we’ll add another 2 million b/d over the next two years. That’s unquestionably enough to start moving the world price.As I’ve noted before there’s a basic limit on how much U.S. production is capable of lowering the world price. The methods that are responsible for the U.S. production boom are quite expensive. Just how low the price can go before some of the frackers start to drop out is subject to some debate. A report in the Wall Street Journal last Thursday provided assessments like these: “There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.”

Shale Worries Rise as Oil Prices Fall - It’s a full-on bear market for oil these days, as slowing economies in Europe and Asia reduce demand and new supplies from North America and Libya work to depress prices. Europe’s Brent crude benchmark has fallen more than 23 percent since a peak in June, hitting a four-year low. America’s West Texas Intermediate (WTI) benchmark price has seen a similar decline, down more than 20 percent from its June peak of $107 per barrel, trading below $84 per barrel today. All this has U.S. shale firms acting skittish, as many producers worry that prices will plunge past break-even points (the prices at which drillers can profitably produce) for American shale production. The FT reports: Wood Mackenzie, the consultancy, estimates the majority of US shale production will break even at $75. The International Energy Agency said on Tuesday steeper drops in the price of oil are needed for US shale and other unconventional energy production to take a meaningful hit. [...] If oil had stayed at $100 per barrel, all of the main shale producers would have been able to cover capital spending from cash flow within two or three years, according to Phani Gadde, analyst at Wood Mackenzie. Below $90, between 30 per cent and 60 per cent of these producers will still be outspending their cash flows. This price decline means that debts will pile up for the shale industry, but we’re not at a breaking point yet. Thanks to variation between plays, there’s no single price at which fracking would cease to be profitable in the United States, and for now, oil is still trading above threatening levels.

If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies - Over the past 5 years, the shale industry, fabricated or real reserves notwithstanding, has been a significant boon to the US economy for four main reasons: it has been the target of billions in fixed investment and CapEx spending, it has resulted in tens of thousands of high-paying jobs, its output has been a major tailwind for the US trade deficit, and has generally been a significant contributor to GDP (not to mention various Buffett-controlled or otherwise railway corporations). And perhaps, most importantly, it has become a huge buffer to the price of global oil, as the cost curve of US shale is horizontal, with a massive 10,000 kbls/day available within pennies of $85/bl. Goldman's explanation: We believe that the vast reserves that have been opened for development through shale oil in the US have flattened the cost curve meaningfully, at around a US$85/bl Brent oil price. We estimate shale reserves from the top three fields in the US onshore (the Permian, Bakken and Eagle Ford) at around 91bn boe, which to put it in context, is equivalent to roughly one third of Saudi Arabia’s current stated reserves (ZH: this number may be vastly overstated). Most of this resource has become available in the past five years, and we expect this pace of growth to continue over the coming three years as capital continues to be drawn in to these developments. The consequence is that costs of production and E&P capex/bl should stabilise as the marginal cost of production remains stable. We believe that shale oil has become effectively the marginal source of supply, providing the bulk of non- OPEC production growth. For once, Goldman is spot on (even if their Brent price target may be a bit off): with shale oil profitable only above its virtually horizontal cost curve, it means that a whopping 11,000 kbls/day are available as long as Brent is above $85, a clear "red line" for all OPEC producers. The red line is conveniently shown on the chart below:

Toxic Mix for Fracking – Oil Price Collapse & Junk Bond Insanity --  Wolf Richter - It’s now called a “collapse”: The US benchmark light sweet crude plunged 4.6% to settle at $81.84 a barrel on Tuesday, the lowest since June 2012. In London, Brent made a similar journey to $85.04, its lowest level since November 2010. Explanations abound why this is suddenly happening, after years of deceptive calm.  Is it some harebrained plot to punish Russia by destroying its economy? The government’s budget, heavily dependent on oil revenues, is in trouble. And every unit of foreign currency that isn’t nailed down is fleeing the country. Or is it a plot by Saudi Arabia to squash the US shale oil boom? In November last year, the Saudi Gazette published an editorial on the “successful, wise, and balanced OPEC strategy” that led to “unprecedented” stability of oil prices for the past few years of around $106 a barrel. But couched in words such as “skeptics are demanding,” it uttered the threat to raise OPEC production until the price would drop “below $70 a barrel” to “remove the shale oil from the world oil production map….” Or is it the combination of surging production in the US and sagging demand around the world, particularly in China and Europe? Whatever the reasons for the market chaos, we already know what it has accomplished in the US: Investors who were long when they sleepwalked into this new era that started in late June have had their heads handed to them. WTI gave up 21% in less than four months. Over the same period, the SPDR Oil & Gas Equipment & Services Fund (XES), a basket of the largest oil- and gas-related stocks, plummeted 33%. Shares of smaller oil and gas companies have gotten demolished. Reason for this mayhem: the toxic mix of high debt and plunging oil price.

Brent oil hits new four-year low as IEA cuts forecasts | Arab News — Saudi Arabia - Brent oil prices sank to a new four-year low after the International Energy Agency slashed its forecasts for oil demand growth, blaming the weak economic outlook and abundant supplies. The market had already hit multi-year lows in earlier Asian trade, with analysts citing concerns about a supply glut and the effects of weaker demand from Europe and China. In morning London trade, Brent North Sea crude for delivery in November dived to $87.59 a barrel, touching the lowest level since December 1, 2010. The contract later stood at $87.83 in midday deals, down $1.06 from Monday’s closing level. US benchmark West Texas Intermediate (WTI) for November lost 96 cents to $84.78 per barrel. “Crude oil (is) being sold again following the monthly report from the International Energy Agency in which they saw oil demand growth this year rising at the slowest pace since 2009,” said Saxo Bank analyst Ole Hansen. He added: “At current production levels supply growth will outstrip demand growth and this is adding to the current negative sentiment in the market.” For this year, the IEA expects demand to rise by just 700,000 barrels per day to 92.4 million barrels per day — which is 200,000 bpd less than the previous forecast. This shrinking demand outlook in European and Asian members of the Organization for Economic Cooperation and Development matched average growth of 1.0 mbd in countries outside the OECD areas, according to the IEA. For next year, the agency cut its estimate of global demand to 93.5 mbpd from 93.8 mbpd.

Falling oil prices threaten shale boom - As crude prices continue to fall, talk is turning to the most dreaded word in the oil industry: downturn. From drilling rigs in South Texas to investment offices in Dallas and beyond, the industry is watching with dread as West Texas Intermediate, the U.S. benchmark, has declined more than 20 percent since July. At $82 a barrel, crude is at its lowest level since 2012, bringing the high-cost hydraulic fracturing revolution under increasing scrutiny. Already executives and financial firms are starting to come under pressure to pull back on a drilling boom that has transformed Texas and many other regions of the U.S. “We’re not seeing a real pullback yet. But if it stays this way, you’re going to see companies take their foot off the accelerator,” said Larry Oldham, an oil financier and former oil executive in Midland. “A plane doesn’t go straight up forever.” The dramatic fall in prices follows years of increasing U.S. oil production, at a time Middle East production has held relatively steady. Texas now produces more than 3 million barrels of oil a day, double what it produced three years ago and more than all but seven countries in the world. At what point the cost of drilling outweighs the price of oil is an ever-shifting estimate. The U.S. oil boom is largely from hydraulic fracturing and horizontal drilling techniques, which extract crude once thought undrillable. But they are expensive processes. Earlier this year, Pioneer Natural Resources CEO Scott Sheffield put the break-even point for many shale drillers at $80 a barrel.

Tar Sands Trade: Kuwait Buys Stake in Alberta As It Opens Own Heavy Oil SpigotChevron made waves in the business world when it announced its October 6 sale of 30-percent of its holdings in the Alberta-based Duvernay Shale basin to Kuwait Foreign Petroleum Exploration Company (KUFPEC) for $1.5 billion. It marked the first North American purchase for the Kuwaiti state-owned oil company and yields KUFPEC 330,000 acres of Duvernay shale gas. Company CEO and the country's Crown Prince, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, called it an “anchor project” that could spawn Kuwait's expansion into North America at-large.  Kuwait's investment in the Duvernay, at face-value buying into Canada's hydraulic fracturing (“fracking”) revolution, was actually also an all-in bet on Alberta's tar sands. As explained in an October 7 article in Platts, the Duvernay serves as a key feedstock for condensate, a petroleum product made from gas used to dilute tar sands, allowing the product to move through pipelines. And while Kuwait — the small Gulf state sandwiched between Iraq and Saudi Arabia — has made a wager on Alberta's shale and tar sands, Big Oil may also soon make a big bet on Kuwait's homegrown tar sands resources.“Kuwait has invited Britain’s BP, France’s Total, Royal Dutch Shell, ExxonMobil and Chevron, to bid for a so-called enhanced technical service agreement for the northern Ratqa heavy oilfield,” explained an October 2 article in Reuters. “It is the first time KOC will develop such a big heavy oil reservoir and the plan is to produce 60,000 bpd from Ratqa, which lies close to the Iraqi border [in northern Kuwait]…and then ramp it up to 120,000 bpd by 2025.” In the past, Kuwait has said it hopes to learn how to extract tar sands from Alberta's petroleum engineers.

Oil dives US$4 as demand dims, shale booms and OPEC resists cuts: (Reuters) - Oil dived more than US$4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude's four-month rout. The abrupt acceleration of an over 26 per cent slide in prices since June was triggered by three news items that epitomized the market's turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output. Brent crude for November fell US$3.85 to settle at US$85.04 a barrel after a late lurch lower knocked prices to below US$85 a barrel for the first time since 2010. It was the biggest one-day drop since 2011. U.S. crude fell US$3.90 a barrel to settle at US$81.84, its biggest percentage fall in about two years.

Oil Prices Tumble, Posting Biggest One-Day Drop in Two Years - WSJ - U.S. oil prices tumbled Tuesday, posting their biggest one-day drop in two years on signs that the Organization of the Petroleum Exporting Countries was unlikely to cut production in response to lower forecast demand. Market participants have closely watched OPEC, which controls about one-third of global oil supplies, in recent weeks as high supplies and weaker demand have pushed prices down more than 20%. OPEC has responded to low prices in the past with production cuts, but recent signals from members have been mixed. Saudi Arabia, the group’s biggest oil producer, has indicated in recent days that it is comfortable with lower prices. But on Tuesday, Saudi Prince al-Waleed bin Talal posted an open letter to the kingdom’s oil minister stating that Saudi Arabia needs prices between $80 and $90 a barrel to balance its 2014 budget. The current lower prices pose “a huge financial loss for the kingdom,” the letter said. The letter could have sparked concern among traders that internal conflicts within OPEC will prevent unified action, In contrast, Iran said Tuesday that an oil price drop won’t hurt its budget and will be short-lived, surprising some market watchers.Light, sweet crude for November delivery fell below $83 a barrel after the letter’s contents were reported, and the price slide accelerated into settlement. November futures ended down $3.90, or 4.5%, at $81.84 a barrel on the New York Mercantile Exchange, the lowest settlement since June 28, 2012. Prices posted the largest one-day percentage drop in nearly two years.Brent, the global benchmark, fell $3.85, or 4.3%, to $85.04 on ICE Futures Europe, the lowest price since Nov. 23, 2010. It was the largest one-day percentage drop since September 2011.

Winners and losers from oil price plunge - FT.com: Crude oil prices have plunged by $25, or more than 20 per cent, since mid-June, raising many questions. How low might prices go? If they rebound, at what level will they stabilise? Will Saudi Arabia and Opec move to cut output when they meet next month? At what price level might US shale oil production be affected and how severely? One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments. If Brent falls to $80, Opec countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution.  On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing programme, helping to spur sputtering economic growth. The decline in prices would generate a $1.8bn daily windfall, some $660bn annualised. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in Opec countries, who already pay little for fuel.

Oil Slump Heaps Losses on Energy Debt in $50 Billion Glut - Bloomberg: Gobbling up $50 billion of high-yielding U.S. junk-bond offerings by energy companies this year may have seemed like a good idea when oil was above $100 a barrel and yields were at record lows. With prices falling toward $80, bond buyers have instead been saddled with more than $2 billion of lost market value and growing concern that too much credit has been extended too fast amid America’s shale boom. Prices on $1.6 billion of speculative-grade bonds sold by the upstart exploration firm of former Chesapeake Energy Corp. chief Aubrey McClendon have plunged as much as 19 percent since being issued in July. Another $1.1 billion issued the same month by Paragon Offshore Plc are down as much as 28 percent. Because the borrowing capacity of oil and gas producers is directly tied to the value of their reserves, the falling commodity prices are increasing the risk that companies will face funding constraints should the selloff persist. Junk bonds issued by energy companies, which have made up a record 17 percent of the $294 billion of high-yield debt sold in the U.S. this year, have on average lost more than 4 percent of their market value since issuance, according to data compiled by Bloomberg. “People are getting concerned about the ability to repay,” Ashish Shah, the New York-based global head of credit strategies at AllianceBernstein Holding LP, said in a telephone interview. “Bottom line: the cost of the thing they produce is declining and it’s declined very rapidly.”

