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

Saturday, July 25, 2015

week ending July 25

Does the Fed Have a Monetary Policy Strategy? - John Taylor - The subject of a monetary policy strategy for the Fed came up in Congressional hearings I testified at today and last week.  Today the hearing focussed on the bill to require the Fed to describe its strategy or rule for the systematic adjustment of its policy instruments. Last week the hearing was on “Fed Oversight: Lack of Transparency and Accountability,” at which members of Congress expressed concern over transparency regarding an alleged Fed leak about quantitative easing. At both hearings I argued in favor of the Fed publicly describing a strategy or rule and explaining whenever it changed or deviated from the strategy.  In my view, research and experience over the years show that a rules-based strategy leads to better economic performance. A rules-based strategy also leads to greater transparency and helps prevent leaks in contrast to a strategy-free policy, as the controversy over the alleged leak in October 2012 illustrates. Decisions about the timing, amount, path, or exit from quantitative easing are inherently discretionary, and inside information about each decision benefits those who can get it.  If there were a clear and publicly announced strategy for setting the policy instrument over time—as is possible in the case of a conventional instrument like the federal funds rate—then information about policy would be widely available.   Some argue, however, that the Fed already has a strategy, pointing to the Fed’s “Statement on Longer-Run Goals and Monetary Policy Strategy” posted on its web site.  But despite the appearance of the words “monetary policy strategy” in the title, the statement does not contain any strategy for the instruments of monetary policy describing how they are to be adjusted to achieve the goals.

Examining Federal Reserve reform proposals - Donald Kohn, testimony - Mr. Chairman and Members of the subcommittee: You have before you a long list of proposed legislative changes applying to the Federal Reserve, some of which would make important changes in the character of the institution, its policy processes, and its authorities. At the same time you are also considering the formation of a commission to examine whether indeed the Federal Reserve should be altered to make it a more effective institution. The basic premise of both of these strands is that something has been seriously amiss with the way the Federal Reserve has carried out the responsibilities Congress has given it. I do not agree with that premise. In my view, the actions of the Federal Reserve in the crisis and slow recovery were necessary and appropriate. Its conduct of monetary policy has been as systematic as possible under unprecedented and constantly evolving circumstances, and it has been especially transparent about how those monetary policy actions were expected to foster achievement of its legislated mandate and what it would be looking at in the future to gauge the need for future actions. The Federal Reserve, working in part under the guidance of the Congress in Dodd Frank, has greatly toughened and improved its regulation and supervision of the institutions for which it is responsible, and the financial system is safer than it has been for many years.  No institution is perfect. Circumstances change, lessons are learned, and all policy institutions must adapt if they are to continue to serve the public interest as well as possible. You are right to be asking tough questions about whether further improvements in the Federal Reserve’s performance as well as your oversight and the Fed’s accountability are possible, and the extent to which new legislation is needed to make those changes. In my view, however, the suggestions in the proposed legislation, as I weigh their costs and benefits, are not likely to improve the Federal Reserve’s performance and enhance the public interest, and could very well harm it.

Fed’s Bullard Points to September Rate Rise in Fox Business Interview -- Federal Reserve Bank of St. Louis President James Bullard said in a television interview Monday there are good odds the U.S. central bank will raise rates at its September policy meeting. “I see September having a 50% probability right now” for a boost in the Fed’s overnight short-term interest rate target, Mr. Bullard told Fox Business Network. He was referring to a widely-expected boost in what are now near zero short-term rates, that would push the central bank’s interest rate target off a level in place since the end of 2008. Mr. Bullard’s comments on the interest rate outlook were most likely the last markets and other observers will get ahead of next week’s rate-setting Federal Open Market Committee. Starting on Tuesday, Fed officials enter a so-called blackout period, refraining from comment on monetary policy issues. There is little chance the Fed will change rates next week, but most Fed officials favor a rate rise this year, and some have pointed to September as a good time to act. In recent comments, Mr. Bullard had already pointed to his interest in the Fed’s September meeting as a starting point for a rate rise campaign he expects to be gradual in nature. Mr.Bullard said in the interview he envisions a “couple” of rate rises this year if the economy achieves the 3% growth level he expects for the remainder of the year. Mr. Bullard, who isn’t a voting member of the FOMC right now, said China and Greece do pose risks for the U.S. outlook, but he expects overseas trouble won’t derail a positive outlook. Mr. Bullard also said that while he has some concern ultra-low interest rates might be generating too much risk taking in the financial sector, he doesn’t see any evidence of significant trouble now. To ensure problems don’t grow worse, Mr. Bullard said rates do need to rise over time.

Beware the Fed on the ides of September -- Now that the major downside risks from Greece, China and Iran seem to be under control, investors are redirecting their attention to a much more familiar question: will the Fed impart a nasty shock to US monetary policy before the end of the year? The markets have largely ignored the Fed’s machinations since the taper tantrum in the summer of 2013, but they can do so no longer. Janet Yellen’s testimony to Congress last week clearly signaled that the FOMC is almost ready to announce lift-off in US rates. The ides of September (or, strictly, three days later, at the FOMC meeting on 16 September) now seems likely to be the fateful date that markets have dreaded for years. Although economic forecasters are expecting a September lift off, this starting date is still not fully priced into Fed funds futures (see Tim Duy.) What really matters, however, is whether the Fed then embarks on a medium term tightening path that persistently surprises the markets in a hawkish direction. That is what has happened in each of the three previous tightening cycles, which were periods when fixed income traders consistently lost money by taking long positions at the front end of the yield curve. The current market pricing for forward short rates, which remains far below the Fed’s “dots” for the next three years, suggests that there is a strong possibility that this accident could repeat itself in the coming tightening cycle.

Will the Fed Swim Against the Global Tide on Interest Rates? - One question hangs over the global central banking community in the third quarter: Will the Federal Reserve really swim against the economic tide flowing from the rest of the world? Looking across the globe, central banks large and small are leaning toward easing financial conditions to address slow growth, low inflation and financial distress. The global backdrop is the Fed’s central dilemma as it contemplates interest rate increases as early as September. Fed officials are split on the outlook for rates. In June rate forecasts, the center of its 17-member policy making committee was split on whether the Fed would raise rates twice this year or once. If foreign developments continue to intrude, officials leaning toward one increase, possibly as late as December, could win out. And if global developments unravel, they might not move at all. Read our global roundup of how the third quarter could play out for central banks around the world.

Undebasing the Dollar - Krugman -- Remember when the likes of Paul Ryan accused Ben Bernanke of printing too much money, solemnly intoning that “There is nothing more insidious that a country can do to its citizens than debase its currency”? A big part of the justification for this fear-mongering was that commodity prices were rising sharply from their 2009 low, which the usual suspects claimed was a harbinger of rising overall inflation.So, look at what’s been happening to commodity prices, including gold, recently.  Does this mean that deflation looms? Is it time to demand that Janet Yellen roll the printing presses?I mean, it could be that the inflation hawks have learned their lesson, that they realize that volatile commodity prices aren’t a very good guide to policy, and that it makes sense to focus on core inflation. But I’ve seen no sign of a rethink.Or it could be that inflation phobia is derp pure and simple, and no evidence will shake the state of perm-fear.

Price stickiness is not a mystery, and it is not psychology - Steve Randy Waldman - I’d like to point out, as gently as possible, a mistake in the premise underlying this post by my friend Tyler Cowen. To be fair, it is not a mistake that is uniquely Cowen’s. Macroeconomists invoke price stickiness as an assumption in their models. They treat it as an axiom, a given, and therefore a mystery. Downward price stickiness is a coordination problem, plain and simple. It has nothing whatsoever to do with illusions or cognitive biases or failing to spit after staring too intensely at a small child. Economic entities, both firms and humans, have liability structures rigid in nominal terms. A business has made forward-looking contracts — leases of facilities and equipment, price-stabilized arrangements to acquire raw materials, and yes, contracts with employers that cannot be altered without renegotiation. Businesses have also financed themselves in part with debt, and so taken on nominal obligations whose sustainability is based on forward-looking nominal prices of the goods and services they will sell. Individuals have signed rental agreements or taken mortgages. They have financed their education or their children’s, perhaps they have even taken on consumer debt. For both individuals and firms, these forward-looking nominal arrangements create a very large asymmetry between unexpected price adjustments upwards and downwards. For any economic unit, firm or individual, an unexpected price adjustment upwards in the commodities they sell to market is welcome news. The unit gets more money, its balance sheet expands in the happiest way of all, more assets matched by more equity. But for a leveraged economic unit — and we are nearly all leveraged economic units, if only because we are born short a future stream of housing and food — a downward nominal price shift may force deadweight adjustment costs, which may range from renegotiations of existing contracts to formal bankruptcy to discontinuous shifts in consumption of amenities like housing, education, and local community. (Since these amenities are marketed in sparse bundles, units are not able to continuously optimize consumption tradeoffs, and small changes in budget may lead to large changes of utility.)

Central Banks Have Shot Their Wad——-Why The Casino Is In For A Rude Awakening, Part I --  David Stockman -- There has been a lot of chatter in recent days about the plunge in commodity prices—–capped off by this week’s slide of the Bloomberg commodity index to levels not seen since 2002. That epochal development is captured in the chart below, but most of the media gumming about the rapidly accelerating “commodity crunch” misses the essential point. To wit, the central banks of the world have shot their wad. Accordingly, the 12-year round trip depicted in the chart is not about the end of some nebulous “commodity supercycle” that arrived from out of the blue after the turn of the century. Nor, most certainly, is it evidence of the Keynesians’ purported global shortage of “aggregate demand” that can be remedied by an even more extended spree of central bank monetary stimulus. No, the Bloomberg Commodity index is a slow motion screen shot depicting the massive intrusion of worldwide central bankers into the global economic and financial system. Their unprecedented money printing rampage took the aggregate balance sheet of the world’s central banks from $3 trillion to $22 trillion over the last 15 years. The consequence was a deep and systematic falsification of financial prices on a planet-wide scale. This unprecedented monetary shock generated a double-pumped economic boom—–first in the form of an artificial debt-fueled consumption spree and then a sequel of massive malinvestment. Now comes the deflationary aftermath. Soon there will follow a plunge in corporate profits and collapsing prices among the vastly inflated risk asset classes which surfed on these phony booms.

Fed Staffers Slightly Pessimistic About Economy’s Course - Federal Reserve staffers in June were somewhat more pessimistic than central bank officials about the economic outlook, according to the staff’s projections ahead of the Fed’s June policy meeting. The staff forecasts were inadvertently posted online last month, the Fed said Friday. They serve as background information for policy makers as they decide how to set interest rates. For that reason, they tend to be closely guarded and are usually released with a five-year delay. In June, the staffers saw economic growth dropping from 2.38% in 2016 to 1.74% in 2020, a bleaker assessment than the officials’ projections, which pegged growth at between 2.0% and 2.3% after 2017. They also saw inflation rising to 1.94% by 2020, lower than the central bank’s target of 2%. Fed officials, on the other hand, project longer run inflation at 2%. The Fed has held its benchmark short-term interest rate—the federal-funds rate—in a range from zero to 0.25% since December 2008. Most officials have indicated they expect to start raising it this year, but they haven’t decided when to start and how much to lift it by year end. The policy makers will hold a meeting next week and are widely expected to leave the rate unchanged. The staff in June projected an average federal-funds rate of 0.35% in the fourth quarter of 2015, rising to 1.26% in the fourth quarter of 2016 and 2.12% in the fourth quarter of 2017. By contrast, policy makers on the committee saw a higher median fed-funds rate of 0.625% at the end of this year, rising to 1.625% in 2016 and 2.875% in 2017.

Chicago Fed: Index shows "Economic Growth Picked Up Slightly in June"-- The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Picked Up Slightly in June Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up to +0.08 in June from –0.08 in May. Three of the four broad categories of indicators that make up the index increased from May, and two of the four categories made positive contributions to the index in June.The index’s three-month moving average, CFNAI-MA3, edged up to –0.01 in June from –0.07 in May. June’s CFNAI-MA3 suggests that growth in national economic activity was very close to its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Picked Up Slightly in June - "Index shows economic growth picked up slightly in June": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report:Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up to +0.08 in June from –0.08 in May. Three of the four broad categories of indicators that make up the index increased from May, and two of the four categories made positive contributions to the index in June. The index’s three-month moving average, CFNAI-MA3, edged up to –0.01 in June from –0.07 in May. June’s CFNAI-MA3 suggests that growth in national economic activity was very close to its historical trend. The economic growth reflected in this level of the CFNAI-MA3 sug- gests limited inflationary pressure from economic activity over the coming year.  The CFNAI Diffusion Index, which is also a three-month moving average, moved up to +0.07 in June from –0.01 in May. Forty-eight of the 85 individual indicators made positive contributions to the CFNAI in June, while 37 made negative contributions. Forty-four indicators improved from May to June, while 40 indicators deteriorated and one was unchanged. Of the indica- tors that improved, 13 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised upward from -0.17 to -0.08. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.

Chicago Fed: US Growth Returns To Historical Trend Rate - The Chicago Fed National Activity Index’s three-month average (CFNAI-MA3) increased to -0.01 in June, reflecting US economic growth that’s effectively at the historical trend rate (i.e., a reading of zero). The rise marks the third consecutive month of modest improvement in economic output, according to this metric in today’s report from the Chicago Fed. The revised data for last month “suggests that growth in national economic activity was very close to its historical trend,” the bank noted in a press release. Today’s numbers support the view that the US economy is strengthening after a mild bout of contraction in this year’s first quarter. Recession risk is certainly a low-probability threat based on today’s update. Indeed, the current June CFNAI-MA3 reading of -0.01 is well above the -0.70 mark that signals the start of new recessions, according to Chicago Fed guidelines. Analzying the updated CFNAI-MA3 data with a probit model continues to show that the probability is low (roughly 4%) that a recession started in June.  The current risk estimate in the chart below is based on a probit regression that analyzes the historical record of NBER’s business cycle dates in context with CFNAI-MA3. The low risk estimate aligns with Monday’s update on business cycle risk via The Capital Spectator’s proprietary indexes.

June 2015 CFNAI Super Index Improves and Nears Historical Trend Rate of Growth. -- The economy was growing faster last month based on the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average - but continues to grow (now insignificantly) below the historical trend rate of growth (but well above levels associated with recessions). The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - improved marginally from -0.07 (originally reported as -0.16 last month) to -0.01.  NOTE:

  • This index IS NOT accurate in real time (see caveats below) - and it did miss the start of the 2007 recession.
  • The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event.
  • The market expected (from Bloomberg) -0.11 to 0.05 (consensus -0.05) versus +0.8 for the single month index.
  • This index is a rear view mirror of the economy.

Conference Board Leading Economic Index Increased Again in June -- The Latest Conference Board Leading Economic Index (LEI) for June is now available. The index rose 0.6 percent, which follows a 0.8 percent May increase. The latest indicator value came in above the 0.2 percent forecast by Investing.com. Here is an overview from the LEI press release: The Conference Board LEI for the U.S. increased again in June, with the yield spread and building permits continuing to make large positive contributions to the index. In the six-month period ending June 2015, the leading economic index increased 2.1 percent (about a 4.3 percent annual rate), slower than its growth of 3.2 percent (about a 6.6 percent annual rate) over the previous six months. However, the strengths among the leading indicators remain more widespread than the weaknesses. [Full notes in PDF]Here is a chart of the LEI series with documented recessions as identified by the NBER.

Cheap Oil Should Fuel Economy at Last - WSJ: Lower oil prices have proven to be more of a bane than a boon for the U.S. economy. But that is about to change. When the price of crude started dropping sharply last fall, most economists reckoned it would be a good thing.. Things haven’t actually worked out that way. Rather, the sharp decline in drilling activity has led to a drop in investment and a weakening in the jobs market that has swamped the benefits of lower oil prices. Absent the decline in investment in mining exploration, shafts and wells—a category that is almost entirely oil and gas-related—gross domestic product would have grown at a 0.4% annual rate in the first quarter rather than contracting by 0.2%. Federal Reserve economists estimate the investment hit to second-quarter GDP was about as large. This doesn’t include the lost output from other sectors, like trucking firms, which do a lot of business with oil producers. But there have been spillover effects into all kinds of other jobs. Excluding the mining sector (again, mostly oil and gas), North Dakota, New Mexico, Oklahoma, Texas and Wyomingadded a combined 112,500 jobs in the five months through May,—down sharply from the 236,000 added in the five months before that. Goldman Sachs economist Zach Pandl notes that other states haven’t seen their job markets cool by nearly as much. People in those shale states, facing less-robust prospects, probably have more of a reason to rein in spending than people elsewhere have to spend their gasoline savings.  But Federal Reserve data released last week showed that the sharp downdraft in drilling activity eased in June. And after falling by more half in the first six months of the year, Baker Hughes’s weekly count of U.S. oil rigs has just leveled out. Layoff announcements in the energy sector have also fallen back lately. And Goldman’s Mr. Pandl calculates that, adjusting for seasonal swings, initial claims for unemployment insurance in the five states above have also cooled off.

US Recession Imminent - World Trade Slumps By Most Since Financial Crisis --As goes the world, so goes America (according to 30 years of historical data), and so when world trade volumes drop over 2% (the biggest drop since 2009) in the last six months to the weakest since June 2014, the "US recession imminent" canary in the coalmine is drawing her last breath... As Wolf Street's Wolf Richter adds, this isn’t stagnation or sluggish growth. This is the steepest and longest decline in world trade since the Financial Crisis. Unless a miracle happened in June, and miracles are becoming exceedingly scarce in this sector, world trade will have experienced its first back-to-back quarterly contraction since 2009. Both of the measures above track import and export volumes. As volumes have been skidding, new shipping capacity has been bursting on the scene in what has become a brutal fight for market share [read… Container Carriers Wage Price War to Form Global Shipping Oligopoly]. Hence pricing per unit, in US dollars, has plunged 14% since May 2014, and nearly 20% since the peak in March 2011. For the months of March, April, and May, the unit price index has hit levels not seen since mid-2009.World trade isn’t down for just one month, or just one region. It wasn’t bad weather or an election somewhere or whatever. The swoon has now lasted five months. In addition, the CPB decorated its report with sharp downward revisions of the prior months. And it isn’t limited to just one region. The report explains:The decline was widespread, import and export volumes decreasing in most regions and countries, both advanced and emerging. Import and export growth turned heavily negative in Japan. Among emerging economies, Central and Eastern Europe was one of the worst performers.

Nomura on Q2 GDP and Annual Revision  -- A few excerpts from a research note by economists at Nomura:  Q2 GDP, first estimate (Thursday): Economic activity in Q2 bounced back after slowing in Q1. However, some factors such as low energy prices and the strong dollar likely continued to weigh on business activity. We expect the BEA to report that the rebound in activity was concentrated in the consumer, housing and government sectors. As such we forecast a 2.8% increase in Q2 GDP, with real final sales growing by 3.1% as we expect inventory investment to subtract 0.3pp from GDP growth. The annual revisions to GDP will also be released. Revisions will be mostly applied to data between 2012 and Q1 2015. The most notable features the annual revisions will introduce are 1) the average of GDP, gross domestic income and final sales, 2) an upgrade to its presentation of exports and imports, and 3) improvements to seasonal adjustment of certain GDP components. Furthermore, our work suggests that there is material residual seasonality in top-line GDP in Q1, as it tends to be below trend due to strong seasonal patterns in defense spending. Therefore, we might see some revision to the distribution of GDP growth in the first part of this year. As such, there is more uncertainty around the Q2 GDP estimate than usual. Earlier on GDP: Merrill on the Annual GDP Revision and Q2 GDP

There's Just One Way to Reach 4 Percent Growth - When the George W. Bush Institute commissioned Nobel-winning economist Edward Prescott to analyze its proposal to generate 4 percent annual growth for the U.S., the famously pro-free-market Prescott replied that a target of 3 percent was better for the long run. Prescott isn't alone in his evaluation; most economists and policy specialists don't believe that the U.S. economy can grow at 4 percent in the long run, no matter what policy steps we take. I've added my voice to that skeptical chorus on more than one occasion after Jeb Bush embraced the 4 percent target.   Here's the thing, though -- it isn't quite true. There actually is one way that 4 percent long-term growth -- or even higher -- is possible. But there's a good reason I haven't mentioned it before now. It has about as much chance of happening as a snowball has of surviving an extended trip to Hades.  The way to get 4 percent growth is open-borders immigration policy.   Gross domestic product is simply the product of output per person and the number of people. The more people in your country, the higher the output. That's why China, whose output per person is only about a quarter of the U.S.'s, is now the largest economy on the planet. It just has more bodies.   The growth numbers you usually hear about in the news are total GDP growth numbers, not per capita figures. To boost those numbers, get more population. For example, when Great Britain conquered India, the GDP of the British Empire went way up. If the U.S. really wanted to supercharge its GDP numbers, it has a much better option than military conquest -- it could simply invite tons of immigrants to move here.

Retired General: Drones Create More Terrorists Than They Kill, Iraq War Helped Create ISIS - Retired Army Gen. Mike Flynn, a top intelligence official in the post-9/11 wars in Iraq and Afghanistan, says in a forthcoming interview on Al Jazeera English that the drone war is creating more terrorists than it is killing. He also asserts that the U.S. invasion of Iraq helped create the Islamic State and that U.S. soldiers involved in torturing detainees need to be held legally accountable for their actions. Flynn, who in 2014 was forced out as head of the Defense Intelligence Agency, has in recent months become an outspoken critic of the Obama administration’s Middle East strategy, calling for a more hawkish approach to the Islamic State and Iran. But his enthusiasm for the application of force doesn’t extend to the use of drones. In the interview with Al Jazeera presenter Mehdi Hasan, set to air July 31, the former three star general says: “When you drop a bomb from a drone … you are going to cause more damage than you are going to cause good.” Pressed by Hasan as to whether drone strikes are creating more terrorists than they kill, Flynn says, “I don’t disagree with that.” He describes the present approach of drone warfare as “a failed strategy.”

Endless Enemies – How the US is Supporting the Islamic State by Fighting it - Geopolitics is a murky game. Precisely how murky is reflected in the well-worn phrase, “The enemy of my enemy is my friend.” What happens, though, when you follow that ancient proverb with the faith of a religious believer? Now that the war on the “Islamic State” (IS) is, ostensibly, in full-swing, the US is making “friends” out of enemies, old and new. Among our new friends is al-Qaeda. Except they are supposedly not “our” friends, but friends of our allies. Al-Qaeda, freedom fighters for Gulf monarchies Saudi Arabia, Qatar and Turkey are now working to support al-Qaeda’s official arm in Syria, Jabhat al-Nusra, to re-take Syrian territory from Bashir al-Assad. The strategy resulted in a coalition of rebel groups, led by the al-Qaeda faction, conquering Idlib in April. The three regional powers claim they are hoping to compel al-Nusra to renounce its relationship to al-Qaeda – but the reality is they are funding the al-Qaeda affiliate without any meaningful guarantee of control. “Nusra will stay with al-Qaeda unless the other rebel forces are able to unify into one force,” said one al-Nusra member. “[Al-Qaeda leader Ayman] al-Zawahiri says the unification of Muslims is more important than membership in any group.”

The weapons the U.S. needs for a war it doesn’t want: Terrorism and Middle East insurgencies are not going away. Yet in the 21st century, the United States must understand it faces a return of a serious national-security concern that shaped the last century: the risk of great-power conflict. The Defense Department’s new military strategy acknowledges this by noting the implications of the renewed rivalry with China and Russia. The possibility of a major war with great powers, like World Wars One and Two, is “growing,” according to the U.S. National Military Strategy released this month. Consider, the North Atlantic Treaty Organization is back on high alert after Russia’s land grab in Ukraine, while the United States and China are competing in an arms race over the Pacific Ocean. When the nominee for chairman of the Joint Chiefs of Staff recently testified before Congress about the most critical security threats, he led with Russia, not Islamic State. Yet the U.S. defense establishment still has one foot in the past and only a tentative one in the future. The Pentagon talks the talk of military innovation to deal with this new mix of threats but doggedly pursues costly weapons programs anchored in dangerous past compromises. Not only are the weapon systems unlikely to deliver well in today’s conflicts, they also could become vulnerabilities exploited by America’s adversaries during wartime. The risks of these old ways of thinking were highlighted recently when a test pilot’s report was leaked to the War Is Boring website. The report revealed that an F-16 fighter — with 40-year-old technology — had bested the Pentagon’s planned new warplane, an F-35 Joint Strike Fighter, in simulated combat.

Three U.S. Navy admirals censured in bribery scandal | Reuters: The U.S. Navy censured three admirals in connection with a bribery scandal involving a Singapore company that held more than $200 million in contracts to clean and supply ships from the Seventh Fleet, Navy officials confirmed on Monday. Admirals Michael Miller and Terry Kraft were allowed to retire as admirals, while Admiral David Pimpo retired on July 1 at the demoted rank of captain, according to a Navy document dated July 17. The censures were issued in January, but were revealed last week in response to Freedom of Information Act requests from the San Diego Union Tribune newspaper. They are the latest developments in the investigation of Glenn Defense Marine Asia (GDMA) and its owner, Leonard Glenn Francis. Seven people, including Francis, have pleaded guilty so far in the scandal. Francis and two GDMA employees have pleaded guilty, as well as four U.S. Navy officers, ranging from a Navy Criminal Investigative Services agent to a logistics manager, a captain and a ship commander. Francis is now cooperating with federal investigators, according to court documents. He has admitted to providing envelopes of cash, high-end electronics, lavish travel and accommodations, and prostitutes for U.S. Navy personnel in exchange for sending him business, information on ship movements, and investigations into his company, as well as other classified materials.

Another Year, Another Tax Extenders Bill -- Yesterday, the Senate Committee on Finance met to consider a bill that would renew over 50 recently expired provisions of the tax code, commonly known as tax extenders. By a 23-3 vote, the committee approved the measure, which would extend these tax provisions until the end of 2016, costing an estimated $95.2 billion over the next decade. If the preceding paragraph seems like deja vu, it is. Over the last few years, tax extenders have come up for renewal several times, making them one of the most persistent features of Congressional tax policy discussions. Eight months ago, Congress held a last-minute vote to renew the tax extenders until December 31, 2014, and retroactively apply them to the 2014 tax year. Then, two weeks later, the tax extenders expired once again, leaving it up to Congress to renew them for 2015. This year’s tax extender package is virtually identical to the one passed last December. It contains 52 miscellaneous tax provisions, all of which have been renewed at least once before, and some that have been extended up to sixteen times. The provisions range from the relatively trivial (lower taxes on Puerto Rican rum) to the highly significant (bonus depreciation). They fall into three general categories: deductions and exclusions for individuals, economic incentives for businesses, and tax credits for various energy sources. The package also contains a few modifications from last year’s tax extenders bill, such as one that indexes the deduction for teachers’ expenses to inflation, and another that provides special expensing rules for live theater productions.

Raise the Gas Tax Already: Senate Majority Leader Mitch McConnell is a conservative Republican. Senator Barbara Boxer is a liberal Democrat. So the fact that they’ve worked together to come up with a plan to fund highway spending for the next three years might seem like a good thing, a rare moment of bipartisanship in a Congress riven by ideological hostility. And, in fact, you could see the thousand-page bill they’ve produced as, in the words of the Times, “real progress,” except for one thing: their complicated, jury-rigged plan is only necessary because of the continued refusal by Congress to embrace the obvious, economically sensible solution to highway funding, namely raising the gas tax. ... The fundamental problem, of course, is that raising taxes, no matter how economically sensible those taxes might be, is anathema to a huge swath of the Republican Party. ... Opposition to higher income taxes has some theoretical justification: higher marginal rates discourage people from working more and investing. ... But no such argument exists against the gas tax: all it does, in essence, is ask drivers to pay for the roads they use. It’s not even fair to say that keeping this tax at its current level is a check on big government, since most federal highway spending now goes toward rebuilding and repairing roads—maintenance that even conservatives recognize we must do. Highway revenue has to be raised somehow. Congress should show some political spine, discard the Rube Goldberg funding schemes, and stop treating all taxes as bad ones.

Is Hillary Clinton really going to cut capital gains taxes for the rich? -- Following through on her economic speech last week, Hillary Clinton is going to propose changing capital gains tax rates to deal with corporate “short-termism.” The Wall Street Journal has the details: Hillary Clinton will propose a revamp of capital-gains taxes that would hit some short-term investors with higher rates, part of a package of measures designed to prod companies to put more emphasis on long-term growth, a campaign official said. … At the center is Mrs. Clinton’s proposal to change capital-gains tax rates, the details of which are being finalized. The Democratic presidential candidate’s plan would create a sliding scale with at least three new rates that change depending on how long an investment is held, the official said. Investments held for less than a year would continue to be taxed at regular income-tax rates, which can top out at 39.6% or more for the highest earners. For those held just a little longer—likely two or three years—the current capital-gains tax rate of 23.8% for top earners would rise. The Clinton rate, which hasn’t been finalized, would be higher than the 28% President Barack Obama proposed earlier this year for the highest earners. The Clinton campaign hasn’t ruled out taxing such investments at the regular income-tax rate. The plan would include additional rates tied to the length that an investment is held, with the lowest rates for investments held the longest.

Hillary Clinton Proposes Sharp Rise in Some Capital-Gains Tax Rates - WSJ: Hillary Clinton is proposing a sharp increase in the capital-gains tax rate paid by the highest earners on short-term investments, in some cases nearly doubling it, her attempt to shift American companies’ focus to their long-term interests. The hope, Mrs. Clinton said Friday, is that giving taxpayers greater incentives to hold investments longer would reduce pressure on corporations to show near-term gains in their share price, so they could focus on making long-term investments and boost worker pay. “American business needs to break free from the tyranny of today’s earning report so they can do what they do best: innovate, invest and build tomorrow’s prosperity,” the Democratic presidential front-runner said in a speech in New York. “It’s time to start measuring value in terms of years—or the next decade—not just next quarter.” Under the Clinton plan, the wealthiest Americans would see investment gains taxed on a sliding scale, with the levy dropping the longer the investment is held.

The tilt, or lack thereof, in the tax code - Jared Bernstein - I recently touted the benefits of a financial transaction tax (FTT), and in the intro, I made a comment about how our tax code is titled toward the wealthy. Chris Edwards very reasonably takes issue, correctly noting that our federal tax code is, in fact, quite progressive, meaning that low-income households face a much lower tax burden as a share of their income than higher income households.  My piece wasn’t about the broader code so I didn’t take the time to elaborate what I meant. My bad, but let me do that here. The fact is that our tax system contains a large number of provisions that disproportionately benefit wealthy taxpayers, many of whom are the same folks on whom the incidence of the FTT will fall. So while I did not sufficiently articulate the point, for which Chris fairly dings me, I was trying to say that one distributional rationale for the FTT is that it pushes against some of the tax preferences I’m about to show you. For example, the following chart shows how much after-tax incomes go up for different income classes based on the tax code’s preferential rates for capital gains and dividends:  The pattern is clearly “tilted towards the wealthy,” as low and middle-class households get zip from this part of the code. Turning more broadly to the tax code’s largest special preferences, the regressive skew towards the top is muted relative to the prior chart but still evident. The top 1 percent gets a full 16.6 % of the benefit of these deductions, exemptions, and credits, almost as much as the entire bottom 40% of the population.

Parsing a Financial Transactions Tax - Here's the summary of the arguments for and against (citations omitted): "Proponents advocate the FTT [financial transactions tax]on several grounds. The tax could raise substantial revenue at low rates because the base—the value of financial transactions—is enormous. An FTT would curb speculative short-term and high-frequency trading, which in turn would reduce the diversion of valuable human capital into pure rent-seeking activities of little or no social value. They argue that an FTT would reduce asset price volatility and bubbles, which hurt the economy by creating unnecessary risk and distorting investment decisions. It would encourage patient capital and longer-term investment. The tax could help recoup the costs of the financial-sector bailout as well as the costs the financial crisis imposed on the rest of the country. The FTT—called the “Robin Hood Tax” by some advocates—would primarily fall on the rich, and the revenues could be used to benefit the poor, finance future financial bailouts, cut other taxes, or reduce public debt. "Opponents counter that an FTT is an “answer in search of a question”. They claim it would be inefficient and poorly targeted. An FTT would boost revenue, but it would also spur tax avoidance. As a tax on inputs, it would cascade, resulting in unequal impacts across assets and sectors, which would distort economic activity. Although an FTT would curb uniformed speculative trading, it would also curb productive trading, which would reduce market liquidity, raise the cost of capital, and discourage investment. It could also cause prices to adjust less rapidly to new information. Under plausible circumstances, an FTT could actually increase asset price volatility. An FTT does not directly address the factors that cause the excess leverage that leads to systemic risk, so it is poorly targeted as a corrective to financial market failures of the type that precipitated the Great Recession. Opponents claim that even the progressivity of an FTT is overstated, as much of the tax could fall on the retirement savings of middle-class workers and retirees."