U.S. Edges Closer To Energy Independence - The net energy consumption of the US has held fairly steady for nearly 20 years. Over the past decade, however, there's been a large increase in production of energy within the US. As a result, the US government's energy figures for the first half of this year show that the differences between production and consumption have dropped to the lowest level in 29 years. This represents a net drop in energy imports by 17 percent compared to the same period a year earlier. According to the Energy Information Agency, the boost in energy production came from a variety of sources. Natural gas was the largest, accounting for just over half of the annual increase. Coal accounted for another quarter, renewable energy for 12 percent, and petroleum for eight. The EIA also notes that energy use this year was unusually high due to the intense cold that hit most of the nation in the first few months of 2014.The vast majority of the country's imports come in the form of petroleum products and crude oil. These imports have been decreasing as new sources of oil are tapped and automotive efficiency standards are tightening. Refined petroleum products remain the largest US energy export; smaller quantities of coal and natural gas are also shipped overseas.

We Will Never Stop Importing Oil, but We May Start Exporting -  I have been covering shale development since 2005, and it looks like we are on track for energy independence by 2020 or so. However, we're never going to stop importing oil because supply diversity is prudent.  Depletion rates are significant in every shale play. Some of the depletion rates are quite steep in the early years of a play, but wells tend to produce for 20 years or so at a lower rate, so overall production rates are still growing. The monthly U.S. Energy Information Administration (EIA) reports show that in H1/14, U.S. gas natural production alone increased by more than 4 billion cubic feet a day (4 Bcf/d). The bulk is coming from the Northeast, from the Marcellus and Utica plays in Pennsylvania, Ohio and West Virginia. Also, a lot of new natural gas is coming on, in association with oil production in West Texas, in the Permian Basin, and in south Texas, in the Eagle Ford play. While some gas areas might be declining, we're getting enough new natural gas to offset that decline. In fact, both oil and natural gas production in this country are the highest they've been in about 35 years. Natural gas in storage was down last year, and now we're refilling. Every summer and fall, you refill storage to prepare for winter. It looks like we're going to have a lot of gas in storage. We've had a fairly mild summer and haven't had a huge call for natural gas for air conditioning, compared to what it could have been. Between the production and the weather factors, it looks like we'll have plenty of gas in storage for the fall.

Oilprice Intelligence Report: The Oil Price Panic: American drillers are fretting over an oil boom that is out-pacing demand and pushing prices down, feeding the export ban debate and pushing it critically forward. This week, while Bloomberg reports that domestic fields will add “an unprecedented 1.1 million barrels a day of output,” while consumption is expected to shrink to its lowest level since 2012, the New York Times insists that a crude oil tanker that left Texas in late July, bound for South Korea, is a sign of the changing times. The tanker, Singapore-flagged and leaving quietly from the port in Galveston, Texas, was carrying 400,000 barrels of crude oil and was apparently the first “unrestricted export of American oil to a country outside of North America in nearly four decades.”The two stories are certainly related—even if there is a months-long gap in the timing. West Texas Intermediate crude, the US benchmark, is down 24% since mid-June, and on 2 October, it fell below $90 per barrel for the first time in 17 months.Drillers are panicking over the specter of declining operating capital, and being able to export crude is the only outlet if oil prices continue to fall, while demand weakens. ”If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Bloomberg quoted Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, as saying. “It will be uncharted territory.”Ben van Beurden, CEO of Shell, isn’t buying into the panic, however. He says he is confident that oil will return to “very robust” pricing in the long-term.

Oil sell-off, the Goldman view -  Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general. When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side: The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out. In other words: this is not the oil market price crash you’re looking for. Move along, move along. The curve should not be in backwardation. It should be in lovely yield-generating contango. Why is the market being such a fool? More specifically in the words of Goldman: stop pricing spot markets based on expectations and messing with carry. If prices are to go down, they should at least be encouraging oil to be stored and/or hedged at a reasonable rate:

Saudi Arabia tests US ties with oil price - FT.com: By encouraging oil prices to fall, Saudi Arabia is taking a calculated gamble in its already strained relationship with the US, hoping that the potential damage to America’s shale industry will be offset by the geopolitical and economic prizes on offer to Washington. At a time when the US and Saudi Arabia are fighting a new war together in Iraq and Syria, the Saudis have taken the bold step of asserting their pivotal role in the oil market and subtly squeezing the finances of some of America’s fledgling shale companies. Yet, at the same time, the falling oil price will deliver a de facto tax cut for American consumers and – if sustained – will hit both Russia and Iran at a time when Washington is trying to pressure both countries. Deborah Gordon, director of the energy and climate programme at the Carnegie Endowment, sees the Saudi pressure on oil prices as a carefully calibrated move that will not alienate allies but will cause problems for rivals and foes such as Russia and Iran. “The Saudis seem to have concluded that this could be a game-changer for them,” she says. “They get several benefits without hurting the people they do not want to hurt.” With global demand for oil slowing sharply and US production surging, Saudi Arabia faced a choice. It could have cut production to stabilise the market, shouldering the burden itself. Instead, it appears so far to have decided to let the price fall, indicating that it would be happy with an oil price around $80, rather than the $100 it has previously backed. With new oil production in the US and elsewhere calling into question the future of Opec, the Saudis have reminded the oil market of their central role in determining prices.

Saudi price war should fuel drive for U.S. crude exports (Reuters) - Saudi Arabia's move to keep crude oil production high, fueling a steep global price slump, may have an unexpected consequence: intensifying the campaign by U.S. producers to scrap Washington's decades-old ban on exports of domestic crude. Global oil prices plummeted nearly 5 percent on Tuesday to their lowest since 2010, as OPEC's core members showed no sign of intervening to support the market. Amid talk of a price war, Iran, generally a price hawk, has changed course and said it can live with lower prices. U.S. crudes have been trading at a discount to global prices since the rise of the shale revolution four years ago. That price squeeze has domestic producers eager to end the export ban enacted during the Arab oil embargo of the 1970s. true "Fully lifting the oil export ban would go a long way toward keeping U.S. oil production up even if prices continue to languish,” said Chris Faulkner, Chief Executive of Breitling Energy Inc. "Our country can't afford to see the oil and gas boom start to bust." But many Americans, fearful of high gasoline prices, support the ban, as do their members of Congress. President Barack Obama has some leeway to allow more exports of some types of oil, but political experts have said he is unlikely to do so without evidence that below-market U.S. crude prices are forcing shale drillers to cut back or shut in output.

US Oil Imports: 800,000 Tons of Alaskan Crude Oil Imported to Korea, 1st Time in 14 Years | Business Korea: Korean refineries are moving quickly to import crude oil from the U.S. Recently, U.S. condensate (ultra light crude oil) was imported for the first time in 39 years. Import of Alaskan crude oil also started again, which was suspended after the year 2000. According to the industry, an oil tanker of GS Caltex loaded with 800,000 tons of crude oil produced in the North Slope oilfield located in Northern Alaska, U.S., will arrive at Yeosu port, South Jeolla Province, on Oct. 10. There have been no imports of Alaskan crude oil at all for the past 14 years. GS Caltex imported the U.S. condensate through Yeosu on Sept. 10 as well for the first time in 39 years. The U.S. has been prohibiting the export of crude oil under the Energy Policy and Conservation Act of 1975, after the Middle East oil embargo. However, the Clinton Administration made Alaska an exception in 1996. After 2004, Alaskan crude oil has not been traded in international markets due to conflicts in price. Some say that the import of the Alaskan crude oil this time is largely due to effects of shale gas in the U.S. After the shale evolution, crude oil production in the U.S. surged, and the competitiveness of Alaskan crude oil, which has a relatively low price, was hurt. This is why Alaskan crude oil started to be traded internationally after the price was adjusted. According to the U.S. Energy Information Administration (EIA), daily crude oil production in the U.S. increased from 5.61 million barrels in January 2011 to 8.53 million barrels in July this year. The U.S. is expected to become the largest oil-producing country, beating Saudi Arabia, by 2020. As the oversupply of crude oil is getting serious in the U.S., the export of Alaskan crude oil is likely to increase.

Split between OPEC producers deepens as oil prices fall - A rift between OPEC members deepened over the weekend, as producers in the cartel moved in different directions amid falling oil prices. Venezuela, which has been one of the most outspoken proponents of a production cut by the Organization of the Petroleum Exporting Countries, called over the weekend for an emergency meeting of the group to respond to falling prices. But Kuwait said Sunday that OPEC was unlikely to act to rein in output. Saudi Arabia, meanwhile, appeared to expand on its recent move to defend its market share at the expense of other members by aggressively courting customers in Europe. Traders said Saudi Arabia is now asking for stronger commitments from some of its buyers in Europe, a move that would lock in those customers, including any new ones it would gain with recent price reductions. Also on Sunday, Iraq’s State Oil Marketing Company cut the price of Basrah Light crude in November for Asian and European buyers by 65 cents. That marks a discount of $3.15 a barrel below the Oman/Dubai benchmark for Asian customers and $5.40 below the Brent benchmark for European customers, according to official selling prices published by the company. The moves and countermoves are the latest in a time of particular discord in OPEC. The organization was founded to leverage members’ collective output to help influence global prices. In recent periods of low prices, Saudi Arabia — OPEC’s top producer and de facto leader — has managed to cobble together some level of consensus.

Oil Bear Market Tests OPEC Unity as Venezuela Seeks Meeting - Oil ministers from Kuwait and Algeria dismissed possible production cuts as crude’s slump to a four-year low prompted Venezuela to call for an emergency meeting of the Organization of Petroleum Exporting Countries. Kuwait hasn’t received an invitation for any urgent OPEC meeting to discuss a reduction in output, Oil Minister Ali Al-Omair said in comments reported by the official Kuwait News Agency. His Algerian counterpart Youcef Yousfi said yesterday he knew of no plans for any emergency session and was unconcerned by current price levels. Bear markets for Brent and U.S. crude are putting pressure on OPEC’s consensus on output ahead of the group’s scheduled Nov. 27 meeting in Vienna,   OPEC supplies 40 percent of the world’s oil, and its largest Persian Gulf producers, including Saudi Arabia, Iraq and Iran, are offering deeper discounts to buyers in Asia to maintain market share amid a global glut. “If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” Kuwait’sAl-Omair said in remarks reported by KUNA yesterday. “There is no room for countries to reduce their production,” he said, without giving details. Ample supply, helped by surging U.S. and Russian output, pushed Brent crude into a bear market last week. The European benchmark slumped more than 20 percent from its peak for the year on June 19, meeting a common definition of a bear market. Brent fell on Oct. 10 to its lowest since December 2010. It declined as much as 2.7 percent today and was at $88.41 a barrel at 3:20 p.m. in London.

Venezuela Goes From Bad to Worse as Oil Prices Plummets - Since becoming Venezuela’s president 18 months ago, Nicolas Maduro has contended with chronic shortages of everything from toothpaste to medicine, the world’s fastest inflation and sinking foreign reserves. His predicament is about to get worse. Prices for Venezuela’s oil, which accounts for 95 percent of the nation’s exports, are tumbling to a four-year low and threatening to choke off the export dollars the country needs to pay its debts. “It’s a direct hit on tax revenues,” Lars Christensen, chief emerging-markets economist at Danske Bank A/S, said by telephone from Copenhagen. “There is nothing good to say about the state of Venezuela’s economy, and this isn’t helping.” The slump in oil prices comes as Harvard University economists Carmen Reinhart and Kenneth Rogoff warned this week that Venezuela is almost certain to default on its foreign-currency bonds. Deepening concern the South American country will renege on its debt payments triggered a selloff in its $4 billion benchmark bonds due 2027, causing yields to soar to a five-year high of 17.87 percent this week.

Daily chart: Black gold deficits | The Economist -  IN 2008 the oil price hit $140 a barrel. Today it is well below $90. Healthy supplies from America and weak demand (especially from China) have pushed down prices. When the price of black gold falls, businesses and individuals cheer but oil-exporting countries suffer. According to research from Deutsche Bank, seven of the 12 members of OPEC, an oil cartel, fail to balance their budgets when prices are below $100. Last month Venezuela, a particularly inefficient member of the cartel, saw its bonds downgraded. One non-OPEC member in particular is in trouble: Russia. Economic growth is already poor. Further drops in the oil price could be very painful. After all, oil and gas make up 70% of Russia’s exports and half of the federal budget. Will Saudi Arabia come to the rescue? It is the largest oil exporter and if it cut supply, prices could rise again. But this seems unlikely. The Kingdom is in the midst of a big fiscal boom as it tries to diversify its economy and improve living standards. For 2014, the Saudi Arabian government plans to spend $228 billion, up by 4.3% on last year.

Exclusive: Privately, Saudis tell oil market- get used to lower prices (Reuters) - Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch. Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel. But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations. The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude LCOc1 in favor of retaining market share in years to come. The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.

Saudi Arabia's "Oil-Weapon" Hits Europe  ---We first exposed the "secret" US-Saudi deal in September which led to the inevitable bombing of Syria. We then progressed to explain the quid pro quo of the deal in lower oil prices (benefiting US consumers into an election and crushing Russian revenues). In today's Wall Street Journal we get the final piece of the puzzle as it is clear that what Saudi Arabia loses in 'price' it will make up in 'volume' as The Kingdon is taking the unusual step of asking buyers to commit to maximum shipments if they want to get its crude. Simply put, "they are threatening [European] buyers" to discontinue sales if they don't agree with the full fixed deliveries. The 'oil weapon' grows stronger...

Saudis Deploy the Oil Price Weapon Against Syria, Iran, Russia, and the USYves Smith - Asian stock markets continued to fall today, propelled at least in part by the adverse reaction to the Saudi announcement yesterday that they would let oil prices fall to $80 a barrel. And further reports indicate that the Saudis intend to keep oil prices low enough to force a realignment of prices not just among various grades of crude, but also for intermediate and long-term substitutes. It is critical to remember that the Saudis have no compunction about imposing costs on other nations to maximize the value of their oil resource long term and hence the power they derive from it. The 1970s oil shock produced a nasty recession in the US and most other advanced economies and gave a further impetus to inflation, which was already hard to manage and dampened growth by discouraging investment. The current alignment of factors gives the Saudis the opportunity to make life miserable for a long list of parties they would like to discipline, including the US. The sharp rise in the dollar means that lowering the price of oil in dollar terms is unlikely to leave the desert kingdom worse off in local currency terms. But it undermines US energy development, both fracking and development in the Bakken, as well as more development by the majors, who were regularly criticized by analysts for how much they were spending on exploration when the math didn’t pencil out well at over $100 a barrel. Countries whose oil is output is mainly heavy, sour crude, like Iran and Venezuela, find it hard to sell their oil when prices are below $100 a barrel (or at least when the dollar was weaker, but the $80 price point, even with a strong dollar, may be low enough to cause discomfort). In other words, this is a classic case of predatory pricing: set your price low enough long enough to do real damage to competitors, and reduce their market share, not just immediately, but in the middle to long term.

Saudi Prince Alwaleed says falling oil prices 'catastrophic' - Telegraph: Saudi Arabia's most high-profile billionaire and foreign investor, Prince Alwaleed bin Talal, has launched an extraordinary attack on the country's oil minister for allowing prices to fall. In a letter in Arabic addressed to ministers and posted on his website, Prince Alwaleed described the idea of the kingdom tolerating lower prices below $100 per barrel as potentially "catastrophic" for the economy of the desert kingdom. The letter, first reported online by the FT, is a significant attack on Saudi's highly respected 79-year-old oil minister Ali bin Ibrahim Al-Naimi who has the most powerful voice within the Organisation of Petroleum Exporting Countries (Opec). The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude. Saudi Arabia is the world's largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market. Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November. Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia's oil minister, in which he said that falling prices were "no cause for alarm".   Prince Alwaleed - who is a member of the ruling house of Saud - is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.

Did The Saudis Just Get A Tap On The Shoulder? -- The US-Saudi "secret" plan that was supposed to crush Putin quickly turned sour when as we reported several days ago, one after another America's own shale plays, which recently entered a very sharp bear market, started appearing on various death watches (case in point today's MHR Second Lien refi which repriced from L+500 to L+750 in minutes). As a result, one wonders: did Obama realize that Russian "costs" which as everyone knows by now include a Eurpoean triple-dip recession, could also very soon include an insolvent US shale industry, and thus may be just a little too much, and, one further wonders, if he is the one who just tapped Saudi Arabia on the shoulder?

War against Isis: US strategy in tatters as militants march on - America's plans to fight Islamic State are in ruins as the militant group's fighters come close to capturing Kobani and have inflicted a heavy defeat on the Iraqi army west of Baghdad. The US-led air attacks launched against Islamic State (also known as Isis) on 8 August in Iraq and 23 September in Syria have not worked. President Obama's plan to "degrade and destroy" Islamic State has not even begun to achieve success. In both Syria and Iraq, Isis is expanding its control rather than contracting. Isis reinforcements have been rushing towards Kobani in the past few days to ensure that they win a decisive victory over the Syrian Kurdish town's remaining defenders. The group is willing to take heavy casualties in street fighting and from air attacks in order to add to the string of victories it has won in the four months since its forces captured Mosul, the second-largest city in Iraq, on 10 June. Part of the strength of the fundamentalist movement is a sense that there is something inevitable and divinely inspired about its victories, whether it is against superior numbers in Mosul or US airpower at Kobani. In the face of a likely Isis victory at Kobani, senior US officials have been trying to explain away the failure to save the Syrian Kurds in the town, probably Isis's toughest opponents in Syria. "Our focus in Syria is in degrading the capacity of [Isis] at its core to project power, to command itself, to sustain itself, to resource itself," said US Deputy National Security Adviser Tony Blinken, in a typical piece of waffle designed to mask defeat. "The tragic reality is that in the course of doing that there are going to be places like Kobani where we may or may not be able to fight effectively."

A Caliph in a wilderness of mirrors: He's winning big in Iraq's Anbar province. The Caliph's goons are now closing in on - of all places - Abu Ghraib; Dubya, Dick and Rummy's former Torture Central. They are at a mere 12 kilometers away from Baghdad International. A shoulder-launched surface-to-air missile (or MANPAD) away from downing a passenger jet. Certainly not an Emirates flight - after all these are trusted sponsors. Hit, in Anbar province, is now Caliph territory. The police forces and the province's operational command have lost almost complete control of Ramadi. The Caliph now controls the crucial axis formed by Hit, Ramadi, Fallujah; Highway 1 between Baghdad and the Jordanian border; and Highway 12 between Baghdad and the Syrian border. The Caliph's goons are no less than taking over the whole, notorious Baghdad belt, the previous "triangle of death" in those hardcore days of American occupation circa 2004. Message to Donald Rumsfeld: remember your "remnants"? They're back. And they're in charge. Both Ramadi and Fallujah have been reduced to an accumulation of bombed-out schools, hospitals, homes, mosques and bridges. Residential streets are virtually deserted. According to the United Nations, there are a least 360,803 internally displaced persons in Anbar, as well as 115,000 others in areas under The Caliph's control. At least 63% of the 1.6 million people living in the province are classified as "in need" - with hair-raising minimal access to water, food and health care, and receiving little to absolutely zero humanitarian support from that fiction, the "international community." US Ambassador to the UN Samantha Power is not screaming her lungs out for R2P ("responsibility to protect"). How could the Pentagon's spectacular Full Spectrum Dominance possibly not see any of this happening? Of course they see it. But they don't give a damn. Who cares about local, civilian "collateral damage"?

World War III: It's here and energy is largely behind it - Kurt Cobb - I've been advancing a thesis for several months with friends that World War III is now underway. It's just that it's not the war we thought it would be, that is, a confrontation between major powers with the possibility of a nuclear exchange. Instead, we are getting a set of low-intensity, on-again, off-again conflicts involving non-state actors (ISIS, Ukrainian rebels, Libyan insurgents) with confusing and in some cases nonexistent battle lines and rapidly shifting alliances such as the shift from fighting the Syrian regime to helping it indirectly by fighting ISIS, the regime's new foe. There is at least one prominent person who seems to agree with me, the Pope. During a visit to a World War I memorial in Italy last month Pope Francis said: "Even today, after the second failure of another world war, perhaps one can speak of a third war, one fought piecemeal, with crimes, massacres, destruction." In citing many well-known causes for war, he failed to specify the one that seems obvious in this case: the fight over energy resources. It can be no accident that the raging fights in Syria, Iraq, Libya, and the Ukraine all coincide with areas rich in energy resources or for which imported energy resources are at risk. There are other conflicts. But these are the ones that are transfixing the eyes of the world, and these are the ones in which major powers are taking sides and mounting major responses.

Ukraine Refuses to Pre-Pay for Russian Gas: Energy Minister (RIA Novosti) - Ukraine is not willing to make pre-payments for deliveries of Russian natural gas as it contradicts the existing contractual conditions, Energy Minister Yuriy Prodan said Monday. "If we are to make pre-payments, let's go back to provisions of the contract that stipulate the payments should be made upon the delivery and not before," Prodan said in an interview with Ukrainian online publication Apostrof (Apostrophe). In June, Russia's energy giant Gazprom was forced to introduce a prepayment system for gas deliveries to Ukraine due to Kiev's massive gas debt. During a ministerial gas meeting in Berlin in September, Moscow and the European Commission proposed the so-called winter package, the deal that would seek Ukraine pay $3.1 billion of its debt to Russia by the end of the year in exchange for gas deliveries during winter months at $385 per 1,000 cubic meters. Russia initially insisted that Ukraine would pay the first tranche of $2 billion before the start of the deliveries. Earlier on Monday, Russian Energy Minister Alexander Novak said Russia is ready to offer Ukraine a more flexible schedule of its gas debt payment paid. According to the proposal, Kiev is to pay $1.45 billion in first installment of its $3.1 billion gas debt to Russia, with the rest of the debt must paid by the year-end.

Low Oil Prices Will Force Russia to Use Billions From Reserves -- The Moscow Times: Russia will need to spend 500 billion rubles ($12.5 billion) from its Reserve Fund to plug holes in the federal budget next year if the ruble and the price of oil don't bounce back from their recent sharp falls, Finance Minister Anton Siluanov said. The ruble has lost more than 20 percent against the U.S. dollar this year, passing the psychological landmark of 40 rubles to the dollar last week. Partly a consequence of Western sanctions and torrential capital outflows, the ruble devaluation has accelerated along with a rapid fall in the price of oil through the third quarter of this year. "If the current oil price of $87 per barrel remains in 2015 along with the exchange rate of 40 rubles to the dollar … we will be forced to turn to the Reserve Fund," RIA Novosti quoted Siluanov as saying at a session of the State Duma's budget committee on Monday. Russia's budget for 2015-2017, which was approved earlier this month, is based on the contentious forecast that oil prices will average $100 per barrel next year.

Russia Spending $6 Billion Not Enough to Stop Ruble Rout on Oil - The ruble extended its longest losing streak in more than a year as $6 billion of Russian currency interventions failed to stem the depreciation amid tumbling oil prices. The ruble weakened 0.6 percent versus the dollar-euro basket to 45.3303 by 6 p.m. in Moscow, taking its seven-day decline to 2.3 percent, the longest stretch of losses since the nine days ended Aug. 1, 2013. Oil, which along with natural gas contributes almost half of Russia’s revenue, fell 2.2 percent to $88.21 per barrel in London, the lowest since December 2010. Russia’s central bank intervened in the past 10 days to stabilize the currency, central bank Governor Elvira Nabiullina told lawmakers in Moscow today. The action, which comes as President Vladimir Putin orders a withdrawal of Russian forces from Ukraine’s border, has failed to halt the ruble’s drop amid a domestic foreign-currency shortage stemming from sanctions. The cost to swap rubles into dollars widened to a record, while wagers for interest-rate increases climbed to a six-year high.

Russia Pulls Debt Sale as Oil Slump Sends Yields to 5-Year High - Russia canceled tomorrow’s ruble-bond auction after an oil-price slump sent the nation’s borrowing costs soaring to a five-year high. The Finance Ministry pulled the offering due to “unfavorable market conditions,” according to a statement on its website today. The yield on 10-year local-currency bonds climbed six basis points to 9.93 percent at 2:47 p.m. in Moscow, the highest since 2009 on a closing basis. The debt had its worst week since August in the five days through Oct. 10. Russia has skipped 18 bond auctions this year as President Vladimir Putin’s standoff with the U.S. and its allies over Ukraine and tougher sanctions triggered a selloff in the nation’s assets. The government resumed debt sales last month after canceling nine auctions in a row from July. Oil’s slide to four-year lows increased pressure on the ruble this month, leading the central bank to spend more than $6 billion to shore up the currency. The country, which derives almost half of its budget revenue from the oil and gas industries, said last month it planned to borrow 200 billion rubles ($4.9 billion) of debt this quarter. It has so far raised less than 8 percent of that total. At auctions in the last two weeks, it sold less than planned. The ruble depreciated 16 percent against the dollar in the past three months, the weakest result among over 170 global currencies monitored by Bloomberg. It fell 0.5 percent to 40.7065 per dollar today.  The depreciation has helped boost government revenue from exports denominated in foreign currencies. Russia’s budget surplus swelled to 1.11 trillion rubles in the first nine months of 2014, a 70 percent jump from the year-earlier period.