IRS Cracks Down on Private Equity Management Fee Waiver Tax Abuse  -- We wrote in 2013 that the IRS was zeroing in on a flagrant, longstanding private equity tax abuse that was first flagged by University of North Carolina tax professor Gregg Polsky in Tax Notes in 2009. Nearly two years later, the IRS has finally decided to crack down on it, as Gretchen Morgenson describes in today’s New York Times. The abuse allowed private equity firms to convert income that would otherwise have been taxed at ordinary income rates into lower capital gains rates. That’s the same type of result that has been widely decried in the media as far as so-called “carried interest” loophole is concerned. Recall that “carried interest” which is actually a profit share, is the 20, or 20%, in the prototypical “2 and 20″ private equity fee schedule.  What perilously few outsiders understood is that the 2, or usual 2% management fee, which is income that is in no way, shape or form at risk, was also managing to get capital gains treatment through so-clever-it-flouted-law tax scheming. Keep in mind that the management fee is clearly income for services, as in income from labor, not capital. Moreover, the private equity investors had to agree to the tax machinations for this ruse to work. Even though the IRS has only proposed a rule and is subject to a comment period, IRS official were making unhappy noises about the management fee waivers in 2013. Moreover, because this rule is a clarification of current IRS regulations, it appears the issue is whether this practice will be disallowed in totality or only curbed substantially. As Morgenson explains, “…the I.R.S. is permitted to begin examining private equity firms’ books for problematic fee waivers now and to pursue possible violations in a firm’s last three years of operations.” The IRS’ hand is also strengthened by the fact that the British tax authorities issued a similar ruling earlier this year. Morgenson explains that the management fee waiver is not a trivial abuse: Management fee waivers…made headlines during Mitt Romney’s 2012 presidential campaign when documents from Bain Capital, the private equity firm he founded, detailed the practice. The documents indicated Bain saved $200 million in taxes over 10 years…

We are definitely not Greece! But if we do this we could get a little bit closer…  First, we’re not Greece by a huge long shot, and anyone who makes this comparison should be assiduously avoided (a bit more background here, if you like, but trust me on this one). Second, one way in which Greece really dropped its fiscal ball was in its failure to collect taxes. According to this piece, 90% (!!) of their tax receipts went uncollected in 2010. So, one way we could be more like Greece if we wanted to would be to eviscerate our tax collection system. But why would anyone want to do that? For that, you’ve got to read the latest on proposed cuts to the IRS in Republican proposals, now featuring the outsourcing of tax enforcement to private debt collection agencies (what could possibly go wrong with that??), from my CBPP colleague Chuck Marr. It is some truly scary sh__.

In Latest Market Rigging Scandal, Wall Street Now Sued For Treasury Market Manipulation -- "Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies." "Traders at some of these primary dealers talked with counterparts at other banks via online chatrooms and swapped gossip." Sound familiar? Those quotes are from a 61-page complaint filed in the Southern District of New York wherein Boston’s public sector pension fund accuses all US primary dealers (the cabal of usual suspect dealer banks that transact directly with Treasury and "have a special obligation to ensure the efficient function" of what was formerly the deepest, most liquid market on the planet) of colluding to manipulate the $12.5 trillion US Treasury market.  The alleged scheme (tipped here last month) was remarkably simple and involved precisely the same sort of conspiratorial, chatroom shenanigans employed by the very same banks who, at various times, have colluded to rig FX, gold, various -BORs, ISDAfix, and pretty much everything else. In short, the banks simply conspired to keep the spread between the when issued price and the price at auction as wide as possible, thus inflating their profits at the expense of everyone else where "everyone else" includes institutional investors and hedge funds all the way down to retirees and Main Street in general.

Documents Published by WikiLeaks Reveal the NSA’s Corporate Priorities --For years public figures have condemned cyber espionage committed against the United States by intruders launching their attacks out of China. These same officials then turn around and justify the United States' far-reaching surveillance apparatus in terms of preventing terrorist attacks. Yet classified documents published by WikiLeaks reveal just how empty these talking points are. Specifically, top-secret intercepts prove that economic spying by the United States is pervasive, that not even allies are safe and that it's wielded to benefit powerful corporate interests.  At a recent campaign event in New Hampshire, Hillary Clinton accused China of "trying to hack into everything that doesn't move in America." Clinton's hyperbole is redolent of similar claims from the US deep state. For example, who could forget the statement made by former NSA director Keith Alexander that Chinese cyber espionage represents the greatest transfer of wealth in history? Alexander has obviously never heard of quantitative easing (QE) or the self-perpetuating "global war on terror," which has likewise eaten through trillions of dollars. Losses due to cyber espionage are a rounding error compared to the tidal wave of money channeled through QE and the war on terror.  When discussing the NSA's surveillance programs, Alexander boldly asserted that they played a vital role with regard to preventing dozens of terrorist attacks, an argument that fell apart rapidly under scrutiny. Likewise, in the days preceding the passage of the USA Freedom Act of 2015, President Obama advised that bulk phone metadata collection was essential "to keep the American people safe and secure." Never mind that decision-makers have failed to provide any evidence that bulk collection of telephone records has prevented terrorist attacks.

The Case for a Tax on Financial Transactions - — LIKE it or not, the campaign season is upon us, and that almost certainly means somebody is going to try to buy your vote with a tax cut — even though average federal tax rates are already low in historical terms, our tax code remains tilted in favor of the wealthy, and our children, neighborhoods and infrastructure desperately need public investment. What would really be interesting is if a candidate proposed the opposite: a new way to raise more revenues. Bernie Sanders of Vermont, who is seeking the Democratic nomination for president, has done just that, by proposing a financial transaction tax: a small excise tax, typically a few hundredths of a percent, on trades of stocks, bonds, derivatives and other securities. An itty-bitty, one-basis-point transaction tax (a basis point is one-hundredth of a percentage point, or 0.01 percent) would raise $185 billion over 10 years, according to new estimates by the nonpartisan Tax Policy Center. That would be enough to finance an ambitious expansion of prekindergarten programs for 3- and 4-year-olds and restore funding of college assistance for low-income students. What’s more, a financial transaction tax could significantly reduce the amount of high-frequency trading. This trading, most of it automated, is used to make windfall profits through arbitrage (taking advantage of small differences in price) in milliseconds. It does nothing to help ordinary investors and can destabilize financial markets.Before addressing potential objections, consider this: A one-basis-point tax on $1,000 worth of stock would cost the stock trader a dime. A $100,000 trade would generate a tax of only $10. How, then, does such a tiny tax raise so many billions? Because the base to which it’s applied — the mass of securities traded in United States financial markets — is in the hundreds of trillions of dollars.

Dodd-Frank at Five Years, No Victory Laps Please - Tuesday marks the five-year anniversary of passage of the Dodd-Frank law that overhauled U.S. financial sector regulation. Let the debate now resume about whether the law has made the U.S. financial system safer. Barney Frank, the former congressman who co-authored the bill, said in an interview with The Wall Street Journal that it certainly did; a successor as chairman of the House Financial Services Committee, Rep. Jeb Hensarling, R-Tex., says in the WSJ it certainly did not. In important ways, the financial sector clearly looks in less peril today than it was a few years ago. Financial sector debt has declined from 120% of total U.S. economic output in early 2009 to less than 80% in the fourth quarter, the lowest level in 15 years. Less debt in the financial sector makes the system’s edifice more stable. Banks, brokers, hedge funds, money market funds and others are less prone to panic selling when a shock hits asset values. They’ve got more capital to fall back on when losses hit. Does Dodd-Frank deserve credit for this development? Not all of it. Much of this decline in financial sector debt took place before Dodd-Frank was enacted in July 2010 and even more of it took place before the law’s major provisions were implemented by regulators. Banks and others reduced debt because the financial crisis scared them so badly. The law can’t take full credit for some other important developments that have taken place in the regulatory arena. Federal Reserve officials have regularly described the central bank’s annual stress tests of large financial institutions as its key innovation of the post-crisis era. These annual exams – in which regulators imagine bad scenarios for the economy and financial system and ask banks to show how they would manage these scenarios – were an outgrowth of the government’s 2009 Supervisory Capital Assessment Program, developed during the crisis and preceding Dodd-Frank.

Five Years Later, Dodd-Frank is on the Chopping Block: (video and transcript) In an attempted final push, Republicans are posed to dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act five years after they were signed into law.

Elizabeth Warren’s Glass-Steagall Legislation Has Two Fatal Flaws - When it comes to sleuthing out how Wall Street has gamed the laws, conned the regulators and colluded to corrupt the whole financial system, there is no one in Congress sharper-eyed or more outspoken than Senator Elizabeth Warren, who is also exceptionally well-qualified to lead this Wall Street posse. . On July 7 of this year, Warren, together with fellow Senators John McCain, Bernie Sanders, Angus King, and Maria Cantwell, introduced the “21st Century Glass-Steagall Act of 2015,” (S.1709) legislation to separate insured, deposit-taking banks from Wall Street’s investment banks, brokerage firms, market makers, and hedge funds. Unfortunately, the text of the proposed legislation has two fatal flaws. First, banks can take up to five years to implement the new law. Regulators can stall for an additional year, bringing the delay to a total of six years.  As Senator Warren clearly knows, this country will be devastated with staggering national debt, a ravaged middle class, decaying infrastructure, and the highest income and wealth inequality in the industrialized world if Wall Street retains the current structure for another six years. Congresswoman Marcy Kaptur’s legislation in the House of Representatives to restore the Glass-Steagall Act, which has 63 co-sponsors versus Senator Warren’s four, provides just a two-year window for implementing the law, with a maximum one-year extension at the behest of regulators. That legislation is called the “Return to Prudent Banking Act of 2015.” Another serious problem with Warren’s proposed legislation is that it leaves the trillions of dollars of interest rate swaps on the insured commercial bank’s balance sheet.

New York Times DealBook Underplays Misconduct By Regulatory Fixer Promontory , Under Investigation by New York Department of Financial Services -- Yves Smith - The good news is that the New York Department of Financial Services (DFS) is still taking a hard line on bank misconduct despite the departure of its former Superintendent, Benjamin Lawsky. The bad news is that in reporting on an investigation by DFS into one of the banking industry’s top regulatory fixers, Promontory Group, the New York Times curiously fails to discuss the eye-popping conduct at issue. The case that led to the Promontory probe was the one that brought Lawsky to international attention, namely, his order against Standard Chartered for over $250 billion of money laundering on behalf of Iran, Myanmar, and other equally savory players. What made the Lawsky order so striking was its description of the scale of the violation, that the British bank had willfully violated previous regulatory settlements and doctored records to escape detection by US authorities. Worse, even Standard Chartered’s outside counsel in the US warned against the law-breaking, and was basically told by the bank’s in-house counsel to mind its own business. Lawsky took the unheard-of approach to order the bank to show up in a hearing and explain why it should not have its New York branch license yanked. That would have put it out of the dollar clearing business, which would have been a huge blow.  Here is the priceless part, and where Promontory comes in. Standard Chartered asserted it had only $14 million of transactions out of compliance. This was despite the fact that the procedures for “repairing” as in doctoring, bank wires were commemorated in Standard Chartered operating manuals. How did Standard Chartered justify its claim of such inconsequential law-breaking? Promotory was the source of that very convenient estimate.

U.S. banks prepare for oil and gas company loans to worsen | Reuters: U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said. Loan credit quality for U.S. banks has been improving since the financial crisis. In the first quarter, 2.49 percent of loans on banks' books were delinquent, the lowest level since the fourth quarter of 2007, according to the Federal Reserve, which hasn't released second quarter data. The rate peaked at 7.4 percent in the first quarter of 2010. Weakness among energy company loans could be a sign that overall credit quality among U.S. banks has little room to improve, analysts said. Executives from both JPMorgan Chase & Co. and Wells Fargo & Co. told investors last week, when posting earnings, that they were increasingly concerned about loans to oil and gas companies. Texas bank Comerica Inc on Friday set aside about three times as much money to cover bad loans as analysts had expected, sending the regional bank's shares lower by more than 6 percent after the bank reported earnings Friday. Setting aside more money, known as "provisioning," hurts earnings. "The banks really have very low credit costs and those can go higher," While "energy overall is not a life threatening issue for the banks, it is earnings threatening," JPMorgan said on Tuesday it provisioned another $252 million to cover potentially bad wholesale business loans in the quarter, with $140 million of that related to oil and gas lending.

Fed calls for $200bn of extra capital buffers in US banks - FT.com: The eight leading US banks will hold extra capital buffers totalling $200bn under new Federal Reserve rules aimed at preventing a major financial collapse. The Fed on Monday announced final rules that will apply to eight major banks deemed to be globally systemically important. All but one of the banks, which include Citigroup, Goldman Sachs and Morgan Stanley, are already in compliance with the requirements, Federal Reserve officials said. The exception is JPMorgan, which would have a current $12.5bn capital shortfall as a result of the rules. That however is substantially smaller than estimates of a hole of more than $20bn that emerged last December, after the bank took steps to adjust its balance sheet. The final draft rules set new capital requirements for the US’s top bank holding companies that go beyond minimum international standards set by the Basel Committee on Banking Supervision. The banks must comply with the rules to avoid being hit by limits on their dividend and bonus payments. Daniel Tarullo, the Fed governor who heads supervision, said the central bank would consider whether to incorporate the capital surcharges into its stress-testing framework. The new risk-based capital surcharges range from 1 per cent to 4.5 per cent, with the largest buffer requirement applying to JPMorgan. Citigroup faces the second-biggest surcharge, at 3.5 per cent of risk-weighted assets, followed by Goldman Sachs, Bank of America and Morgan Stanley at 3 per cent.

A Capital Fed Ruling -- The Fed just released it's latest missive to the big banks, and the answer is capital, lots more capital. Three cheers for the Fed. They are increasingly understanding that no matter how much they try to micromanage asset decisions, it's impossible to regulate away risk from the top. And "liquidity" will vanish the minute it's needed. Joke version -- liquidity standards are like requiring everyone on an airplane to carry a thousand bucks, so they can buy a parachute if the engines blow up. Just who will be buying "liquid" assets in the next crash? So,  just raise capital, lots more capital, and slowly let the rest fade away. A minor complaint: The Fed did it right but said it  wrong...under the rule, a firm that is identified as a global systemically important bank holding company, or GSIB, will have to hold additional capital... No, capital is not "held." Capital is issued. Capital is a source of funds, not a use of funds. Capital is not reserves.  Please all, stop using the word "hold" for capital.

More Misinformation about Banking Regulation -- “Fed Tells Big Banks to Shrink or Else,” the Wall Street Journal proclaimed in the headline of its lead story today.* If only. What the Federal Reserve actually did is impose new, additional capital requirements for the largest banks. JPMorgan Chase, for example, will have to hold 4.5 percentage points more capital than it would have had to otherwise. This is clearly a good thing, since it means that the banks that could do the most damage to the financial system will be a little bit safer. But it is neither a complete solution, nor is it the draconian constraint that the banks and the Journal make it out to be. For starters, the rule will have no effect on seven of the eight banks in question (JPMorgan is the exception), since they already have enough capital to meet the new requirements. That alone should let you know how significant a rule this is. Even so, the Journal says that banks will have to decide “whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models.” This is not true. Say some bank has $100 in assets and $95 in liabilities, so it has $5 in capital. Its “bottom line” profits are basically the interest it earns on the assets minus the interest it pays on the liabilities. Then say Janet Yellen comes along and tells the bank that it has to have $10 in capital for every $100 in assets. So the bank sells new shares to the public for $5 and uses the $5 in cash to pay off $5 of its liabilities. Now it has $100 in assets and $90 in liabilities, so its profits actually go up (since it has less debt to pay interest on, and it pays a lower interest rate because its debt is less risky).

Hillary Clinton Rebuffs Liberals’ Push to Break Up Banks - WSJ —Hillary Clinton, the Democratic frontrunner for president, said she would not be pushed by liberals in her party to advocate for a breakup of big banks or the reinstatement of the Glass-Steagall law that separated commercial and investment banking.  In response to a question about Glass-Steagall, she said: “I think it’s a more complicated assessment than any one piece of legislation might suggest.” Sen. Bernie Sanders of Vermont and former Maryland Gov. Martin O’Malley, who are challenging her for the Democratic nomination, are both advocating a breakup of the banks. Mrs. Clinton suggested that was a simplistic response and promised to lay out her plan for Wall Street regulation at a future date. It isn’t expected to include anything that sweeping. Mr. Sanders in particular has gained traction with liberals in the party pushing for a big populist platform and a crackdown on what he calls the “billionaire class.” Mrs. Clinton said that people advocating for new bank rules should remember that it was not just banks, but mortgage companies, insurance companies and non-commercial banking entities who were “as big if not bigger contributors to the collapse” of the financial system.“So I am not interested in just saying there is one answer to the too-big-to-fail problem, we have a too-big-to-fail problem still and we have to figure out the best way to address it and I’m going to be talking more about that,” she told reporters. She also emphasized the importance of defending the 2010 Dodd-Frank legislation that added new regulations and suggested the real contrast was with Republicans who want to roll that back.

Black Knight's First Look at June: Foreclosure Inventory at Lowest Level Since 2007 -- From Black Knight: Black Knight Financial Services’ “First Look” at June Mortgage Data: Foreclosure Inventory at Lowest Level Since 2007, Still Three Times “Normal” Rate -- According to Black Knight's First Look report for June, the percent of loans delinquent decreased 3% in June compared to May, and declined 15.5% year-over-year. The percent of loans in the foreclosure process declined 2% in June and were down 23% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.82% in June, down from 4.96% in May. The percent of loans in the foreclosure process declined in June to 1.46%.  This was the lowest level of foreclosure inventory since 2007. The number of delinquent properties, but not in foreclosure, is down 439,000 properties year-over-year, and the number of properties in the foreclosure process is down 212,000 properties year-over-year. Black Knight will release the complete mortgage monitor for June in early August.

A comment on Interest Only Mortgage Loans  --Some people incorrectly blame "subprime" for the financial crisis. Others blame interest only loans. Neither are toxic if underwritten correctly.  From Diana Olick at CNBC: Interest-only mortgages: They're baaack They were the villains of the housing crash. Federal regulators called them toxic. Now interest-only mortgages are making a comeback, but these are not the loans of yesteryear or yester-housing booms.  "I think it's opening the door back to responsible lending, giving people choices," said Mat Ishbia, president and CEO of Michigan-based United Wholesale Mortgage, the second-largest lender through brokers in the nation. The company announced Monday it is now offering interest-only loans through brokers, with significant safeguards. Borrowers must put 20 percent down, ensuring that they have the "skin in the game" that so many did not during the heady days of the housing boom. They must have at least a 720 FICO credit score, which is well above average, and they must qualify on what the payments will be once they're adjusted higher, not at the starter rate. There were several problems with mortgage lending in the mid-2000s. There was widespread use of subprime and Alt-A loans with risk layering.  Risk layering might have included qualifying at a teaser rate, 100%+ loan-to-value financing, negative amortizing loans, interest only, and/or, self-underwritten loans - so-called stated income loans.  A subprime or interest only loan, underwritten properly, is a reasonable mortgage product (such as described in the article).  However if the lender starts layering risk, then the product could be dangerous.

MBA: Mortgage Applications Unchanged in Latest Weekly Survey, Purchase Index up 18% YoY -- From the MBA: Mortgage Applications Flat in Latest MBA Weekly Survey Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 17, 2015. ... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 18 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.23 percent, with points decreasing to 0.34 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. With higher rates, refinance activity is very low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 18% higher than a year ago.

Existing Home Sales in June: 5.49 million SAAR, Highest Pace in Eight Years -- The NAR reports: Existing-Home Sales Rise in June as Home Prices Surpass July 2006 Peak Existing-home sales increased in June to their highest pace in over eight years, while the cumulative effect of rising demand and limited supply helped push the national median sales price to an all-time high, according to the National Association of Realtors®. ... Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2 percent to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May. Sales are now at their highest pace since February 2007 (5.79 million), have increased year-over-year for nine consecutive months and are 9.6 percent above a year ago (5.01 million). ... Total housing inventory at the end of June inched 0.9 percent to 2.30 million existing homes available for sale, and is 0.4 percent higher than a year ago (2.29 million). Unsold inventory is at a 5.0-month supply at the current sales pace, down from 5.1 months in May.

Existing-Home Sales Highest in Eight Years -- This morning's release of the June Existing-Home Sales shows the highest sales in eight years to a seasonally adjusted annual rate of 5.49 million units from a slight downward revision of 5.32 million in May (previously 5.35 million). The Investing.com consensus was for 5.40 million. The latest number represents a 3.2% increase from the previous month and a 9.6% increase year-over-year. Here is an excerpt from today's report from the National Association of Realtors."Lawrence Yun, NAR chief economist, says backed by June's solid gain in closings, this year's spring buying season has been the strongest since the downturn. "Buyers have come back in force, leading to the strongest past two months in sales since early 2007," he said. "This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that's giving more households the financial wherewithal and incentive to buy."Adds Yun, "June sales were also likely propelled by the spring's initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher." [Full Report]For a longer-term perspective, here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 is available in the St. Louis Fed's FRED repository here. Now let's examine the data with a simple population adjustment. The Census Bureau's mid-month population estimates show a 15.6% increase in the US population since the turn of the century. The snapshot below is an overlay of the NAR's annualized estimates with a population-adjusted version.

Existing Home Sales Up 3.2% As Prices Soar To Record Highs - NAR's existing home sales really shot up in June with a 3.2% sales increase to 5.49 million annualized existing home sales.  This is an eight and a half year high.  In February 2007 existing home sales were 5.79 million.  This makes sales 9.6% higher than June of last year.  Existing home sales have been above their year previous amounts for six months now.  Prices are clearly in unaffordable territory as the median home price just surpassed the housing bubble July 2006 peak and hit a new record.   The national median existing home sales price, all types, is $235,400, a 6.5% increase from a year ago.  This is a record and beats the previous $230,400 July 2006 high.  The median price has also increased for 40 months in a row.  Who says the housing bubble cannot return, even when adjusting for inflation.  The average existing sales price for homes in February was 280,300, a 4.6% increase from a year ago.  Anyone see a wager increase to support these soaring home prices?  Of course not.  Below is a graph of the median price.  NAR Economist Yun claims it is just the improving economy and the threat of interest rates rising that has caused the increase.  He did not mention soaring rents causing people to take more of a risk on buying a home.  June sales were also likely propelled by the spring's initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher. Distressed home sales are now only 8% of all sales, a low not seen since August of last year.  Distressed sales were 11% of all sales a year ago.   Foreclosures were 6% while short sales were 2% of all sales.  The discount breakdown was 15% for foreclosures and short sales were a 18% price break. Investors were 12% of all sales and 66% of these investors paid cash.  This is a low in comparison to August of last year.  All cash buyers were 22% of all sales, a low not seen since December 2009.  A year ago all cash buyers were 32% of all existing home sales.  First time home buyers were 30% of the sales.

Existing Home Prices Hit Record; Sales Soar To 8 Year High --Houses have become stocks... the higher the price, the more demand (especially as the government has your back with low down-payment loans and the re-emergence of IOs). With Existing Home Sales soaring to a SAAR of 5.49 million, the highest since early 2007, the fact that median home prices are at an all-time high appears to be any problem for the releveraging American (or Chinese) homebuyer.  Lawrence Yun, NAR chief economist, says backed by June's solid gain in closings, this year's spring buying season has been the strongest since the downturn. "Buyers have come back in force, leading to the strongest past two months in sales since early 2007," he said. "This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that's giving more households the financial wherewithal and incentive to buy." Adds Yun, "June sales were also likely propelled by the spring's initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher.  The median existing-home price for all housing types in June was $236,400, which is 6.5 percent above June 2014 and surpasses the peak median sales price set in July 2006 ($230,400). June's price increase also marks the 40th consecutive month of year-over-year gains.

June 2015 Existing Home Sales Headlines Say Sales Up Strongly. NAR Claims Prices At All Time High: The headlines for existing home sales claim "Buyers have come back in force, leading to the strongest past two months in sales since early 2007". Our analysis of the unadjusted data shows that home sales did rebound - but that the rolling averages did not improve. Overall, existing home sales appear to continue in the long term improvement trend channel.. Econintersect Analysis:

  • Unadjusted sales rate of growth accelerated 8.6% month-over-month, up 13.2% year-over-year - sales growth rate trend is statistically unchanged using the 3 month moving average.
  • Unadjusted price rate of growth unchanged month-over-month, up 4.6% year-over-year - price growth rate trend is modestly improving using the 3 month moving average.
  • The homes for sale inventory was statistically unchanged this month, remains historically low for Junes, and is statistically unchanged from inventory levels one year ago).

NAR reported:

  • Sales up 3.2% month-over-month, up 9.6% year-over-year.
  • Prices up 6.5% year-over-year
  • The market expected annualized sales volumes of 5.30 to 5.46 million (consensus 5.40) vs the 5.49 million reported.

The graph below presents unadjusted home sales volumes

A Few Random Comments on June Existing Home Sales --First, as always, new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale. Also I wouldn't be surprised if the seasonally adjusted pace for existing home sales slows over the next several months - due to limited inventory and higher mortgage rates. Second, in general I'd ignore the median sales price because it is impacted by the mix of homes sold (more useful are the repeat sales indexes like Case-Shiller or CoreLogic). The NAR reported the median sales price was $236,400 in June, above the median peak of $230,400 in July 2006. That is 9 years ago, so in real terms, median prices are close to 20% below the previous peak.  Not close.  Third, Inventory is still very low (up only 0.4% year-over-year in June). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. This will be important to watch.  Also, the NAR reported total sales were up 9.6% from June 2014, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):  Distressed sales — foreclosures and short sales — fell to 8 percent in June (matching an August 2014 low) from 10 percent in May, and are below the 11 percent share a year ago. Six percent of June sales were foreclosures and 2 percent were short sales.  Last year in June the NAR reported that 11% of sales were distressed sales.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 13%.  The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Recent Data Points To A Rebounding US Housing Market -- The housing market continue to show signs of recovery after a soft first quarter. The latest hint: yesterday’s better-than-expected rise in existing home sales. Purchases advanced at the strongest pace in over eight years, reaching a new post-recession seasonally adjusted high of 5.49 million units in June. The update follows last week’s bullish news that new residential construction in June is close to a post-recession high while sentiment in the home-building industry this month is near a ten-year high.  The encouraging trend in housing these days boosts the odds that the US economy will continue to expand in the months ahead. Housing, after all, is widely recognized as a key factor for the macro outlook. One economist argues that “Housing IS the Business Cycle.” At the very least, the revival in the housing sector will help to offset some of the recent weakness in manufacturing and retail spending.  “Buyers have come back in force, leading to the strongest past two months in [house] sales since early 2007,” notes Lawrence Yun, chief economist at the National Association of Realtors, which publishes the existing home sales report. “This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.”  The monthly comparisons could be noise, of course, but the positive outlook holds up when we review the year-over-year changes–a clearer and more-reliable measure of the trend. As you can see in the chart below, the annual growth rate of sales and construction has turned higher in recent months, providing support for the view that the sector is poised to deliver additional fuel for the economic expansion in the near term.

The Housing Market Still Isn’t Rational: Home prices have been climbing. They have risen 27 percent nationally since 2012, even more in places like San Francisco. But why worry? If you accept the efficient markets theory — and believe that real estate is an efficient market — then these prices are based on “new information,” even if you don’t know what that information is. The problem with this kind of thinking is that the efficient markets theory is at best a half-truth, as a voluminous literature on market anomalies shows. What’s more, even that half-truth is grounded mainly in the stock market, which attracts professional investors who sometimes do make the market behave efficiently. The housing market is another matter. It is far less rational than even the often irrational stock market...[explains why]... The bottom line is that there is no reason to assume that the real estate market is even close to efficient. You may want to buy a house if you love it and can afford it. But remember that you cannot safely rely on “comparable sales” to judge that the price is fair. The market isn’t efficient enough for that.

Demand for Housing Could Cool in August, Report Says -  Home prices are at all-time high, but buyers may be growing weary of record-high home prices and start pulling back on purchases later this summer, according to a new report by a national real-estate brokerage. The number of homes sold in July is expected to grow by 14.3% over the previous year in July, according to Redfin. In contrast, it anticipates that home sales will grow by 4.6% compared to the previous year in August. According to Redfin, the median sales price will grow by 4.3% in July and by 2.2% in August. Redfin has created a forward-looking read on the housing market that it plans to issue monthly. It looks at the number of people viewing listings on its website, customers requesting tours and those writing offers in the 15 major metro areas in which it has a large presence. Many economists make predictions about the annual rate of sales and price growth and the National Association of Realtors puts out a pending home-sales index based on contract signings. But Redfin said their index will help act as a more immediate guide for people trying to decide whether now is a good time to buy or sell a home because it looks at very early indicators, such as home tours and online listings. “So many people buying a house worry that it’s the wrong time, that prices are going to go down the moment you get into contract,”

Secular Trends in Residential Building Permits and Housing Starts -    On Friday we reported separately on the latest residential building permits and housing starts in the government's monthly, courtesy of the Census Bureau and the Department of Housing and Urban Development. Despite the fact that both are monthly SAAR series (seasonally adjusted annualized rate), they are exceptionally volatile and subject to extensive revisions. Thus it is unwise to assign much credibility to a single month. Over the long haul, however, the two offer a compelling study of trends in residential real estate, especially when we adjust the Permits and Starts for population growth. Here is an overlay of the two series since the 1959 inception of the Starts data and the 1960 inception of the Permits data. The monthly data points are preserved as faint dots. The trends are illustrated with 6-month moving averages of data divided by the Census Bureau's mid-month population estimates. Here is a closer look at the overlay since 1990. About that volatility... The extreme volatility of these indicators is the rationale for paying more attention to the 6-month moving average than to its noisy monthly change. Over the complete data series, the Starts absolute MoM average percent change is 6.2%. The MoM range minimum is -26.4% and the maximum is 29.3%. Permits are slightly less volatile with an absolute MoM average percent change of 4.4%. The MoM range minimum is -24.0% and the maximum is 33.9%.

Millennials Getting Help From Parents Can Afford Homes - Millions of America’s young people are really struggling financially. Around 30 percent are living with their parents, and many others are coping with stagnant wages, underemployment, and sky-high rent. And then there are those who are doing just great—owning a house, buying a car, and consistently putting money away for retirement. These, however, are not your run-of-the-mill Millennials. Nope. These Millennials have something very special: rich parents. These Millennials have help paying their tuition, meaning they graduate in much better financial shape than their peers who have to self-finance college through a mix of jobs, scholarships, and loans. And then, for the very luckiest, they’ll also get some help with a down payment, making homeownership possible, while it remains mostly unattainable for the vast majority of young adults. To start with, most of those who continue their education after high school have families that are able to help financially.  A recent report from the real--estate research company Zillow looked at Federal Reserve Board data on young adults aged 23-34 and found that of the 46 percent of Millennials who pursued post-secondary education (that’s everything from associates degrees to doctorates), about 61 percent received some financial help with their educational expenses from their parents. And yet, even with this help, the average student with loans at a four-year college graduates with about $26,000 in student-loan debt. Millennials who are lucky enough to have some, or all, of a college tuition’s burden reduced by their parents have a leg up on peers who are saddled with student debt, and they’ll be able to more quickly move out on their own, and maybe even buy their own house.

Signs of Overheating in the Single-Family Rental Market - The single-family rental market has grown dramatically after around seven million families lost their homes during the foreclosure crisis and its aftermath. But there are signs that rents in some markets may be unsustainable, a new report finds. Single-family rentals now account for 13% of the overall housing stock, up from 9% in 2005, according to a report by Moody’s Analytics. Demand for renting homes grew dramatically after millions lost their homes to foreclosure, short-sale or other distressed events. Many didn’t want to live in apartment buildings, so investors scooped up foreclosed homes in bulk and rented them back to families. But there are signs the market is starting to overheat. Rents in San Jose, California – one of the hottest real-estate markets in the country – appear to be 19% overvalued when compared to home prices, according to Moody’s. The average rental price for a single-family home in San Jose is now $3,121. Relative to home prices, the average rent should be $2,632, Moody’s said. Similarly, rents in Denver are 18% overvalued, with families paying $1,746 on average, when normal rents would be closer to $1,485. Typically, rents for single-family homes should be in line with monthly mortgage payments for a similar house. Rents are also too high relative to home prices in Houston, where Moody’s estimates they are 8% overvalued. That could be particularly concerning given fears that the fall in oil prices will dampen the housing market there.

New Home Sales decreased to 482,000 Annual Rate in June --The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 482 thousand.  The previous three months were revised down by a total of 49 thousand (SA). "Sales of new single-family houses in June 2015 were at a seasonally adjusted annual rate of 482,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.8 percent below the revised May rate of 517,000, but is 18.1 percent above the June 2014 estimate of 408,000."  The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still close to the bottoms for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in June to 5.4 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal).  Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales Plunge -6.8% for June -- The June 2015 New Residential Single Family Home Sales plunged -6.8%.  Sales dropped from 517,000 to 482,000 for the month.  For the year, new single family home sales are up 18.1% from the year ago 408,000 sales levels.  The annual increase is equal to the ±18.1% margin of error.  What a difference a survey group makes as this report is from the Census while existing home sales is published by NAR.  Of course one survey is for new homes while the other is for existing ones.  In the Census survey, amounts are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year.  These figures are also seasonally adjusted.  The monthly percentage changes are always in between error margins (this month ±12.5%) and sales figures are almost always revised.  The June 2015 average home sale price was $328,700.  This is a monthly decline of -2.1%.  From a year ago the average price has changed -2.8%. The median home price is $281,800 and had almost no change from the previous month. From June 2014, the median new home sales price has dropped by -1.8%. Median means half of new homes were sold below this price and both the average and median sales price for single family homes is not seasonally adjusted. Inventories: New homes available for sale is now 215,000 units, a 3.4% increase from last month. From a year ago inventories have increased 8.6% and this is outside the ±5.8% margin of error. The monthly change is also outside the ±1.8% error margin. The graph below shows how long it would take to sell the new homes on the market at each month's sales rate. For June the time stands at 5.4 months. This is a 12.5% monthly change but with a -6.9% annual drop. Months decreasing mean the new homes sales market is tightening and heating up. The median time a house was completed and on the market to the time it sold was 4.0 months. From a year ago that time period was 3.4 months. This implies the median time to move new properties is fairly stable.

U.S. new home sales at seven-month low; manufacturing stabilizes | Reuters: New U.S. single-family home sales fell in June to a seven-month low and May's sales were revised sharply down, but the data on Friday did little to change the belief that the housing market recovery was shifting into higher gear. Sales of new homes account for only 8.1 percent of the housing market and tend to be volatile on a month-to-month basis. June's surprise decline and the May revisions also are at odds with other housing data that have shown strong momentum. "We should not get too worried about the signal from the new home sales data at this point," said Daniel Silver, an economist at JPMorgan in New York. New home sales dropped 6.8 percent to a seasonally adjusted annual rate of 482,000 units, the lowest level since last November, the Commerce Department said. May's sales pace was cut to 517,000 units from the previously reported 546,000 units. Despite two straight months of declines in new home sales, the housing market recovery remains intact. New home sales were up 18.1 percent compared to June of last year. Housing is being supported by a tightening labor market, which has unleashed demand from young adults. Government efforts to ease lending conditions for first-time buyers through mortgage finance firms Fannie Mae and Freddie Mac also have helped. A report on Wednesday showed home resales jumped to a more than eight-year high in June. Data last week showed building permits near an eight-year peak in June and housing starts increasing solidly.

June 2015 New Home Sales Rate of Growth Softens, and Below Expectations: The headlines say new home sales declined from last month. The rolling averages smooth out much of the uneven data produced in this series - and this month there was an improvement in the rolling averages.The data was revised downward in the previous months making the bad headlines even worse than first glance. As the data is noisy, the 3 month rolling average is the way to look at this data. This data series is suffering from methodology issues. Econintersect analysis:

  • unadjusted sales growth accelerated 6.8 % month-over-month (after last month's revised deceleration of 16.6%).
  • unadjusted year-over-year sales up 18.4% (Last month was up 11.6%). Growth this month is on the high end of the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth accelerated 0.2% month-over-month - is up 19.2% year-over-year.

US Census Headlines:

  • seasonally adjusted sales down 6.8% month-over-month
  • seasonally adjusted year-over-year sales up 18.1%
  • market expected (from Bloomberg) seasonally adjusted annualized sales of 535K to 570K (consensus 550K) versus the actual at 482.

New Home Sales Unexpectedly Decline 6.8%, Last Month Revised Sharply Lower; Writers Still Upbeat  New new home sales unexpectedly plunged 6.8% to 482,000 annualized units, far below any Bloomberg Consensus EstimateVolatility is common for new home sales and there's plenty of it the June report where the headline plunged 6.8 percent to a far lower-than-expected annual rate of 482,000 and where revisions erased 40,000 from the prior two months. But there is some good news in the report and that's a surge in supply of new homes on the market, up 3.4 percent in the month to 215,000. Greater supply points to greater sales ahead. On a sales basis, supply is at 5.4 months vs 4.8 and 4.7 in June and May. Prices look soft in the report, at a median $281,800 which is up 0.5 percent in the month but down 1.8 percent year-on-year. The latter reading points to deep discounting compared to the year-on-year sales gain of 18.1 percent. Regional data show big drops in the West and the Midwest in the month and a smaller drop in the South. But the Northeast is showing life with a second straight solid gain. Year-on-year, the South and Northeast lead with respective sales gains of 23.7 and 23.1 percent with the West and Midwest lagging at 10.9 and 5.7 percent.  Reuters called this a "minor setback", further stating the "overall housing market recovery remains intact." Is the recovery intact? How could the writer possibly know? Bloomberg says "Greater supply points to greater sales ahead." Is that what greater supply points to, or does it point to builder overoptimism coupled with another round of homes built on spec in hope that buyers show up later?

Comments on New Home Sales - The new home sales report for June was well below expectations at 482 thousand on a seasonally adjusted annual rate basis (SAAR), and there were also downward revisions to prior months.  However sales are still up solidly for 2015 compared to 2014. A key question is if there was some negative impact of higher mortgage rates on sales? - or was the decline in June mostly noise?   Changes in rates would show up in New Home sales before Existing Home sales (that were strong in June) because New Home sales are reported when the contract is signed, and Existing Home sales are reported when the transaction closes.   If there is an impact from higher rates, then the impact will show up in the Existing Home sales report for July or August. The Census Bureau reported that new home sales this year, through June, were 274,000, not seasonally adjusted (NSA). That is up 21.2% from 226,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for the first half of 2015! Sales were up 18.1% year-over-year in June.This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate). The year-over-year gain will probably be strong through July (the first seven months were especially weak in 2014), however I expect the year-over-year increases to slow later this year - but the overall year-over-year gain should be solid in 2015. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.   Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.  I expect existing home sales to mostly move sideways over the next few years (distressed sales will continue to decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

AIA: Architecture Billings Index increased in June, "Multi-family housing design showing signs of slowing" Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Institutional Project Demand Drives Architecture Billings Index to Highest Mark Since 2007 Paced by continued demand for projects such as new education and healthcare facilities, public safety and government buildings, the Architecture Billings Index (ABI) increased in June following fluctuations earlier this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the June ABI score was 55.7, up substantially from a mark of 51.9 in May. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.4, up from a reading of 61.5 the previous month. “The June numbers are likely showing some catch-up from slow growth earlier this year. This is the first month in 2015 that all regions are reporting positive business conditions and aside from the multi-family housing sector, all design project categories appear to be in good shape,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The demand for new apartments and condominiums may have crested with index scores going down each month this year and reaching the lowest point since 2011.”This graph shows the Architecture Billings Index since 1996. The index was at 55.7 in June, up from 51.9 in May. Anything above 50 indicates expansion in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.  The multi-family residential market was negative for the fifth consecutive month - and this might be indicating a slowdown for apartments - or at least less growth.

Median Household Income Falls $371 But Not Statistically Significant in June 2015.: According to new data derived from the monthly Current Population Survey (CPS), median annual household income in June 2015 was $55,132. The apparent decrease in the median by $235 from May 2015 was not statistically significant. The Sentier Household Income Index for June 2015 was 96.2 (January 2000 = 100). The lack of change in median annual household income in June still leaves the median significantly higher than the low point in our household income series that occurred in August 2011. Median income in June 2015 ($55,132) was 2.1 percent higher than in June 2014 ($53,982), and 6.4 percent higher than in August 2011 ($51,804). The period since August 2011 has been marked by an uneven, but generally upward trend in the level of real median annual household income. Many of the month-to-month changes in median income during this period have not been statistically significant. However, the cumulative effect of the various month-to-month changes since August 2011 resulted in the income improvement noted above. (See Figure 1 - full report here)  According to Gordon Green of Sentier Research: Although median annual household income did not change significantly in June, we continue to see a general upward trend in income since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011.

Retail Federation Slashes Sales Outlook By 15%, Blames "Deflationary Enviornment" -- Despite the absence of bad weather, good weather, port strikes, and snow, The National Retail Federation today slashed its retail sales forecast for 2015 from 4.1% growth to just 3.5%. Sales grew at a 2.9% pace in the first half of 2015 and hope remains that the next 5 months show growth of 3.7% (with same store sales growth revised lower). The excuse reason for this markdown..."spending has been hampered by lackluster growth in our economy. Much of that blame can be shifted to Washington where too much time has been spent crafting rules and regulations that almost guarantee negative consequences for consumers and American businesses alike." As The NRF details, The National Retail Federation today lowered its retail sales forecast for 2015 because of unexpected slow growth recorded during the first half of the year, similar to the industry’s experience in 2014. However, NRF expects sales will steadily increase through the remainder of the year. NRF forecasted in February that retail sales would grow 4.1 percent in 2015 over 2014, but today’s revision lowers the forecast to 3.5 percent.  “A confluence of events, including treacherous weather throughout the United States through most of the winter, issues at the West Coast ports, a stronger U.S. dollar, weak foreign growth and declines in energy sector investments all significantly and negatively impacted retail sales so far this year, and thus have changed how future sales will shape up for the rest of 2015,” said NRF Chief Economist Jack Kleinhenz. “Additionally, household spending patterns appear to have shifted purchases toward services and away from goods, though this may be transitory. Additionally, a deflationary retail environment has been especially challenging for retailers’ bottom line"

Apple may start showing ads based on your credit card balance --Marketers can (and do) glean valuable information about the types of products smartphone users are most likely to buy based on their day-to-day digital activities. Age, gender and physical location can all influence the types of ads displayed on your phone, but the websites you've visited in the past — particularly e-commerce sites — are thought to play an even bigger role in many cases. The problem is that some of us peruse products we don't actually intend to buy, for inspiration or perhaps aspiration, and serving an ad for $900 shoes to someone with a $90 budget does nothing for parties on either side of the equation. A freshly granted U.S. patent suggests that Apple is working on a way to fix this — by checking a user's credit card balance before determining which ads they'll see. An illustration of Apple's 'method and system for targeted advertising of goods and services to users of mobile terminals,' as seen in a recently approved U.S. patent. (U.S. Patent and Trademark Office) Essentially, those who opt-in to Apple's conceptual system would only be shown mobile advertisements for products they could afford based on their banking information."Goods and services are marketed to particular target groups of users sharing a common profile which may be selected to increase the likelihood of the users responding to the advertisements," reads the patent document, noting that user profiles "may be based on the amount of pre-paid credit available to each user."  "An advantage of such targeted advertising is that only advertisements for goods and services which particular users can afford, are delivered to these users."

Is Advertising Morally Justifiable? The Importance of Protecting Our Attention – -- Advertising is a natural resource extraction industry, like a fishery. Its business is the harvest and sale of human attention. We are the fish and we are not consulted. Two problems result from this. The solution to both requires legal recognition of the property rights of human beings over our attention. First, advertising imposes costs on individuals without permission or compensation. It extracts our precious attention and emits toxic by-products, such as the sale of our personal information to dodgy third parties. Second, you may have noticed that the world's fisheries are not in great shape. They are a standard example for explaining the theoretical concept of a tragedy of the commons, where rational maximising behaviour by individual harvesters leads to the unsustainable overexploitation of a resource. Expensively trained human attention is the fuel of twenty-first century capitalism. We are allowing a single industry to slash and burn vast amounts of this productive resource in search of a quick buck.

Ashley Madison Hacked: America's 37 Million 'Cheaters' About To Be Exposed --Two months ago, AdultFriendFinder was hacked, exposing fuck buddy friend-finding federal employees among its 3.5 million user 'exposure'. Today, as KrebsOnSecurity reports, large caches of data stolen from online cheating site AshleyMadison.com have been posted online by an individual or group that claims to have completely compromised the company’s user databases, financial records and other proprietary information (including profiles with all the customers’ secret sexual fantasies). The hacker group "The Impact Team" manifesto concludes, "too bad for those [37 million] men, they’re cheating dirtbags and deserve no such discretion." As KrebsOnSecurity reports, the still-unfolding leak could be quite damaging to some 37 million users of the hookup service, whose slogan is “Life is short. Have an affair.”

Eggs Lay One On CPI and Wages - The Consumer Price Index increased 0.3% for June, as gasoline increased by 3.4%.  Eggs are the new gold as prices had a one month spike not seen since 1973.  Energy overall was up 1.7%.  Inflation without food or energy prices considered increased 0.2% for the month on soaring shelter costs.  From a year ago overall inflation has increased 0.1%.   CPI measures inflation, or price increases.  The flat yearly inflation is shown in the below graph as the past decline in gasoline prices really gave a break to consumers, yet that is clearly over. Core inflation, or CPI with all food and energy items removed from the index, has increased 1.8% for the last year. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate. The Fed watches other inflation figures as well as GDP and employment statistics on deciding when to raise rates. Graphed below is the core inflation change from a year ago. Core CPI's monthly percentage change is graphed below. This month core inflation increased 0.2%, as rents and the owner's equivalent of rent increased 0.4%, a rate not seen since 2013 and 2006 respectively. Lodging away from home, i.e. hotels, motels dropped -1.6% for the month. The energy index is still down -15% from a year ago. The BLS separates out all energy costs and puts them together into one index. For the year, gasoline has declined -23.2%, while Fuel oil has dropped -27.7%. Natural gas has dropped -13.3% while Electricity is unchanged from a year ago. From a year ago national gas prices have declined -15.4% and electricity is still very tame, with a 0.5% increase. Energy is still on the rise as the only component to drop for the month was fuel, 1.9% Graphed below is the overall CPI energy index. Core inflation's components include shelter, transportation, medical care and anything that is not food or energy.  The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels.   Shelter increased 0.2% and is up 2.9% for the year.  Rent increased 0.3% for the month, 3.5% for the year.  Graphed below is the rent price index.

Lies, Damned Lies, & Inflation Statistics --The government released their monthly CPI report this week. Even though it came in at an annualized rate of 3.6%, they and their mouthpieces in the corporate mainstream media dutifully downplayed the uptrend. They can’t let the plebs know the truth. That might upend their economic recovery storyline and put a crimp into their artificial free money, zero interest rate, stock market rally. If they were to admit inflation is rising, the Fed would be forced to raise rates. That is unacceptable in our rigged .01% economy. There are banker bonuses, CEO stock options, corporate stock buyback earnings per share goals and captured politician elections at stake. The corporate MSM immediately shifted the focus to the annual CPI figure of 0.1%. That’s right. Your government keepers expect you to believe the prices you pay to live your everyday life have been essentially flat in the last year. Anyone who lives in the real world, not the BLS Bizarro world of models, seasonal adjustments, hedonic adjustments, and substitution adjustments, knows this is a lie. The original concept of CPI was to measure the true cost of maintaining a constant standard of living. It should reflect your true inflation of out of pocket costs to live a daily existence in this country. Instead, it has become a manipulated statistic using academic theories as a cover to systematically under-report the true level of inflation. The purpose has been to cut annual cost of living adjustments to Social Security and other government benefits, while over-estimating the true level of GDP. Artificially low inflation figures allow the mega-corporations who control the country to keep wage increases to workers low. Under-reporting the true level of inflation also allows the Federal Reserve to keep their discount rate far lower than it would be in an honest free market. The Wall Street banks, who own and control the Federal Reserve, are free to charge 18% on credit card balances while paying .25% to savers. The manipulation of the CPI benefits the vested interests, impoverishes the masses, and slowly but surely contributes to the destruction of our economic system.

EIA: West Coast Gasoline Prices "likely to remain elevated until later this summer" -- An interesting article from the EIA: California gasoline prices rise further as lengthier supply chain is strained. A few excerpts: West Coast spot prices for conventional gasoline increased sharply last week, while falling slightly on the Gulf Coast and remaining flat on the East Coast. The Los Angeles, California, spot price for conventional gasoline increased nearly 90 cents per gallon (cents/gal) between July 6 and July 13, while San Francisco, California, and Portland, Oregon prices increased 24 cents/gal and 5 cents/gal, respectively (Figure 1). This most recent price rise results from a delay in receipts of waterborne imports of gasoline blending components and a decrease in total motor gasoline inventories within an already constrained supply chain.West Coast spot gasoline prices typically trade at a premium to prices in other regions of the country because of the region's unique product specifications and relative isolation from other domestic and international markets. As a result, West Coast gasoline markets are primarily supplied by in-region production, and prices react more quickly and strongly during times of local supply shortages. The West Coast gasoline spot price differential has been higher than usual for the past several months following a series of supply disruptions caused by an unplanned refinery outage in February and additional refinery outages in April. Also, West Coast gasoline demand is up 4% in the first four months of 2015 compared with the same time last year, putting additional pressure on the supply chain....Other periods of price spikes have occurred in California, most notably in 2008, 2009, and 2012, that were similar in duration and magnitude to the current situation. By early June of this year, the other refineries were back in operation so only the Torrance refinery remains down. Prices will likely stabilize again when imports and inventories increase, but are likely to remain elevated until the repairs to the Torrance refinery are completed later this summer.

California oil refineries' gross profits nearly double in 2015 -- As Los Angeles drivers shelled out more than $4 a gallon at the pump in recent weeks, the state’s oil refineries pocketed record amounts of money — as much as $1.17 a gallon in gross profits. From Jan. 1 to July 6, oil refineries almost doubled the typical amount they collect on a gallon of gasoline, state data show. California refineries reaped an average of 49.3 cents on a gallon of gasoline from 1999 to 2014, according to the California Energy Commission. But this year, the average ballooned to 88.8 cents, triggered when refinery troubles in February disabled 7% of the state’s capacity at a time of low inventories. With oil prices falling, refinery costs stable and gasoline prices soaring in California, refineries are experiencing a boom in profits. “Is it unusual? Absolutely,” said Gordon Schremp, a senior fuels specialist at the California Energy Commission. “They are making more money. And yeah, consumers are, unfortunately, having to pay significantly more.” In May alone, the state’s fuel-making companies took in a record high of $1.17 a gallon at the refinery level, according to an analysis of the commission’s data by the advocacy group Consumer Watchdog, set to be released Wednesday. The commission’s gross profit statistics for refineries, called “refiner margin,” represent a mixture of costs and profits at the state’s 11 fuel-producing plants. Because refiners don’t reveal their costs or earnings in the state, the energy commission approximates local profits by subtracting the cost of oil as well as taxes, distribution and marketing from the retail price of gasoline.

DOT: Vehicle Miles Driven increased 2.7% year-over-year in May, Rolling 12 Months at All Time High  -- People are driving more! The Department of Transportation (DOT) reported: Travel on all roads and streets changed by 2.7% (7.3 billion vehicle miles) for May 2015 as compared with May 2014. Travel for the month is estimated to be 275.1 billion vehicle miles. The seasonally adjusted vehicle miles traveled for May 2015 is 262.1 billion miles, a 3.4% (8.7 billion vehicle miles) increase over May 2014. It also represents a 0.2% change (0.6 billion vehicle miles) compared with April 2015.  The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors. The rolling 12 month total is moving up, after moving sideways for several years.

Subprime Auto-Loan Titan Defends Longer Terms as New Normal - The man who created one of the biggest U.S. subprime lenders says there’s nothing dangerous about borrowers being given longer car loans. When Thomas Dundon helped start the lender that’s become Santander Consumer USA Holdings Inc. in the 1990s, subprime borrowers typically were offered four-year car loans. Now, the standard is six years, he said, partly because wages haven’t kept up with vehicle prices. Using longer terms to lower payments makes sense when the alternative for consumers and lenders is “a shorter term with an older, cheaper, less-reliable piece of transportation,” he Stretching out how long it takes buyers to pay off loans is helping to make cars affordable at rising prices and stoking sales. As volume of subprime auto debt rebounds after collapsing during the credit crunch in the wake of the 2008 financial crisis, the wisdom of lending over ever-expanding periods is being questioned. The Office of the Comptroller of the Currency warned about the trend across the car loan market in a June report, saying “extended terms are becoming the norm rather than the exception and need to be carefully managed.” Longer loans may increase the odds of lenders suffering losses on repossessions and of consumers walking away from vehicles needing repairs.The average loan term for new vehicles reached a record 67 months in the first quarter, with the figure for subprime new-car debt approaching 72 months, according to Experian Automotive data. For used cars, the average reached a record of 62 months, with the length for the least reliable consumers exceeding 56 months, the data show.

470,000 Vehicles At Risk After Hackers "Take Control & Crash" Jeep Cherokee From A Sofa 10 Miles Away -- In what is being called "the first of its kind," Wired.com reports that hackers, using just a laptop and mobile phone, accessed a Jeep Cherokee's on-board systems (via its wireless internet connection), took control and crashed the car into a ditch from 10 miles away sitting on their sofa. As The Telegraph details, the breach was revealed by security researchers Charlie Miller, a former staffer at the NSA, and Chris Valasek, who warned that more than 470,000 cars made by Fiat Chrysler could be at risk of being attacked by similar means. Coming just weeks after the FBI claimed a US hacker took control of a passenger jet he was on in the first known such incident of its kind, the incident shows just how vulnerable we are to modern technology. As The Telegraph reports, the hackers (security experts) worked with Andy Greenberg, a writer with tech website Wired.com, who drove the Jeep Cherokee on public roads in St Louis, Missouri... In his disturbing account Greenberg described how the air vents started blasting out cold air and the radio came on full blast when the hack began.The windscreen wipers turned on with wiper fluid, blurring the glass, and a picture of the two hackers appeared on the car’s digital display to signify they had gained access. Greenberg said that the hackers then slowed the car to a halt just as he was getting on the highway, causing a tailback behind him - though it got worse after that. He wrote: ‘The most disturbing maneuver came when they cut the Jeep’s brakes, leaving me frantically pumping the pedal as the 2-ton SUV slid uncontrollably into a ditch.

LA area Port Traffic: Weakness in June --There were some large swings in LA area port traffic earlier this year due to labor issues that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April. Perhaps traffic in June is closer to normal. Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was down 0.4% compared to the rolling 12 months ending in May.   Outbound traffic was down 0.9% compared to 12 months ending in May. The recent downturn in exports might be due to the strong dollar and weakness in China. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).  Imports were down 5% year-over-year in June; exports were down 10% year-over-year. The labor issues are now resolved, and the distortions from the labor issues are behind us.  This data suggests a slightly larger trade deficit with Asia in June.

June 2015 Sea Container Counts Slump and Still Indicate Weak Economic Conditions -  The data for this series continues to be weak. The year-to-date volumes contracting for both imports and exports. This continues to indicate weak economic conditions domestically and globally. The data for this series continues to be weak. The year-to-date volumes contracting for both imports and exports. This continues to indicate weak economic conditions domestically and globally. Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. For this month: Acceleration Month-over-Month Change from One Year Ago Year to Date vs. Previous Year 3 Month Rolling Average vs. Average One Year Ago Acceleration As the data is very noisy - the best way to look at this data is the 3 month rolling averages. There is a direct linkage between imports and USA economic activity - and the change in growth in imports foretells real change in economic growth. Export growth is an indicator of competitiveness and global economic growth. The continued underperforming of exports is not a positive sign for GDP as the year progresses.

An industrial behemoth just delivered bad news about the global economy -  Caterpillar, one of the world's largest big machine manufacturers, just disclosed 3-month rolling machine sales data that showed sales were down everywhere in June. Caterpillar is seen as a bellwether of economic activity, as its machines are big, expensive, and used in the kinds of projects — office buildings, large housing developments, mining projects — to which companies and governments are only likely to commit if they're confident in the economic outlook and their financial standing. In June, Caterpillar's total machine sales in Asia were down 19% against last year, yet another reason for those worried about a major slowdown in China to get worried. In Latin America, machine sales were down 50% from the same month last year, and globally sales were down 14% from June 2014. In resource industries, which includes things like mining and oil extraction, machine sales were down 14% in Asia, 38% in Latin America, but actually increased 1% in the Europe, Africa, and Middle East segment. Globally, sales in this segment were down 13%. Construction industry equipment sales were down 22% in Asia, 55% in Latin America, and 16% globally. And while Caterpillar notes that these figures are reported in constant currencies — meaning that a strong US dollar will negatively impact these figures — this is still not encouraging news for the global economy. This report also comes the day after Apple reported disappointing iPhone sales, which some analysts were seeing as another sign that we're looking at a bigger economic slowdown than previously acknowledged from China.

Trucking Tonnage Index Softness Continues in June 2015.: Econintersect: The American Trucking Associations' (ATA) trucking index decreased 0.5% following a downwardly revised increase of 0.8% in May. From ATA Chief Economist Bob Costello: With flat factory output and falling retail sales, I'm not surprised tonnage was soft in June. I also remain concerned over the elevated inventory-to-sales ratio for retailers, wholesalers, and manufacturers, which suggests soft tonnage in the months ahead until the ratio falls. I remain hopeful that the inventory correction will transpire this summer. When the correction ends, truck freight - helped by better personal consumption - will accelerate.  Compared with one year ago, seasonally adjusted tonnage increased 1.8%. Econintersect tries to validate data across data sources. It appears this month that jobs growth says the trucking industry increased 0.5% month-over-month (red line). Please note using BLS employment data in real time is risky, as their data is normally backward adjusted significantly. This data series is not transparent and therefore cannot be relied on. Please note that the ATA does not release an unadjusted data series (although they report the unadjusted value each month - but do not report revisions to this data) where Econintersect can make an independent evaluation. The data is apparently subject to significant backward revision. Not all trucking companies are members of the ATA, and therefore it is unknown if this data is a representative sampling of the trucking industry.

PMI Manufacturing Index Flash July 24, 2015: The manufacturing PMI is holding steady, coming in at a composite 53.8 in the July flash and right in line with the 54.0 final reading for June and June's 53.4 flash. Though respectable, these are soft rates of growth for this report which runs hot relative to other manufacturing data and where the long-run average is 54.3. New orders and production are both accelerating this month though hiring is holding down the composite. The report cites reduced capital spending in the energy sector as a negative for the sample, and it says some firms are focusing their efforts on domestic markets given weakness in export markets. Other details include a fall-off in input buying due in part to excess inventories. Price readings remain subdued. This report is pointing to little change for the manufacturing sector this month, a sector that has been struggling this year and looks to continue to struggle through the second half.

US Manufacturing PMI Hovers Near 19 Month Lows, Employment Tumbles Amid "Worrying Undercurrents" -- Despite a very marginal improvement (from 53.6 to 53.8), Markit US Manufacturing PMI remains stubbornly stuck at 19-month lows, unable to bounce from the weathewr-strewn, port-strike-ridden weakness of Q1. As Markit notes, "a modest upturn in the headline manufacturing PMI belies some more worrying undercurrents which point to potential weakness in coming months," and the slump in unemployment index suggests things are not well at all...The broad index is unable to get a lift... as employment tumbled... As Markit reports, “A modest upturn in the headline manufacturing PMI belies some more worrying undercurrents which point to potential weakness in coming months. “Companies saw output and order book growth regain a little momentum at the start of the third quarter, but the overall pace of expansion was nevertheless the second-weakest seen since the government shutdown of 2013. “Manufacturing has been stuck in a lower gear in recent months compared to the strong expansion seen through much of last year, linked to weak exports and uncertainty about the economic outlook at home and abroad. “Although export orders showed the first rise since February, the rise was only very modest, blamed by companies on the appreciation of the dollar and sluggish global demand.”

Kansas City Fed: Regional Manufacturing Activity Declined Again in July - From the Kansas City Fed: Tenth District Manufacturing Activity Declined Again The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined again in July but less so than in previous months. “Our headline index was closer to zero than in May or June but was still negative, indicating further contraction in regional factory activity. However, firms expect a modest pickup in activity in coming months.”...Tenth District manufacturing activity declined again in July, but less so than in previous months. Producers’ remained slightly optimistic about future activity, although the majority of contacts indicated difficulties finding qualified labor. Most price indexes indicated continued rising prices, but the rate of increase slowed a bit for raw materials. The month-over-month composite index was -7 in July, up from -9 in June and -13 in May ... the new orders index eased from -3 to -6, and the employment index dropped to its lowest level since April 2009, with many firms noting difficulties finding qualified workers.  Some of this recent decline in the Kansas City region has been due to lower oil prices.

Kansas City Fed Survey: Manufacturing Less Negative in July - The Kansas City Fed Manufacturing Survey business conditions indicator measures activity in the following states: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, and northern New Mexico Quarterly data for this indicator dates back to 1995, but monthly data is only available from 2001. Here is an excerpt from the latest report: . The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined again in July but less so than in previous months. "Our headline index was closer to zero than in May or June but was still negative, indicating further contraction in regional factory activity. However, firms expect a modest pickup in activity in coming months." [Full release here] Here is a snapshot of the complete Kansas City Fed Manufacturing Survey. The three-month moving average, which helps us visualize trends, is at its lowest level since mid-2009.

Initial Claims Falsely Support Steady State Universe Theory: It has been a few weeks since we took a hard look at initial unemployment claims. There hasn’t been much reason to, since they seem to exist in a steady state universe, almost never deviating from the growth path they have been on for the past 5 years. But the steady state universe theory has long been discredited. Even though the Wall Street media propaganda machine wants us to believe in steady state financial markets, chances are we’re headed for another Big Bang. Periods of stability such as the present create a false sense of complacency as the dangers grow. The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 281,000. The Wall Street economist crowd consensus guess was almost right on the money at 283,000. The expectations game didn’t provide much excitement for the players this week. Instead of the seasonally manipulated headline number expectations game, we focus on the trend of the actual data. Facts and reality are much more useful than the Wall Street captured media’s fantasy numbers. Actual claims were 344,002, which is another record low for this calendar week by a huge margin, continuing a nearly uninterrupted string of record lows that began in September 2013.

Weekly Initial Unemployment Claims decreased to 255,000 -- The DOL reported: In the week ending July 18, the advance figure for seasonally adjusted initial claims was 255,000, a decrease of 26,000 from the previous week's unrevised level of 281,000. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The 4-week moving average was 278,500, a decrease of 4,000 from the previous week's unrevised average of 282,500.  There were no special factors impacting this week's initial claims. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Initial Unemployment Claims at Levels Not Seen Since 1973 -  The DOL reported people filing for initial unemployment insurance benefits in the week ending on July 18th, 2015 was 255,000, a 26,000 decrease from the previous week of 281,000. The DOL proclaims this is the largest drop since November 24th, 1973, when initial claims was 233,000. The DOL also states this is no statistical anomaly. Graphed below is initial claims. Below is the weekly change for initial claims where one can see the swings from week to week. The four week moving average decreased by 4,000 to 278,500. The below graph we see the four week moving average from 2007 to present. It took forever for initial claims to decline, yet decline they finally have....heading to a new low to boot! Below is the mathematical log scaling of initial weekly unemployment claims. A log scale helps remove some statistical noise, it's kind of an averaging and gives a better sense of a pattern. As we can see, we have a step rise during the height of the recession, but then a leveling, then a very slow decline, or fat tail to where it is now. . There are a lot of people out there who are not counted in labor force statistics who need a job to this day Continuing claims are also at a year 2000 low and stands at 2,207,000 for the week ending July 11th. The below graph is the number change from week to week on continuing claims and it shows there are large swings in this statistic. Initial unemployment claims is just a raw figure and not adjust for population growth. The Wall Street Journal estimated initial claims has been at record lows for a year when adjusting for growth:

Initial jobless claims adjusted for population set a new all-time low -- This morning population adjusted initial jobless claims set a new all-time record.  On an unadjusted basis, initial jobless claims set an all-time low of 161,000 on November 30,1968, when the US population was a little over 201 million.  But US population is now over 310 million.  Here's what initial jobless claims look like (blue) compared with population (red), normed to be equal on November 1968: Now here is a close-up of the last year: In short, right now is the most secure US workers have been in their jobs for the last 50 years.

A new survey shows a shortage of skilled laborers in the US - (Reuters) - U.S. employers are finding it increasingly difficult to find skilled workers, according to a survey published on Monday, suggesting upward pressure on wage growth down the road. The National Association for Business Economics' latest business conditions survey found that 35 percent of the 112 economists who participated reported their firms had seen shortages of skilled labor during the quarter ending in July. That compared with only 25 percent in the April survey and marked a sharp pick-up from 22 percent during the July quarter last year. "The panel reports markedly increased shortages in the July survey, especially of skilled labor," said survey Chairman Jim Diffley, who is also a senior director at IHS Economics. The NABE survey is the latest to suggest a tightening labor market. Early in July, the National Federation of Independent Business said that 44 percent of small businesses looking to hire that month reported few or no qualified applicants for positions they were trying to fill. Although job growth has accelerated and the unemployment rate has dropped to seven-year lows, that has not been accompanied by strong wage growth. The NABE survey found the share of companies anticipating wage increases in the next three months grew to 49 percent from 46 percent in the April poll and 35 percent a year ago. "As an economist watching the economy, we're somewhat surprised that wages pressures have been so muted to this point," Diffley told Reuters. "We do expect an acceleration and in fact think it necessary to continue the recovery."

Four Mind Blowing Charts That Show US Jobs Market Ain’t Nothing But A Hound Dog -Janet Yellen’s reputed favorite jobs measure, the JOLTS (Job Openings and Labor Turnover Survey) reported blockbuster record job openings in May. But look beneath the headlines and you will see just how distorted and maladjusted the US job market is. Wall Street economic shills and Fed propagandists have recently been claiming that a tightening job market is driving faster wage growth. With apologies to Elvis, we’ve already established that that was just a lie. The rising wage story doesn’t hunt. It ain’t nothin’ but a hound dog. The jobs that employers are offering are increasingly not jobs that workers can or will fill. Workers either do not have the needed skills, or they refuse to work for the slave wages many US employers are offering. Whatever the cause, the imbalances are clear and they are growing, with no rectification of the problem in sight. These four charts illustrate. Job openings have soared to record highs, beyond even the housing bubble peak as the massive and growing ZIRP/QE driven credit bubble drives demand for rocket scientist financial engineers on the one hand, and low paid, low skilled worker drones servicing the financial engineering bubble nouveau riche of the on the other.While new hires have risen, the growth rate of hires is just a fraction of the growth rate of job openings. Hiring has yet to reach the levels of either 2005, 2006, or 2007. As a result, the ratio of hiring to job openings has plummeted to an all time low as the mismatch grows between the demand for labor and the ability and willingness of the labor force to meet the offerings of employers. To put it bluntly, would-be workers see too many job openings that are just BS. If the labor market were truly tightening, wages would be rising faster. In fact, while wages are not falling outright, the growth rate of wages is, again falling below the CPI inflation rate in recent months.The fact that job openings are rising faster than hires, and wage growth is simultaneously falling, is evidence of the growing mismatch between the jobs being offered and the ability and willingness of the labor force to fill them. The US economy is growing ever more distorted and maladjusted.

Fixing the bad jobs economy - One of the lesser known facts about the post-recession economy is that while new jobs are being created at near record levels, a significant number are bad jobs. No one knows exactly how many, but in April 2014,the National Employment Law Project, which measured job quality by industry wage level, reported that 44 percent of jobs created (pdf) between 2010 and 2014 were in lower wage industries, compared to 56 percent in mid wage and high wage ones. The proportion of bad jobs was probably even higher since the study set the low wage floor two dollars above the current federal minimum wage. We also know that growing industries like health and other care as well as tourist related enterprises and many small manufacturing firms all pay minimum wages. The trend may not even be new, for there is some evidence that the rising proportion of bad jobs goes back as far as the 1970s. More important, the forces behind the creation of bad jobs remain in place. Global competition with low wage countries, outsourcing of American jobs, increasing computerization and robotization, the political influence of corporate and Wall Street firms and the weakening of unions continue. Moreover, many industries and occupations that depend on low wage workers are still expanding. Consequently, the economy may continue to produce too many bad jobs even when it is also producing record profits for many employers and their shareholders. A future economy which operates with an ever rising proportion of bad jobs is a horrifying possibility. It depresses consumer demand and thus sets the economy on an ever declining and deflationary path. Bad jobs also harm workers and their families. Frequent budgetary crises, economic worries and feelings of insecurity are known to endanger the physical and mental health of their holders. They can spread to partners, children and family life, and may even scar subsequent generations.