FX Interventionski: Russian Ruble Amid Oil Rout - The trouble with being a commodity-dependent country is that putting all your eggs in one basket is bound to have deleterious effects when downturns in the prices these commodities command occur. Unfortunately for Russia, its worst downturns coincide with steep falls in commodity prices. In 1998 when it famously went to the IMF poorhouse, oil prices were around $18 a barrel. $20/bbl oil! It almost makes you wish China didn't grow so much, but being a charitable sort, I am thankful for all those Chinese lifted out of poverty over this time. The Russians were also rather grateful as Vladimir Putin became Russian president shortly thereafter, erasing the memory of the traumatic Boris Yeltsin years. Fast-forward sixteen years and it is Putin's turn in the hot seat. As if ill-advised military adventurism and sanctions weren't enough to deal with, recent evidence of the global economy slowing down is causing oil prices to decline anew. Sure $88/bbl oil doesn't sound so bad compared to $18/bbl oil for producers, but the trouble is that Russian production costs have risen since way back when since it doesn't exactly have Western levels of efficiency. What's more, expectations for turning a profit selling oil overseas was predicated on a rather higher market price. As of last year, it was... Russia will probably require an average Brent oil price of $117.8 a barrel this year to balance its budget, the fifth straight year it’s needed crude above $100 and compared with break-even prices of $90.3 for Saudi Arabia and $65 for Kazakhstan, Deutsche Bank AG said in a May 10 report. 

Russian Sues EU Over Sanctions on Gazprom Funding  Hot on the heels of Russia intervening in the currency markets to no real effect, we receive word that it is using legal maneuvers to resume being able to obtain financing from Western capital markets which have been closed to the country ever since a new round of sanctions were implemented by the European Council (the "upper house" of European Parliament composed of EU heads of state) in the wake of the downing of the Malaysian Airlines jetliner. The troubles in Ukraine continue to roil, especially if the Russian state-owned enterprises are unable to roll over their debts coming due at the end of next year:The EU bans, with similar measures adopted by the US, have all but frozen Russian companies and banks out of western capital markets, at a time when they have to refinance more than $130bn of foreign debt due for redemption by the end of 2015. Rosneft filed a case against the EU’s European Council in the general court under the European Court of Justice on October 9, requesting an annulment of the council’s July 31 decision that largely barred it and other Russian energy companies and state banks from raising funds on European capital markets. Russia is counting on the precedent of ECJ rulings that have rolled back sanctions against the likes of Iran and Syria. That said, those countries hardly have become welcome participants in European capital markets--not by a long shot. In this vein I'd say it's more like a speculative ploy to obtain some breathing room as Russian finances get shot:

Banned From U.S. Banks, Russian Oil Giant Turns To Even Bigger Banks In China - Forbes: Russian state owned oil company Gazprom Gazprom is turning to China for foreign sources of capital now that the U.S. and European financial markets are closed to them. Gazprom said in a press release posted on its website today that it was in talks with the behemoth Industrial and Commercial Bank of China Bank of China for funding. The statement did not say whether funding would be provided, however. This has been quite the week for China-Russia relations. Li Keqiang was in Russia earlier this week to discuss deeper economic integration. Energy remains front and center. But integration is occurring beyond oil and gas deals. For instance, the Bank of Russia announced a deal with the Moscow Exchange to trade currencies and create forex derivatives contracts between the two markets. Russia is aching to settle business in Chinese yuan, partly in a snub to the Western powers, and partly out of necessity because of Western sanctions. Last week, BNP Paribas BNP Paribas said it was no longer offering letters of credit to sanctioned Russian banks dealing with commodities traders. BNP Paribas has run afoul of European Union sanction law in the past, and was fined heavily for it. Both the U.S. and European Union banned its banks from providing Russian companies with financing beyond 90 days.

Shock China coal tariff decision throws Australian free trade talks into turmoil: The crucial final stages of free trade talks between Canberra and Beijing have been thrown into turmoil following China's shock decision to impose harsh new tariffs on Australian coal supplies. The sudden reversion to protectionism is designed to save the local coal industry and will see all coking coal imports hit with a 3 per cent price hike and double that applied to the lower grade thermal coal attracting an import tariff of 6 per cent. It comes after intense lobbying from local suppliers dealing local prices at a six-year low.  The China National Coal Association, which had submitted proposals to reduce domestic output, reduce the tax burden and regulate imports, had urged Beijing to act swiftly to support the besieged sector, where 70 per cent of the miners were making losses and more than half were owing wages.  The news brought an angry reaction from the federal opposition and the Australian mining sector. The Minerals Council of Australia's Brendan Pearson said the decision was a poor one. "The MCA urges the Australian government to initiate urgent discussions with Chinese counterparts to seek the reversal of the decision," he said in a statement. He said applying tariffs would ultimately prove "counterproductive" for the struggling Chinese economy anyway because it would "raise energy costs for China's industrial sector and households".

"Game Over For Aussie Coal" As China Levies Tariffs After 10-Year Hiatus -- Just months after unofficially entering the currency wars, China has torn another page from the 'causes of the great depression' playbook. As Reuters reports, for the first time in almost a decade, China - the world's top coal importer - will levy import tariffs on the commodity crushing Australian (the biggest shipper of coal to China) dreams of a commodity-based renaissance. "China is clearly moving to protect its local miners," explained one analyst, which is key since so much of the credit market is predicated on these mal-invested entities - as the China National Coal Association, urged Beijing to act swiftly to support the besieged sector, where 70% of the miners were making losses and more than half owed wages. Crucially, Indonesia - the second-biggest shipper of the fuel to China - will be exempt from the tariffs, which one trader exclaimed, means "It is game over for Australian coal."

China’s Hong Kong Nightmare Is Back -- The Hong Kong government’s decision to scuttle proposed talks with representatives from the protest movement on the island that were originally scheduled to take place this weekend demonstrates just how uncertain, and potentially volatile, the situation there remains. Thus, this new development in what increasingly appears to be a long story is worthy of analysis, as it may prove to be an important turning point in this round of the conflict. Earlier in the week, when talks were announced, they had the effect of taking quite a bit of air out of the protest movement’s collective balloon. In other words, even as some expressed skepticism about the sincerity of the offer, the initial announcement was seen by most as a way out of the dangerous impasse the two sides had reached. Most signs in the streets came down, and it seemed like it was time for everyone to go home.  With the threat of mass demonstrations dissipating, the bargaining position of Beijing and local Hong Kong officials vis-à-vis the protesters appeared to be strengthened. It is possible to surmise that this gave the powers that be the confidence to feel that they could now pull a bait and switch on the talks themselves. In short, this would seem to be a move of rather acute political gamesmanship.

Hong Kong protests: police remove barricades and gather at main site - Hong Kong police have removed some barricades erected by pro-democracy protesters, but said protesters could remain on the streets they have occupied for the past two weeks. At the main protest site, near government offices in the downtown district of Admiralty, scores of student protesters faced off with police who were massing in the area, a witness said. The removal of barricades and massing of police, some carrying small riot shields, were the first signs in two weeks that the government may be prepared to back threats by the chief executive, Leung Chun-ying, that the blockade of key parts of the Asian financial hub could not last indefinitely. Protesters are demanding Leung step down and China allow Hong Kong’s people the right to vote for a leader of their choice in 2017 elections. China wants to select candidates for the election. The demonstration escalated late last month after police used teargas and batons on demonstrators. Since then, police have been largely hands-off and their presence minimal.

HK police use sledgehammers, chainsaws to clear protest barriers, open road  (Reuters) - Hundreds of Hong Kong police used sledgehammers and chainsaws on Tuesday to tear down barricades erected by pro-democracy protesters near government offices and the financial centre, reopening a major road for the first time in two weeks. Traffic flowed freely along Queensway Road after the protesters' obstructions were cleared but other major protest sites remained intact in the Admiralty and Mong Kok districts and pro-democracy demonstrators were defiant. "We will rebuild them after the police remove them," said protester Bruce Sze. "We won't confront the police physically." true Unlike on Monday, when clashes erupted between anti-protest groups and pro-democracy activists after police removed blockades, Tuesday's operation resulted in no confrontation. Police with chainsaws cut through bamboo defences and others wielded sledgehammers to smash concrete blocks outside the Bank of China's Hong Kong headquarters and next to the office of Asia's richest man, Li Ka-shing. Office workers streamed onto the streets to watch. The protesters, most of them students, are demanding full democracy for the former British colony, but their two-week campaign has caused traffic chaos and fuelled frustration in the Asian financial hub, draining some public support.

China’s Response to Hong Kong Protests May Chill Business - In the third week of a standoff between the Hong Kong government and pro-democracy protesters, signs are emerging that the turmoil could take a toll on the city’s appeal as an international business hub. Scuffles broke out at the main Hong Kong protest site Monday afternoon as hundreds of antiprotest activists confronted pro-democracy demonstrators in an attempt to break through barricades that continue to block downtown areas. Police removed some barricades that had shut off 5.6 kilometers of road in the city on Monday, pre-empting threats by truck drivers to do so this week. Retailers in these areas have experienced a sharp sales decline of up to 80% during one of the most important shopping weeks of the year, with businesses calling for an end to a standoff. In a city that has traditionally been known for its pro-business environment, fears are growing that Hong Kong’s economy could slip into a recession. Businesses say that, while the democracy demonstrations have been disruptive, their greater concern is how China’s moves to assert more control over Hong Kong will affect the city’s competitiveness. “This is a real risk,”  “If these protests escalate and become violent, that could trigger a greater clampdown” by the mainland.

Hong Kong protests: Mong Kok camp retaken from police: Pro-democracy demonstrators in Hong Kong have retaken streets in the Mong Kok district, just hours after they were cleared by the authorities. Activists clashed with police, as about 9,000 protesters re-occupied the area. At least 26 people have been arrested. Demonstrators have been occupying parts of the city for weeks, angered at China's curbs on who can stand in the next leadership election in 2017. The government and students are due to hold talks on Tuesday. Hong Kong Chief Secretary Carrie Lam said both sides would send five representatives to the negotiations, which will be broadcast live on television. The talks were announced after overnight clashes in which dozens of people were wounded, including at least 15 police officers.

The Endgames For Hong Kong: None Of Them Look Good - Hong Kong entered a new and unhappy phase today when clashes between police and demonstrators reached their most violent level since the Occupy Hong Kong protests began two weeks ago. This was, perhaps, inevitable: it had become clear that Hong Kong chief executive CY Leung was not going to step down, that China was not going to budge on electoral reform, and that the protestors were not going to move. Something had to give. And here are the consequences: videos going viral of riot police using pepper spray on crowds, and in one case, six officers beating a protestor who appeared to be in handcuffs. So, where too from here? Here are a few possible outcomes, and how they might play out.

China's local government debt binge curtailed - Over the years China's local governments have become dependent on financing themselves via land sales and more recently the so-called Local Government Financing Vehicles (LGFV). Times were good, as property developers grew wealthy via sales of new urban housing while enriching local governments and often government officials. But over the past three years growth in the nation's property markets has cooled. This slowdown is clearly visible in the decline of prices for steel rebar which is primarily used in construction. This slowdown has accelerated this year.At the same time Beijing started scrutinizing the banking system (including state-owned banks) where the volume of bad loans had been on the rise. Moreover, many of the earlier infrastructure projects initiated as part of the 2008 stimulus have not yielded the revenue levels that were originally projected. With slower land sales, more stringent bank lending, and a taste for credit, China's local governments increased their borrowing via LGFV as well as other non-traditional sources (see chart).  This borrowing by municipalities, combined with growing corporate debt (a great deal of it from developers), resulted in China's total debt-to-GDP ratio increase of over 70% since 2008. Worried about local governments' growing large-scale credit bubble, Beijing  has recently decided to put an end to these forms of financing.  People's Daily: - Funding sources for local governments will change dramatically. Shadow banks and corporate bonds are out: local government bonds are in, for both existing and new debt. This will immediately cure the maturity mismatch risk for local government debt, as local government debt has a longer maturity. The interest burden will also be reduced: Yields on municipal bonds are close to treasury yields and much lower than bank lending rates or trust yields. In the long run, this could strengthen market discipline for local government borrowing, as municipal bonds tend to have stricter requirements on disclosure of fiscal balance sheets and monitoring than shadow banks.

China Central Bank Official: No Major Stimulus Needed in ‘Foreseeable Future’ - The chief economist at China’s central bank said Saturday that he doesn’t see any reason for large-scale fiscal or monetary stimulus “in the foreseeable future” despite slowing growth in the world’s second-largest economy and disagreements about the depth and timing of economic overhauls. Speaking in Washington at a meeting of the Institute of International Finance, a financial-industry group, Ma Jun said the Chinese job market “looks pretty stable” despite wobbly economic growth. And, he said, leverage in certain sectors — including real estate, certain state-owned enterprises and local-government financing vehicles — was already too high, and that further lending to these areas should be avoided. In Beijing, debate about how to manage the country’s slowdown has been intense. The People’s Bank of China so far has bolstered the economy using narrow stimulus measures, including targeted lending in sectors like agriculture and public housing. But The Wall Street Journal reported last month that Chinese leaders are considering replacing the central bank’s governor, Zhou Xiaochuan, as part of internal battles over whether larger-scale expansion of credit should be used to spur economic growth. Mr. Ma on Saturday instead emphasized the importance of reforms to prevent slower growth from turning into a broader crisis. The government is working on improving the productivity of state-owned companies and better controlling their spending, he said. Beijing also is endeavoring to allow more companies both public and private to go bankrupt, which is “warranted,” he added.