BLS: Twenty-One States had Unemployment Rate Decreases in June  From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in June. Twenty-one states and the District of Columbia had unemployment rate decreases from May, 12 states had increases, and 17 states had no change, the U.S. Bureau of Labor Statistics reported today... Nebraska had the lowest jobless rate in June, 2.6 percent. West Virginia had the highest rate, 7.4 percent.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The yellow squares are the lowest unemployment rate per state since 1976. The states are ranked by the highest current unemployment rate. West Virginia, at 7.4%, had the highest state unemployment rate. The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 8% (light blue); Only one state (West Virginia) and D.C. are still at or above 7% (dark blue).

Philly Fed: State Coincident Indexes increased in 40 states in June -- From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for June 2015. In the past month, the indexes increased in 40 states, decreased in seven, and remained stable in three, for a one-month diffusion index of 66. Over the past three months, the indexes increased in 42 states, decreased in six, and remained stable in two, for a three-month diffusion index of 72. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In June, 40 states had increasing activity. It appears we are seeing weakness in several oil producing states including Alaska, Oklahoma and North Dakota - and also in other energy producing states like West Virginia. Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is almost all green again.

As Local Job Markets Improve, Job Seekers Shun Relocation For New Employment: The percentage of job seekers relocating for new positions declined in the first half of 2015, suggesting that as the recovery spreads, individuals are able to find better employment opportunities in their local market. Over the first two quarters of the year, 10 percent of job seekers moved for new employment, according to the latest job search data from global outplacement consultancy Challenger, Gray & Christmas, Inc. That was down from an average of 15 percent in the last half of 2014. In the first half of 2014, 11.4 percent of job seekers relocated for new positions. The relocation rate in the last six months of 2014 was the highest since the first half of 2009, when an average of 16.3 percent of job seekers moved in the immediate wake of the recession. The Challenger relocation rate is based on a quarterly survey of approximately 1,000 job seekers who concluded their search by finding employment, starting a business or retiring. Per John A. Challenger, chief executive officer of Challenger, Gray & Christmas: The tipping point for relocation is very sensitive. Most people do not want to pick up stakes and move solely for employment. We tend to see relocation surge at the onset of recessions and in the early stages of recovery, as different geographical areas are impacted at different times. However, as recovery spreads and jobs become more available throughout the country, relocation begins to ebb. Nationally, the unemployment rate stood at 5.3 percent in June. However, there were 183 metropolitan areas below that level as of May, according to the latest available data on state and local employment from the US Bureau of Labor Statistics. Furthermore, there were 148 metropolitan areas with an unemployment rate below 5.0 percent, at which point the balance of power in the job market shifts away from employers and toward job seekers.

Silicon Valley Doesn’t Believe U.S. Productivity Is Down - WSJ: .— Google chief economist Hal Varian is an evangelist for Silicon Valley’s contrarian take on America’s productivity slump. Swiveling to a large screen on the desk behind him, Mr. Varian types in a search for the most commonly asked question on the subject economists elsewhere are wringing their hands over. Up pops, “What is productivity?” See, he says, vindicated: “Most people don’t know what it even means.” To Mr. Varian and other wealthy brains in the world’s most innovative neighborhood, productivity means giving people and companies tools to do things better and faster. By that measure, there is an explosion under way, thanks to the shiny gadgets, apps and digital geegaws spewing out of Silicon Valley. Official U.S. figures tell a different story. For a decade, economic output per hour worked—the federal government’s formula for productivity—has barely budged. Over Over the past two quarters, in fact, it has fallen. Sluggish productivity is raising alarms all the way to Federal Reserve Chairwoman Janet Yellen. Productivity matters, economists point out, because at a 2% annual growth rate, it takes 35 years to double the standard of living; at 1%, it takes 70. Low productivity growth slows the economy and holds down wages.. The 68-year-old Mr. Varian, dressed in a purple hoodie and khaki pants, says the U.S. doesn’t have a productivity problem, it has a measurement problem, a sound bite shaping up as the gospel according to Silicon Valley.

The measurement and future of U.S. productivity growth - Productivity is a hard statistic to pin down. Never mind conceptual distinctions such as the difference between labor productivity and total factor productivity. The actual measurement of productivity itself—defined broadly as the effectiveness of producing a good or service—and its growth in the economy is debatable. The recent slow growth in productivity raises concerns that it is being mismeasured, but that problem may mask other problems in the economy that also may be crimping productivity growth.  But first, let’s look at the mismeasurement argument. The latest angst involving productivity measurement is captured in a Wall Street Journal article by Timothy Appel. Appel talks to several entrepreneurs and innovators in Silicon Valley, including Google Inc. chief economist Hal Varian, most of whom think that the official measurements by the U.S. Bureau of Labor Statistics undervalue many firms’ recent innovations. Varian’s employer is a perfect example: search engines can help workers easily access information that before would have taken much longer to find in a full research library. But these services are provided at no monetary cost to the consumer, thus not reflected in productivity statistics.  How much this “free problem” is biasing down productivity growth is an open question. It’s entirely possible, as Appel notes in his piece, that the seeming mismatch between the innovation and disruption we read about, and the official data is a matter of timing. This “diffusion” explanation just requires some patience on the part of economists and policymakers to wait for the fruits of recent innovation to filter into the broader economy. Eventually the innovations made at vanguard firms will flow outward, and the gains will end up staring back at us in the Bureaus of Labor Statistics data. At least that’s the rosy scenario.

Why the gap between worker pay and productivity might be a myth -- Versions of the above chart are pretty common in news stories about inequality and middle class stagnation. While US output continues to rise decade after decade, the benefits don’t go to workers despite their obviously rising productivity. (And capital grabs more and more of national income.) There’s a big gap between the blue line (wages) and the green line (output). But Robert Lawrence of the Peterson Institute argues this chart better reflects the productivity-worker income relationship: According to this chart, wage and productivity growth have pretty much risen together. (And the share of national income going to labor has been steady until recently. More on that later.) Why the difference between the two charts? Lawrence made several modifications: (a) adjusted for an overly narrow definition of workers; (b) added in benefits to wages, (c) used an inflation measure that better accounts for what workers purchase; and (d) used a more relevant productivity measure. Lawrence: Between 1970 and 2003 the growth in hourly real product compensation matched the growth in hourly real net output per worker.  If the rise in average net output per hour is a good measure of the marginal product of labor, for this 33-year period, the data are compatible with the assumption that workers have actually seen their wages rise as rapidly as their marginal product. Since labor’s share in income fluctuates over the business cycle, and was therefore unusually high in 2000 for cyclical reasons, we cannot be confident about dating when the decline in labor’s share in income began. But it is clear that labor’s share has been unusually low since 2008, and real wages and compensation for workers of all skill levels has been slow. The explanation for the sluggish rise in real wages over the long run—1970 through 2000—may lie not with something that weakened labor’s bargaining power but instead in changes in the relative prices of the goods and services that workers consume and those that they produce.

Why Homejoy’s collapse is not a harbinger of doom for the on-demand economy -- WaPo -- Homejoy, the three-year-old startup that raised $40 million in its drive to revolutionize home cleaning, said it's shutting down at the end of the month. The ostensible cause of death: Four lawsuits accusing the company of misclassifying workers as independent contractors, potentially exposing it to millions of dollars in penalties. Founder Adora Cheung said that she couldn't convert them into employees and still stay afloat. “How do we support and do right by those people while remaining a two-way platform?” Cheung told the website Re/Code. “I wish we were able to do more for them, but the reality is that we can’t under the current regulatory environment.” It would be easy to conclude, therefore, that regulations -- and the resulting litigation -- are what's strangling the on-demand economy. That forcing employers to put workers in boxes built for the 20th-century workplace, as some employers have alleged, is making it impossible to innovate new business models. But that conclusion would be incorrect (and not just because closing up shop was a convenient way for the struggling Homejoy to shake the lawsuits, with a soft landing from Google). Already, some companies are finding excellent reasons to build themselves with employees from the ground up.

Is Wage Growth Accelerating? All signs point to Yes! - Conference Board -- One big question regarding the US economy is whether wage growth is accelerating. You might think that this is a pretty straightforward question to answer, but it’s not. There are many measures of wage growth, and they don’t all point in the same direction. For example, we can compare the year-over-year wage growth in recent years (Chart 1)according to four different measures, three from the US Bureau of Labor Statistics: the Employment Cost Index (wages and salaries), average hourly earnings (Establishment Survey), median weekly earnings (Current Population Survey), and the new Atlanta Fed Wage Growth Tracker. Some of these measures show a significant pickup, but some show no acceleration at all. What should we make of this?  Each wage indicator is somewhat different, but they all measure nominal wages (that is, they are not adjusted for inflation). Each measure is determined by “true wage growth,” but also by  composition effects, inaccurate coverage, and other noise in the data. Theoretically, true wage growth reacts to wage growth drivers such as labor market tightness and inflation. Thus, indicators that are more correlated with these wage growth drivers probably measure true wage growth more accurately. In the following exercise we try to determine which wage measures correlate best with labor market tightness and inflation. We do this by running sequential regressions of the different measures of compensation growth (four-quarter growth rate) on three variables:

  1. The unemployment gap, which subtracts the natural rate of unemployment from the current rate of unemployment,
  2. The labor market differential (from The Conference Board Consumer Confidence Survey), which is the percentage of respondents who say jobs are plentiful less those who say jobs are hard to get[1], and
  3. The core consumer price index (inflation).

Longer Hours, Not Higher Wages, Have Driven Modest Earnings Growth for Most American Households  -- American households are working longer hours—hours they used to have for other activities such as leisure or family time. These longer hours are the main reason why household earnings increased over the last 35 years. Between 1979 and 2007, annual earnings of most households (those between the 20th and 80th percentiles of earnings) increased by 15.2 percent, rising to just under $60,000 by 2007. During this period, the average hourly wages of these households grew $1.05 per hour, while annual hours rose by 289 hours. As the figure above shows, the majority (61 percent) of the rise in annual earnings of middle-earning households was due to increasing annual hours and not increasing wages. Less than half (only 39 percent) of the increase in annual earnings was due to increasing hourly wages. For lower-earning households, increasing annual hours contributed nearly 75 percent to increases in annual earnings. Meanwhile, households at the top experienced the reverse phenomenon: for them, increasing hourly earnings explained over 90 percent of rising annual earnings. So that there is no concern about cherry-picking endpoints, it’s useful to note that if we examine the full period (1979–2013), the meager rise in annual earnings for moderate-earning households is driven even more by increasing hours, as opposed to increasing hourly wages. During this period, increasing hours contributed 74 percent to annual middle-earning household earnings, while hourly earnings only contributed the remaining 26 percent.

Women Earn 81.9 Cents for Every Dollar a Man Earns - Women earned 81.9 cents for every dollar a man earned in the second quarter of the year. Labor Department data out Tuesday showed the pay gap between men and women little changed, and perhaps even taking a step back. Full-time women workers earned almost 84 cents for every dollar a man earned in the second quarter of 2014. Overall, median weekly earnings of all full-time workers climbed 2.7% from a year earlier to $801. Men got bigger paychecks, with wages and salaries climbing 3.4% from a year earlier to $886. For women, the increase was a more moderate 1.4% to $726. The latest wage measures show some growth across occupations and genders but no clear signs of a breakout. And broadly speaking, different wage data has sent mixed signals in recent months. One thing that hasn’t changed much recently is the disparity in pay between genders. Women have been closing the pay gap with men slowly, and by some calculations may need generations to achieve equal pay.

If You're Against Sex Work, You're a Bigot - I should start an essay like this by telling you about how great sex workers are, how important sex workers' rights are. I should "create sympathy in the reader" for anyone who takes their clothes off and performs sexuality. I should show you porn stars saving cats stuck in trees, sex workers volunteering at soup kitchens, strippers just trying to make it work for their families. I should tell you about how it feels to deal with anti-sex-work stigma every day. But this essay isn't about us. It's about the demand to prove we're worth sympathy. It's about how if that sympathy shows up, it's wrapped up in deliberate misunderstandings. It's about the people who make the demand. It's about how "Show us your humanity!" is more belittling and damaging than "Show us your tits!" It's about the people we should no longer respond to with anything other than protest or dismissal. In other words, it's about bigotry. It's about bigots. Why? Because sex is what makes sex work so special for them. Sex makes this line of work a singular profession, mystically distinguished from other jobs. But their analyses and understandings of sex lack depth. There is no substance to their arguments. Their tactics are strung together not with understanding or data, but with hate. Their bigotry is visceral, and their goals are clear:

  • 1. Distort and destroy consent.
  • 2. Create a framework of good vs. evil.
  • 3. Cherry-pick voices.
  • 4. Play the victim while holding the power.
  • 5. Create apocalyptic urgency.

Creating jobs vs taking somebody's job. -- Almost everything I read reduces to taking somebody else's job. Bringing back jobs from overseas and more training takes somebody else's job. And it is excepted with enthusiasm because it is the way we have been trained all our lives. New jobs are the function of more money. Forget about all the benefits to existing companies having everybody on their team cheering for better trained workers and taking back over seas jobs. The world needs more jobs and that has to come from more money. The emphasis should be on making money work. Nobody contradicts more workers more tax revenue. Tax lazy money more and give a break to working money. Almost every law to put money into a level playing field was first compromised down by special interests and then upon acceptance was subsequently demilitarized. Contrarily laws and actions have supported lazy money. To the extent that a certain kind of front running is permitted for certain traders for a fee. Laws have to be made to attract money into jobs producing investments. There cannot be any real new jobs until the money is there to create them.

What great stagnation? New study shows a growing herd of American tech ‘unicorns’ -- What’s the state of American technological innovation and economic dynamism? Not so good, say the top-down, government stats. But it all looks a lot healthier if judged by the economy’s power to create unicorns. A new TechCrunch analysis finds a surge in “U.S.-based, VC-backed software and Internet-oriented companies founded since 2005 and valued at over $1 billion by public or private market investors.” Or, more simply, unicorns. There are 84 unicorns, up 115% from the site’s late 2013 review. Most of these are private firms. And on average, “eight unicorns were born per year in the past decade versus four in the 2003-2013 era.” (And keep in mind that these totals don’t include a bunch of successful firms, notably Facebook, that “aged out” of TechCrunch’s parameters.) The total value of these unicorns is $327 billion — 2.4 times the last analysis — with that amount being driven by the rising number of companies rather than individual valuations (Again, Facebook — what the site calls the “superunicorn of the 2000s” — alone is worth some $250 billion.) During 2007 and 2009 years, 45% of the companies in the TechCrunch dataset were started. Thanks, iPhone. Some more analysis on what’s driving these trends:

    • a) Compelling products that are easier than ever to adopt through large and growing global markets, smartphones, and social networks to spread the word faster. This is driving more exciting growth, adoption and engagement numbers than ever before.
    • b) A perception of winner-take-all markets due to branding, scale and/or network effects, and intimidating, growing cash war chests (see here) driving investor FOMO, and demand to invest in ‘winners’ at almost any price.
    • c) Competitive later stage capital from more sources than ever – late stage funds, public investors investing earlier, and global strategics.
    • d) Vibrant public markets fueling optimism: the NASDAQ is up 32% since our last analysis.
    • e) Optimistic private markets sheltering a thicket of “paper unicorns.”

What's the Rise in People Without Fulltime Employment Since 2009? What "Should" It Be? -  Reader Roger asked me "What is the total number of people without full time work, compared to Jan 2009?"  That's actually an easy number to calculate. The problem is the number is totally misleading. First let's answer the question straight up. The above very scary-looking chart shows the civilian noninstititional population minus those usually working full time. Noninstitutional means those over the age of 16, not in prisons, mental institutions, etc. The current noninstitutional population is 129.61 million. At the beginning of 2009 it was 118.92 million and at the start of the recession in November of 2007 it was 111.06 million. Since the beginning of the recession, the rise in the number of people not working fulltime is 18.55 million.   The first problem with the above chart is that it fails to account for demographics. There is a huge rise in population as well as huge rise in boomer retirement. Moreover, over time, there has been a legitimate rise in the number of people going to college after high school graduation.  As pertains to the much ballyhooed declining unemployment rate, there is also a non-insignificant number of people in college who really would rather be working. Add to that, millions of people who would rather be working, but are not counted as unemployed because they stopped looking for a job. That is why many, myself included, believe the unemployment rate is a joke. To properly address Roger's question, one needs to factor in

  • Normal retirement age (say 65)
  • Rise in population
  • Relative rise in non-fulltime employment vs. the rise in population

The problem in producing the proper calculation is insufficient data. The St. Louis Fed repository (named Fred), that I used to easily create the above chart, does not have the data. Not even the BLS has the data we need to properly answer the question. Information on the critical age group 55 to 64 is scant or missing. However, we can look at age group 16-54 or 25-54 for meaningful comparisons. I selected the latter because it filters out the rising trend of people going to college. Using BLS data, I produced the following charts.

Tired of Waiting for Feds, California Bill Addresses Illegal Farmworkers Issue - In the absence of federal legislation, California Assemblyman Luis Anejo introduced a new bill that would allow farmworkers living in California illegally to get work permits.A similar bill was proposed in California three years ago, but it died as both immigrant rights groups and labor unions opposed it. They instead hoped for a national approach to immigration reform, rather than state-by-state measures.After three years, the national reform they had hoped for still has yet to come. The groups that opposed the previous measure have not posed an argument to this one.“We can’t wait any longer,” said Alejo, in an interview with the Los Angeles Times. “Different organizations continue to look to Washington. Meanwhile, it’s our families back home, especially those working in agriculture, who are suffering the most, with no solution in sight.”Current guest worker programs grant temporary visas to foreign laborers. Alejo’s program would instead give permits to illegal laborers already living in California and working in agriculture. Felons would not be eligible for permits, nor would those with three misdemeanor convictions.The permits would protect both laborers and immediate family members from deportation, provided that the laborers meet the following expectations: they must be 18 or older, must have performed a certain amount of agricultural labor, and must pay a fee to cover administrative costs.

New York Plans $15-an-Hour Minimum Wage for Fast Food Workers - The labor protest movement that fast-food workers in New York City began nearly three years ago has led to higher wages for workers all across the country. On Wednesday, it paid off for the people who started it.A panel appointed by Gov. Andrew M. Cuomo recommended on Wednesday that the minimum wage be raised for employees of fast-food chain restaurants throughout the state to $15 an hour over the next few years. Wages would be raised faster in New York City than in the rest of the state to account for the higher cost of living there.The panel’s recommendations, which are expected to be put into effect by an order of the state’s acting commissioner of labor, represent a major triumph for the advocates who have rallied burger-flippers and fry cooks to demand pay that covers their basic needs. They argued that taxpayers were subsidizing the workforces of some multinational corporations, like McDonald’s, that were not paying enough to keep their workers from relying on food stamps and other welfare benefits.The $15 wage would represent a raise of more than 70 percent for workers earning the state’s current minimum wage of $8.75 an hour. Advocates for low-wage workers said they believed the mandate would quickly spur raises for employees in other industries across the state, and a jubilant Mr. Cuomo predicted that other states would follow his lead.“When New York acts, the rest of the states follow,” said Mr. Cuomo, a Democrat, citing the state’s passage of the law making same-sex marriage legal. “We’ve always been different, always been first, always been the most progressive.”The decision, announced in a conference room in Lower Manhattan, set off a raucous celebration by hundreds of workers and union leaders outside.

Los Angeles County board adopts mandatory minimum wage hike | Reuters: The governing body of Los Angeles County on Tuesday passed a measure to raise the mandatory minimum wage incrementally to $15 an hour by 2020 in unincorporated areas that are home to about a tenth of the county's population. The Los Angeles County government is Southern California's largest single employer, with more than 105,000 workers ranging from firefighters and sheriff's deputies to social workers. The Board of Supervisors voted 3-2 to institute the minimum wage hike for private-sector workers in unincorporated Los Angeles County and 4-1 to extend the same increase to workers on the county payroll. The new ordinance would benefit an estimated 5,400 individuals on the county's payroll, said Joel Bellman, a spokesman for Supervisor Sheila Kuehl, who backed the measure. There are about 390,000 workers employed in parts of the county falling outside the city of Los Angeles and 87 other incorporated municipalities, but Bellman said he lacked a figure for how many of them now earn less than $15 a hour. Passage of the measure follows similar wage hikes enacted recently in Los Angeles - the nation's second-most populous city - as well as San Diego, San Francisco and elsewhere.

In nation’s capital, $15-hour minimum wage is headed toward 2016 ballot - The Washington Post: A historic measure to raise the District’s hourly minimum wage to $15 is headed toward next year’s ballot after city officials released a ruling Wednesday approving a voter initiative that places the nation’s capital at the center of a wage fight taking place in cities across the country. If approved, the initiative would lift Washington’s minimum wage above every other city’s on the East Coast. It would push the District into a burgeoning, urban liberal vanguard on higher wages that includes Seattle, San Francisco and Los Angeles. The ballot measure will go to voters in November 2016 only if supporters collect enough signatures, but even opponents say that is likely. It is one of several efforts moving ahead across the nation; also Wednesday, a state panel in New York approved raising the hourly rate to $15 for fast-food workers.The day’s developments show that organized labor groups continue to gain ground rapidly on the issue, roiling pro-business groups and prompting a heated debate among both Republican and Democratic candidates for president. In D.C., the minimum wage is $10.50 and is scheduled to rise to $11.50 next year. If the initiative passes, the new $15 hourly rate would raise a full-time worker’s annual pay to more than $31,000, up from the current minimum of about $22,000.

Friedrich Hayek Supported a Guaranteed Minimum Income -- “We shall again take for granted the availability of a system of public relief which provides a uniform minimum for all instances of proved need, so that no member of the community need be in want of food or shelter.”  That’s from The Constitution of Liberty, “definitive edition,” p. 424. Yes, it comes as part of Hayek’s argument against mandatory state unemployment insurance. But it reflects a fundamental understanding that no one should go without food or shelter, and that it is the duty of the government to ensure this minimum level of existence. “The necessity of some such arrangement in an industrial society is unquestioned,” he wrote (p. 405). The standard that Hayek simply assumed would exist goes beyond merely keeping poor people alive. In a wealthy society, he thought it inevitable that it would become “the recognized duty of the public to provide for the extreme needs of old age, unemployment, sickness, etc.” (p. 406). On this basis, he even endorsed the idea of compulsory insurance, such as the individual mandate of the Affordable Care Act.

Push to Lift Minimum Wage Is Now Serious Business - It started in New York City as what seemed a quixotic drive confined to fast-food workers. But the movement to raise the hourly minimum wage took root in other parts of the country, and is emerging as a significant, and divisive, element in the presidential campaign.Just this week, workers in Los Angeles County and Washington, D.C.; employees of fast-food chains in New York State; and members of the University of California staff all learned that they may soon be earning at least $15 an hour, more than double the federal minimum wage of $7.25. Several other cities — including Chicago, Kansas City, Mo., Los Angeles, San Francisco and Seattle — have already raised the lowest legal wages paid to workers in those places.Now, the minimum wage has carved out a major presence in the presidential election. Republicans and many business owners are dead set against it, but the issue has taken a central spot in the stump speeches and public pronouncements of Democratic candidates, for whom giving the middle class a “fair shot” has become a mantra.One of those candidates, Senator Bernie Sanders, independent of Vermont, introduced a bill on Wednesday that would raise the federal minimum wage to $15 an hour. Mr. Sanders, more than any other contender for the Democratic nomination, has highlighted the subject repeatedly during his campaign, and he did so again at a rally in Washington on Wednesday where he discussed the bill.Former Gov. Martin O’Malley of Maryland has also voiced support for a $15 federal minimum wage. Another Democrat in the race, Hillary Rodham Clinton, however, has not. Mrs. Clinton has supported raising the minimum wage, and she told fast-food workers in Detroit last month, “I want to be your champion.” But she stopped short of endorsing a $15 hourly minimum, and she has come under attack from the left wing of her party for not doing so.

Six Years Down the Road, What Should the Federal Minimum Wage Be? - The political and economic landscape has changed dramatically since the federal minimum wage was last increased six years ago, on July 24, 2009, to $7.25 an hour. And efforts to raise the minimum wage have gained traction with many city councils and state legislatures–but not with Congress, despite repeated calls from President Barack Obama to lift the wage floor.  So six years after the last raise for some minimum-wage workers, what should the pay floor be? Republican leaders in Congress and many business groups see little reason to lift the wage from where it stands now. They point to studies, including one from the Congressional Budget Office, that say raising the minimum wage would cost the country hundreds of thousands of jobs. The majority of U.S. states, 29 plus the District of Columbia, have set a minimum wage above the federal level. Rhode Island raised its wage this year, setting it at $9.60 an hour beginning next year and 14 states raised the rate last year. The average minimum wage mandated among states this year is $7.92 an hour. That will increase to well more than $8 an hour by 2018 when states such as Vermont, Massachusetts and Washington require all workers earn at least $10 an hour.  Overall inflation has been fairly soft during the economic expansion. President Obama has endorsed a $10.10 an hour level, raising it from an earlier $9 an hour goal. For a time that seemed to be the target. Last year Maryland, Connecticut and his native Hawaii put their wage scales on a path to meet that mark. But since, a few states and cities have set wage floors much higher.  The “Fight for 15” has been the rallying cry of fast-food workers and other proponents of minimum-wage increases. And their calls have been heeded in several large cities. Workers in Los Angeles, Seattle and San Francisco will all be paid at least $15 an hour by the early part of next decade. Now lawmakers in Oregon and California are contemplating setting the statewide level as high as $15 an hour.

Best Way to Cut Poverty Also Encourages Work - Suppose we want the government to help poor people. How do we best go about doing it? Economists have been debating this for centuries, and the debate isn't about to end soon. But one solution in the U.S. has stood out in recent decades as the most efficient method: the earned income tax credit, known by its even less elegant abbreviation, EITC.  The main problem with just giving poor people money is that it tends to discourage them from working. If you simply mail everyone below the poverty level a check, you're providing a strong incentive for people not to work, because working would put many people over the poverty line. At that point the checks would stop coming.  An alternative is the minimum wage. This has the benefit of rewarding workers, while removing the incentive not to work. But minimum wages, like all price controls, bring distortions, locking some people out of the job market and pushing up unemployment. Maybe this distortion is small, in which case minimum wage hikes like the ones being implemented by Seattle, New York and other cities won't cause unemployment to rise very much. But there is still going to be some limit to the amount that minimum wages can be raised before some low-skill people get thrown out of work.  There is, however, a third option, which is more subtle and complicated than welfare payments or a minimum wage. This is the so-called negative income tax, a policy invented in the 1940s by a British politician and popularized by the famous American economist Milton Friedman. Just as income taxes take away a certain percentage of your earnings, negative income taxes mean the government pays you a certain percent of your pay, on top of what you earn in the market. And just as income taxes discourage people from earning more, negative income taxes encourage people to earn more.

“Conscious Capitalism” Icon Whole Foods Exploits Prison Labor -- Whole Foods CEO John Mackey, whose net worth exceeds $100 million, is a fervent proselytizer on behalf of “conscious capitalism.” A self-described libertarian, Mackey believes the solution to all of the world’s problems is letting corporations run amok, without regulation. He believes this so fervently, in fact, he wrote an entire book extolling the magnanimous virtue of the free market. At the same time, while preaching the supposedly beneficent gospel of the “conscious capitalism,” Mackey’s company Whole Foods, which has a $13 billion and growing annual revenue, sells overpriced fish, milk, and gourmet cheeses cultivated by inmates in US prisons. The renowned “green capitalist” organic supermarket chain pays what are effectively indentured servants in the Colorado prison system a mere $1.50 per hour to farm organic tilapia.Colorado prisons already grow 1.2 million pounds of tilapia a year, and government officials and their corporate companions are chomping at the bit to expand production. That’s not all. Whole Foods also buys artisinal cheeses and milk cultivated by prisoners. The prison corporation Colorado Correctional Industries has created what Fortune describes as “a burgeoning $65 million business that employs 2,000 convicts at 17 facilities.” The base pay of these prison workers is 60¢ per day. Whole Foods purchases cheeses from these prisons, which literally pay prison laborers mere pennies an hour, and subsequently marks up the price drastically.

Big business built the prison state. Why should we trust them to tear it down? -- This week President Obama launched a major push to fix the country’s criminal justice system and end mass incarceration. The reform talk is coming from both sides of the aisle and unlikely partnerships are being forged between big business interests like the Koch brothers and vocal liberals. But big business is tied to the carceral state, so how can they be part of the solution to end it? Van Jones, the liberal political commentator, and a Koch representative named Mark Holden recently appeared on Democracy Now where they harmoniously backed Obama’s reform plans. Holden stated that “Charles Koch and David Koch are classical liberals who believe in expansive individual liberties in the Bill of Rights and limited government.” He went on to say:  What worked 20 or 30 years ago doesn’t work today. And we have to have the intellectual honesty and courage and humility to correct that. In our businesses, we do that all the time when things aren’t working … what we’re seeing happen in the states is really a template for what should happen at the federal level.  This language reinforces the idea that the prison system in the United States is a business. The Koch Brothers have been connected to the conservative, corporate-funded American Legislative Exchange Council, known as ALEC, for some time. In 2011, the Koch brothers donated $24 million to various conservative organizations and think tanks including ALEC, through four foundations they run. ALEC received funding from the brothers to help finance meetings where “model” legislation would ultimately be drafted.

In America, mass incarceration has caused more crime than it’s prevented --  Evidence from the last 40 years suggests the mass imprisonment policy was a tragic failure. Putting more people in prison not only ruined lives, it may have created more new crime than it prevented. There are five times as many people in prison today—nearly 5% of the population will be imprisoned at some point—as there were in the 1970s. The increase in crime during the 1960s and ’70s motivated Americans to get tough on crime, which took several forms. The most striking of these was putting lots of people in prison. Imprisonment is supposed to reduce crime in two ways: it takes criminals off the street so they can’t commit new crimes (incapacitation) and it discourages would-be criminals from committing crime (deterrence). But neither of these outcomes came to pass. A new paper from University of Michigan economics professor Michael Mueller-Smith measures how much incapacitation reduced crime. He looked at court records from Harris County, Texas from 1980 to 2009. Mueller-Smith observed that in Harris County people charged with similar crimes received totally different sentences depending on the judge to whom they were randomly assigned. Mueller-Smith then tracked what happened to these prisoners. He estimated that each year in prison increases the odds that a prisoner would reoffend by 5.6% a quarter. Even people who went to prison for lesser crimes wound up committing more serious offenses subsequently, the more time they spent in prison. His conclusion: Any benefit from taking criminals out of the general population is more than off-set by the increase in crime from turning small offenders into career criminals.

We’re all Greek now -- The poor and the working class in the United States know what it is to be Greek. They know underemployment and unemployment. They know life without a pension. They know existence on a few dollars a day. They know gas and electricity being turned off because of unpaid bills. They know the crippling weight of debt. They know being sick and unable to afford medical care. They know the state seizing their meager assets, a process known in the United States as “civil asset forfeiture,” which has permitted American police agencies to confiscate more than $3 billion in cash and property. They know the profound despair and abandonment that come when schools, libraries, neighborhood health clinics, day care services, roads, bridges, public buildings and assistance programs are neglected or closed. They know the financial elites’ hijacking of democratic institutions to impose widespread misery in the name of austerity. They, like the Greeks, know what it is to be abandoned. The Greeks and the U.S. working poor endure the same deprivations because they are being assaulted by the same system—corporate capitalism. There are no internal constraints on corporate capitalism. And the few external constraints that existed have been removed. Corporate capitalism, manipulating the world’s most powerful financial institutions, including the Eurogroup, the World Bank, the International Monetary Fund and the Federal Reserve, does what it is designed to do: It turns everything, including human beings and the natural world, into commodities to be exploited until exhaustion or collapse. In the extraction process, labor unions are broken, regulatory agencies are gutted, laws are written by corporate lobbyists to legalize fraud and empower global monopolies, and public utilities are privatized.Secret trade agreements—which even elected officials who view the documents are not allowed to speak about—empower corporate oligarchs to amass even greater power and accrue even greater profits at the expense of workers. To swell its profits, corporate capitalism plunders, represses and drives into bankruptcy individuals, cities, states and governments. It ultimately demolishes the structures and markets that make capitalism possible. But this is of little consolation for those who endure its evil. By the time it slays itself it will have left untold human misery in its wake.

Puerto Rico's PFC rating cut, default 'virtual certainty' -S&P | Reuters: Standard & Poor's said it cut its rating on Puerto Rico's Public Finance Corporation (PFC) to 'CC' from 'CCC', forecasting that a default when its debt is due Aug. 1 is a 'virtual certainty'. The PFC on Wednesday failed to transfer $93.7 million to pay the principal and interest on its bonds due Aug. 1.

UBS’s Puerto Rico Bond Funds Implode, “Collateral Value” Drops to Zero, Investors Screwed - Wolf Richter - “We believe that the probability of default is approaching 100 percent, and that losses given default are substantial,” Moody’s wrote on Wednesday about Puerto Rico’s $72 billion in bonds that were stuffed into numerous conservative-sounding bond funds spread across America’s retirement portfolios.  “Bondholder recoveries will be lowest on securities lacking explicit contractual or other legal protections,” the report went on, according to Bloomberg. About $26 billion in bonds fall into this category. Investors in these bonds might recover only 35 cents on the dollar. Recovery rates for bonds with stronger investor protections, such as general obligation bonds, would likely range from 65% to 80%, Moody’s said.  But those recovery rates, as dire as they seem, only apply if you own the bonds outright. If you own those bonds in a bond fund, the scenario may look much, much worse, according to what UBS just did. UBS, despite the well-known problems Puerto Rico has been having for years, wasn’t shy about loading up its clients up with these bonds, apparently, according to Reuters: Many UBS brokers had misgivings about the funds even as UBS’ Puerto Rico chairman was pushing them to sell the bonds, according to a voice recording, reported by Reuters in February. And then there was leverage, as recommended by UBS brokers because UBS profits even more, not only in selling the bond funds but also in lending the money

New Orleans Katrina Pain Index at Ten: Who Was Left Behind -- When Hurricane Katrina hit the Gulf Coast on August 29, 2005, the nation saw tens of thousands of people left behind in New Orleans.  Ten years later, it looks like the same people in New Orleans have been left behind again. The population of New Orleans is noticeably smaller and noticeably whiter. While tens of billions poured into Louisiana, the impact on poor and working people in New Orleans has been minimal.  Many of the elderly and the poor, especially poor families with children, never made it back to New Orleans. The poverty rate for children who did made it back remains at disturbingly high pre-Katrina levels, especially for Black children. Rents are high and taking a higher percentage of people’s income.  The pre-Katrina school system fired all it teachers and professionals and turned itself into the charter experiment capital of the US even while the number of children in public schools has dropped dramatically. Since Katrina, white incomes, which were over twice that of Blacks, have risen three times as much as Blacks. While not all the numbers below are bad, they do illustrate who has been left behind in the ten years since Katrina hit.