Chinese Car Sales Grow At Slowest Pace In 19 Months - As Italy's Chrysler (yes, it belongs to Fiat now) resumes trading on the NYSE five years after it filed for bankruptcy, in a completely illiquid tape, on the day after the biggest weekly market rout in years, trading briefly above its $9 opening price before sliding just under... ... the real automotive news of the day comes neither from NY, nor Mahwah, NJ where the NYSE is located, nor from Italy, but from China - the place where all automakers have thrown their Hail Mary passes in the past year. Alas the news is anything but good. According to Bloomberg, China’s vehicle sales grew at the slowest pace in 19 months in September as demand for trucks and buses slumped with the weaker economy. Total vehicle sales, which include passenger and commercial vehicles, rose 2.5 percent from a year earlier to 1.98 million units, the China Association of Automobile Manufacturers said today. That was the slowest pace since February 2013. Demand is slowing in the world’s largest auto market as the economy slows with declines in gauges for services and industrial production. The state-backed auto association cut its forecast for full-year vehicle sales in July as the economy showed little signs of improvement and more cities consider purchase restrictions.

China Easing Home Loans No Panacea for Sliding Market - China is lowering down payment requirements and discounting mortgages as declining housing sales put a drag on the economy. After four years of government restrictions to cool housing prices that had tripled since 2000, the central bank is reversing course, making it easier for homeowners to buy second properties. They are not likely to get back into the market, several analysts said, until prices become more affordable. “The property downturn will continue as buyers stay on the sidelines in anticipation of further price declines,” said Bei Fu, a Hong Kong-based credit analyst at Standard & Poor’s. “Longer term, the central bank’s latest move is a big step forward. It will allow more buyers to qualify for preferential mortgage rules and should help to release pent-up demand.”  The moves haven’t revived sales as bank credit remains tight. Close Residential buildings stand in Beijing, China. Cities such as Qingdao, Shaoxing and... Read More CloseOpen Photographer: Brent Lewin/Bloomberg Residential buildings stand in Beijing, China. Cities such as Qingdao, Shaoxing and Fujian province also loosened mortgage rules starting in August. The moves haven’t revived sales as bank credit remains tight.Premier Li Keqiang is trying to prevent economic growth this year from drifting too far below the government’s 7.5 percent target, already the slowest pace since 1990. UBS AG estimates that real-estate, including goods such as electric machinery, chemicals and metals used in construction, accounts for more than a quarter of final demand in the economy.

China Posts Strong Trade Figures, but Data Deserve Close Scrutiny - A sharp increase in Chinese exports to Hong Kong seen in September data released Monday has some analysts wondering whether traders are engaged in another round of overinvoicing or round-tripping, a variety of practices wherein trade flows are used to get around strict capital market restrictions. China’s exports through Hong Kong – a major trade gateway — should roughly track the nation’s total exports. In September, however, even as year-on-year exports to all regions rose a stronger-than-expected 15.3% year on year, those to Hong Kong grew by 34%. (This compared with a drop in exports to Hong Kong of 2.1% in August.) The sharp September increase comes amid recent appreciation of China’s currency, the renminbi. “Given that China’s exports to Hong Kong have surged again while the RMB is appreciating, it is natural to suspect the round-tripping trade is reviving,” said ANZ economist Li-Gang Liu, who added that trade developments between Hong Kong and China need to be closely monitored. China’s monthly exports to Hong Kong should in theory equal Hong Kong’s imports from China. In practice, they tend to differ by a few billion dollars, largely because each side counts trade differently. Between late 2012 and March 2013, however, that monthly gap rose to a peak of $27.8 billion.

China heads for Q3 GDP slump despite export surge – A reported export surge in September is failing to dispel the gloom suffusing forecasts for China’s third quarter GDP growth, which several economists predict will slump to a five-year low. One problem lies with the export numbers themselves, which raise suspicions that over-invoicing may once again be artificially inflating export statistics as Chinese smuggle hot money into the mainland from Hong Kong to take advantage of an appreciating renminbi. “As in the past, over-invoicing is a key channel for hot money to enter China,” said Shen Jianguang, chief Asia economist at Mizuho Securities in Hong Kong. Shen noted that exports to Hong Kong rocketed by 34 per cent in September, the highest level seen since April 2013, when over-invoicing was considered to be rife.  A survey of executives at 200 export companies, trading firms and shipping agents in China in September revealed that 54 per cent of respondents think over-invoicing of exports is resurgent, the highest levels since late 2013, according to China Confidential, a research service at the Financial Times. According to official statistics announced on Monday (see chart), exports rose 15.3 per cent year on year in September, up from 9.4 per cent in August. Imports, meanwhile, climbed 7.2 per cent, up from a 2.3 per cent decline in August. The trade surplus hit an official US$30.9bn, down sharply from US$49.8bn in August. However, the resurgent export numbers were also at odds with what the International Monetary Fund’s (IMF) downward revision of its global economic growth forecast this year to 3.3 per cent from 3.4 per cent as it warned about weakness in Japan, Europe and Latin America. In addition, China’s reported export resurgence does not correspond with various survey-based readings of export activity in September. The new export order sub-index of the official manufacturing Purchasing Managers Index (PMI) languished at around 50 points in September, indicating an expectation of scant growth.

Inflation Approaches a 5-Year Low in China - — Consumer inflation in China slowed more than expected in September, nearly to a five-year low, government data showed on Wednesday, pointing to broad weakness in the economy.The data, released by the Chinese National Bureau of Statistics, showed that much of the decline was the result of falling prices for food, fuel and other commodities, which are benefiting consumers globally.The consumer price index rose 1.6 percent in September from a year earlier, the statistics agency said, missing market expectations for a 1.7 percent rise and down from 2 percent in August. The annual rise was the lowest since January 2010, partly because of a relatively higher base of comparison a year ago, officials said.Facing mounting risks to growth and rising risks of deflation, Beijing is widely expected to continue rolling out a steady stream of stimulus measures in the coming months, though most economists say they believe it will delay more aggressive action, such as an interest rate cut, unless conditions sharply deteriorate.“Policy makers in Beijing should begin to be concerned that global disinflationary pressures are spreading to China,” said Dariusz Kowalczyk, senior economist in Hong Kong for Crédit Agricole CIB. “The low inflation readings will open the door to further targeted monetary and fiscal easing. There is also less need for a strong currency to offset imported inflation.”Inflation is also easing in other parts of Asia, including South Korea, whose economy is also sputtering and facing growing fears of deflation.

Economists React: Rise in Prices Shows China’s Economy Is Still Struggling -- Consumers are generally happy to see prices rising slowly, but when inflation becomes so weak that an economy faces deflation risks, it may not be good news for decision makers.China’s consumer prices rose at their slowest pace in more than four years in September, while, producer prices dropped at the fastest rate in five months, official data showed Wednesday. That means real borrowing costs remain high for Chinese manufacturers, as low factory-gate prices eat into profit margins. Policy makers seem to be aware of the potential risks. On Tuesday, the central bank moved to cut some short-term borrowing costs for banks, its latest targeted easing measures aimed at reducing lending costs. Economists debate whether China is facing deflation risk and what action decision makers should take to shore up economic growth. Comments are edited for length and style:

China's Banks Are Getting Ready For A Debt Implosion - Chinese banks are seeing the writing on the wall in terms of the debt they've accumulated, and they are taking measures to protect themselves. The Bank of China is planning the biggest sale of shares ever — $6.5 billion to offshore investors, Bloomberg says. It's all in an effort to create a capital cushion. China's banking system has piled up the most bad loans of any time since the financial crisis, and the banks are preparing for the moment those debts collapse. Especially in corporate and property sectors, things are looking dire.  Last month, Morgan Stanley released a report saying China's corporates took on 5.4 times more leverage than ever before in the first half of 2014, bringing leverage up to levels unseen since 2006. And it hasn't stopped. Short-term lending to corporates rose to $26.8 billion in September from $11.2 billion in August. Long-term lending hit a four-month high of $45.9 billion in September, up from $39.3 billion in August.

Rising Global Use of Yuan a Slow But Natural Process, Says Fed’s Williams - The gradual but rising international use of the Chinese yuan is a natural development, given the size of China’s economy and its widespread commercial ties with other nations, John Williams, president of the Federal Reserve Bank of San Francisco, said on Saturday. Mr. Williams told a conference sponsored by the Institute of International Finance, a banking industry lobby, that Beijing still had plenty of capital controls that leave its currency a long way from the type of full flexibility required to become more widely used internationally. But he said the pattern of rising interest in bond issuance denominated in yuan reflected the same historical trend that helped the British pound and later the U.S. dollar rise to the level of de facto reserve currencies. China is the world’s second-largest economy. “It’s a first step in a long-term process,” Mr. Williams said. “This is a healthy, positive development, and the fact that it’s going at the pace it’s going shows they don’t want to make it too disruptive.” The British government moved a step closer on Thursday to becoming the first country other than China to issue bonds in China’s yuan.. The U.K. Treasury said proceeds from the bond sale would be used to finance the nation’s foreign-currency reserves, signaling the yuan’s potential as a future global reserve currency.

The Bank of Japan may put further easing on hold -- Expectations of Bank of Japan accelerating securities purchases at the October meeting have fallen considerably. Majority of economists now expect any type of change in policy to take place no earlier than December/January, if ever. In fact an increasing proportion of Japan watchers are suggesting that faster securities purchases are unlikely to take place at all. The chart below shows the percentage of those who believe further easing is imminent.This relatively sudden change in views is not due to any significant economic improvements in Japan. Japan's consumption tax hike has created a material drag on growth, with industrial production starting to decline again. The BoJ in fact admitted that a substantial slowdown is taking place and the tax hike is to blame.WSJ: - The Bank of Japan said Tuesday that industrial production was showing signs of weakness, acknowledging for the first time since the sales tax was raised in April that the move has had a notable negative impact on a key driver of economic growth.  The admission confirms what private economists have been stressing for months—that the higher tax rate has taken a significant toll on the economy. It also comes as a separate government indicator pointed toward the possibility that Japan may have already entered a recession.  In a statement released after a two-day meeting, the BOJ’s policy board maintained its assessment that the economy “continues to recover moderately as a trend,” but that “some weakness, particularly on the production side, has been observed.”  Moreover, the central bank's 2% inflation target remains elusive. Inflation expectation (breakeven) implied by the 10-year JGBs is barely above 1%.

BOJ May Need to Buy More Longer-Term Debt - The Bank of Japan is reaching the limit of what it can buy in short-term debt from the market, a development that suggests it may have to shift its asset buying toward longer-term debt. Such a tweaking of the central bank’s buying operations would effectively strengthen its easing measures, even though the BOJ has made no change in its official monetary policy stance. Under the leadership of Gov. Haruhiko Kuroda, the bank has been buying the equivalent of about 70% of new debt issued by the government and first sold to the market. But it has recently found supply and demand conditions so tight in the short-term market that it started offering to buy debt at negative interest rates last month–essentially agreeing to buy Treasury discount bills at an eventual loss. For the first time since Mr. Kuroda rolled out the bank’s unprecedented easing program in April 2013, one of the BOJ’s regular offers to buy Treasury discount bills failed to generate sufficient demand, indicating growing reluctance by market participants to part with their T-bills. The BOJ said Friday it would buy ¥3.0 trillion ($28 billion) of T-bills with maturities of less than a year, but was only offered ¥2.62 trillion by potential sellers. “They’re going to have to think of something to change their market operations,”

Malaysia Still Needs Accommodative Policy, Central Bank Chief Says —Malaysia’s economy is likely to keep expanding at a solid clip next year despite softer economic growth globally, but still requires the support of fairly low interest rates to continue humming, Zeti Akhtar Aziz, the country’s central bank governor, said Saturday. Ms. Zeti, in an interview with The Wall Street Journal, predicted economic growth between 5% and 6% “going into next year,” adding she wasn’t troubled by signs of economic softness in Europe and particularly in China, the country’s largest trading partner.“We see ourselves on a steady growth path,” she said. Pockets of weakness in the outlook emanate largely from temporary factors such as budget reforms and tax reforms, and are therefore not a cause for concern, Ms. Zeti said.In July, the Malaysian central bank raised official borrowing costs for the first time since 2011, to 3.25% from 3%. But Ms. Zeti gave no particular indication that another rate increase from Bank Negara Malaysia might be imminent. Recent structural reforms may give a passing boost to inflation, she said, but probably no more. “We believe that at this point in time we need to still have an accommodative monetary policy,” Ms. Zeti said. “We’re not out of the woods because the global environment is still very uncertain.”