Cash-strapped Chicago taxes the internet - Earlier this month, Chicago got national attention for two new taxes backed by Mayor Rahm Emanuel: a 9 percent tax on streaming entertainment services and another 9 percent tax on cloud-computing services. This means that if you live in Chicago, you could face the new tax if you have a subscription to an online streaming service such as Netflix or Spotify; or if you store digital data on servers on the cloud – as many tech companies and startups do – or use services that do, such as Salesforce or LexisNexis. Here are three of the most outrageous facets of this new money grab: 1. It was enacted without debate or any democratic process If the cloud tax is so bad for businesses, you might wonder where they were when City Council debated it. But the council never considered these taxes. Instead, the city’s Finance Department adopted rules extending the city’s “amusement tax” ordinance to cover streaming entertainment and its “personal property tax” ordinance to cover cloud services. Chicago’s new taxes on streaming entertainment and cloud-computing services reflect a typical disregard for laws and regulations that harm businesses. The cloud-computing tax in particular makes Chicago a uniquely unfriendly place to do business. Many businesses now store data in the cloud, renting space on other computers rather than buying the equipment themselves. This benefits startups in particular by keeping costs low. The cloud tax destroys part of this advantage by making businesses pay 9 percent more than they used to – and 9 percent more than they would pay if they located their business anywhere else in the country.With these rules, Chicago becomes the first major American city to tax streaming entertainment services and cloud computing.

Houston’s debt now surpasses Detroit’s - Houston’s debts are now bigger than Detroit’s. According to one key measure of fiscal health, Houston’s situation is nearly as bad as that of Chicago, which is starting to collapse under its debt burdens. The city’s financial reputation took a hit earlier this month when Moody’s Investors Service revised its outlook on Houston to “negative.” Even that review doesn’t capture the depth of some of the holes the city’s financial planners have dug. Moody’s has gotten a reputation for a taking a more critical look at municipal pension debt than its competitors in the ratings business, but it still works under the same structural conflict of interest all the other agencies do: they need these cities’ business. Moody’s will nip the hand that feeds it, but none of the agencies bite. Moody’s still gives the city a strong bond rating, of course, because it doesn’t see much risk of bankruptcy on the horizon. James Quintero, director of the Center For Local Governance at the Texas Public Policy Foundation, says the problem is structural, that defined benefit pension plans simply aren’t sustainable. “Detroit didn’t become Detroit overnight,” Quintero said. “It took them 60 years to go from a thriving metropolis to third-world status.”

$2800/Mth To Live In Oakland - Where Cops Say Don't Bother Calling If Your Car Is Stolen - Over the last 5 years, rent costs in the city of Oakland have doubled. At $2,807 per month it more expensive to live in Oakland now than it was in SanFrancisco in 2012, so one would expect the city to have 'cleaned up', and 'be safer'? However, as SFGate reports, the citylaid off 80 officers today to help eliminate a $30.5 million budget deficit, prompting the department to announce that officers would no longer be dispatched to take reports for most nonviolent crimes. "With current levels of staffing, we are unable to respond to many lower-priority calls," said Officer Jeff Thomason, a police spokesman. Instead, Oakland residents now have to file certain crime reports online or visit a police station. Those without a computer can ask that a blank form be mailed to them or pick one up at a library.

Report: More Tennessee children living in poverty (AP) — A new report says more than one-fourth of Tennessee children are living in poverty, up from a few years ago when the country was in a recession. The Tennessean reports the review shows more than a third of children are living with insecurely employed parents. The findings are in the Kids Count report published Tuesday by the Annie E. Casey Foundation. The report for Tennessee shows 27 percent of children are living in poverty, up 5 percent from 2008 and more than the amount of children living in poverty during the Great Recession. Other areas that worsened since last year include the number of children not attending preschool, 61 percent, and those living in single-parent households, 38 percent. The report showed significant improvements in seven of eight categories in children's education and health.

More U.S. Children Live In Poverty Now Than During the Recession - In mid-September 2010, almost exactly two years to the date since the monumental collapse of Lehman Brothers, the New York Times published a bleak statistic: the ongoing Great Recession had driven the U.S. poverty rates to their highest in a decade and a half. Five years of fitful economic recovery have not yet bettered this situation.  According to a new report  from the Annie E. Casey Foundation, more than one in five American children, about 22%, were living in poverty in 2013. Data for 2014 are not yet available, but the report anticipates that the child poverty rate remains at an “unacceptably high [level].” The figure for 2008 was 18%. General terms are insufficient when explaining the economy’s post-recession rebound. There are a number of conflicting statistics — the fall in unemployment versus the rise in poverty, for instance — but even efforts to compare and assess these inconsistencies do not successfully capture the nuances at hand, most of which are dictated by demographic cleavages built on racial lines. Noting only a “few exceptions,” the report states that “on nearly all of the measures that [it] track[s], African-American, American Indian and Latino children continued to experience negative outcomes at rates that were higher than the national average. Overall unemployment rates have fallen, but the unemployment rate for African-Americans is currently 11 percent — 2.4 percentage points higher than where it was prior to the economic crisis. Nearly 40 percent of African-American children live in poverty, compared to 14 percent of white children. “The fact that it’s happening is disturbing on lots of levels,” Laura Speer, the Casey Foundation’s associate director for policy reform, told USA Today. “Those kids often don’t have access to the things they need to thrive.” 

Obamanomics? More Chidren Live In Poverty Now Than During Crisis -- For all the back-patting exuberance over manipulated record high stock prices and record periods of illusory job gains, it appears the administration and its Obamanomics forgot one important thing - the children! As USA Today reports, a higher percentage of children live in poverty now than did during the Great Recession, according to a new report from the Annie E. Casey Foundation released Tuesday. “Where you grew up is similar to where you end up when you’re an adult,” Bloome said.“That helps perpetuate racial segregation.” As USA Today reports, About 22% of children in the U.S. lived below the poverty line in 2013, compared with 18% in 2008, the foundation's 2015 Kids Count Data Book reported. In 2013, the U.S. Department of Human and Health Service's official poverty line was $23,624 for a family with two adults and two children. “The fact that it’s happening is disturbing on lots of levels,” said Laura Speer, the associate director for policy reform and advocacy at the Casey Foundation, a non-profit based in Baltimore. “Those kids often don’t have the access to the things they need to thrive.” The foundation says its mission is to help low-income children in the U.S. by providing grants and advocating for policies that promote economic opportunity.

Cash-strapped Chicago schools propose $1.16 bln more debt | Reuters: Chicago Public Schools on Monday proposed selling up to $1.16 billion of bonds despite the district's falling credit ratings, big budget deficit and lack of an approved plan to ease escalating pension costs. The board of education for the nation's third-largest public school system will vote on the general obligation bonds at its meeting on Wednesday. Proceeds would be used to improve school facilities, refund outstanding bonds, and pay banks to terminate swaps used to hedge interest-rate risk on variable-rate debt, according to documents posted on the CPS website. CPS representatives did not immediately respond to questions about the swaps and other details about the proposed bonds. Downgrades by Moody's Investors Service and Fitch Ratings in March triggered about $228 million in termination payments by CPS to bank swap counterparties. Moody's cut the district's rating to junk in May. Earlier this month, Standard & Poor's dropped its rating two notches to BBB, while warning another downgrade could come without a "credible" fiscal 2016 budget. School officials have not yet unveiled a complete budget, announcing last week the spending plan will rely on $500 million in pension savings that have yet to be enacted by the Illinois Legislature and will incorporate a $106 million cut in state funding.

How Student Loans Create Demand For Useless Degrees --Last week, former Secretary of Education and US Senator Lamar Alexander wrote in the Wall Street Journal that a college degree is both affordable and an excellent investment. He repeated the usual talking point about how a college degree increases lifetime earnings by a million dollars, “on average.” That part about averages is perhaps the most important part, since all college degrees are certainly not created equal. In fact, once we start to look at the details, we find that a degree may not be the great deal many higher-education boosters seem to think it is. In my home state of Minnesota, for example, the cost of obtaining a four-year degree at the University of Minnesota for a resident of Minnesota, North Dakota, South Dakota, Manitoba, or Wisconsin is $100,720 (including room and board and miscellaneous fees). For private schools in Minnesota such as St. Olaf, however, the situation is even worse. A four-year degree at this institution will cost $210,920. This cost compares to an average starting salary for 2014 college graduates of$48,707. However, like GDP numbers this number is misleading because it is an average of all individuals who obtained a four-year degree in any academic field. Regarding the average student loan debt of an individual who graduated in 2013, about 70 percent of these graduates left college with an average student loan debt of $28,400. This entails the average student starting to pay back these loans six months after graduation or upon leaving school without a degree. The reality of this situation is that assuming a student loan interest rate of 6.8 percent and a ten-year repayment period, the average student will be paying $326.83 every month for 120 months or a cumulative total re-payment of $39,219.28. Depending upon a student’s job, this amount can be a substantial monthly financial burden for the average graduate.

Corinthian to Justice Dept: Get Our Docs Before ECMC Abandons Them -- A lawyer for shut-down Corinthian Colleges has written to a U.S. Justice Department lawyer investigating the for-profit college company, warning that some school records may be “abandoned” as soon as next month. The June 29 letter, obtained by Republic Report, opens a window into the Corinthian litigation, and also highlights questions about the U.S. Department of Education’s decision to allow Zenith Education Group, a newly-created subsidiary of Minnesota-based debt collection company ECMC, to acquire some 50 former Corinthian campuses earlier this year. In the letter, attorney Evan C. Borges of the firm Greenberg Gross, which represents Corinthian in its bankruptcy case, told Justice Department Civil Division lawyer Jay Majors, “Corinthian is in a bankruptcy proceeding with scarce financial and human resources, and is winding down its affairs. Time is of the essence for your agency to make decisions on which records” from 30 former Corinthian campuses “you wish to inspect, copy, and/or preserve.” The letter from Borges informs DoJ’s Majors that some of these records are now located in a Sacramento, California, warehouse under the control of Zenith, which paid a bargain-basement $24 million for the Corinthian campuses. Corinthian’s bankruptcy lawyer  suggests that Zenith may destroy records relevant to the investigation of Corinthian unless somebody promptly takes them or pays for the storage fees. Borges lists Zenith’s contact person for this matter as “Diana Scherer, Senior Vice President and Deputy General Counsel, Zenith Education Group, at 5 Hutton Centre Drive, Santa Ana, California.” Before assuming that job at Zenith, Diana Scherer’s job for twelve years was Senior Vice President and Deputy General Counsel at Corinthian Colleges, whose headquarters was and is located at 6 Hutton Center Drive, Santa Ana, California — in the same building.

The Education Department Is Failing Students Who Got Defrauded -- Dave Dayen - Over a month ago, the Education Department announced that it would “forgive loans” taken out by 500,000 students of Corinthian, a sprawling network of for-profit colleges. Corinthian had lured students with false hopes of career training and an entryway into the middle class, but only gave them substandard educations, worthless diplomas, no resources for employment, and tens of thousands of dollars in debt.  Do the new promises of relief from the Education Department hold up any better than the old promises made by Corinthian Colleges? So far, just a handful of students have seen their loans forgiven, despite a supposedly streamlined process. In fact, the Education Department appears to be placing barriers to access to loan forgiveness, like insurance companies discouraging unhealthy customers by situating their headquarters on the 8th floor of a building with no elevator.  There is a very precise profile of a Corinthian student ... These are not people with the skills to act as a lawyer or private investigator. Yet that’s what the Education Department’s loan forgiveness process demands. Students whose schools shut down are eligible to have their loans forgiven, as long as they forfeit the possibility of using credits achieved there in a transfer. But under language in student loan contracts called “defense to repayment,” students who take out loans to attend colleges that defraud them can apply to have those loans cancelled. The Education Department and multiple state investigations have documented this fraud painstakingly, even fining Corinthian, which is now bankrupt, for its actions.  However, students seeking relief must re-prove the fraud themselves, in a needlessly bureaucratic application process that requires them to provide transcripts of their college activity and identify specific state legal statutes violated by their school. Even the easy part of this, the transcripts, has proven difficult: For Corinthian campuses that have closed down, including the Everest Institute in Rochester, there’s nowhere to go to access transcripts.

Attorney Market for Discharging Student Loans -- On Friday, Tara Siegel Bernard reported in the New York Times that some bankruptcy judges think that the onerous Brunner standard for discharging student loans should change. Commenting on the article, reader "alma" writes: As someone who recently filed for bankruptcy and has more than $100,000 in student loan debt, I can tell you why I did not try to get relief from student loans: I did not know it was an option. My lawyer simply told me that it was not possible to have student loans discharged. This article is the first I have even heard there was any method to do so .... From the rest of the comments, this poster is not alone. Some of this may be explained by clients misunderstanding what's said (where the attorney means they don't think that this particular client will succeed in obtaining a discharge). But especially pre-2005 when the law was murkier, I do wonder about the level of advice given to filers. Attempting to discharge student loans costs extra money, something bankruptcy clients are unlikely to have. Given the low numbers of attempts, it's unlikely any given bankruptcy attorney has any experience filing such a case. Doing it is no simple matter either; it's literally a federal case. I've only found one book out there detailing how to file an adversary proceeding to discharge student loans in bankruptcy.  My own limited experience is that this is (unsurprisingly) quite hard. As part of a larger study, Jim Greiner, Lois Lupica, a couple of dozen students, and I have been working to create a DIY guide to a no-asset Chapter 7 bankruptcy guide, complete with a module on representing yourself through an adversary proceeding to discharge student loans. We just posted a paper on the philosophy behind our materials (and why we include cartoons like the one above). If we succeed, we hope that the materials we create will be useful to attorneys as well as pro se individuals. But there has to be a market before attorneys will use them.

Taxpayers Could Lose Billions If Students Walk Away From Loans -  Cody Roderiques, a college senior, owes the federal government more than $100,000 for his student loans. He may not have to pay taxpayers back. That’s because the New England Institute of Art is vanishing around him. On the campus of the for-profit college near Boston, studios were shuttered, teachers lost their jobs and the school announced in May it was closing for good. Under U.S. law, the institution’s death might excuse Roderiques, who will graduate in December, from his loan debt. As education companies shrink amid government allegations that they misled students about the value of their degrees, tens of thousands of students may be able to walk away from their obligations, a scale of college-loan forgiveness unprecedented in U.S. history. The unwinding may cost taxpayers billions, touching off debate in Washington about fairness and personal responsibility. “I’m paying back a school that doesn’t exist and that I don’t get any benefit from,” said Roderiques, 22, who is organizing students to ask the federal government for loan forgiveness. If he succeeds, other borrowers “will be right behind me.” The push for loan cancellations intensified with the May bankruptcy of Corinthian Colleges Inc. and is spreading to other large for-profit colleges, such as Education Management Corp., which owns the chain of Art Institutes that Roderiques attends and whose stock doesn’t trade anymore after losing nearly all its value.

Private Equity Carry Fee Scandal Spreads to CalSTRS After NC Points Out Connection -- Yves Smith - If California Treasurer John Chiang is ay indicator, elected officials are finally noticing that public pension fund staff seem more worried about ruffling the feathers of private equity kingpins than acting in the best interest of fund beneficiaries.  For those new to our coverage of this story: in early June, we broke the story that CalPERS Admits It Has No Idea What it is Paying in Private Equity Carry Fees. These fees are the biggest that CalPERS pays. The story got traction after it was taken up in June and early July by Pensions & Investments (the lead story in their June 15 print issue), the New York Times’ Dealbook, Dan Primack at Fortune (who depicted CalPERS as lying or suffering from a “massive breakdown in financial controls”) and then the Sacramento Bee.   Twice, after the second Dan Primack story and again after the SacBee article ran, we urged readers to call and write California State Treasurer John Chiang, who sits on the CalPERS board, and tell him to get to the bottom not just of the carry fee mess, but also the even more troubling issues it raises about governance.  Shortly after those posts ran, the Financial Times joined the fray, reporting that Chiang claimed he was on the case: “This issue is of great concern to me,” said Mr Chiang, who is a known reformer and also sits on Calpers’ administration board. “This will have my close attention until it is solved.” Um, it’s nice for Chiang to take interest well after Dan Primack of Fortune reported on July 1 that after he’d boxed the giant pension fund’s ears, CAlPERS had sent letters to all of its general partners and demanded that they provide carry fees for all funds since the inception of the funds by July 13. In Venezuela, they call what Chiang is doing “getting in front of a mob and calling it a parade.”

CalSTRS Doubles Down in Private Equity Carry Fee Reporting Scandal -- Yves Smith - When the bigger of the giant Sacramento-based public pension funds, CalPERS, was caught out for failing to track the biggest fee that private equity investors pay, carry fees, CalPERS rapidly reversed course once media criticism started snowballing. CalPERS scrambled to gather the information across its entire program, contacting all its private equity general partners and demanding responses by July 13.  The Financial Times broke the story that CalSTRS, the second largest public pension fund investor in private equity, was not capturing carry fee data either. But while CalPERS was correctly sheepish when caught out, CalSTRS has tried to depict the desire to have that information compiled an an unreasonable request. From the Financial Times story: The second-largest US public pension fund has admitted it has failed to record total payments made to its private equity managers over a period of 27 years…. A spokesman for Calstrs, which helps finance the retirement plans of teachers, said the fund does not record carried interest. “What matters is the overall performance of the portfolio.”… Ms [Margot] Wirth [director of private equity at Calstrs] argued it was “wrong to conflate the fees paid to private equity managers with carried interest”. She said: “Carried interest is a profit split between the investor and the private equity manager. The higher that carried interest is, then the better both the investor and private equity manager have performed.”This line of argument is prima facie evidence of the degree of private equity intellectual capture at CalSTRS. One of the things that fiduciaries are supposed to do, but is not done in private equity, is asses the reasonableness of fees and costs when deciding whether to commit funds to an investment strategy. Private equity limited partners do it in a garbage in, garbage out manner. The one fee they sort of assess is the management fee, the prototypical 2% annul fee out of the classic “2 and 20″ formula. For larger funds, the fee is often smaller, precisely because the investors look at the size and composition of the team that will be allegedly working on behalf of fund investors, and make a quick and dirty computation as to how much it ought to cost, and compare that to the overall management fee.

CalPERS’ fiscal year return is credit negative for the state —CalPERS’ announcement that its preliminary investment return for the fiscal year ended June 30 was 2.4%, compared with its 7.5% assumed rate of return, will increase funding costs for government units that contribute to the plan and could cause rating downgrades, said a report by Moody’s Investors Service. “When public pension funds experience investment performance that is worse than the assumptions, it generates an actuarial loss that increases reported unfunded liabilities along with government contribution requirements,” analyst Thomas Aaron wrote in a Monday report. The report said the weak investment performance is a “credit negative” for the state of and most of the state’s local governments. Moody’s current bond rating for the state is Aa3 stable. Mr. Aaron said compounding the negative effort of CalPERS’ underperformance is that absent a multiyear period of outperformance, plan actuaries already expect underfunded liabilities to continue growing at the $304.5 billion Sacramento-based pension plan. CalPERS was 77% funded as of June 30, 2014, though each of the hundreds of municipalities, school districts and state government units that participate in CalPERS have their own individual unfunded liability. California Public Employees’ Retirement System spokesman Brad Pacheco said it was too early to conclude what impact the 2.4% investment return would have on contributions by government units. He said CalPERS smoothes investment returns over a period of five years to help stabilize employer contribution. He said the return would likely result in a several percentage point decline in the funding ratio.

Judge rules Chicago pension reform law is unconstitutional (Reuters) - A law aimed at shoring up two of Chicago's financially shaky public worker retirement systems violates pension protections in the Illinois constitution, a judge ruled on Friday. The ruling is a setback for Mayor Rahm Emanuel who has repeatedly said he will not raise taxes without pension reforms. It also gives Illinois' public labor unions more leverage to resist pension cuts. In a written opinion, Cook County Circuit Court Judge Rita Novak rejected Chicago's arguments that the 2014 law results in a net benefit because it will save the municipal and laborers' retirement systems from insolvency and that the law was backed by a majority of affected labor unions. She also took issue with Chicago's contention that it was not legally on the hook to pay pensions. "The city's argument, premised on the notion that participants have no right vis a vis their employer to expect payment of their pension benefits, is fundamentally at odds with the supreme court's teachings," Novak wrote. Pension payments are devouring bigger chunks of budgets for Illinois and Chicago and both face crippling spending cuts or big tax increases if those payments are not reduced. Illinois has the worst-funded pension system among U.S. states along with a $105 billion unfunded pension liability, while Chicago's unfunded liability for its four systems is $20 billion. The city contended that without the law, the two pension systems would run out of money within 10 to 13 years and that under Illinois law, payments to retirees would be the obligation of the pension funds, not Chicago. Labor unions and retirees who sued over the law claimed it violated the state constitution's pension clause.

Pension Shocker: Plans Face $2 Trillion Shortfall, Moody's Says --Last month, in "Cities, States Shun Moody's For Blowing The Whistle On Pension Liabilities," we highlighted a rift between Moody’s and some local governments over the return assumptions for public pension plans. To recap, when it comes to underfunded pension liabilities, one major concern is that in a world characterized by ZIRP and NIRP, it’s not entirely clear that public pension funds are using realistic investment return assumptions. The lower the return assumption, the larger the unfunded liability. After 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances and as WSJ reported, rather than admit that their return assumptions are indeed unrealistic, local governments have opted to drop Moody’s instead.  The debate underscores a larger problem in America. Almost half of the states in the union are facing budget deficits. Underfunded pension liabilities are one factor, but the reasons for the pervasive shortfall vary from plunging oil revenues to plain old fiscal mismanagement. The pension issue gained national attention after an Illinois Supreme Court decision threw the future of pension reform into question and effectively set a precedent for other states, sending state and local officials back to the drawing board in terms of figuring out how to plug budget gaps. One option is what we have called the "pension ponzi" which involves the issuance of pension obligation bonds. Of course, this gimmick only works if you do not max out again, because if you do, all you've done is doubled your debt burden.

Government Pension Cuts Tangled in Patchwork of Legal Rulings - Two years ago, lawmakers in Puerto Rico faced the soaring cost of government pensions and did what lawmakers across the United States have been doing: They cut the pensions.Lawsuits followed, with curious results. When the first three cases reached the Supreme Court of Puerto Rico, the pension cuts were affirmed. But months later, when two more cases arrived, the court halted them as “unreasonable and, therefore, unconstitutional.” The same justice wrote both decisions.“It was very unfair,” said Ismael Rivera, a 44-year-old police officer in the first group. “The government has a double standard.” Mr. Rivera still has 14 years to go before he can collect his pension but said it was no longer worth staying on the job. He has been looking for other work in Florida, Tennessee and Texas.When to retire is one of the most important decisions a worker can make, but as more and more public workers approach that milestone, the certainties that would have once guided their thinking are fading. For decades, public pensions have been portrayed as guaranteed by state laws and constitutions, but lately, that certainty has been turned on its head. As states and cities have taken steps to rein in the cost of their pension plans, they have unleashed a tide of worker litigation, with vexing and sometimes contradictory results.

When Retirement Savings Are Unsafe - The Department of Labor is about midway through a public comment period on its “fiduciary rule” proposal to require financial advisers to act solely in their clients’ best interests when giving advice and selling investments for retirement accounts.The proposal, if finalized, would be a big improvement on current practice, in which many advisers are free to steer clients into high-priced strategies and products even when comparable lower-cost alternatives are available.Using conservative assumptions, the Labor Department has estimated that the new regulations would save investors more than $40 billion over ten years, money that would otherwise flow to advisers in the form of excessive fees and other charges.Not surprisingly, the financial industry and its allies in Congress are opposed. Industry lobbyists are even more combative on this particular issue than others, because they wrongly believed they had killed off the push for a fiduciary rule years ago, when they buried an earlier proposal in a pile of legalese and minutiae.But the Labor Department, with the backing of President Obama, came back with the current proposal that protects retirement investors while carefully addressing industry concerns.Financial industry leaders are mad – at the regulators and the administration for challenging them and at their lobbyists for being outflanked.But the longer the fight goes on, the clearer it becomes that arguing against a fiduciary duty is arguing for biased advice that costs retirement savers billions of dollars a year.

What Happens If the Social Security Trust Fund Runs Out in 2O34? --The trustees of the Social Security system’s finances released their annual report on Wednesday afternoon. They say the combined trust funds that help pay old age and disability benefits are likely to run out by 2034, the year when today’s 48-year-olds reach full retirement age. The trustee’s estimate reflects the latest economic and demographic projections, and it changes a bit most years. Last year’s estimate for trust fund depletion was 2033.But what does it mean to say the Social Security trust fund has run out?Let’s be clear: Social Security benefits won’t disappear entirely when that happens. If nothing else changes, the payroll taxes still being paid by younger people in the workforce will be enough to fund about 79% of scheduled benefits, says the report.That’s because Social Security is by and large a pay-as-you-go system. At the individual level is looks a bit like a savings account, where you contribute money now in order to draw it down after you stop working. But in fact, it’s never been primarily run on saved money. Taxes from today’s workers are used to fund the benefits of today’s retirees.But after the system was overhauled in 1983 and up until 2010, the amount of payroll tax dollars flowing into the system was higher than the amount of money that was needed to fund benefits. That extra money is in the so-called trust fund, and it’s invested in special, untraded Treasury bonds. Thanks to interest from the Treasuries and taxes on higher-earning beneficiaries, the Social Security system still takes in a bit more money than it pays out each year.But soon that will flip over and Social Security will have to start eating into its past surplus to pay beneficiaries—and 2034 is the year that the surplus is currently expected to run out.When that happens, unless Congress intervenes, the Social Security administration will be able to pay only the benefits supported by current Social Security taxes.

CRS: Social Security: What Would Happen If the Trust Funds Ran Out?  Very interesting paper that I missed: Social Security: What Would Happen If the Trust Funds Ran Out? Almost everyone who addresses this question assumes that the answer is pretty simple: if either of the Social Security Trust Funds goes to zero than benefits will automatically drop from ‘Scheduled’ to ‘Payable’ which translates to a 22-25% overnight cut depending on which Trust Fund we are talking about. But I had an interesting conversation with Andrew Biggs some years back. Andrew spent some time as the Principal Deputy Commissioner of Social Security (the no. 2) during the Bush Administration. Biggs told me that the situation at Trust Fund Depletion was not as clear-cut as almost everyone assumed and had been the topic of some high end discussion at SSA. And their conclusion as related by Biggs to me mirrored that of the Congressional Research Service in this Report from last year.The Social Security Trustees project that, under their intermediate assumptions and under current law, the Disability Insurance (DI) trust fund will become exhausted in 2016 and the Old-Age and Survivors Insurance (OASI) trust fund will become exhausted in 2034. Although the two funds are legally separate, they are often considered in combination. The trustees project that the combined Social Security trust funds will become exhausted in 2033. At that point, revenue would be sufficient to pay only about 77% of scheduled benefits.If a trust fund became exhausted, there would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. But the Antideficiency Act prohibits government spending in excess of available funds, so the Social Security Administration (SSA) would not have legal authority to pay full Social Security benefits on time.It is unclear what specific actions SSA would take if a trust fund were exhausted. After insolvency, Social Security would continue to receive tax income, from which a majority of scheduled benefits could be paid. One option would be to pay full benefit checks on a delayed schedule; another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.

Sharp Pencils vs. Sharp Politics: The 2015 Social Security Trustees Report -- The long run balance of the U.S. Social Security system has improved, but almost all of the improvement comes from improved methods and data. That’s the sharp pencil part, explained in Section IV.B.6, pages 74-79. Put another way, Social Security is in better shape than we thought last year not because of anything that has changed in the world but just because we weren’t thinking exactly right back then. But the Disability Insurance bit is quite definitely in short term trouble, as the DI Trust Fund is projected to hit zero in 2016. The Trustees recommend changing the law so that the DI Trust Fund can draw from the larger OASI Trust Fund, which seems reasonable on its face, whereupon the next moment of trouble is reached only in 2034 when the joint Trust Fund hits zero. The fix for that one requires either increased income (meaning taxes) or decreased cost (meaning benefits) or a bit of both. Is that the sharp politics part? Not really. Something that is only projected to happen twenty years from now is unlikely to focus political decision making in the coming year. Normally we would expect this particular can to be kicked down the road.Maybe not. The closing Actuarial Opinion by Stephen Goss (255-257) points to a more immediate point of likely political conflict, concerning the way the Social Security system is treated in unified budget accounting, which differs from the trust fund accounting in the Report. His concern, apparently, is that Congress will ignore the sharp pencil Trustees Report and apply instead their own accounting framework.

Senate Bill May Kick 200,000 Off Social Security If They Have Arrest Warrant -- The large transportation funding bill moving through the Senate would end Social Security benefits for 200,000 people who have an outstanding felony arrest warrant—but have never been convicted by a court, or have a warrant for violating probation or parole, according to disability rights advocates tracking the legislation. The proposal, which surfaced late Tuesday, is at odds with recent Republican statements on the need to take up meaningful criminal justice reforms such as less harsh sentencing. It also sets a precedent of raiding Social Security funds for unrelated purposes, in this case transferring $2.3 billion for a range of transportation expenses. The Senate will be voting on the proposal as part of package of amendments midday Wednesday, where 60 votes are needed to add it to the transportation bill. It also takes several billion from selling oil in the strategic petroleum reserve, Treasury bond interest rates, and U.S. customs fees. “There are two key issues here,” said T.J. Sutcliffe, income and housing policy director for The Arc, a national disability rights organization. “One is that the Social Security Trust Fund should not be used for unrelated purposes, no matter how important. And the other is Congress is considering cutting off benefits to 200,000 people who rely on Social Security and SSI [disability] benefits, who, in the case of arrest warrants have never been convicted.”

What’s the matter with the federal disability insurance program? - The White House last week released a report about the current and future condition of Social Security Disability Insurance. The report covers a variety of details about the federal disability insurance program, but the section that jumps out the most is this—the trust fund for the program will be unable to pay full benefits beginning next year. According to the report, benefits could drop by 19 percent if action isn’t taken.   How did the program get to this point? Some researchers and policymakers are concerned that it has become too generous, thus increasing the burden on the trust fund. Perhaps it shouldn’t be a first concern given the financial state of the trust fund itself.. Research looking at the rise in disability insurance outlays has analyzed a variety of potential sources of this increase. Economists Mark Duggan, now of Stanford University, and Scott Imberman of the University of Houston, explore a variety of potential causes in a book chapter on the subject. They find that the aging of the U.S. population, changes in health among workers, economic conditions, the increasing replacement rate—the ratio of disability income to overall U.S. labor income—offered by the program, and an expanding definition of disability are the main culprits. The economy may be interacting with this factor as well. A worker with a qualifying disability who is able to find a job during a healthy labor market may find it much tougher to find one in a down labor market. Research from University of California-Berkeley economist Jesse Rothstein finds evidence for this: Disability applications increase when the unemployment rate does.   The replacement rate for Social Security Disability Insurance is on the rise not because of a concrete policy action, but rather due to the increase in income inequality over the past several decades. As the wages of workers at the top pulled away from those in the middle and at the bottom of the income spectrum, the replacement wage for those declared disabled has increased, while the actual wages for those on the middle and bottom rungs of the earnings ladder stagnated.

Medicaid enrollment surges, stirs worry about state budgets - US News: (AP) — More than a dozen states that opted to expand Medicaid under the Affordable Care Act have seen enrollments surge way beyond projections, raising concerns that the added costs will strain their budgets when federal aid is scaled back starting in two years. Some lawmakers warn the price of expanding the health care program for poor and lower-income Americans could mean less money available for other state services, including education. In Kentucky, for example, enrollments during the 2014 fiscal year were more than double the number projected, with almost 311,000 newly eligible residents signing up. That's greater than what was initially predicted through 2021. As a result, the state revised its Medicaid cost estimate from $33 million to $74 million for the 2017 fiscal year. By 2021, those costs could climb to a projected $363 million. "That is a monstrous hole that we have got to figure out how to plug, and we don't know how to do it," said Kentucky state Sen. Chris McDaniel, a Republican who leads the Senate budget committee and opposed expansion. "The two biggest things that keep me up at night are state pensions and the cost of expanded Medicaid." For patients who have only recently gained access to health care, the program is about far more than dollars and cents. And supporters downplay the budget concerns, pointing to studies that indicate the economic benefits of expanding health care will result in significant savings over time. Several expansion states have already revised their budget estimates due to the larger than expected enrollments, according to an Associated Press review.

Date for Medicare's insolvency remains 2030 - Medicare is still treading financial water. The latest report on the program’s trust fund says it will become insolvent in 2030, the same projection as was issued last year. The conclusion by Medicare’s trustees means that if nothing changes, the trust fund will be able to meet all its financial obligations for another 15 years. The report, released Wednesday, shows that per-beneficiary costs rose by 2.3 percent in 2014, the largest increase in three years. The increase was driven by a 10.9 percent spike in the cost of Part D drug coverage, which the trustees attributed primarily to the expense of breakthrough treatments for hepatitis C. Medicare costs have grown at historically low levels in recent years — 0.3 percent in 2012 and 0.1 percent in 2013. The slowdown in spending rates has resulted in a significant extension for when the trust fund will begin failing to meet its obligations. Since 2010, when the Affordable Care Act was passed, the insolvency date has been extended by 13 years. That has provoked heated debate over cause and effect. It remains an open question how much of the slowdown in costs can be attributed to the Great Recession and how much to Obamacare. Most health care experts come down somewhere in the middle.