Why India is protected from the global slowdown -- Victor Mallet writes: Amid gloom over global economic growth and uncertain prospects for emerging markets, India is beginning to stand out as uniquely well-placed to gather the windfall benefits of an international slowdown. Unlike Brazil, Russia or South Africa, India reaps immediate advantages for its terms of trade and its domestic budget from the fall in commodity prices triggered by renewed concerns about the world economy.And unlike China, India will not suffer much from any decline in global demand for manufactured goods because its export sector is relatively small.Commodities – mostly oil – account for more than half of India’s imports but only 9 per cent of its exports, mainly food. The current account deficit falls by about $1bn a year for every $1 decline in the price of a barrel of oil, and the reduced cost of fuel subsidies is also easing the burden on the budget. Another benefit of weaker commodity prices is falling inflation, long the bane of the Indian economy.

Will Governor Rajan Cut Rates Now? - A sharp decline in India’s inflation rates in September has companies calling for interest rate cuts again. But is the Reserve Bank of India’s Raghuram Rajan at last ready to oblige? While economists doubt the central bank is done with its battle with inflation, some say the surprise slide in the pace of price rises in recent months could mean key lending rates could come down as early as December. “The RBI might begin to loosen policy earlier than a lot of people have been expecting,” said Shilan Shah, a London-based economist at Capital Economics. While most RBI watchers hadn’t been expecting any easing until well into next year or even 2016, Mr. Shah said if consumer inflation rates continue to fall, the RBI could cut its key lending rate as early as Dec. 2, when it is next scheduled to review monetary policy. On Tuesday, India reported that wholesale inflation dropped to 2.38% in September, the lowest level it has been in five years. On Monday the country said consumer inflation cooled to 6.46% that month, the lowest it has been in nearly three years. Industry lobby groups have latched on to the numbers to make a fresh pitch for rate cuts, which they say are essential to encourage businesses to start borrowing and investing again. “With these inflation numbers, we hope growth considerations will be brought to the forefront,” Didar Singh, secretary general of the Federation of Indian Chambers of Commerce and Industry, said in a news release.

Brazil Central Banker Vows Vigilance on Inflation - Central Bank of Brazil Gov. Alexandre Tombini vowed vigilance on inflation after consumer prices moved outside of the bank’s target range in September. “We are going to end 2014 compatible within our inflation targeting regime,” Mr. Tombini said in an interview with The Wall Street Journal, on the sidelines of semiannual meetings of the International Monetary Fund in Washington. “We will not be complacent going forward with inflation.” When asked if he was signaling a rate hike Mr. Tombini said, “I’m not saying that. Everything will be examined and we will have our decisions accordingly to what we see in terms of inflation prospects.” Brazil’s IPCA consumer-price index was up 6.75% in September from a year earlier, the highest rate since October 2011 and outside the central bank’s inflation target zone. The central bank aims for 4.5% inflation, plus or minus two percentage points, by year end. The index was driven up in part by higher food prices. The central bank has kept its benchmark short-term interest rate, the Selic rate, at 11% since April, after a year-long credit tightening cycle that started when the rate was at a record-low 7.25%. Mr. Tombini noted the inflation backdrop is mixed. Wholesale prices and a closely watched general price index, which accounts for wholesale and consumer indexes, have been much more subdued, he said. Falling global commodity prices are putting downward pressure on inflation, while a stronger U.S. dollar is putting upward pressure on prices in Brazil.

Bank of Mexico Confident About Meeting Inflation Target by Mid-2015 - A one-time government increase in Mexican gasoline prices in January of next year could delay the expected slowdown in inflation, but the central bank says a new government policy on energy prices will help in the long run to meet its 3% inflation target. Bank of Mexico Gov. Agustin CarstensGetty ImagesThe Mexican government sets gasoline prices, and in recent years has been raising them by a small amount each month to reduce the level of government subsidy. Starting next year, the price will be raised in line with expected inflation. And in coming years Mexico will move toward allowing markets to set the prices under recent changes in the country’s energy laws that will open the business to the private sector. Currently, state oil company Petróleos Mexicanos is the only producer and importer of gasoline. In July, the Bank of Mexico forecast that the annual inflation rate measured by the consumer price index would slow toward its 3% target in January of 2015, largely because the consumer tax increases that pushed prices up this year would fall off the 12-month radar screen. The CPI was up 4.2% in the 12 months through September, above the central bank’s 2%-4% comfort zone for a third consecutive month. Higher inflation and a pickup in economic growth are expected to keep the central bank from moving interest rates in the near term.

World economies warn of global risks, call for bold action - (Reuters) - The International Monetary Fund's member countries on Saturday said bold action was needed to bolster the global economic recovery and they urged governments not to squelch growth by tightening budgets too drastically, although Germany poured cold water on the idea of a new global "crisis." With Japan's economy floundering, the euro zone at risk of recession and even China's expansion slowing, the IMF's steering committee said focusing on growth was the priority. "A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high," the International Monetary and Financial Committee said on behalf of the Fund's 188 member countries. The Fund this week cut its 2014 global growth forecast to 3.3 percent from 3.4 percent, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world's central banks. The IMF has flagged Europe as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund's fall meetings. European officials sought to dispel the gloom. European Central Bank President Mario Draghi said the drag from fiscal tightening in the euro zone was set to fade, while German Finance Minister Wolfgang Schaeuble downplayed the idea that the region's largest economy was at risk of recession.

BIS warns on 'violent' reversal of global markets - The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned. Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” as the first sign of stress. In a speech in Sydney, Mr Debelle said: “The sell-off, particularly in fixed income, could be relatively violent when it comes. There are a number of investors buying assets on the presumption of a level of liquidity which is not there. This is not evident when positions are being put on, but will become readily apparent when investors attempt to exit their positions. “The exits tend to get jammed unexpectedly and rapidly.” Mr Debelle, who is also chief of financial markets at Australia’s Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world. “That is a point we haven’t started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up,” he said. The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged.

Infrastructure investment is a no-brainer - for countries with infrastructure needs, the combination of low interest rates and mediocre growth mean that it’s time for an investment push by Jérémie Cohen-Setton on 13th October 2014 3172766 madpixblue What’s at stake: For countries with infrastructure needs, the combination of low interest rates and mediocre growth mean that it’s time for an investment push. While Brad DeLong and Lawrence Summers already laid out the theoretical case in a 2012 Brookings paper, the empirical case was laid out this week in Chapter 3 of the latest IMF World Economic Outlook. Lawrence Summers writes that in a time of economic shortfall and inadequate public investment, there is for once a free lunch – a way for governments to strengthen both the economy and their own financial positions. Greg Mankiw writes that the free-lunch view is certainly theoretically possible (just like self-financing tax cuts), but we should be skeptical about whether it can occur in practice (just like self-financing tax cuts). 

Infrastructure Investment Truly a No-Brainer - Brad DeLong - I note the publication of the IMF World Economic Outlook and its chapter 3 calling for North Atlantic economies to borrow more and spend it on infrastructure because, right, now in today’s exceptional circumstances, it is–as Larry Summers and I pointed out in 2012–a policy that is self-financing does not increase but rather reduces the relative burden of the national debt. It is thus time for Larry and me–and everyone else who has been doing the arithmetic–to take a big victory lap. We have had no effect on policy in the North Atlantic in the past 2 1/2 years. But we were (and are) right. And it is important to register that–both so that our intellectual adversaries rethink their models and thus their positions, and so that the North Atlantic economic policymakers can do better next time. And next time is, come to think of it, right now: interest rates on the debts of reserve currency-issuing sovereigns are no higher, infrastructure gaps are larger, and output gaps are at least as large as they were 2 1/2 years ago. It’s not too late to do the right thing, people!

The Mixed International Picture on Poverty and Inequality - Yves here. As much as readers may already have an intuitive grasp of the story told in this post, data can help define its contours better. Here we see that the rising tide of global growth has not lifted all boats. The gains of the once-poor in China and India have come at the expense of the what used to be the middle class in more developed countries. Reducing poverty has not been a zero sum game. This post also omits another key piece: the rise and rise of an uber-wealthy class. According to The Economist:GLOBAL wealth has increased from $117 trillion in 2000 to $262 trillion this year. That comes to $56,000 for each adult on earth. But the fortune is far from evenly distributed… Today 94.5% of the world’s household wealth is held by 20% of the adult population… Wealth is so unevenly distributed, that you need just $3,650 (less debts) to count yourself among the richest half of the world’s population. A mere $77,000 brings you among the wealthiest 10%. And just $798,000 puts you into the ranks of the 1%…Taking a global perspective, the data is more encouraging, with recent research from World Bank researchers, Christoph Lakner and Milanovic Branko, arguing that there has been an overall reduction in poverty via a redistribution of wealth from richer to poorer countries, which has been achieved through greater inequality within rich nations (i.e. a transfer from the poor and middle classes to rich plutocrats). From VOX: A ‘quasi non-anonymous’ growth incidence curve in Figure 2… shows how the country/deciles that were poor, middle-class, rich, etc. in 1988 performed over the next 20 years… People around the median almost doubled their real incomes. Not surprisingly, 9 out of 10 such ‘winners’ were from the ‘resurgent Asia’. For example, a person around the middle of the Chinese urban income distribution saw his or her 1988 real income multiplied by a factor of almost 3; someone in the middle of the Indonesian or Thai income distribution by a factor of 2, Indian by a factor of 1.4, etc.

Report: Richest 1% Holds Nearly Half of the World’s Wealth - A new Credit Suisse report finds the gap between rich and poor widening on a global scaleThe world not only surpassed a new milestone of wealth creation in 2014, but the richest 1% now own nearly half of the planet’s wealth, according to a new Credit Suisse report published Tuesday.The Global Wealth Report estimated that the world’s combined wealth reached $263 trillion in 2014, a $20.1 trillion increase over the previous year. It marked the highest recorded increase since the financial panic of 2007, but the greatest accumulations of wealth occurred at the very upper echelons of earners.“Taken together, the bottom half of the global population own less than 1% of total wealth,” the report said. “In sharp contrast, the richest decile hold 87% of the world’s wealth, and the top percentile alone account for 48.2% of global assets.”Credit Suisse also noted widening gaps between the rungs of the wealth ladder: While only $3,650 would place a person in the wealthier half of the global population, $77,000 was needed to reach the top 10% and $798,000 to hit the top 1%.

Revenge of the Unforgiven, by Paul Krugman - Stop me if you’ve heard this before: The world economy appears to be stumbling. For a while, things seemed to be looking up, and there was talk about green shoots of recovery. But now growth is stalling, and the specter of deflation looms.If this story sounds familiar, it should; it has played out repeatedly since 2008. ... Why does this keep happening? ... The answer, I’d suggest, is an excess of virtue. Righteousness is killing the world economy.What, after all, is our fundamental economic problem? ... In the years leading up to the Great Recession, we had an explosion of credit..., debt levels that would once have been considered deeply unsound became the norm.Then the music stopped, the money stopped flowing, and everyone began trying to “deleverage,” to reduce the level of debt. For each individual, this was prudent. But ... when everyone tries to pay down debt at the same time, you get a depressed economy.So what can be done? Historically, the solution to high levels of debt has often involved writing off and forgiving much of that debt. ...What’s striking about the past few years, however, is how little debt relief has actually taken place. ...Why are debtors receiving so little relief? As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions. So the policy response to a crisis of excessive debt has, in effect, been a demand that debtors pay off their debts in full. What does history say about that strategy? That’s easy: It doesn’t work. ...

The Depressing Signals the Markets Are Sending About the Global Economy - It wasn’t very long ago that the dread hovering over global financial markets was that things were getting too calm. Just this summer, Federal Reserve officials were fretting over markets being so stable that it might create complacency, and we were writing about a global boom in asset prices. Even if many Americans don’t fully realize it yet—though an unnerving drop in a wide range of global markets Wednesday may have gotten our collective attention—the autumn has brought a rather darker set of worries with a series of dives in financial markets across the globe. On Wednesday alone, the Standard & Poor's 500 briefly fell into negative territory for the year and the interest rate investors were willing to accept on 10 year U.S. Treasury bonds edged below 2 percent for the first time since June 2013. (As of late morning, the S&P was down 1.4 percent for the day and narrowly up for the year, and the 10 year Treasury bond was back up to 2.05 percent). But those moves underlie a bigger story: Many crucial indicators in markets for international bonds, currency and commodities are pointing toward a heightened risk of a worldwide economic slowdown that may be beyond the ability of policy makers to halt. It would inevitably have ripple effects even on the relatively strong American economy.