Report projects 50% increase in Medicare Part B premiums next year - As Medicare approaches its 50th anniversary next week, the federal program got some welcome financial news Wednesday: Its giant hospital trust fund will be solvent until 2030, and its long-term outlook has improved, according to a report from the program’s trustees. But the report warned that several million Medicare beneficiaries could see their Medicare Part B monthly premiums skyrocket by 52 percent in January — from $104.90 to $159.30. Medicare Part B, which is paid for by a combination of federal funds and beneficiary premiums, generally covers physician and outpatient costs. The huge rate hike is predicted because of a confluence of two factors: Medicare Part B costs increased more than expected last year, and Social Security is not expected to have a cost of living increase next year. By law, the cost of higher Medicare Part B premiums can’t be passed on to most Medicare beneficiaries when they don’t get a Social Security raise. As a result, the higher Medicare costs have to be covered by just 30 percent of Medicare beneficiaries. This includes the 2.8 million Medicare enrollees new to the program next year, 3.1 million Medicare beneficiaries with incomes higher than $85,000 a year and 1.6 million Medicare beneficiaries who pay their premium directly instead of having it deducted from Social Security. An additional 9 million people affected by the higher rates are so called “dual eligibles” — those on Medicare and Medicaid. States pay the Medicare Part B premium for duals.

Fire Phasers - Paul Krugman -- Jeb Bush doesn’t just want Americans to work more hours; he also wants to “phase out” Medicare, or so he told a Koch brothers backed group. What he’s talking about, presumably, is a Paul Ryan-type conversion of Medicare into a voucher system. Fact-checking organizations please note, by the way. The next time Democrats say that Republicans want to destroy Medicare, and Republicans start screaming that this is a lie, remember that when talking to their own people like Jeb themselves call what they’re proposing a plan to, yes, end Medicare.  What’s interesting, in a way, is the persistence of conservative belief that one must destroy Medicare in order to save it. The original idea behind voucherization was that Medicare as we know it, a single-payer system of government insurance, simply could not act to control costs — that giving people vouchers to buy private insurance was the only way to limit spending. There was much sneering and scoffing at the approach embodied in the Affordable Care Act, which sought to pursue cost-saving measures within a Medicare program that retained its guarantee of essential care.  But we’re now five years into the attempt to control costs that way — and what we’ve seen is a spectacular slowdown in the growth of health costs, with the historical upward trend in Medicare costs, in particular, brought to a complete standstill. How much credit should go to the ACA? Nobody really knows. But the whole premise behind voucherization has never looked worse, and the case that universal health insurance is affordable has never looked better.

VA manager indicted on 50 counts of falsifying records of veterans waiting for medical care - The Washington Post: A manager at a Veterans Affairs medical center in Georgia is on leave with pay following his indictment on 50 counts of ordering his staff to falsify medical records of veterans waiting for outside medical care. The case against Cathedral Henderson appears to be the first round of criminal charges stemming from a wait-times scandal that came to light last year and led to the resignation of VA Secretary Eric Shinseki. Henderson, 50, was in charge of revenue and billing and chief of “purchase care” in Augusta, coordinating medical care for veterans that VA could not offer. He was responsible for ensuring that more than 2,700 veterans awaiting approval for care outside the system were properly referred to for doctor’s appointments. But under pressure from VA headquarters in 2014 to close out all requests for outside care, Cathedral simply ordered his staff to falsify the waiting patients’ medical records to show that the veterans had either completed or refused services, prosecutors allege.

VA hospitals across the country could close without bailout  — The secretary of Veterans Affairs told lawmakers on Wednesday that unless Congress takes emergency action to correct a $2.5 billion shortfall, the VA at the end of the month will begin shutting down medical centers "€œall across the country." VA leader Robert McDonald said the department "will have no option" but to halt outside health care treatments until the new fiscal year begins in October. Beyond that, the department will "provide staff furlough notices and notify vendors that we cannot pay them as we begin an orderly shutdown of hospitals and clinics all across the country," he said. Congressional leaders pledged no veterans will be cut off from care. Nevada lawmakers emphasized the VA Medical Center in North Las Vegas will not be closing. Nonetheless, a potential cutoff in veterans health care ’€” first floated by the VA last week ” has served to focus lawmakers' attention even more tightly on the department’€™s latest fiscal crisis. Some expressed irritation the VA was dumping a problem onto Congress seemingly at the last minute, and frightening veterans at the same time. "I don'€™t like the fact they are putting us in a tough spot right now,"€ said Sen. Dean Heller, R-Nev., who sits on the Senate'€™s committee on veterans. "€œFor them to hold us over a barrel and say we are going to start closing hospitals and scaring veterans €”— I can assure you that is not going to happen — but for the VA to be sending that message out there is thoughtless at a minimum and heartless at most," Heller said. "We are diligently working to ensure (shutdowns) do not occur and that no veterans will be denied the care they need and deserve,"

Another VA Scandal: GI Bill Funnels Taxpayer Money To Masturbation Classes, "Hate Churches" & More -- Iraq War veteran David Rodriguez steps into a softly lit classroom at the Institute for Advanced Study of Human Sexuality in San Francisco, crosses his legs and sits on a pillow in front of an altar decorated with a rope, a model of a penis and a statue of a Hindu god. Rodriguez, a retired Navy lieutenant commander who led an engineering battalion that dismantled roadside bombs, is here for a class on “sexual bodywork.” When instruction begins, he will join his classmates in practicing different forms of masturbation. “They do vulva massage and penis massage and anal massage,” said instructor Ariadne H. Luya, who holds a Ph.D. from the institute, an unaccredited graduate school founded in 1976 by an iconoclastic Methodist minister who amassed a large collection of erotic art and pornographic films, including child pornography, that is kept at the school.“We want to get people out of their ruts. Have you been masturbating the same way for 20 years?” she asked rhetorically. “How’s that going for you? Would you like to try something new?” Rodriguez is funding his studies with the GI Bill, which means taxpayers are covering his tuition to pursue a doctorate in human sexuality – more than $20,000 over the past two years. But in the absence of strong government oversight, Reveal has found a gold rush of 2,000 schools cashing in on the exemption. The list includes schools set up to make a profit by teaching blackjack, scuba diving, dog grooming, taxidermy and yoga. Many are owned by individuals who’ve gone bankrupt or failed to pay their taxes. A handful are owned by convicted felons…

The newest Obamacare fail: penalties of $36,500 per worker - Beginning this month, the IRS can levy fines amounting to $100 per worker per day or $36,500 per worker per year, with a maximum of $500,000 per firm.This Internal Revenue Service penalty is not written into the Obamacare law. The amount is over 12 times the statutory amount in the Affordable Care Act of $3,000 per worker per year. That is what an employer is charged when one of its employees gets subsidized care on one of the health-care exchanges. It’s 18 times the $2,000 penalty for not offering adequate health insurance. The $100 fine is applicable not only to large firms, but also those with fewer than 50 workers that are exempt from the $2,000 and $3,000 employer penalties. Firms with one worker are exempt. The penalty for S-corporations will take effect on Jan. 1, 2016. The new rule is broad, sweeping and overly punitive.This new IRS penalty does not assist in the ACA’s stated goal of expanding health insurance in the United States. Rather, it does the opposite. It discourages people from finding and purchasing the insurance that suits them. It also discourages companies from hiring. Consider that 14% of businesses that do not offer group health insurance have some sort of arrangement to reimburse their employees for insurance costs, according to the National Federation of Independent Business.

Mike Lee goes for nuclear option to repeal Obamacare - Conservative firebrand Sen. Mike Lee (R-Utah) announced on Friday that he plans to use a complicated procedural maneuver known as the nuclear option to repeal the Affordable Care Act with just 51 votes. Democrats famously used the strategy in 2013 to break a Republican blockade of President Obama’s nominees to fill judicial openings. Now Lee wants to use the partisan procedure get rid of Obamacare.  It’s unclear whether Lee’s gambit will work — but if it does, there are likely 51 senators who would vote to repeal Obama’s signature domestic achievement. The issue is whether such language can get a vote on the Senate floor to begin with. Typically, legislation needs to clear a 60-vote procedural hurdle before it can even get an actual vote in the Senate. But Republicans don’t have enough anti-Obamacare support in the Senate to reach that filibuster-proof threshold. Senate Majority Leader Mitch McConnell (R-Ky.) is already preparing to prove that point on Sunday when the Senate is scheduled to vote on an Obamacare repeal amendment to the GOP leader’s three-year highway funding bill.

Doctors Object to High Cancer-Drug Prices - WSJ: More than 100 oncologists from top cancer hospitals around the U.S. have issued a harsh rebuke over soaring cancer-drug prices and called for new regulations to control them. The physicians are the latest in a growing roster of objectors to drug prices. Critics from doctors to insurers to state Medicaid officials have voiced alarm about prescription drug prices, which rose more than 12% last year in the U.S., the biggest annual increase in a decade, according to the nation’s largest pharmacy-benefit manager. More than 100 oncologists have issued stern warnings about the soaring cost of cancer drugs and impact on patients’ ability to afford their prescriptions. WSJ’s Jeanne In an editorial published in the Mayo Clinic’s medical journal, the doctors focus attention on the financial burden to patients, saying the out-of-pocket costs are bankrupting many just as they’re fighting a deadly illness. Patients “have to make difficult choices between spending their incomes [and liquidating assets] on potentially lifesaving therapies or forgoing treatment to provide for family necessities,” the doctors write in Mayo Clinic Proceedings, a monthly peer-reviewed journal. As a result, about 10% to 20% of cancer patients don’t take their treatment as prescribed, the doctors say. The 118 doctors come from institutions including Mayo Clinic of Rochester, Minn., University of Texas MD Anderson Cancer Center in Houston, Dana-Farber Cancer Institute in Boston and University of Chicago.

Drug Prices Soar, Prompting Calls for Justification - As complaints grow about exorbitant drug prices, pharmaceutical companies are coming under pressure to disclose the development costs and profits of those medicines and the rationale for charging what they do.So-called pharmaceutical cost transparency bills have been introduced in at least six state legislatures in the last year, aiming to make drug companies justify their prices, which are often attributed to high research and development costs.“If a prescription drug demands an outrageous price tag, the public, insurers and federal, state and local governments should have access to the information that supposedly justifies the cost,” says the preamble of a bill introduced in the New York State Senate in May.  In an article being published Thursday, more than 100 prominent oncologists called for support of a grass-roots movement to stem the rapid increases of prices of cancer drugs, including by letting Medicare negotiate prices with pharmaceutical companies and letting patients import less expensive medicines from Canada. “There is no relief in sight because drug companies keep challenging the market with even higher prices,” the doctors wrote in the journal Mayo Clinic Proceedings. “This raises the question of whether current pricing of cancer drugs is based on reasonable expectation of return on investment or whether it is based on what prices the market can bear.”

A Pharma Payment A Day Keeps Docs’ Finances Okay -- Few days went by last year when New Hampshire nephrologist Ana Stankovic didn't receive a payment from a drug company. All told, 29 different pharmaceutical companies paid her $594,363 in 2014, mostly for promotional speaking and consulting, but also for travel expenses and meals, according todata released Tuesday detailing payments by drug and device companies to U.S. doctors and teaching hospitals. (You can search for your doctor on ProPublica's updated Dollars for Docsinteractive database.)  Stankovic's earnings were certainly high, ranking her about 250th among 606,000 doctors who received payments nationwide last year. What was more remarkable, though, was that she received payments on 242 different days — nearly every workday of last year.  Reached by telephone Tuesday, Stankovic declined to comment.On her LinkedIn page, Stankovic lists herself as vice chief of staff at Parkland Medical Center HCA Inc. in Derry, New Hampshire, and as medical director of peritoneal dialysis at DaVita Inc., also in Derry.  That doctors receive big money from the pharmaceutical industry is no surprise. The new data released by the Centers for Medicare and Medicaid Services shows that such interactions are widespread, with not only doctors, but thousands of dentists, optometrists, podiatrists and chiropractors receiving at least one industry payment from August 2013 to December 2014.

Pharmacy owners cannot cite religion to deny medicine: US appeals court: The state of Washington can require a pharmacy to deliver medicine even if the pharmacy’s owner has a religious objection, a federal appeals court ruled on Thursday, the latest in a series of judgments on whether religious believers can opt out of providing services. The ruling, from the 9th U.S. Circuit Court of Appeals in San Francisco, came in a case filed by pharmacists who objected to delivering emergency contraceptives. The 9th Circuit overturned a lower court that had said the rules were unconstitutional.The U.S. Supreme Court last year allowed closely held corporations to seek exemptions from the Obamacare health law’s contraception requirement. In Washington, the state permits a religiously objecting individual pharmacist to deny medicine, so long as another pharmacist working there provides timely delivery. The rules require a pharmacy to deliver all medicine, even if the owner objects. A unanimous three-judge 9th Circuit panel on Thursday decided that the rules are constitutional because they rationally further the state’s interest in patient safety. Speed is particularly important considering the time-sensitive nature of emergency contraception, the court said.

With Anthem-Cigna deal near, the health insurance industry is headed toward a ‘big three’ - The nation's big five health insurers will become the big three, with a $48 billion merger imminent between Cigna and Anthem, according to the Wall Street Journal. A merged company would serve 53 million people and is part of a dramatic, long-predicted reshaping of the health insurance landscape as a result of the Affordable Care Act. UnitedHealthcare has 45 million members, and Humana and Aetna announced they would merge in July, creating a company serving 33 million people.  A Cigna spokesman declined to comment on the rumored deal. Anthem did not immediately respond to requests for comment. Analysts say that because of caps on the profit that insurers can make on their plans, the companies have been looking to cut administrative costs by increasing their scale. The larger companies will also have increased clout in negotiating rates with hospitals and doctors groups. While the deals make business sense, it is far less clear what impact the mergers will have on customers. Some analysts say that the growth of insurance premiums could slow because the industry is regulated and the new companies will be more efficient. However, a 2012 study of the 1999 merger between two large insurers, Aetna and Prudential, found that premiums rose by seven percentage points. Another study in the American Journal of Health Economics found that having more insurers in the marketplaces set up by the Affordable Care Act brought the cost of premiums down.

Wolf Richter: Private Equity Scrambles to Buy Primary Care Doctors, “Leverage” Their Patients -- For PE firms, the fracking boom was nirvana. An eternal-growth industry. A big part of the money they poured into the scrappy oil & gas companies is now going up in smoke. Other industries are mired in a no-growth or shrinking environment. Chaos keeps breaking out in the international markets, most recently over Greece and China. So, healthcare, which accounts for nearly one-fifth of US GDP, “is really the growth opportunity,” Tom Banning, CEO of the Texas Academy of Family Physicians, told The Texas Tribune: “The forces are aligned to force consolidation, and frankly, how those independent doctors are able to compete against well-heeled, deep-pocketed systems or networks is going to be a problem,” Banning said. “To me the question becomes, if a for-profit, publicly traded or privately held venture-capital fund owns these doctors, what’s their fiduciary duty to the patients?” Think of the possibilities! The Texas Tribune: “Sensing a new vein of potential profits to be mined in the multibillion-dollar health care industry, a small but growing number of private equity firms is seeking to buy into primary care practices, interviews with doctors and financial analysts suggest.” Mergers and acquisitions are at an all-time record in the US. In the second quarter alone, US targeted deals reached $635 billion, the highest quarterly total ever. These deals are driven by corporate buyers. Armed with cheap debt and their overpriced shares, they’re out-bidding PE firms and pushing them aside [read… “Everyone Is Wondering When the Volcano Will Erupt”]. Consolidation in the healthcare sector is running rampant, from the M&A activity among the largest health insurers, such as Aetna’s acquisition of Humana, to hospital systems buying physician practices. “They’re finding that they have to be bigger, stronger, integrated organizations in order to be viable in the marketplace,”

Medical Tourism Market Will Reach USD 32.5 Billion by 2019 With CAGR of 17.9% During the Forecast Period of 2013 to 2019: Transparency Market Research - High cost of medical treatment in developed countries has fueled the development of medical tourism, causing patients to visit other destinations for cheaper yet sophisticated treatment. Transparency Market Research, in a recent report, studies the emergence and growth of the global medical tourism industry. The report is titled "Medical Tourism Market (India, Thailand, Singapore, Malaysia, Mexico, Brazil, Taiwan, Turkey, South Korea, Costa Rica, Poland, Dubai and Philippines) - Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2013 - 2019" and is available for sale on the company website. Full Research Report on Medical Tourism Market with detailed figures and segmentation at: http://www.transparencymarketresearch.com/medical-tourism.html  According to the report, the value of the global medical tourism industry was pegged at US$10.5 billion in 2012. This is estimated to grow to US$32.5 billion by 2019, developing at a strong CAGR of 17.9% during the forecast period. Cultural similarities and geographic proximity play a vital role in the development of the medical tourism industry. Get Sample Report Copy OR For further inquiries, click here: Medical tourism is considered to be the direct impact of the globalization of healthcare services. The industry is recognized to have immense growth potential in numerous emerging economies, as a rising number of countries are striving to become major exporters of medical services. Some of the key countries that have emerged as prominent centers of medical tourism are Costa Rica, South Korea, the Philippines, Thailand, Brazil, Turkey, India, Taiwan, Poland, Dubai, Mexico, Malaysia, and Singapore.

As Marginalized Communities Face Dearth of Trauma Care, Activists Step in to Fight for Survival -  Every year after schools lets out, gun violence spikes in American cities, resulting in hundreds of deaths and life-altering injuries. Whether the victim is a young person, who has become trapped in a cycle of violence by a lack of opportunities, or an uninvolved bystander, urgent medical care in the moments after a shooting is often slow in arriving to poor communities of color. In Chicago and across the country, community members are fighting back against this health-care inequity, even at great personal risk. Currently, all four of Chicago's adult trauma centers are located on the North and West sides of the city, leaving almost a fifth of city residents and large swaths of the South Side without a trauma center within a 5-mile radius. A 2013 Chicago-based study, published in the American Journal of Public Health, found that mortality rates among victims who suffered gunshot wounds are higher if an ambulance has to travel more than 5 miles to reach a Level 1 trauma center. Such "trauma deserts" surround the University of Chicago's state-of-the-art medical center. The community surrounding the University of Chicago's Hyde Park campus also has one of the highest shooting rates in Chicago, where the consequences of the lack of a Level 1 adult trauma center are acutely felt every year.

Robot surgeons kill 144 patients, hurt 1,391, malfunction 8,061 times -  Surgery on humans using robots has been touted by some as a safer way to get your innards repaired – and now the figures are in for you to judge. A team of university eggheads have counted up the number of medical cockups in America reported to the US Food and Drug Administration (FDA) from 2000 to 2013, and found there were 144 deaths during robot-assisted surgery, 1,391 injuries, and 8,061 counts of device malfunctions. If that sounds terrible, consider that 1.7 million robo-operations were carried out between 2007 and 2013. Whether you're impressed or appalled, the number of errors has the experts mildly concerned, and they want better safety mechanisms. "Despite widespread adoption of robotic systems for minimally invasive surgery, a non-negligible number of technical difficulties and complications are still being experienced during procedures," concludes the study [PDF], which was conducted by bods from MIT, Rush University Medical Center, and the University of Illinois. Two deaths and 52 injuries were caused when the mechanical surgeon spontaneously powered down mid operation or made an incorrect movement. In another 10.5 per cent of recorded malfunctions, electrical sparks burned patients, resulting in 193 injuries. A major problem, surprisingly, was that one death and 119 injuries were caused by pieces of the robot falling off into the patient, requiring a human surgical team to intervene and retrieve the broken hardware. 18 injuries were caused when the video systems on the human surgeon's console borked out mid-surgery.

When Upward Mobility Becomes a Health Hazard - Denying instant gratification in deference to long-term goals is virtuous, people tell me. Those people might be right. Psychologists call it self-regulation or self-control. And together with conscientiousness, it’s at least a trait (or a coping mechanism) that’s reasonably good at predicting a young person’s future. People with less self-control are more likely to end up where the world tells them to go. Even in the worst circumstances, people with the most self-control and resilience have the highest likelihood of defying odds—poverty, bad schools, unsafe communities—and going on to achieve much academically and professionally. Except that even when that is possible, those children seem to age rapidly during the process. That is, their cells visibly age before their time (based on DNA methylation) among other undesirable effects on the body, according to research published this week from Northwestern University and the University of Georgia.Meanwhile the opposite effect is seen in high-achieving people from highly advantaged backgrounds, where achievement goes hand-in-hand with health. The psychological phenomenon known as “John Henryism” posits that when goal-oriented, success-minded people strive ceaselessly in the absence of adequate support and resources, they can—like the mighty 19th-century folk legend who fell dead of an aneurysm after besting a steam-powered drill in a railroad-spike-driving competition—work themselves to death. Or, at least, toward it. It’s an idea that resonated with health researchers including Gregory Miller, a professor of psychology and medical-social sciences at Northwestern, who led this week’s investigation.

Senate Bill Repeals Mandatory Country of Origin Labeling for Beef, Pork and Chicken -- The Country of Origin Labeling (COOL) legislation introduced today by Senators Debbie Stabenow (D-MI) and John Hoeven (R-ND) repeals an overwhelmingly popular food label, surrenders to over exaggerated threats by our trading partners and creates more international trade problems than it solves. The legislation is aimed at solving an ongoing World Trade Organization (WTO) dispute, but the WTO process is far from complete. The Senate has never repealed a statute that was challenged under international trade rules before the dispute was completed. The legislation introduced today fully repeals mandatory COOL for beef, pork, chicken and ground meat and gives the U.S. Department of Agriculture (USDA) discretion to establish a voluntary domestic label for beef, pork or chicken. It is considerably weaker than the discussion draft circulated last month because it repeals COOL labels for ground meat, which the WTO ruled were trade legal and COOL labels for chicken, which were not even considered in the dispute. The legislation is a full repeal of COOL with the window dressing of a voluntary labeling option. But before mandatory COOL labels were re-enacted in 2008, meatpackers did not use voluntary COOL labels. In practice, a voluntary COOL label is the same as no label at all. Meatpackers won’t use it, consumers won’t see it and farmers and ranchers won’t benefit from it.

It Cost The Koch Brothers Only $299,000 To Block Labeling Of Genetically Modified Foods -- In what may have been the most underreported event overnight, the House quietly passed legislation that would keep states from issuing mandatory labeling laws for foods that contain genetically modified organisms, often called GMOs. The Safe and Accurate Food Labeling Act of 2015, as the law is formally known, passed 275-150, creating a federal standard for thevoluntary labeling of foods with GMO ingredients. And since clearly nobody wants to advertise they are using GMOs in their food, the number of "volunteers" will be precisely zero. As the Hill reports, Rep. Mike Pompeo (R-Kan.), who authored the bill, called mandatory labeling laws — which have already passed in Vermont, Connecticut and Maine —unnecessarily costly given that GMOs have been deemed safe by the Food and Drug Administration (FDA). “Precisely zero pieces of credible evidence have been presented that foods produced with biotechnology pose any risk to our health and safety,” Pompeo said. “We should not raise prices on consumers based on the wishes of a handful of activists.” Well, sure. Then there is the curious case of a lobbyist who back in March proclaimed that Monstanto's weedkiller "won't hurt you", only to promptly refuse drinking it on live it adding "I'm not stupid."  Somehow we doubt Mike Pompeo is stupid either, which is why he will use all his hard-earned lobby dollars to only purchase organic foods which do not have GMO ingredients, and which happen to be a premium food category, precisely for that reason.

DARK Act Passes but Fight for Americans’ Right to Know Far From Over | EWG: – Legislation dubbed the Deny Americans the Right to Know, or DARK, Act passed the House of Representatives today, but the fight for a more transparent food industry is only just beginning, EWG’s Scott Faber said following the vote. EWG and other advocates of labeling genetically engineered foods, or GMOs, opposed the bill because it would strip states of the right to require labeling and effectively prevent the Food and Drug Administration from mandating a nationwide GMO labeling system. “It’s outrageous that some House lawmakers voted to ignore the wishes of nine out of 10 Americans,” said Scott Faber, senior vice president of government affairs for EWG. “Today’s vote to deny Americans the right to know what’s in their food and how it’s grown was a foregone conclusion. This House was bought and paid for by corporate interests, so it’s no surprise that it passed a bill to block states and the FDA from giving consumers basic information about their food.” More than 300 organizations, companies and food industry and social justice leaders oppose the DARK Act in the face of massive spending and lobbying by big chemical and food companies. Poll after poll has shown that a large majority of residents of key states and across the country support mandatory GMO labeling. “We’re confident the Senate will defeat the DARK Act,” added Faber. “We continue to hope that thoughtful food companies that listen to their customers will work with consumer groups to craft a non-judgmental GMO disclosure to put on the back of food packaging. Americans should have the same right as citizens of 64 other countries to know what’s in their food and how it’s grown.”

Congressman and Agricultural Subcommittee Chairman: “Nearly 80 Percent of the Food Produced In the United States Contains Some Kind of GM [Genetically Modified] Product” - We knew that a lot of American crops were genetically modified. For example, we noted last year:

But we didn’t realize how widespread GMO foods have really become …  On Tuesday, the chair of the Subcommittee on Conservation, Energy, and Forestry of the House Committee on Agriculture – Glenn Thompson of Pennsylvania – said in Congressional testimony : Nearly 80 percent of the food produced in the United States contains some kind of GM product …Bottom line: It’s difficult to find non-GMO American food … especially since the feds are doing everything they can to keep us in the dark.

Module: Glyphosate Residues in Our Bodies and Food -- This is the first of a series of modules, each being a short assembly of the evidence to date. I’ll add to each as new evidence rolls in, which it will continue to do. The modules will then be easily linkable for subsequent analytical pieces.   A subsequent module will assemble the experimental evidence which found harmful health effects of glyphosate and Roundup exposure, comparing the exposure levels in those studies to the residue levels documented here in our food and bodies. Another piece will compare the levels proven harmful to the levels allowed by regulators in our food and water.*In 2013 Moms Across America and Sustainable Pulse jointly gathered ten breast milk samples, as well as 35 urine samples and 21 drinking water samples, and had these sent for testing. The lab tests found “high” levels of glyphosate residue, ranging from 76 ug/l to 166 ug/l, in 3 of the milk samples. These levels “are 760 to 1600 times higher than the European Drinking Water Directive allows for individual pesticides.” Of the 35 urine samples collected from across the US, 13 were “above the minimum detectable level”, as much as 10 times the level found in a 2013 European survey (see below). 13 of the 21 samples of drinking water “contained glyphosate levels of between 0.085 ug/l and 0.33 ug/l. This is below the levels found in both urine and breast milk but is still cause for concern, as the European (EU) maximum allowed level for glyphosate in drinking water is 0.1 ug/l.” (much more)

Farmers Markets and Food-Borne Illness -- After working on it for almost two years, I am happy to finally be able to circulate my new paper titled “Farmers Markets and Food-Borne Illness,” coauthored with my colleague Rob King and my student Jenny Nguyen, in which we ask whether farmers markets are associated with food-borne illness in a systematic way. ... In sum, what we find is:

  1. A positive relationship between the number of farmers markets and the number of reported outbreaks of food-borne illness in the average state-year.
  2. A positive relationship between the number of farmers markets and the number of reported cases of food-borne illness in the average state-year.
  3. A positive relationship between the number of farmers markets and the number of reported outbreaks of Campylobacter jejuni in the average state-year.
  4. A positive relationship between the number of farmers markets and the number of reported cases of Campylobacter jejuni in the average state-year.
  5. Six dogs that didn’t bark, i.e., no systematic relationship between the number of farmers markets and the number of outbreaks or cases of norovirus, Salmonella enterica, Clostridium perfringens, E. coli, Staphylococcus (i.e., staph), or scombroid food poisoning.

Farmed Salmon Rejected Over Huge Spike in Antibiotic Use Due to Massive Bacterial Outbreak -- The recent spike in antibiotic use in Chilean farmed salmon has caused Costco to decrease its reliance on the South American country’s farmed salmon, opting instead for farmed salmon from Norway, whose farmers use far fewer antibiotics. In fact, Norway’s use of antibiotics in aquaculture is at the lowest level since the late 1970s, according to a recent report from the Norwegian Veterinary Institute. Up until a few months ago, Costco was sourcing 90 percent of the 600,000 pounds of salmon it purchases every week from Chilean salmon farms, reports Reuters. But antibiotic use among Chilean farmers has increased 25 percent from 2013, due in large measure to a bacterial outbreak in Chile’s coastal waters. In response, Costco has begun to source 60 percent of its salmon from Norway and drop down to only 40 percent from Chile. To battle Piscirickettsiosis (or SRS) bacteria, which causes lesions, hemorrhaging and swollen kidneys and spleens, and ultimately death in infected fish, Chilean farmers are using ever increasing amount of antibiotics to try and keep their fish stock healthy. But concerns about drug-resistant superbugs have led many American consumers to seek out antibiotic-free products.

This Shark’s Liver Had DDT Levels 100 Times the Legal Limit for Humans - A 1,300-pound shark caught off the coast of Southern California is a sad reminder of what is a well-documented fact: our oceans and their inhabitants are incredibly contaminated. The shark was caught for a reality TV show off Huntington Beach in Newport Beach. At the time it was caught in 2013, it was believed to be the largest mako shark ever captured. t has since been donated to scientists at the National Oceanic and Atmospheric Administration (NOAA), who recently published a paper in The Journal of Fish Biology, finding that the shark had extremely high levels of DDT, PCBs and mercury.  “It’s definitely something you would not want to eat if you were planning on having children because it has reproductive consequences.”  The cause of the high toxins was the shark’s old age and top-predator status, coupled with the widespread presence of decades-old DDT and PCBs in the waters of coastal Southern California. Both DDT, a pesticide, and PCB, a manufacturing material, were banned in the 1970s because of their toxicity. Hundreds of tons of DDT entered the waters off the Palos Verdes Peninsula between the 1940s and 1980s, discharged by a now-defunct chemical plant. That DDT has since spread across coastal Southern California. The NOAA scientists tested the shark’s liver and found DDT levels were 100 times the legal limit for human consumption and PCB levels were 250 times the legal limit. Its mercury levels were 45 times greater than the limit for women of childbearing age and children, and 15 times greater than limits for women over 45 and men. Dangerous toxins like PCB, DDT and mercury bioaccumulate as they work their way up the food chain, which is why sharks like this one can become so toxic.

Ocean acidification may cause dramatic changes to phytoplankton -- Oceans have absorbed up to 30 percent of human-made carbon dioxide around the world, storing dissolved carbon for hundreds of years. As the uptake of carbon dioxide has increased in the last century, so has the acidity of oceans worldwide. Since pre-industrial times, the pH of the oceans has dropped from an average of 8.2 to 8.1 today. Projections of climate change estimate that by the year 2100, this number will drop further, to around 7.8 — significantly lower than any levels seen in open ocean marine communities today. Now a team of researchers from MIT, the University of Alabama at Birmingham, and elsewhere has found that such increased ocean acidification will dramatically affect global populations of phytoplankton — microorganisms on the ocean surface that make up the base of the marine food chain. In a study published today in the journal Nature Climate Change, the researchers report that increased ocean acidification by 2100 will spur a range of responses in phytoplankton: Some species will die out, while others will flourish, changing the balance of plankton species around the world. The researchers also compared phytoplankton’s response not only to ocean acidification, but also to other projected drivers of climate change, such as warming temperatures and lower nutrient supplies. For instance, the team used a numerical model to see how phytoplankton as a whole will migrate significantly, with most populations shifting toward the poles as the planet warms. Based on global simulations, however, they found the most dramatic effects stemmed from ocean acidification.

‘What Oysters Reveal About Sea Change’ -  The good news is that terrific oysters are being farmed in several locations in California; the bad news is that ocean acidification — the absorption of carbon dioxide into the sea, a direct result of high levels of carbon in the atmosphere — is a direct threat to that industry.I saw both when I visited Hog Island Oyster Co. in Marshall, an operation north of San Francisco on Tomales Bay. I went with Tessa Hill, who’s been researching ocean acidification at Bodega Marine Laboratory for eight years. Hill studies how changes in marine chemistry impact a variety of marine animals, including oysters, whose shells are getting thinner, smaller and more susceptible to predators. Her research looks at current conditions and develop a baseline for tracking the effects of climate change going forward.This isn’t theoretical: Hog Island had noticed that its oysters (which arrive as babies “imported” from Oregon and Washington) grow less reliably, more slowly, and with a higher mortality rate than they did several years ago. The business and Hill have since formed a partnership, and Hill’s team dropped instruments monitoring temperature, salinity, pH and oxygen among the oyster beds to see what, if anything, can be done to help the company plan for the future. Ocean acidification, like everything associated with climate change, is probably going to get worse before it gets better. But in addition to gathering data that Hog Island can use to protect their crop, understanding the impact of climate change and ocean acidification — in this case, oysters that will most likely become more expensive — can help us make those connections less theoretical and more real.

Can scientists hack photosynthesis to feed the world as population soars?: The world population, which stood at 2.5 billion in 1950, is predicted to increase to 10.5 billion by 2050. It's a stunning number since it means the planet's population has doubled within the lifetimes of many people alive today. At the same time, arable land is shrinking and crop productivity is stagnating. The last time population outran agricultural productivity, we were rescued by the Green Revolution, an increase in the harvest index (the amount of the plant's biomass partitioned into grain) achieved through classical plant breeding. Today's ears of corn are huge compared to those harvested in the 1920s. But the harvest index can be pushed only so far; a plant can't be 100-percent grain. And as the harvest index approaches its theoretical limit, gains in crop productivity have plateaued. Is there another rabbit plant scientists can pull out of the hat? One possibility is to redesign photosynthesis, the process by which plants convert sunlight and carbon dioxide into sugar and the ultimate source of all food, unless you're a chemosynthesizing bacterium. Photosynthesis, scientists will tell you, is stunningly inefficient. "We expect the solar cells we put on our rooftops to be at least 15- or 20- percent efficient,"  "A plant is at best one-percent efficient." Photosynthesis is the only determinant of crop yields that is not close to its biological limits, he said. It's the one parameter of plant production that has not been optimized.