World economy so damaged it may need permanent QE - Combined tightening by the United States and China has done its worst. Global liquidity is evaporating. What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation". The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale. Markets are suddenly prey to the disturbing thought that the five-and-a-half year expansion since the Lehman crisis may already be over, before Europe has regained its prior level of output. That is the chief reason why the price of Brent crude has crashed by 25pc since June. It is why yields on 10-year US Treasuries have fallen to 1.96pc, and why German Bunds are pricing in perma-slump at historic lows of 0.81pc this week. We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression. If this growth scare presages the end of the cycle, the consequences will be hideous for France, Italy, Spain, Holland, Portugal, Greece, Bulgaria, and others already in deflation, or close to it. The higher their debt ratios, the worse the damage. Forward-looking credit swaps already suggest that the US Federal Reserve will not be able to raise interest rates next year, or the year after, or ever, one might say. It is starting to look as if the withdrawal of $85bn of bond purchases each month is already tantamount to a normal cycle of rate rises, enough in itself to trigger a downturn. Put another way, it is possible that the world economy is so damaged that it needs permanent QE just to keep the show on the road.

Debt Is Hitting Its Limits: That Is Why Interest Rates Are Plummeting -- Yes, Robert Samuelson is warning about debt again. Apparently the sharp drop in interest rates around the world leads him to believe that investors are about to lose confidence in the ability of countries to repay their debt.It's great that we have Samuelson to give us these warnings, otherwise people might think that low interest rates (i.e. high bond prices) meant the markets were telling us that there is not enough debt. After all, high prices usually means demand exceeds supply.Thankfully Jeff Bezos and the Washington Post give us Robert Samuelson to tell us to ignore textbook economics, don't get any ideas about boosting the economy by building up infrastructure and other public investments."Can we avoid a global debt trap and regain faster economic growth rates that foster stability and human well-being? Whatever debt’s virtues as a first response to deep slumps, it has its limits. We cannot promote prosperity simply by piling new debts atop the old. We need to build a stronger economic foundation."Instead we should just be really worried because Robert Samuelson apparently has no clue what is going on.

Ukraine Grannies Outprice Banks on Hryvnia Black Market -  Outside Kids’ World, a Soviet-built department store offering everything from Legos to leggings, a phalanx of “babusi,” the Ukrainian word for grandmothers, met Kiev shoppers’ foreign-exchange needs. As other grey-haired blackmarketeers called out, “Taking dollars” and “Buying euros here,” to passers-by on the busy sidewalk, 56-year-old Irina flipped 1,400 Ukrainian hryvnia from a wad of banknotes, handed them to a customer and pocketed a $100 bill in return. Though she just commited an illegal act, Irina showed no fear of arrest. “Why should I worry? I’m not cheating them, they aren’t cheating me,” said Irina, who didn’t give her last name. Her legitimate business, a card-table of windup cars, knock-off frisbees and balloons, was all but ignored. “Nobody buys these things. How else can I get money? What else can I do?” The campaign by the Ukrainian government and central bank to halt the national currency’s 60 percent slump before Oct. 26 elections has inadvertently created a cottage industry of illicit currency trading that the International Monetary Fund says it is watching closely. While authorities pressure banks and companies to hold the hryvnia at 12.95 to the dollar to slow the economy’s freefall amid the deadly conflict with separatists in the east, they’re powerless to stop street trades that offer premiums of as much as 2 hryvnia above the official rate.

How an unstable eurozone could topple the world economy -  At the US Federal Reserve in Washington, there is concern bordering on alarm. By now the world economy was meant to have been, if not exactly humming, at least bumping merrily along behind America’s own economic recovery, with a return to relatively decent levels of growth. Instead, conditions have again been softening precipitously. Growth in Japan and China has disappointed, while the eurozone shows every sign of slipping back into recession, the third such contraction since the crisis of 2008-9. In its World Economic Outlook, published last week, the IMF sharply cut its forecasts for the main eurozone economies, and assigned a near-40pc chance to prospects of outright recession in the euro area as a whole. The chances of Japanese-style deflation are put as high as 30pc. All hopes that Europe’s economic malaise was beginning to lift have been dashed. Even Germany, long the trusty mainstay of the European economy, is struggling, with once buoyant export industries badly dented by weak demand elsewhere in Europe, slowing growth in Asia, and Russian trade sanctions. All of a sudden, Europe is back centre stage as the biggest threat to recovery and growth. Minutes of the Fed’s last Open Markets Committee meeting, released last week, reveal evident alarm among US policymakers that the worsening international outlook is inflicting damage on the recovery back home.  Thanks to Europe, normalisation of monetary policy will have to wait. Billions were wiped off stock values as investors absorbed the news — the recovery, so hard-won and long in coming, is again in danger of stalling. By the end of the week, many stock indices were down a full 10pc on the month, thereby satisfying the technical definition of a fully blown stock market “correction”. Next stop, 20pc — the classical definition of a “bear market”, some were warning.

Sinking, fast and slow - For well over a year now some of us have been pointing out that the Eurozone crisis was entering a very dangerous phase, in which slowly increasing unemployment would eat away at the foundations of Europe’s societies, while short-sighted politicians and excitable journalists proclaimed that the Euro was saved. The invaluable Eurointelligence has been doing a great job recently tracking the apparently inexorable deterioration in the economic fundamentals of the Eurozone, with Germany itself now apparently affected. But for both political and personal reasons I find myself worrying most about France. Twiddling their thumbs and hoping that something (the economy) will turn up, flawed macroeconomic policy notwithstanding, seems to have been the French government’s master plan up till now. As a result it is hard to see Francois “Say” Hollande, or any other Socialist for that matter, getting through to the second round in 2017.  You may think that Paul Krugman is being too alarmist when he raises the possibility of President Le Pen, and I hope you are right. But Sarokozy’s apparent return to the political fray does worry me. Of course, you may think that if he wins the UMP nomination, the Left will rally round and vote for him when it comes to the second round. How confident are you about that?

Revenge of the Unforgiven, by Paul Krugman - Stop me if you’ve heard this before: The world economy appears to be stumbling. For a while, things seemed to be looking up, and there was talk about green shoots of recovery. But now growth is stalling, and the specter of deflation looms.If this story sounds familiar, it should; it has played out repeatedly since 2008. ... Why does this keep happening? ... The answer, I’d suggest, is an excess of virtue. Righteousness is killing the world economy.What, after all, is our fundamental economic problem? ... In the years leading up to the Great Recession, we had an explosion of credit..., debt levels that would once have been considered deeply unsound became the norm.Then the music stopped, the money stopped flowing, and everyone began trying to “deleverage,” to reduce the level of debt. For each individual, this was prudent. But ... when everyone tries to pay down debt at the same time, you get a depressed economy.So what can be done? Historically, the solution to high levels of debt has often involved writing off and forgiving much of that debt. ...What’s striking about the past few years, however, is how little debt relief has actually taken place. ...Why are debtors receiving so little relief? As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions. So the policy response to a crisis of excessive debt has, in effect, been a demand that debtors pay off their debts in full. What does history say about that strategy? That’s easy: It doesn’t work. ...

Europanic 2.0 -- Paul Krugman -- Anyone who works in international monetary economics is familiar with Dornbusch’s LawThe crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought. And so it is with the latest euro crisis. Not that long ago the austerians who had dictated macro policy in the euro area were strutting around, proclaiming victory on the basis of a modest uptick in growth. Then inflation plunged and the eurozone economy began to sputter — and perhaps more important, everyone looked at the fundamentals again and realized that the situation remains extremely dire.  Now, things looked very dire in the summer of 2012, too, and Mario Draghi pulled Europe back from the brink. And maybe, just maybe, he can do it again. What’s happening now, however, is very different. It’s a slower-motion crisis, involving the euro area as a whole, which is sliding into a deflationary trap with the ECB already essentially at the zero lower bound. Draghi can try to get traction through quantitative easing, but it’s by no means clear that this could do the trick even under the best of circumstances — and in reality he faces severe political constraints on what he can do. What strikes me, also, is the extent of intellectual confusion that remains. Germany still seems determined to regard the whole thing as the wages of fiscal irresponsibility, which not only rules out effective fiscal stimulus but hobbles QE, since it’s anathema for them to consider buying government debt.   And it’s remarkable, too, how the logic of the liquidity trap remains elusive even after six years — six years! — at the zero lower bound.

Goldman Slashes European Growth Forecast, Sees Triple-Dip Recession In Q3 - As if to rub salt into the wounds of Europe's death by a thousand-downgrades, Goldman Sachs followed up Germany's decision to drastically cut its growth outlook for 2014 (+1.2% from +1.8%) and 2015 (+1.3% from +2.0%) by slashing its forecast for Europe in Q3 to a triple-dip recessionary -0.15% GDP growth. This is dramatically below an "over-optimistic" consensus of +0.35% as incoming data is notably weaker than expected. The DAX remains well below the crucial 9,000 level (having plunged early in the European session) and bund yields have collapsed to new record lows.

How Bank Credit Is Holding Back Europe’s Recovery -  In the United States, credit fell sharply during and after the financial crisis but has been inching up intermittently since–though total credit at the beginning of this year hadn’t recovered to pre-crisis levels. Now look at bank credit in the euro-zone countries. It climbed a tad after the financial crisis of 2008 until 2012 but has since fallen off. Weak banks and weak demand for credit, stemming from worries among businesses and consumers, are surely to blame. The question, of course, is bank credit the economic chicken or the egg? That is, does credit drive the economy or does the economy drive credit? The answer is that causation runs both ways, but it all boils down to confidence, or the lack of it. In the U.S. we have seen the mutually reinforcing effect of a rising economy and banks gradually being more willing to lend. In Europe, the vicious cycle is moving in the other direction. How can the cycle be broken? One way is to assure the public that banks are strong; namely that they have ample capital to absorb losses. The European Central Bank and the European Banking Authority are about to put EU banks through the kind of stress tests that the Fed has put American banks through, and the signs are worrisome.

It’s the “new mediocre”, not a global recession - Financial markets caught a nasty chill last week, when extremely weak activity data from Germany coincided with fears that the ECB could not overcome Bundesbank opposition to more aggressive quantitative easing. Then the IMF reported that there is a 40 per cent probability of a recession in the euro area within 12 months, along with a 30 per cent chance of outright deflation. Markets fear that policy makers in the euro area are once again losing control over their weakening economy. Since markets often sniff out impending trouble before economists do, there is, as Martin Wolf warns, no room whatever for complacency. But, so far, the blip in global risk assets hardly registers on the Richter scale. Nor is there much evidence from published data of a major slowdown in global GDP growth up to now. US domestic demand is strengthening, and the 20 per cent fall in oil prices since June will boost the oil importing economies markedly in coming months. Unless euro area policy is spectacularly dysfunctional, which I do not expect, the slide in the euro area should not be powerful enough to offset these expansionary forces.The latest activity data for the global economy are shown in this chart pack. Here are some of the main points.

How to do better than the ‘new mediocre’ - FT.com: Are we to believe that slower growth in the world economy is here to stay? Christine Lagarde of the International Monetary Fund thinks so; “the new mediocre” is the managing director’s disheartening term for what she sees as the new normal. The worsening forecasts published in successive issues of the World Economic Outlook support her view (see charts). Significantly, while the performance of high-income economies has been poor, especially in the eurozone, in the medium-term it is the emerging economies whose prospects appear bleakest.  Yet disappointments need to be kept in proportion. If average annual growth of emerging economies were to remain over 5 per cent, their output would double every 14 years. This would mean rapid increases in the standards of living of a huge proportion of humanity. An additional source of good cheer is that the economies of emerging Asia are expected to achieve growth of 6.5 per cent this year and 6.6 per cent in 2015. This is no small matter, since emerging Asia contains half of humanity. The IMF has made no downgrade of its forecasts for emerging Asia since last April. In addition, the second-fastest growing region is sub-Saharan Africa. Its growth is forecast to be 5.1 per cent this year and 5.8 per cent in 2015. Since these two regions contain nearly all of the world’s poorest people, this performance is of far wider human significance than are the disappointments elsewhere. It is important not to exaggerate the story of slowdown in the world economy. Yet it is also vital to avoid a progressive downward slide in growth. To address this risk, it is necessary to launch well-crafted reforms in both emerging and high-income economies. In the latter, the biggest challenges are inside the eurozone, where the failures to craft a balanced economic strategy remain both egregious and very dangerous. As the IMF argues, there is also a powerful argument for more public investment in infrastructure. This could pay for itself and so lower rather than raise public debt, in today’s circumstances of weak growth and ultra-low real interest rates. It is vital to craft strategies for growth that neither ignore demand constraints nor rely on credit booms. Can that be done? Yes. Will it be done? I doubt it.

German Weakness - Paul Krugman - Wolfgang Münchau says the right thing: Germany doesn’t actually have a strong domestic economy. It’s more or less at full employment thanks to an immense trade surplus that has yet to diminish significantly: And even so, and despite negative real interest rates, it’s not in a roaring boom. Without that huge surplus — driven, as Münchau says, by investment booms abroad — Germany would be very clearly in the grips of secular stagnation. The idea that Germany is a useful role model depends on Ordoarithmetic — the view that what we need is for everyone to run enormous trade surpluses at the same time.