Call off the bee-pocalypse: U.S. honeybee colonies hit a 20-year high - You've heard the news about honeybees. "Beepocalypse," they've called it. Beemageddon. America's honeybees are dying, putting honey production and $15 billion worth of pollinated food crops in jeopardy. The situation has become so dire that earlier this year the White House put forth the first National Strategy to Promote the Health of Honey Bees and Other Pollinators, a 64-page policy framework for saving the nation's bees, butterflies and other pollinating animals. The trouble all began in 2006 or so, when beekeepers first began noticing mysterious die-offs. It was soon christened "colony collapse disorder," and has been responsible for the loss of 20 to 40 percent of managed honeybee colonies each winter over the past decade. The math says that if you lose 30 percent of your bee colonies every year for a few years, you rapidly end up with close to 0 colonies left. But get a load of this data on the number of active bee colonies in the U.S. since 1987. Pay particular attention to the period after 2006, when CCD was first documented. As you can see, the number of honeybee colonies has actually risen since 2006, from 2.4 million to 2.7 million in 2014, according to data tracked by the USDA. The 2014 numbers, which came out earlier this year, show that the number of managed colonies -- that is, commercial honey-producing bee colonies managed by human beekeepers -- is now the highest it's been in 20 years. So if CCD is wiping out close to a third of all honeybee colonies a year, how are their numbers rising? One word: Beekeepers. Beekeepers have devised two main ways to replenish their stock. The first method involves splitting one healthy colony into two separate colonies: put half the bees into a new beehive, order them a new queen online (retail price: $25 or so), and voila: two healthy hives.The other method involves simply buying a bunch of bees to replace the ones you lost. You can buy 3 pounds of "packaged" bees, plus a queen, for about $100 or so.

Bill Nye on Glyphosate: ‘We Accidentally Decimated the Monarch Butterfly Population’ -- Bill Nye is back with part two of his radio appearance, where he and co-host Chuck Nice delve even deeper into the Science Guy’s controversial flip-flop on genetically modified organisms (GMOs). You can listen to the StarTalk podcast below where Nye points out some of the “unintentional consequences” of GMOs, such as the widespread decimation of the monarch butterfly due to the use of herbicides, as well as the threat of monocultures to pollinators such as the honeybee. Here’s what they talked about in the second part of Nye’s appearance: On the “accidental decimation” of monarch butterflies from the use of glyphosate: “People developed this herbicide called glyphosate that kills all the weeds, and kills all of everything except the plants that have this cool gene in them that allows them to grow right through it. We also killed the milkweed, and the milkweed is what the monarch butterflies rely on. So we accidentally have decimated the monarch butterfly population, reduced it over the last two decades by 90 percent … We don’t want that where you are accidentally wiping out a potential pollinator species.”

New Legal Action Further Exposes Jeb Bush, Koch Brothers & Rick Scott GP Scandal -- In February 2015, Florida Attorney Steve Medina asked me to help him break an exclusive story on Daily Kos, about a scandal involving Charles Koch, David Koch, Florida Governor Rick Scott, and presidential candidate, Jeb Bush. They are part of a deal made that allows the Koch Industries' highly profitable paper and pulp company, Georgia Pacific, to dump millions of gallons of toxic waste per day, into St. John's River in Florida. The original story (well worth the long read) has been picked up by multiple news groups, and also shared, posted, tweeted and emailed with a social media reach estimated to be in the millions. The online petition is gaining momentum. In the past few days it picked up over 3k signatures. Americans are not only aware of the massive Koch corruption, they are stepping up and taking action to stop it.    This week, additional legal motions were filed on behalf of the people, by Steve Medina. I asked Mr. Medina if he would send a description of these new legal actions in layperson's terms, and he was kind enough to do so. With his permission, I am posting his synopsis first, followed by his letter in hopes more folks will better understand the legal process involved.

Harmful Algal Blooms Predicted for Lake Erie, Says NOAA --Summer is here and that means it’s toxic algae season for Lake Erie. Harmful algal blooms have been making the lake green around the gills for the past several years. Last August, the cyanobacteria even contaminated Toledo’s drinking water, leaving more than 400,000 people high and dry for two days. Scientists from National Oceanic and Atmospheric Administration say this summer will be another doozy. The agency’s seasonal forecast predicts that 2015 could be the second-worst year on record after 2011’s whopper. The bloom is likely to hit 8.7 out of 10 on the severity index, with a possible range between 8.1 and 9.5. (FYI, anything above 5 is considered particularly concerning). “Last summer’s Toledo water crisis was a wake-up call to the serious nature of harmful algal blooms in America’s waters,” said Jeff Reutter, Ph.D., senior advisor to, and former director of, The Ohio State University’s Sea Grant program and Stone Laboratory. “This forecast once again focuses attention on this issue, and the urgent need to take action to address the problems caused by excessive amounts of nutrients from fertilizer, manure and sewage flowing into our lakes and streams.”

The $50 billion plan to save Louisiana’s wetlands – Last stretch of 30 miles nearest to the Mississippi River delta to be abandoned – ‘There’s no hope of saving those areas’ - – Louisiana is in trouble. The Mississippi River Delta is disappearing into the Gulf of Mexico at the rate of 16 square miles a year, some of the fastest land loss on the planet. The bayou lands are crucial to the nation's fisheries, as well as regional oil and gas supplies. Perhaps ironically, activity by the energy industry is helping to destroy its own infrastructure. In response, industry and government officials have created an unprecedented plan to save and rebuild these wetlands over the next 50 years at an estimated cost of $50 billion.  In a joint project with ProPublica, Bob Marshall, a reporter for The Lens, has co-authored an analysis of the plan called Losing Ground: Louisiana’s Moon Shot. “They're trying to rebuild some of the wetlands that have been lost and then to maintain that against all these unknown variables, such as subsidence and sea level rise and lack of funding,” Marshall says. So how is it even possible to restore or rebuild wetlands? What are the methods that the engineering crowd is saying are possible to use?  To start, Marshall says it is necessary to get the sediment out of the water and into the sinking basins in the area around New Orleans. Marsh creation, or as Marshall calls it, “slurry pipelines,” is where sediment is dredged out of the river and pumped into the sinking basins to re-create the environment as it once was. It is hoped that 33,000 acres can be restored this way. […]  But the restoration effort faces two problems: First, dams north of New Orleans hold back about half of the sediment needed for the effort, and second, the land is sinking so quickly that many of these areas are already too deep and too large to be rebuilt.

Oregon salmon trucked north to stem die-off in warm waters | Reuters: Federal officials in Oregon have been trucking hatchery salmon more than a hundred miles (160 km) north to another hatchery in Washington state throughout July to preserve fish that had been dying off by the thousands in an unseasonably warm river. Water that would rarely top 70 degrees Fahrenheit (21 Celsius) at this time of year in the Warm Springs River has reached 76 (24.4 Celsius), hot enough to weaken juvenile spring salmon immune systems, U.S. Fish and Wildlife Service fisheries supervisor Rich Johnson told Reuters on Wednesday. About 2,000 of the fish were dying every day before they were relocated, he said. "If the weather continues warm, there could be more problems for fish," Johnson said, noting that river temperatures across the region spiked a full month earlier than usual this year. The effort to save Warm Springs National Fish Hatchery's 160,000 remaining baby fish – plus 680 adults - comes as state wildlife officials in both Oregon and Washington have imposed rare fishing restrictions. High temperatures have been blamed for hundreds of thousands of wild and hatchery fish deaths throughout the U.S. Pacific Northwest.

Mercury Levels In Atlantic Bluefish Have Fallen By More Than 40 Percent In The Last 40 Years -- According a new study from the National Oceanic and Atmospheric Administration’s Center for Fisheries and Habitat Research, mercury levels in bluefish caught along the mid-Atlantic coastline have dropped 43 percent over the last 40 years, with an average reduction of 10 percent per decade. “This shows that the [Environmental Protection Agency] regulations and the Canadian regulations have had a relatively huge impact on coastal ocean fish,” “Here is an example of rules that EPA put in place regarding mercury, and now 30 years later we see these rules potentially have a huge impact on human health and economics.” EPA regulations and the Canadian regulations have had a relatively huge impact on coastal ocean fish  Beginning in the 1990s, the EPA began more tightly regulating mercury, banning the compound from batteries and controlling the transportation of mercury compounds used in industry. Today, coal-fired power plants are the primary sources of mercury emissions in the United States — toxic pollutants that damage air quality and contribute to ocean pollution once they eventually settle in bodies of water through precipitation. Once in water, mercury accumulates throughout the marine food chain, with predators eating mercury-tainted food, causing the mercury to build up in their biological tissues.

House Passes Bill That Would Allow Toxic Coal Ash Into Groundwater -  The Republican-led House of Representatives struck another blow to environmental regulation Wednesday night, passing a bill that will undercut the Environmental Protection Agency’s (EPA) coal ash regulations, opponents said.  Several key provisions in the EPA’s coal ash disposal rule — set to go into effect in October — would be either left to states to enforce or thrown out altogether under H.R. 1734, the “Improving Coal Combustion Residuals Regulation Act.”  “There are very big differences [between the bill and the EPA rule] that have huge impacts on public safety,” Lisa Evans, an attorney with Earthjustice, told ThinkProgress. Among the differences, she said, is the fact that the EPA rule prohibits disposing coal ash waste directly into the water supply, while the House bill does not. In a survey the EPA did of state laws on coal ash, only five of the 25 states surveyed specifically prohibited disposing of coal ash into groundwater, Evans said. “It makes absolutely no sense,” Evans said of the bill, noting that even household waste can’t be legally disposed into aquifers. “It’s absurd and its unreasonable.” The bill also delays implementation of coal ash disposal restrictions, allows utilities to avoid publicly posting contamination data, and allows companies to continue dumping coal ash into leaking surface impounds for as many as eight years after contamination is documented.

Citing Religious Freedom, Native Americans Fight To Take Back Sacred Land From Mining Companies -- For generations, members of the Apache Native American tribe have viewed Oak Flat as a holy, sacred place. Located about an hour due east of Phoenix, Arizona, the land has long served as a site for traditional acorn gatherings, burial services, and rite of passage ceremonies for young women. The flat is tucked inside Arizona’s Tonto National Forest, and has historically been protected by the federal government. “It’s our sacred land — it’s where we come to pray,” But last year, the land quietly became something else: A proposed site for a massive copper mining project spearheaded by Resolution Copper, an organization run by two multinational corporations based in the United Kingdom and Australia. The aggressive mining operation resulted from a last-minute addition to the National Defense Authorization Act, a “must-pass” military spending bill pushed through in December 2014. The language, which was inserted at the 11th hour by Arizona Senators John McCain (R) and Jeff Flake (R), essentially traded Resolution 2,400 acres of Arizona (including Oak Flat) in exchange for 5,300 acres of private land they already own. The swap is believed to be one of the first instances of federal land being given to a foreign corporation. Arizona’s Native American population was outraged by the deal, having fought against several efforts by Republicans in Congress to broker similar agreements over the years. Some locals have argued that the land grab shortchanges American taxpayers, since profits will go primarily to companies rooted outside the United States. In addition, environmentalists and the Apache people have repeatedly expressed fears that, since the mining industry is often exempt from portions of environmental laws such as the Clean Water Act, the invasive copper mining project could damage the area’s water — a resource many Native Americans claim a spiritual obligation to protect.

Scientist warns of ‘environmental disaster’ in Lake Baikal due to ‘irreversible’ pollution – ‘The coast has never looked like this before’ – Humans are having a dire impact on the lake, which Russians have long boasted as one of the cleanest - if not the cleanest - on the planet, says expert  Dr Oleg Timoshkin, researcher from the Limnology Institute of the Siberian Branch of the Russian Academy of Sciences in Irkutsk.  The respected Baikal analyst paints a worrying, even alarming, account of the damage to its waters.  Diseased sponge  - some giving the appearance of  'disgusting black slime' - is rife in parts of the lake; elsewhere household waste has been thrown into Baikal in 'massive' quantities;  the underwater lake habitat around the resort of Listvyanka in Irkutsk region amounts to an 'environmental disaster'; while at Severobaikalsk water samples showed the lake was 'dead' and facing 'intensive bacteriological decay'. Warning of the human imprint on the lake, he said: 'Baikal can't swallow it all. The lake is no longer the cleanest lake on the Earth, at least, (around the) the coastal line.' 'Water preparation and cleaning facilities of the towns close to Baikal haven't been functioning properly for the last three years, if not any longer. And all this filth gets into Baikal. It is not even possible to drink water of the rivers running through the local villages."  He warned: 'Small rivers that flow into (Baikal) showed unsatisfactory results regarding bacterias which are indicators of faecal pollution. It's simply a 'no' to drink water from these rivers.' […]

Unrestrained rubber expansion wreaking havoc on forests – ‘I’ve personally seen vast swaths of native forest being converted into rubber plantations in southern China, Malaysia, and Cambodia’ As the global demand for tires soars, so does the demand for natural rubber sourced from Hevea brasiliensis, the para-rubber tree. This rising demand is driving a rapid expansion of rubber plantations into biodiversity-rich forests and croplands of Southeast Asia, according to a new study published in Global Environmental Change.  Between 2005 and 2010, for instance, rubber plantations replaced over 110,000 hectares of forests identified as key biodiversity areas and protected areas, the authors write.  “Rubber is spreading rampantly in Southeast Asia-sort of a ‘second tsunami,’ following the explosive expansion of oil palm plantations in the region. I’ve personally seen vast swaths of native forest being converted into rubber plantations in southern China, Malaysia, and Cambodia.”  Researchers from China, Singapore, UK and the U.S. evaluated where rubber occurs naturally, and examined the extent to which rubber plantations have spread in Southeast Asia – where nearly 97 percent of the world’s rubber is grown. This includes non-traditional areas where rubber was not historically grown, and where environmental conditions are not suitable for cultivation of rubber.  “To our knowledge, this is the first study that provides a quantitative region-wide overview of the extent and trends of rubber plantation expansion into biophysically marginal environments,” Rubber production in Southeast Asia increased from 300,000 metric tons in 1961 to over 5 million metric tons in 2011, a jump of more than 1,500 percent, the authors write. Most of this rubber production today is through monocultures. Traditionally, this was not the case.

Tanzania’s elephant catastrophe – Two-thirds of its once mighty elephant population slaughtered in just four years – As Howard Frederick flew in a Cessna low over the scrubland of Tanzania’s Selous game reserve, it was the complete absence of elephants rather than the piles of scattered bones he saw that chilled him most.  The team conducting the aerial wildlife counts of Tanzania in 2013 and 2014 knew poaching was becoming a major problem, but nothing could have prepared them for what they uncovered.  Tanzania had lost two-thirds of its once mighty elephant population in just four years, as demand from China for their ivory tusks sent a highly-organised army of rifle and chainsaw-wielding criminals into its game reserves.  “I had never seen anything like that – there were carcasses everywhere, whole family groups on their sides, between three and seven animals, wiped out,” he told The Telegraph.  “Flying over these huge areas and even driving through, you used to see dozens of huge bull elephants.  “There was this incredible sense of life missing from that landscape that’s so defined by these creatures. It’s just hollow.”

NOAA: Hottest First Half Of Year In Northern Hemisphere By Stunning 0.36°F -- NOAA’s latest monthly climate report confirms that 2015 will crush previous global temperature records.That’s especially true up here in the northern hemisphere, where the first half of 2015 is a remarkable 0.36°F warmer than the first half of any year since records started being kept 135 years ago. Here are some of the other records for “combined average temperature over global land and ocean surfaces” in the dataset for the month of June from the years 1880 to 2015:

  • Hottest first half of any year (January-June) at “1.53°F (0.85°C) above the 20th century average … surpassing the previous record of 2010 by 0.16°F (0.09°C).”
  • Hottest June at “1.58°F (0.88°C) above the 20th century average … surpassing the previous record set last year in 2014 by 0.22°F (0.12°C).”

Here is the Northern Hemisphere plot of historical temperatures for January through June showing the huge jump this year: So far, this year is blowing past every other year in terms of average global temperatures. And as NOAA notes, “2010 was the last year with El Niño conditions; however El Niño had ended by this point in 2010, while it appears to be continuing to mature at the same point in 2015.” El Niños generally lead to global temperature records, as the short-term El Niño warming adds to the underlying long-term global warming trend.

Hotter, Wetter, Stormier: Study Says 2014 Climate Melted Records -- Global sea levels swelled to a high, tropical cyclones continued to multiply and the world’s thermometer set a record in 2014, according to a new report tracking the earth’s climate.The report, an “annual physical” for the world’s climate, found evidence of warming around the globe, from shrinking glaciers and Arctic sea ice to record levels of greenhouse gases in the atmosphere. The compendium of data from 413 researchers in 58 countries was released Thursday by the American Meteorological Society. The numbers are likely to be seized on by politicians and environmental groups seeking curbs on global warming emissions. The United Nations is trying to broker a deal this year among 190 countries to restrict greenhouse gas pollution. In the U.S., President Barack Obama’s push to limit emissions from power plants, oil and gas drillers and other sources has run into fierce resistance from Republicans in Congress. Four independent measures last year found “the highest annual global surface temperatures in at least 135 years of modern record-keeping,” Thursday’s report said. “The warmth was distributed widely around the globe’s land areas.” The annual State of the Climate report, compiled by the U.S. National Oceanic and Atmospheric Administration, found global sea levels reached a record high last year, about 67 millimeters (2.6 inches) above the mean in 1993 when satellite measurements began. There were 91 tropical cyclones in 2014, “well above” the 1981-2010 annual average of 82 storms

7 Graphs That Show Which Climate Records Were Broken In 2014 -- The state of the world’s climate is complex enough that it takes 413 scientists from 58 countries half a year to completely summarize a year’s worth of data. And 2014 was a doozy. According to the the American Meteorological Society and NOAA, the “State of the Climate in 2014″ report, several markers measuring the earth’s climatic trends set historical records. This is the 25th year that scientists have provided this report, and it was full of hundreds of pages of detailed atmospheric and oceanic summaries of what’s happening to our air, land, and water.  “The year 2014 was forecast to be a warm year, and it was by all accounts a very warm year, in fact record warm according to four independent observational datasets,” the report said. The reason: “the radiative forcing by long-lived greenhouse gases continued to increase, owing to rising levels of carbon dioxide, methane, nitrous oxide, and other radiatively active trace gases.”  The world’s experts know that climate change is happening, and why, and provide reports like these every year spelling out the impacts in excruciating detail. For those without the time to peruse nearly 300 pages of scientific summaries, here are seven records that fell in 2014.

California drought: Measuring life in gallons – ‘Water, water, water, water. I never thought about it before. Now I don’t think about anything else.’- – Their two peach trees had turned brittle in the heat, their neighborhood pond had vanished into cracked dirt and now their stainless-steel faucet was spitting out hot air. “That’s it. We’re dry,” Miguel Gamboa said during the second week of July, and so he went off to look for water. He had a container in the bed of his truck from the dairy where he worked, a 275-gallon tank that had been used to treat milk with chemical preservatives. Now he rinsed it with bleach and drove out of the suburbs, passing rows of tract houses with yellowed front lawns. He went to see a friend who still had a little water left in his well, and the friend offered Gamboa his hose. They stood together and watched the tank begin to fill with water that looked hazy and light brown. “You really want this?” the friend asked. “It doesn’t look that safe.” “It’s good for now,” Gamboa said. “We have to take what we can get.” For a few days now, they had been without running water in the fifth year of a California drought that had finally come to them. First it had devastated the orchards where Gamboa and his wife had once picked grapes. Then it drained the rivers where they had fished and the shallow wells in rural migrant communities. All the while, Gamboa and his wife had donated a little of their hourly earnings to relief efforts in the San Joaquin Valley and offered to share their own water supply with friends who had run out, not imagining the worst consequences of a drought could reach them here, down the road from a Starbucks, in a remodeled house surrounded by gurgling birdbaths and towering oaks.

California Regulators Slap Farmers With Record $1.5 Million "Water-Taking" Fine -- In what seems a lot like a strawman for just how much they can pressure the population, AP reports California water regulators proposed a first-of-its-kind, $1.5 million fine for a group of Central Valley farmers accused of illegally taking water during the drought. This would be the first such fine for holders of California's oldest (most senior) claims to water, and follows suits from the farmers to the government arguing their 'law changes' are illegal. As AP reports, the State Water Resources Control Board said the Byron-Bethany Irrigation District in Tracy illegally took water from a pumping plant even after it was warned there wasn't enough water legally available. The move by the board was the first against an individual or district with claims to water that are more than a century-old, known as senior water rights holders. The action reflects the rising severity of California's four-year drought that has prompted the state to demand cutbacks from those historically sheltered from mandatory conservation.The Byron-Bethany district serves farmers in three counties in the agriculture-rich Central Valley and a residential community of 12,000 people relying on water rights dating to 1914.

A Stunning Look At California's Historic Drought - From The Air -- "Ugly brown rings where waves used to lap at the shore. Dry docks lying on desiccated silt. Barren boat ramps. Trickles of water." Those are just some of the disturbing images California's Department of Water Resources team saw in an aerial tour of Northern California's Folsom Lake, Lake Oroville and Shasta reservoirs released this week...The dramatic aerial views timelapsed from just a year ago show the level of devastation already... and it's not about to get any better... Click image below for interactive gallery...

California Drought, the “Bigger Water Crisis” & the Consumer Economy​ --Gaius Publius: There's a nice BillMoyers.com write-up of a good set of feature (and media-interactive) reports at ProPublica. The BillMoyers.com write-up is this: California’s Drought Is Part of a Much Bigger Water Crisis. The underlying ProPublica report is this: Killing the Colorado Both are worth your reading.. Also, that the Moyers piece is also the next-to-last report in the ProPublica series.The Moyers-ProPublica write-up makes a nice set of points, many of which are bulleted below, and many of which you know. Where the piece falls short is what this adds up to. Some of the details:

  • ■ California is in a severe multi-year drought: Most of California is experiencing “extreme to exceptional drought,” and the crisis has now entered its fourth year.
  • ■ It will take a lot of rain to make things “normal” again: “A half-decade of torrential rains might bail California out of its
    crisis…”
  • ■ But the problem has huge structural components: “Killing the Colorado” has shown that people are entitled to more water from the Colorado than has flowed through it, on average, over the last 110 years. Meanwhile much of the water is lost, overused or wasted, stressing both the Colorado system, and trickling down to California, which depends on the Colorado for a big chunk of its own supply. Explosive urban growth matched with the steady planting of water-thirsty crops – which use the majority of the water – don’t help. Arcane laws actually encourage farmers to take even more water from the Colorado River and from California’s rivers than they actually need, and federal subsidies encourage farmers to plant some of the crops that use the most water.
  • ■ According to the government agency NOAA, the drought is not the fault of global warming:
  • ■ There are levels of “water rights,” and depending on who you are, you have a higher or lower level of right to the water. The highest level of water rights are called “senior rights.”

I’d like to comment on the third, fourth and fifth bullets above. Then I’ll add this up.

Officials say drought conditions worst in Washington recorded history -- Rivers and streams are at record lows, fish are dying, rainforests are burning and farmers and communities are facing water shortages. Officials call its scope and impact unprecedented in the modern history of Washington. “We have never experienced a drought like this,” said Maia Bellon, director of the state Department of Ecology. “It is remarkably worse than the drought of 2005 or 2001... and there is no end in sight.” Speaking at a Friday media briefing, Bellon and officials at six other state and federal agencies painted a dire picture. While some $16 million in emergency drought funding should soon be available for leasing water rights, drilling new wells and providing other relief, Bellon cautioned it won’t solve every drought crisis. The problems all stem from a record low snow pack in the Cascades followed by hot and dry weather in recent months, Bellon said. Even normally wet Western Washington has seen less rainfall that Phoenix, Ariz., she added. State climatologist Nick Bond called it “a one-two punch to streams and the landscape.” Comparatively speaking, reservoirs have somewhat cushioned Yakima Basin farmers from the drought’s direct hit. Junior water right holders expect to get just 46 percent of their normal supply here. But elsewhere about 300 irrigators who divert directly from rivers, such as the Wenatchee and Okanogan, have been shut off because water levels are so low, Bellon said. Local growers getting water from the Teanaway River and Cowiche Creek could soon face a similar fate as water levels continue to decline.

The West is so dry even a rain forest is on fire - In a normal year, Washington state’s Olympic National Park is arguably the wettest place in the continental U.S. An annual 150 inches of rain inundate the park’s western slopes, soaking the soil and slicking the branches of the lush temperate rain forest that grows there. But this is not a normal year. This year, ancient tree trunks smolder at their base as they burn from within. The downed wood and debris that carpet the forest floor have dried up into kindling. The abundant lichens that are characteristic of this type of rain forest are now facilitating the fire that’s burning it up: The flammable plant-like organisms pass the flames from tree to tree. As they burn, they drop from tree trunks to the ground, spreading the fire there as well. Now in its third month, the Paradise Fire has consumed nearly 1,600 acres of forest, making it the largest since the park was founded. According to the National Wildfire Coordinating Group Web site, officials don’t expect to have the fire contained until Sept. 30.That a wildfire has been able to burn so extensively and for so long in a rain forest is a testament to the severity of the drought that has wracked the American West from California to Alaska. Olympic National Park — which occupies much of the Olympic Peninsula just west of Seattle — just endured its driest spring in over 100 years and a winter snow pack that was a mere 14 percent of average, according to the Park Service. The glaciers that sit on the upper slopes of the park’s mountains and feed its many streams have been receding for decades — Bill Baccus, a park scientist, told the Seattle Times that the ice sheets have shrunk by 35 percent in the past 30 years.

Level 4 drought declared for South Coast and Lower Fraser - British Columbia - CBC News: Conditions are so dry in B.C's Lower Mainland, Sunshine Coast and Fraser Valley that the provincial government has raised the drought rating to the highest category — Level 4 — and are warning that if things get worse, water shortages could affect people, industry and agriculture. "All water users are urged to maximize their water conservation efforts," said the Ministry of Forests, Lands and Natural Resource Operations in a release. B.C. Forests Minister Steve Thomson said the government will be increasing education about water usage as more of the province moves to Level 4 drought.  This provincial drought rating is distinct from the regional ratings used by water managers, such as Metro Vancouver — but the change means further water use restrictions could be imposed in the region, if necessary. Currently, Metro Vancouver is under Stage 2 water restrictions, which limits lawn watering and other non-essential uses of treated drinking water. The reservoir levels sit at 73 per cent, which is below normal for this time of year. The Lower Mainland's drought rating was last raised to Level 3 on June 30, according to the release. Vancouver Island is already at Level 4.

South Florida’s drought deepens -- Eastern Miami-Dade and Broward counties have fallen into extreme drought conditions, water managers warned Thursday. One measure of the severity: about 85 percent of Miami-Dade’s groundwater monitoring wells are at their lowest levels in a century, according to the U.S. Geological Survey. Salinity in Biscayne Bay and Florida Bay continues to climb and severe and moderate conditions stretch west and north to Collier and Palm Beach counties. And the weather forecast promises little relief: below normal rainfall is expected in July. If this year’s feeble rainy season continues, South Florida’s drinking water supply in the Biscayne Aquifer could be threatened by seawater pushing in underground from the coast. “For us, it’s an indicator to start monitoring the saltwater intrusion line,” said South Florida Water Management District operations director Jeff Kivett. The district could order local utilities to try to cut back use to protect regional wellfields if conditions worsen, Kivett said. For now, the district is urging residents in Miami-Dade and Broward to adhere to oft-ignored year-round restrictions that limit lawn watering to twice a week. South Florida’s rainy season typically kicks in around June with the start of the hurricane season. But this year, following a dry spring, just over six inches has fallen across a 16-county region, more than two inches below average. July arrived with brutal heat, but little seasonal afternoon rain. Rainfall in Broward was off by more than eight inches. Miami-Dade was down seven inches. Water managers are also wrestling with low water levels in Lake Okeechobee, which this week slipped below 12 feet.

Drought Is Just the Beginning of Our Frightening Water Emergency --  The United Nations reports that we have 15 years to avert a full-blown water crisis and that, by 2030, demand for water will outstrip supply by 40 percent. Five hundred renowned scientists brought together by UN Secretary-General Ban Ki-moon said that our collective abuse of water has caused the earth to enter a “new geologic age,” a “planetary transformation” akin to the retreat of the glaciers more than 11,000 years ago. Already, they reported, a majority of the world’s population lives within a 30-mile radius of water sources that are badly stressed or running out.For a long time, we in the Global North, especially North America and Europe, have seen the growing water crisis as an issue of the Global South. Certainly, the grim UN statistics on those without access to water and sanitation have referred mostly to poor countries in Africa, Latin America, and large parts of Asia. Heartbreaking images of children dying of waterborne disease have always seemed to come from the slums of Nairobi, Kolkata, or La Paz. Similarly, the worst stories of water pollution and shortages have originated in the densely populated areas of the South.But the global water crisis is just that—global—in every sense of the word. A deadly combination of growing inequality, climate change, rising water prices, and mismanagement of water sources in the North has suddenly put the world on a more even footing. There is now a Third World in the First World. Growing poverty in rich countries has created an underclass that cannot pay rising water rates. As reported by Circle of Blue, the price of water in 30 major US cities is rising faster than most other household staples—41 percent since 2010, with no end in sight. As a result, increasing numbers cannot pay their water bills, and cutoffs are growing across the country. Inner-city Detroit reminds me more of the slums of Bogotá than the North American cities of my childhood.

Panic as 1000 firefighters battle 3500-acre wildfire sweeping across California - Firefighters are battling a fast-moving blaze which swept across a freeway in a Southern California mountain pass, destroying 20 vehicles and sending motorists running to safety before burning four buildings. Fanned by hot desert winds, the wildfire started in the Cajon Pass along Interstate 15 - the main highway between Southern California and Las Vegas - and spread quickly to 3,500 acres.Hundreds of firefighters, aided by water-dropping aircraft, have contained 5pc of the blaze. Strong winds spread the fire to the rural community of Baldy Mesa, where it burned at least five homes and threatened about 50 more. California is in the midst of severe drought, and wildfires are common. Some break out near freeways, but it is very unusual to have vehicles caught in the flames. Dozens of vehicles were abandoned and hundreds of others turned on to side roads to get away from the flames as water-dropping helicopters flew over the Cajon Pass area about 55 miles north east of Los Angeles.

Firefighters battle massive blazes from Alaska to drought-hit California | Reuters: Firefighters were working on Friday to contain several massive wildfires raging from Alaska to drought-hit California that have forced hundreds of people to evacuate from their homes and damaged dozens of structures. The so-called Lake Fire in a mountainous national forest outside Los Angeles had swelled to 11,000 acres (4,500 hectares) on Friday from 7,500 acres (3,000 hectares) the day before as it scorched old-growth timber on steep slopes and threatened some 150 structures, the San Bernardino County Fire Department said. Fire crews backed by bulldozers and water-dumping aircraft are battling to keep the blaze from crossing Highway 38 near the small city of Big Bear, the department said. Highway 38 and other roads remained closed in the area and officials ordered people away from vacation cabins and camp sites. In Alaska, about 900 firefighters were battling two major blazes in a state that has 56 active wildfires ranging from a few acres to 10,000 acres (4,000 hectares), officials said. A fire in Willow, about 40 miles (65 kms) north of Anchorage, has charred slightly more than 7,000 acres (2,800 hectares). The second major fire, in Sterling, about 140 miles (225 kms) south of Anchorage on the Kenai Peninsula, has blackened more than 7,500 acres (3,000 hectares). The fires have destroyed about 40 structures, forced nearly 1,000 people from their homes and restricted traffic on a major highway this week.

Washington state’s terrifying new climate threat: “Urban wildfires” -- Wildfire season isn’t what it used to be. In Washington state, a combination of ongoing drought and rapid development made 2014 particularly nightmarish, and this year’s unusually hot conditions are fueling another season of dangerous blazes — more than 300 so far, including one, 3,000-plus acre wildfire that destroyed homes and businesses in central Washington. Residents return to see homes destroyed by Washington state fire http://t.co/XlHmsbDHVc #ClimateHour pic.twitter.com/SqfIZhXAqx  That’s no longer out of the ordinary. Washington firefighters are bracing themselves for an onslaught of oxymoronic-sounding “urban wildfires,” NPR reports – basically, brush fires that bump right into cities, threatening entire communities. Officials there say it’s a “growing threat,” one more commonly associated with cities like San Diego — although increasingly, they point out, the weather in Washington state seems to resemble that of southern California.

Study finds climate change is increasing length of wildfire seasons across globe – ‘Climate change isn’t a future projection, it actually started around 1980’ – The length of wildfire seasons across the globe and the burnable areas of Earth’s surface have drastically increased in the past three decades due to climate change, according to a groundbreaking new study supported by years of research from the U.S. Forest Service's Missoula Fire Sciences Laboratory. In a paper published Tuesday in the international journal Nature Communications, a team of researchers concluded that from 1979 to 2013, fire weather seasons have lengthened across 18.39 million square miles of Earth’s vegetated surface, resulting in an 18.7 percent increase in the global average fire season length. The global burnable area affected by long fire seasons has doubled in that time, and from 1996 until 2013 there has been a 53.4 percent increase in the frequency of long fire seasons. One of the study’s lead authors, Matt Jolly, is a Fire Sciences Lab ecologist at the Rocky Mountain Research Station in Missoula. Inside the cavernous facility, scientists conduct cutting-edge research on wildland fires using wind tunnels and massive burn chambers. Jolly spent four years of his life immersed in computer models and digging through historical climate and fire data to assist the study. […] What we wanted is a metric that we could apply equally across the whole globe,” Jolly explained. “The change we found comes in two forms: steady long-term increase in fire season length as limited by weather and an increase in the frequency of extremely long fire seasons.” The researchers found there are long-term steady increases in fire seasons in places that normally don’t see many fires, like the southeastern U.S., especially the coastal plains of Florida.