Germany Cuts Growth Outlook as Recession Peril Mounts - Germany cut its growth outlook and investor confidence fell to the weakest level in two years as recession concerns mount in Europe’s biggest economy. The Economy Ministry reduced its 2014 economic-growth forecast to 1.2 percent from 1.8 percent, and its 2015 prediction to 1.3 percent from 2 percent. The ZEW Center for European Economic Research said its index of investor and analyst expectations slid to minus 3.6 in October from 6.9 in September, the 10th monthly decline and the first negative reading since November 2012. ZEW President Clemens Fuest said he doesn’t rule out a technical recession, or two quarters of contraction, and both he and Economy Minister Sigmar Gabriel called for more investment. That might aid the European Central Bank in its battle to revive the recovery in the 18-nation euro area. “Financial investors are turning increasingly gloomy on the prospects for the German economy,” said Thomas Harjes, senior European economist at Barclays Plc in Frankfurt. “Holiday effects played a role for the soft monthly August data prints but underlying growth momentum has also slowed.”

ZEW doesn't rule out recession in Germany - --Germany's ZEW institute doesn't rule out a recession in Germany, after a plunge in the ZEW sentiment survey Tuesday added to evidence that the eurozone's most powerful economy is on the skids. ZEW President Clemens Fuest said he couldn't rule out an economic contraction in the third quarter. "We are getting close," Mr. Fuest said at a news conference following the release of the survey data, however he noted any recession would likely be short-lived given Germany's strong domestic fundamentals. Gross domestic product shrank 0.6% in the second quarter from the previous three months. A recession is defined as two consecutive quarters of economic contraction. The ZEW survey of financial analysts measuring sentiment slumped into negative territory, to minus 3.6, considerably weaker than the average forecast of 0.8 in a poll by The Wall Street Journal, after September's 6.9 figure. This is the first time the reading has fallen below zero in nearly two years (November 2012). The survey follows a number of weak German data releases, such as August's steepest on-the-month fall in exports since the 2009 recession, flanked by tepid figures on industrial output and manufacturing orders.

Eurozone Factory Output Slumps - WSJ: Factory output across the 18 countries that use the euro slumped in August, driven by the largest decline in the manufacture of capital goods since the months following the collapse of Lehman Brothers, and possibly reflecting a similar decline in global business confidence. The European Union’s statistics agency Tuesday said production by factories, mines and utilities during August was 1.8% lower than in July, and 1.9% lower than in the same month of 2013. That was a slightly deeper decline than economists had expected, since the median forecast of 23 surveyed by The Wall Street Journal last week was for a fall of 1.7% on the month. More German Sentiment Falls The decline more than reversed a 0.9% gain in July, and suggests it is possible output for the third quarter as a whole will be lower than for the second quarter, when it grew modestly. The eurozone economy stagnated in the three months to June, and without an expansion in industrial output, a significant pickup in the second half of the year is unlikely. The decline in eurozone output was foreshadowed by figures released last week that showed a collapse in German activity, which added to concerns about the weak state of the currency area’s economy and its impact on the rest of the world, including the U.S. That in turn led to calls for more coordinated action across the currency area to boost growth, with the focus on investment spending to upgrade decaying infrastructure in Germany and elsewhere.

Draghi The Dictator: "Working With The Germans Is Impossible" - The war of words between Europe's unelected monetary-policy dictator Mario Draghi and Germany's "but it's us that pays for all this" Bundesbank has been gaining momentum since Jens Weidmann penned his Op-Ed slamming Draghi's OMT 'whatever it takes' as "too close to state financing" in 2012. A week ago, Weidmann stepped up the rhetoric by claiming ECB policy is "hostage to politics" and has lost its indepdendence - warning Draghi's dictatorial policies were leading Europe down a "dangerous path." But now, as pressure grows from the Spanish (record unemployment, record bad debt, record low yields), Italian (record unemployment, record debt-to-GDP, record low yields) and French (record unemployment, treaty-busting-deficits, record low yields) for Draghi to monetize more assets, he has struck back in Focus magazine, blasting Weidmann is "impossible" to work with because the Germans "say no to everything." Dis-union...

Merkel says Germany will not soften its strict budget stance (Reuters) - German Chancellor Angela Merkel on Tuesday rejected calls for Berlin to ditch its plans for a balanced budget next year and to instead invest more in order to shore up the faltering German and euro zone economies. Germany has come under increasing pressure internationally to shift its economic course, which targets a "schwarze Null" - a federal budget in 2015 that is in the black. "Germany's stance is important. If we stray from our path then that gives grounds for others to do the same," she told fellow Christian Democrats (CDU), according to participants at a party meeting. "We are in a phase again where our pledges in Europe have to hold weight," Merkel said. The chancellor warned against exaggerating a debate over slowing economic momentum in Germany, noting the situation was very different from 2009 -- the midst of the global financial crisis -- when Germany's economy declined 4.7 percent. Germany's leading politicians including Finance Minister Wolfgang Schaeuble and Economy Minister Sigmar Gabriel have all refused to abandon the goal of their right-left "Grand Coalition" to balance the budget for the first time since 1969. Even if Berlin were to borrow to modernize its roads and railways, broadband networks and energy grids, that would not create more growth in weak euro zone countries, Gabriel says.

France Is Living Fat and Giving the Finger to Germany --For the last two years, bond investors have turned a blind eye to the deep-seated problems of the eurozone, from the threat of outright deflation to the failure to build a proper political and fiscal union. Much of the credit for the resilience of Europe's debt markets goes to European Central Bank (ECB) President Mario Draghi. His pledge in July 2012 to do "whatever it takes" to save the euro dramatically improved investor sentiment towards the bloc after four years when the currency's dissolution seemed plausible if not imminent.  Yet over the past several months, the failings of what remains an ill-managed currency union have become much more apparent. The eurozone's economic recovery has stalled. The ECB's policies, like cutting interest rates to a record low and trying to encourage lending to small- and medium-sized firms, are proving ineffective in countering the threat of Japanese-style deflation. European stock markets have been in free-fall due to fears of continuing stagnation, dragging other markets down with them. Perhaps most worryingly, the bloc's two most important members are at daggers drawn over economic policy.  France, the eurozone's second-largest economy and a founding member of the European Union (EU), is at the forefront of a campaign to ease Europe's stringent fiscal rules. Made more stringent in 2012 at the request of Germany, the rules require all members of the EU to keep their budget deficits below 3 percent of GDP -- even during severe economic downturns like that of the last few years. France's plea for greater leniency over fiscal targets -- which is supported by Italy, the eurozone's third-largest economy, and has even found a sympathetic ear in Draghi -- is

France wants billions from EU's 'New Deal': - France wants €10 billion a year from the EU’s “New Deal” fund, amid warnings that its budget profligacy could harm the “credibility” of EU financial rules. French economy minister Emmanuel Macron mentioned the figure in an interview with the Journal du dimanche on Sunday (12 October). Referring to the European Commission’s plans to create a new investment fund, he said: “Europe needs a New Deal: France is committed to pursuing and even intensifying its reforms; the European Union is announcing a major relaunch plan through €300 billion of investments”. He added: “That would represent about €10 billion of extra investment in France each year”. The socialist government under President Francois Hollande has not managed to pull the country out of the financial doldrums. Since Hollande took over in 2012, France has not registered two consecutive quarters of economic growth and recorded zero progress in the first six months of 2014. Its debt pile is around 95 percent of GDP, above the 60 percent limit set out in the EU's stability and growth pact.

The great Lira revolt has begun in Italy - The die is cast in Italy. Beppe Grillo’s Five Star movement has launched a petition to drive for Italian withdrawal from Europe’s monetary union and for the restoration of economic sovereignty. “We must leave the euro as soon as possible,” said Mr Grillo, speaking at a rally over the weekend. “Tonight we are launching a consultative referendum. We will collect half a million signatures in six months – a million signatures – and we will take our case to parliament, and this time thanks to our 150 legislators, they will have to talk to us.” Ever since the pugnacious comedian burst on the political scene, the eurozone elites have comforted themselves that the party is not really Eurosceptic at heart, and certainly does not wish bring back the lira. This illusion has been shattered. A referendum itself would not be binding, but a “law of popular initiative” certainly would be. For the first time, a process is underway in Italy that will set off a national debate on monetary union and may force a vote on EMU membership that cannot easily be controlled.

The EU Austerians Attack Each Other - William K. Black - As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids.  The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession.  As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens. Italy has been forced by German demands for austerity into a third recession in six years, with France likely to experience the same fate.  Even Germany has stagnated and could fall into recession.  Instead of the four horsemen of the apocalypse, the three horses that make up a troika consist of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).  The troika combined to force the entire eurozone to inflict austerity in response to the Great Recession.

EU Ideologues “Crowd Out” SanityWilliam K. Black - It is often the small things that best illustrate insanity.  On October 13, 2014, EU Economic and Monetary Affairs Commissioner Jyrki Katainen spoke to emphasize one message:“[The EU’s leaders] ‘don’t want the [European Investment Bank] EIB crowding out private investment.’  He said the EIB should be used to leverage money from the private sector, ‘and play a part in big infrastructure projects,’ notably ones that have been delayed.” It’s helpful to situate this smaller example of economic insanity within the broader context of the insanity of austerity inflicted by those same EU leaders.  The general insanity is that the EU politicians are the most economically illiterate and extreme member of the troika.  I just wrote a column explaining that they are bitterly attacking Mario Draghi, the head of the European Central Bank (ECB) for (in their warped interpretation) becoming apostate on the subject of austerity.  The IMF, at least many of its professional economists, left the one truth faith of the austerians long ago when it began publishing research showing that fiscal stimulus was a great success and even its leadership began to warn against austerity.

World braces as deflation tremors hit Eurozone bond markets - Telegraph: Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets. Yields on 10-year German Bund plummeted to an all-time low on 0.72pc on flight to safety, touching levels never seen before in any major European country in recorded history. “This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball,” Austria’s ECB governor, Ewald Nowotny, played down prospects for quantitative easing, warning that the markets had “exaggerated ideas about purchase volumes” and that no asset-backed securities (ABS) would be bought before December. Calls for action came as James Bullard, the once hawkish head of St Louis Federal Reserve, said the Fed may have to back-track on bond tapering in the US, hinting at yet further QE to fight deflationary pressures and shore up defences against a eurozone relapse. “The forces of monetary deflation are gathering,” said  “Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline. This may not be a repeat of 2007/2008, but it is starting to look more and more like another 1997/1998 episode." This is a reference to the East Asia crisis and Russian default triggered by withdrawal of dollar liquidity.  Ominously, French, Italian, Spanish, Irish, and Portuguese yields diverged sharply from German yields in early trading today, spiking suddenly in a sign that investors are again questioning the solidity of monetary union. The risk spread between Bunds and Italian 10-year yields briefly jumped 38 basis points. This was the biggest one-day move since the last spasm of the debt crisis in 2012.

Deflation threat to Draghi’s credibility - FT.com: Precipitous, unexpected decreases. A market mood that has changed worryingly. It is not just global share and oil prices, or bond yields, that have swung wildly this week. At least as dramatic have been sharp falls in “inflation expectations” – assumptions about future inflation rates priced into bond and swaps markets. As energy costs slid and global growth stuttered, markets appeared to believe long-run inflation would seriously undershoot policy targets on both sides of the Atlantic. The implications are potentially large: plunging inflation expectations will make it harder to increase US or UK interest rates any time soon. By threatening their credibility as guardians of price stability, they make central bankers’ lives even more difficult. For Mario Draghi, European Central Bank president, they are a market vote of no-confidence in his ability to avert deflation.  Or are they? Inflation expectations are watched by central banks because they affect price-setting in the real economy. What markets price in should tell them if they are doing their job properly. But that assumes the gauges do not send false signals. In August in Jackson Hole, Wyoming, Mr Draghi cited specifically a sudden fall in the “five-year, five year” inflation rate – the average rate over five years starting in five years priced into swaps markets. It sounded technical, but essentially Mr Draghi was admitting that the ECB was losing its control over inflation expectations. His comments emboldened ECB colleagues – and within weeks, the Frankfurt-based institution had cut interest rates further and launched a private sector asset purchase programme. But to Mr Draghi’s embarrassment, the 5y5y “break even” inflation rate has since fallen even further – this week it dropped to just 1.71 per cent, the lowest since records started a decade ago.

Disinflation spreads to the UK --Italian consumer inflation remains in the negative territory (see chart), as the nation's economy struggles to grow. But Italy is not unique, as the world catches the Eurozone's disinflationary flu. China's latest CPI print for example came in below that of the US - something we haven't seen until recently (see chart).The UK is also facing weakening inflation. At the wholesale level prices continue to fall, with British firms still having little pricing power (see chart). It's difficult to raise prices when everything is marked down across the Channel. For the UK's consumers, inflation is now at the lowest level since the Great Recession - for both the headline and the core CPI.It's difficult to see how the Bank of England can begin raising rates in such an environment - even with the housing market remaining strong (see chart). With oil prices collapsing, inflation is only going to move lower. Just as the case with the Fed (see post), the forward rates markets are pricing in an increasing delay in liftoff. The BoE is on hold at least until next summer, as disinflation spreads to the UK.