Amazon deforestation increased by 110 percent in May 2015 - – In May 2015, SAD detected 389 square kilometers of deforestation in the Brazilian Amazon with a cloud cover of 39% over the territory. That represented an increase of 110% in relation to May 2014 when deforestation totaled 185 square kilometers and the cloud cover was 38%. In May 2015, the deforestation occurred in Amazonas (27%) and Mato Grosso (27%), followed by Pará (23%) and Rondônia (21%) and, at a lower proportion, Roraima (11%). The deforestation accumulated during the period from August 2014 to May 2015, corresponding to the first ten months of the calendar for measuring deforestation, reached 2,286 square kilometers. There was a 170% increase in of deforestation in relation to the previous period (August 2013 to May 2014) when it reached 846 square kilometers. Degraded forests in the Brazilian Amazon totaled 33 square kilometers in May 2015. In relation to May 2014, when forest degradation totaled 159 square kilometers, there was a 79% reduction. In May 2015, deforestation occurred in Amazonas (27%) and Mato Grosso (27%), followed by Pará (23%) and Rondônia (21%) and, in a lower proportion, Roraima (11%) (Figure 3). Accumulated deforestation during the period from August 2014 to May 2015, corresponding to the first ten months of the calendar for measuring deforestation, reached 2,286 square kilometers. There was a 170% increase in deforestation in relation to the previous period (August 2013 to May 2014) when it reached 846 square kilometers.

4 Degree Rise in Global Temperature May Make Outdoor Work Impossible in North India: Study: If the world warms up by 4 degrees Celsius, there is 30 per cent probability that temperatures will be so high that even moderate outdoor work cannot be carried out in the hottest month in northern India, a study on the risks of climate change has said. There would also be a 40 per cent chance that individuals in northern India will not be able to participate in competitive outdoor activities in summertime if global average temperature rises on an average by one degree. An international group of climate scientists, energy analysts and experts from finance and military recently released an independent assessment of the risks of climate change commissioned by the United Kingdom's Foreign and Commonwealth Office."The most important decision any government has to make about climate change is one of priority - how much effort to expend on countering it, relative to the effort that must be spent on other issues." "This risk assessment aims to inform that decision. In a year when important climate negotiations are scheduled, this kind of multi-country risk assessment hopes to inform a wide range of stakeholders about the risks for which human societies need to prepare," said Arunabha Ghosh, CEO, Council on Energy, Environment and Water (CEEW) and one of the lead co-authors of the report. The report was the result of collaboration between Harvard University Center for the Environment, Tsinghua University, China, CEEW and Cambridge University Centre for the Study of Existential Risk. The study also said that on a high emission pathway, flooding in the Ganges basin could be six times more frequent, becoming a 1 in 5 year event over the course of the century. It also said that with 1 metre of global sea level rise, the probability of what is now a "100-year flood event" becomes about 1000 times more likely in Kolkata.

Pakistan's Karakoram Glaciers Growing or Shrinking? --A recent headline in Pakistan's Express Tribune newspaper declared: "Pakistan's glaciers melting faster than rest of the world". A few days later, I heard an ex-Met Department officer in Pakistan repeate the same alarm on a Geo TV show "Capital Talk" anchored by Hamid Mir. Are these people right?  Recognizing it's too important an issue to let go, I decided to look into the facts and data as reported in science journals. Quickly, I came upon "Karakoram Anomaly". I learned that it's a term used to describe the fact that, unlike other mountainous regions, the Karakoram glaciers which supply most of Pakistan's river water are growing rather than shrinking. Pakistan is home to the most heavily glaciated area outside the polar regions of the Arctic and Antarctica. The massive glaciers of Baltoro and Biafo stretch for over 60 kilometers each in the Karakoram Mountains, according to Bina Saeed Khan who wrote on this subject in Pakistan's Dawn newspaper in 2013.  The area designated as the Central Karakoram National Park in Pakistan has 711 glaciers, which is double the number of glaciers in the Alps in Europe.  Other Himalayan ranges and the Tibetan Plateau — where glaciers have increasingly receded as Earth's climate has warmed — receive most of their precipitation from heavy summer monsoons out of hot South and Southeast Asian nations such as India. The main precipitation season in the Karakoram in Pakistan, however, occurs during the winter and is influenced by cold winds coming from Central Asian countries such as Afghanistan to the west, while the main Himalayan range blocks the warmer air from the southeast throughout the year. The researchers determined that snowfall, which is critical to maintaining glacier mass, will remain stable and even increase in magnitude at elevations above 4,500 meters (14,764 feet) in the Karakoram through at least 2100.

'Action required to stop sinking of the Capital' - THE NATIONAL Reform Council (NRC) was told yesterday that parts of Bangkok and nearby provinces were at great risk of sinking in the next 15 years if no action is taken to prevent it. The government has been urged to set up a national panel to handle the problem of rising tides and land subsidence, implement solutions and promote public participation. Wittaya Kulsomboon, chairman of the NRC panel on preparation for rising tides and land subsidence in Bangkok, cited the committee's report that the area was 0.5-2 metres above sea level and there had been a rapid urban growth and increase in population. Combined with natural sinking, the subsidence was accelerated by the high and prolonged use of underground water and the weight of tall buildings. He said Bangkok had some 700 buildings more than 20 storeys high and 4,000 buildings eight to 20 storeys high. Wittaya said many electric train lines also aggravated the risk of sinking into the sea to parts of Bangkok and its vicinity areas in future. It could even necessitate the relocation of the capital city, he warned. The NRC discussed and voted to acknowledge the report and have the committee review it before proposing to the Cabinet in seven days. Sucharit Koontanakulvong, a panel member and water-engineering expert, said preventive measures included control over underwater usage, and a city plan to regulate control of tall buildings. As the Gulf of Thailand sees rising tides each year, an idea has been floated to build a barrier dam from Chon Buri to Prachuap Khiri Khan, which could require Bt500 billion, he added.

Global warming is causing rain to melt the Greenland ice sheet - Greenland, one of the largest ice sheets in the world, is melting. In fact, it is melting ahead of schedule as the world warms. Scientists are working hard to deepen their understanding of this ice sheet’s behavior so that we can predict how fast and how much of the ice sheet will melt in the coming decades and centuries. It might seem obvious that in a warming world, the Greenland ice sheet will melt. But, what seems obvious and simple can be more complex when investigated more deeply. With respect to Greenland, it is expected that warmer temperatures increase melting but warmer temperatures can also mean more snowfall, as there is more moisture in warm air which can then fall as snow. So, it has been a question of which of these two competing processes would win out. Would Greenland get smaller because of melting or would it grow as more snow fell? Over the past few years, the verdict has become clear. The Greenland ice sheet is losing mass at an increasing rate. In fact, Greenland currently contributes twice as much as the Antarctic to rising sea levels. A new study, just published in Nature Geoscience, makes an important new contribution to our understanding of the forces at play in Greenland. Dr Samuel Doyle and an international team captured the wide-scale effects of an unusual week of warm, wet weather in late August and early September, 2011. They found that cyclonic weather led to extreme surface runoff – a combination of ice melt and rain – that overwhelmed the ice sheet’s basal drainage system. This drive a marked increase in ice flow across the entire western sector of the ice sheet that extended 140 km into the ice sheet’s interior. According to Dr. Doyle, It wasn’t just rainfall. We saw 10 to 15% of the total annual surface melt occur in this event in late summer 2011. When this water reached the bed, the ice sheet lifted up and moved faster towards the sea.

The troubling reason why Greenland may melt faster than expected - Over many years, glaciers helped form Greenland’s fjords, those narrow and deep inlets in the sea that are often surrounded by steep cliffs and serve as exit routes for the vast ice sheet’s sea-terminating outlet glaciers. And, according to new research, fjords in West Greenland are much deeper than previously thought. That means the world’s sea levels could rise faster than anticipated, because those outlet glaciers are more exposed to warm water. The findings have been peer-reviewed and accepted for publication in Geophysical Research Letters. The shape and depth of fjords have big implications for the ice sheet, which has been melting both from the top and the bottom and contains 20 feet of potential sea level rise in total. Warm air erodes ice above the water, but warmer waters — which reside at deep levels in some parts of the polar regions — undercut glaciers and melt ice from below. “As they melt faster, they can slide out to sea,” said Eric Rignot, leader researcher and a glaciologist at the University of California at Irvine. Deeper fjords means there are “a lot more places where the warm water, subsurface water, can reach the glaciers,” Rignot said. Shallow fjords don’t pose as much of a threat. On average, the fjords in this region are about 200 to 300 meters deeper than previously thought in some areas, he added. Glaciers undercut by warm water can melt twice as fast as those in colder waters, all other things being equal. Estimates on how fast sea levels are rising “will have to change because these processes are not accounted for in existing models,” Rignot said. “It’s part of an ongoing story, that the projections of sea level rise are underestimated.”

Arctic Sea Ice Volume Rebounds, But Not Recovering -- Over the last few decades, and particularly in recent years, the area of the Arctic Ocean covered by a skin of sea ice has steadily shrunk. But it’s not just this extent that matters — the volume of sea ice, which takes into account its thickness, is also important, but traditionally much more difficult to measure. The 2010 launch of the European Space Agency’s CryoSat-2 satellite finally allowed scientists to take a wide-scale view of Arctic sea ice volume, and the first five years of data have yielded some surprises.  The volume of sea ice left at the end of the summer melt season seems to vary more from year to year than had perhaps been previously appreciated; after declining for several years, sea ice volume shot up after the unusually cool summer of 2013, the data revealed. The authors of a new study reviewing the volume data, detailed on Monday in the journal Nature Geoscience, are quick to caution, though, that one single year of rebound doesn’t suggest any sea ice recovery, as the overall trend is still downward. Rather, the view afforded by CryoSat-2 will help them get a better handle on the ice’s future. The Arctic is one of the fast-warming spots on the planet, with average temperatures that have risen twice as fast as the global as a whole. That warming has led to the melting of sea ice in a self-reinforcing cycle: As ice melts, it exposes more open ocean, meaning more incoming sunlight is absorbed by dark waters instead of reflected by the bright, white ice.

The oceans are warming faster than climate models predicted: As I have said many times on this blog, if you want to know how much “global warming” is happening, you really have to be able to measure “ocean warming”. That is because more than 90% of the excess energy coming to the Earth from greenhouse gases goes into the ocean waters. My colleagues and I have a new publication, which better characterizes this heating and also compares climate model predictions with actual measurements. It turns out models have under-predicted ocean warming over the past few decades. But how would you measure the ocean? How would you make consistent, long-term measurements that would allow people to compare ocean heat from decades ago to today? How would you make enough measurements throughout the ocean so that we have a true global picture? This is one of the most challenging problems in climate science, and one that my colleagues and I are working hard on. We look throughout measurement history; first measurements were made with canvas buckets, then insulated buckets, and other more progressively complex devices. As these changes occurred, you have to be careful that any trend you see isn’t just an artifact of the resolution or the instrument accuracy.  What my colleagues determined was that we could reduce past errors in the ocean heat content (OHC) record by correcting systematic measurement biases, filling in gaps where no information is available, and by choosing a proper comparison climate. This new paper doesn’t solve all of the OHC issues, but it makes a great stride in clearing up past questions.

Warming of oceans due to climate change is unstoppable, say US scientists -- The warming of the oceans due to climate change is now unstoppable after record temperatures last year, bringing additional sea-level rise, and raising the risks of severe storms, US government climate scientists said on Thursday. The annual State of the Climate in 2014 report, based on research from 413 scientists from 58 countries, found record warming on the surface and upper levels of the oceans, especially in the North Pacific, in line with earlier findings of 2014 as the hottest year on record. Global sea-level also reached a record high, with the expansion of those warming waters, keeping pace with the 3.2 ± 0.4 mm per year trend in sea level growth over the past two decades, the report said. Scientists said the consequences of those warmer ocean temperatures would be felt for centuries to come – even if there were immediate efforts to cut the carbon emissions fuelling changes in the oceans.  “I think of it more like a fly wheel or a freight train. It takes a big push to get it going but it is moving now and will contiue to move long after we stop pushing it,” “Even if we were to freeze greenhouse gases at current levels, the sea would actually continue to warm for centuries and millennia, and as they continue to warm and expand the sea levels will continue to rise,” On the west coast of the US, freakishly warm temperatures in the Pacific – 4 or 5F above normal – were already producing warmer winters, as well as worsening drought conditions by melting the snowpack, he said. The extra heat in the oceans was also contributing to more intense storms,

Concern Over Catastrophic Methane Release — Overburden, Plumes, Eruptions, and Large Ocean Craters  - Robert Schribbler - Depending on who you listen to, it’s the end of the world, or it isn’t. A loud and lively debate that springs up in the media every time a new sign of potential methane instability or apparent increasing emission from methane stores is reported by Arctic observational science. On one side of this debate are those declaring the apocalypse is nigh due to, what they think, is an inevitable catastrophic methane release driven by an unprecedentedly rapid human warming of the Arctic. A release large enough to wipe out global human civilization. These doomsayers are fueled by a number of scientists (usually Arctic observational specialists) who continue to express concern — due to an increasing number of troubling, if not yet catastrophic, rumblings coming from the Arctic carbon store. The Arctic is warming faster than it ever has, they accurately note. And this very rapid rate of warming is putting unprecedented and dangerous stresses on carbon stores, including methane, that have lain dormant for many millions of years. The risk of catastrophic release, therefore, is high enough to sound the alarm. On the other side are a number of mainstream news outlets backed up by a group of established scientists. This group claims that there’s generally no reason to worry about a methane apocalypse. The methane releases so far are relatively small (on the global scale) and there are all sorts of reasons why future releases will be moderate, slow in coming, and non-catastrophic. The methane store most pointed toward by methane catastrophists — a frozen water methane known as hydrate — tends to self-regulate release, in most cases, acting as a kind of pressure valve that would tend to moderate emission rates and prevent instances of catastrophic eruption (please see The Long Thaw).

The world’s most famous climate scientist just outlined an alarming scenario for our planet’s future - James Hansen has often been out ahead of his scientific colleagues. With his 1988 congressional testimony, the then-NASA scientist is credited with putting the global warming issue on the map by saying that a warming trend had already begun. “It is time to stop waffling so much and say that the evidence is pretty strong that the greenhouse effect is here,” Hansen famously testified. Since then, he has drawn headlines for accusing the Bush administration of trying to muzzle him, getting arrested protesting the Keystone XL Pipeline, and setting forward the case for why carbon dioxide levels need to be kept below 350 parts per million in the atmosphere (they’re currently around 400). Now Hansen — who retired in 2013 from his NASA post, and is currently an adjunct professor at Columbia University’s Earth Institute — is publishing what he says may be his most important paper. Along with 16 other researchers — including leading experts on the Greenland and Antarctic ice sheets — he has authored a lengthy study outlining an scenario of potentially rapid sea level rise combined with more intense storm systems. It’s an alarming picture of where the planet could be headed — and hard to ignore, given its author. But it may also meet with considerable skepticism in the broader scientific community, given that its scenarios of sea level rise occur more rapidly than those ratified by the United Nations’ Intergovernmental Panel on Climate Change in its latest assessment of the state of climate science, published in 2013. “We conclude that 2°C global warming above the preindustrial level, which would spur more ice shelf melt, is highly dangerous,” note Hansen and his co-authors. 2 degrees Celsius is a widely accepted international target for how much the world should limit global warming.

Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning -- In what may prove to be a turning point for political action on climate change, a breathtaking new study casts extreme doubt about the near-term stability of global sea levels. The study—written by James Hansen, NASA’s former lead climate scientist, and 16 co-authors, many of whom are considered among the top in their fields—concludes that glaciers in Greenland and Antarctica will melt 10 times faster than previous consensus estimates, resulting in sea level rise of at least 10 feet in as little as 50 years. The study, which has not yet been peer-reviewed, brings new importance to a feedback loop in the ocean near Antarctica that results in cooler freshwater from melting glaciers forcing warmer, saltier water underneath the ice sheets, speeding up the melting rate. Hansen, who is known for being alarmist and also right, acknowledges that his study implies change far beyond previous consensus estimates. In a conference call with reporters, he said he hoped the new findings would be “substantially more persuasive than anything previously published.” I certainly find them to be. To come to their findings, the authors used a mixture of paleoclimate records, computer models, and observations of current rates of sea level rise, but “the real world is moving somewhat faster than the model,” Hansen says.  Hansen’s study does not attempt to predict the precise timing of the feedback loop, only that it is “likely” to occur this century. The implications are mindboggling: In the study’s likely scenario, New York City—and every other coastal city on the planet—may only have a few more decades of habitability left. That dire prediction, in Hansen’s view, requires “emergency cooperation among nations.”

Climate Seer James Hansen Issues His Direst Forecast Yet - James Hansen, the former NASA scientist whose congressional testimony put global warming on the world’s agenda a quarter-century ago, is now warning that humanity could confront “sea level rise of several meters” before the end of the century unless greenhouse gas emissions are slashed much faster than currently contemplated. This roughly 10 feet of sea level rise—well beyond previous estimates—would render coastal cities such as New York, London, and Shanghai uninhabitable. “Parts of [our coastal cities] would still be sticking above the water,” Hansen says, “but you couldn’t live there.”  This apocalyptic scenario illustrates why the goal of limiting temperature rise to 2 degrees Celsius is not the safe “guardrail” most politicians and media coverage imply it is, argue Hansen and 16 colleagues in a blockbuster study they are publishing this week in the peer-reviewed journal Atmospheric Chemistry and Physics.  On the contrary, a 2 C future would be “highly dangerous.” If Hansen is right—and he has been right, sooner, about the big issues in climate science longer than anyone—the implications are vast and profound. Physically, Hansen’s findings mean that Earth’s ice is melting and its seas are rising much faster than expected. Other scientists have offered less extreme findings; the United Nations Intergovernmental Panel on Climate Change (IPCC) has projected closer to 3 feet of sea level rise by the end of the century, an amount experts say will be difficult enough to cope with. (Three feet of sea level rise would put runways of all three New York City-area airports underwater unless protective barriers were erected. The same holds for airports in the San Francisco Bay Area.)

Sound And Fury Signifying Nothing --All the world's a stage ... and we have seen this play several times before, always played by the same actors.  ACT 1:

  • Protagonist/Prophet of Doom — retired NASA climate scientist James Hansen always plays this role. True to form, he (along with 15 colleagues) has issued a new paper which claims (based mainly on Eemian/Marine isotope stage 5e paleoclimate data) that we could see "potentially rapid sea level rise combined with more intense storm systems" in the next 50, 100 or 200 years.

  • Cautious Voices of Reason — this Greek choir is always played by (among others) climate scientists Michael Mann, Stephen Rahmstorf, Kevin Trenberth, Richard Alley and (sometimes) Michael Oppenheimer. Their conclusions are always the same: Hansen's findings are "rife with speculation and ‘what if’ scenarios" (Trenberth). More research is of course required to find out what's going on.
  • Intrepid Climate Journalists — climate beat reporters like The Washington Post's Chris Mooney quote our Protagonist, and gather the reactions of the Cautious Voices of Reason. This play and many others are always running in some theater somewhere near you, so people like Mooney get to keep their day jobs.
  • The Hoi Polloi — this role is played by the General Public and those trying to exploit them. Thus we see stories like Former Top NASA Scientist Predicts Catastrophic Rise In Sea Levels at The Huffington Post, right next to stories like These Companies Made Big Money Off Serving Unhealthy School Lunches and Obama Promises To Keep Jon Stewart On 'The Daily Show' With An Executive Order (and so on).

INTERMISSION (24-48 hours pass) ACT 2: Nothing happens. There is no ACT 2. The show is over, folks. Go home.
CONCLUDING NOTES: This one act play is always sound and fury signifying nothing, but admission was free and you get what you pay for.

James Hansen: ‘Emergency Cooperation Among Nations’ Is Needed to Prevent Catastrophic Sea Level Rise  - If a new scientific paper is proven accurate, the international target of limiting global temperatures to a 2°C rise this century will not be nearly enough to prevent catastrophic melting of ice sheets that would raise sea levels much higher and much faster than previously thought possible. According to the new study—which has not yet been peer-reviewed, but was written by former NASA scientist James Hansen and 16 other prominent climate researchers—current predictions about the catastrophic impacts of global warming, the melting of vast ice sheets and sea level rise do not take into account the feedback loop implications of what will occur if large sections of Greenland and the Antarctic are consumed by the world’s oceans.  A summarized draft of the full report was released to journalists on Monday, with the shocking warning that such glacial melting will “likely” occur this century and could cause as much as a 10 foot sea-level rise in as little as 50 years. Such a prediction is much more severe than current estimates contained in reports issued by the Intergovernmental Panel on Climate Change (IPCC)—the UN-sponsored body that represents the official global consensus of the scientific community. “If the ocean continues to accumulate heat and increase melting of marine-terminating ice shelves of Antarctica and Greenland, a point will be reached at which it is impossible to avoid large scale ice sheet disintegration with sea level rise of at least several meters,” the paper states.Separately, the researchers conclude that “continued high emissions will make multi-meter sea level rise practically unavoidable and likely to occur this century. Social disruption and economic consequences of such large sea level rise could be devastating. It is not difficult to imagine that conflicts arising from forced migrations and economic collapse might make the planet ungovernable, threatening the fabric of civilization.”

Climate pledge puts China on course to peak emissions as early as 2027: China is aiming to peak its carbon dioxide (CO2) emissions "around 2030" and will make "best efforts" to peak early, its climate pledge to the UN confirms. China's intended nationally determined contribution (INDC) includes a new target to reduce its carbon intensity by 60-65% of 2005 levels by 2030. Carbon Brief analysis suggests the top end of this range would see CO2 peaking in 2027. China also says it will source 20% of its energy in 2030 from low-carbon sources.  The announcement, which adds to existing Chinese commitments, came on a busy day on Tuesday for climate pledges. South Korea, Serbia and Iceland all filed INDCs with the UN, bringing the share of global emissions covered by pledges to nearly 56%. Tuesday also saw Brazil and the US announce new commitments to renewable energy at a joint summit in Washington.  As the world's largest emitter responsible for nearly a quarter of global greenhouse gas emissions, China's announcement is the most significant. Amber Rudd, UK energy and climate change secretary, said it was a sign that momentum was building for a deal in Paris this December. We'll look at what China says it wants from that deal in a moment. China become the world's largest emitter in 2005-6 (red line, below), after overtaking the EU in 2003 and the US in 2005. It rapidly eclipsed the world's other major economies through coal-fuelled expansion and double-digit economic growth.

Europe to America: Your love of air-conditioning is stupid - The weather in Washington, D.C., and  Berlin, Germany, has been pretty similar recently. There is one striking difference between the two capitals, though: Whereas many Americans would probably never consider living or working in buildings without air conditioning, many Germans think that life without climate control is far superior. The divide isn't limited to Berlin and D.C.: In fact, many Europeans visiting the U.S. frequently complain about the "freezing cold" temperatures inside buses or hotels. American tourists on the other side of the Atlantic Ocean, however, have been left stunned by Europeans' ability to cope with heat, even at work spaces or in their private homes.  Overall, it's safe to say that Europe thinks America's love of air-conditioning is actually quite daft. Europeans have wondered about this particular U.S. addiction for a while now:  And according to the Environmental Protection Agency, it's getting worse: American demand for air-conditioning has only  increased over the past decades.   According to Stan Cox, a researcher who has spent years studying indoor climate controlling, the United States consumes more energy for air conditioning than any other country. In many parts of the world, a lack in economic development might be to blame for a widespread absence of air-conditioning at the moment. However, that doesn't explain why even most Europeans ridicule Americans for their love of cooling and lack of heat tolerance.  Whereas Americans prefer an average temperature of 70 degrees, Europeans would consider such temperatures as too cold, Michael Sivak from the University of Michigan says. "Americans tend to keep their thermostats at the same temperature all year around.  In contrast, Europeans tend to set their thermostats higher in summer and lower in winter.  Consequently, while indoors, Europeans wear sweaters in winter, while American wear sweaters in summer," Sivak told The Washington Post.

The Great Recession, not natural gas, the main factor in CO2 emissions drop: Coal-fired power plants have been going dark across the U.S. for several years now as many utilities use more natural gas than coal to generate electricity — a move thought to be more climate friendly because burning natural gas emits about half as much carbon than coal. That switch has been considered one of the primary reasons for a tumble in carbon dioxide emissions in the U.S. between 2007 and 2012, but a new study has found that the falling emissions were more likely caused by an overall drop in consumption during the Great Recession. Two years ago, the federal government was hailing a milestone in greenhouse gas emissions in the United States: Carbon dioxide emissions from burning energy — the primary cause of climate change — had fallen for a fifth year in a row, and the carbon intensity of the U.S. economy had fallen faster than at any point in more than six decades. The federal government pinned the emissions decline partly on the use of natural gas for electricity as well as a lagging economy. The hydraulic fracturing, or fracking, boom has helped drive down natural gas prices, encouraging utilities to use more gas instead of coal. But since 2013, U.S. energy-related carbon dioxide emissions have begun to creep up again, rising 2.5 percent between 2012 and 2013, an increase the federal government pins on colder winters requiring more energy for heating and an increase in the carbon intensity of the economy. The UC-Irvine study, an economic analysis of U.S. energy use and emissions between 1997 and 2013, found that U.S. carbon dioxide emissions fell 10 percent between 2007 and 2009, a drop that was concurrent with a major fall in the consumption of goods and services because of the recession. That falloff was responsible for about 75 percent of the decline in U.S. carbon dioxide emissions, according to the study.

Biggest Coal Polluters Dominate Emissions -- Although several of America's biggest investor-owned utilities have seen a significant drop in their carbon footprints as they have shifted away from coal in recent years, just five––led by Duke Energy, American Electric Power and Southern––are still responsible for spewing out 25 percent of the nation's power plant carbon emissions. That's a main takeaway of a comprehensive new report this week by Ceres, Natural Resources Defense Council, Bank of America and four utilities.  The report measures the carbon and other air pollution released by the country's 100 largest power producers, accounting for more than a third of U.S. global warming emissions. It finds that while overall power sector emissions are declining, not all big utilities are rushing forward to go low-carbon. The data also show that some of the country's oldest and dirtiest power plants are not owned by the largest investor utilities, but by smaller government-backed rural cooperatives that have resisted the break from coal. Among the top five utilities that emit the most carbon dioxide per megawatt of electricity, four are rural cooperatives. Cooperatives, which provide about 10 percent of U.S. electricity, are non-profits owned and operated by ratepayers that receive low-interest loans from the federal government to finance expansions and repairs. Seventy percent of their electricity comes from coal compared to roughly 37 percent for total electric utilities.  Overall, their carbon contribution is small, but not insignificant: The top seven cooperatives produced more power in 2013 than MidAmerican, the fifth-largest power producer in the country, the report shows. Combined, those seven spewed 85 million tons of carbon, 16 percent more than MidAmerican. The coal-heavy cooperatives have claimed that the Clean Power Plan, expected to be finalized in August, is illegal and would push them out of business. Here's a look at the top five carbon emitters, by total emissions and by carbon intensity:

Fossil fuel companies impose more in climate costs than they make in profits - It is fairly well understood by now that releasing carbon dioxide and other greenhouse gases into the atmosphere imposes an economic cost, in the form of climate change impacts. In most cases, however, those responsible for carbon emissions are not required to pay that cost. Instead, it's borne mainly by the world's poor and low-lying countries, and of course by future generations, as many of the worst impacts of climate change will emerge years after the emissions that drive them. People sometimes refer to the unpaid cost of carbon pollution as a subsidy, or an "implicit subsidy," to polluting businesses. The IMF recently issued a report saying that total worldwide subsidies to energy, mainly fossil fuel energy, amounted to $5.2 trillion a year. The reason that number is so high is that the IMF includes implicit subsidies — the social costs imposed by businesses (including climate damages) that they don't have to pay for. Vox's Brad Plumer raised some questions about whether that's a misleading use of the term "subsidy." Whatever you call it, though, it makes for an unsustainable situation, literally. It can't go on. As climate change gets worse and the chance to avoid harsh impacts dwindles, governments are getting serious about putting some sort of price on carbon emissions, whether explicit (a tax) or implicit (regulations). By next year, a quarter of the world's carbon emissions will be priced in some way. Businesses that now emit carbon pollution for free (or cheap) will soon see their costs rise. In other words, carbon pollution is a business risk. It's a bubble that's going to pop, probably soon. The Carbon Tracker Initiative has popularized a term for this looming liability: "unburnable carbon."

Elephant In The Room: The Pentagon’s Massive Carbon Footprint: It’s not news that climate change threatens the security of every person on planet Earth. The Union of Concerned Scientists predicts 6-16 inches of sea level rise by the year 2050. The threat is apparent in the Marshall Islands, which just set its own ambitious goal for reducing carbon emissions in the wake of catastrophic storms and coastal flooding in the South Pacific. The threat is apparent in California, where prolonged drought has led to wildfires like the one that crossed a busy highway and caused several vehicles to explode in flames. The threat of weather extremes is apparent in Sydney, Australia, which saw snowfall this winter for the first time since 1836.What is news: the Pentagon’s enormous, unacknowledged contribution to climate change.According to its own study, in 2013 the Pentagon consumed fuel equivalent to 90,000,000 barrels of crude oil. This amounts to 80% of the total fuel usage by the federal government. If burned as jet fuel it produces about 38,700,000 metric tons of CO2. And the Pentagon’s figures do not include carbon produced by the thousands of bombs dropped in 2013, or the fires that burned after the jets and drones departed.Corporate media reports on alarming climate change never mention the Pentagon. Newspapers and television stations run puff pieces on air shows like the Navy’s Blue Angels without noting that the jets from a typical show generate about 300,000 pounds of CO2 into the air. A photographer at the Great Maine Air Show in 2012 captured a runway covered with a wall of flames that organizers said was a “simulated bombing.” Carbon generated by burning napalm for entertainment? Unknown.

Climate finance: Funding a low-carbon global economy -- Over the next decades, trillions of dollars will be required to tackle climate change. Leveraging it is a question that concerns politicians and financial institutions alike. Largely, it has been a conversation that the two have held separately.  The political discussion centres around a promise made in 2009 at the UN's climate conference in Copenhagen, when developed countries committed to provide $100bn a year from 2020 to help poor nations reduce their emissions and adapt to the impacts of climate change, with a significant portion of this flowing through a Green Climate Fund.  Nations reaffirmed that pledge at the Financing For Development conference in Addis Ababa this week, where the UN largely focused on the issue of how to finance its post-2015 sustainable development agenda - a set of guidelines, to be finalised this September, on reducing poverty, hunger and climate change, among other issues. $100bn may sound like a lot of money. It is. But the investment required to deal with climate change will likely cost trillions, as infrastructure and energy across the world reshape into a greener, more resilient form, compatible with a world where temperatures rise no more than 2C. Enabling this will require a rethink of how the financial system itself works.

Climate Treaty's Finances on Shaky Ground - Faith in the Green Climate Fund, the finance arm long believed to hold a key to achieving a global climate change accord in Paris in December, is beginning to wane. The Green Climate Fund is supposed to be the primary distributor of tens of billions of dollars in climate aid to help the world's poorest countries deal with climate change caused primarily by the actions of others. It was designed to help heal the deep divisions between rich and poor nations that have long dimmed hopes for a meaningful global warming solution.  But with just one more board meeting to go before the Paris climate talks begin, the money it has to work with is not close to what's needed, the $3 billion contribution from the United States is looking iffy, and the fund has partnered with several financial institutions that developing nations distrust.  Here's a guide to the Green Climate Fund and where it stands:

Innovation Sputters in Battle Against Climate Change -  In the race to develop technologies to slow climate change, the world is off track. That’s the latest assessment from the International Energy Agency, which presented a bleak outlook ahead of the planned climate summit meeting in Paris this December, where countries rich and poor are hoping to agree on a strategy to slow global warming.Even under the more optimistic assessments of humanity’s technological capabilities, limiting the atmosphere’s warming to two degrees Celsius above the average in the preindustrial era — considered by many scientists to be a tipping point toward climatic upheaval — seems to be slipping out of reach.“For the first time since the I.E.A. started monitoring clean energy progress, not one of the technology fields tracked is meeting its objectives,” Maria van der Hoeven, the agency’s executive director, wrote in a foreword to the report. “Our ability to deliver a future in which temperatures rise modestly is at risk of being jeopardized.”  Deployment of renewable energy is progressing, but not fast enough. Nuclear power is behind the curve. Key technologies like carbon capture and storage, which the Intergovernmental Panel on Climate Change has deemed critical to staying within the target, are still in their infancy.The only commercial scale coal-fired power plant equipped with carbon dioxide capture technology opened last October in Canada. . Perhaps most critically, the world’s collective effort to reshape energy infrastructure seems to be losing steam. In 2014, global investments in renewable energy declined for the fourth year in a row, to under $250 billion.

Toxic Waste Sullies Solar’s Squeaky Clean Image -- Sodium hydroxide and hydrofluoric acid are among the caustic chemicals required in the manufacturing process, along with water and electricity, the production of which emits greenhouse gases. Metals that go into solar panels are often mined in jurisdictions with low environmental standards and even poorer safety records. The biggest problem, though, is waste. The Silicon Valley Toxics Coalition (SVTC), a San Francisco-based non-profit, has been tracking the waste created by solar panel manufacturers since 1982, and reports a disturbing upward trend in the amounts being generated annually. “We need to take action now to reduce the use of toxic chemicals in [photovoltaic production], develop responsible recycling systems and protect workers throughout the global PV supply chain,” the coalition said in its latest report. In a sense, the problem is a byproduct of the industry's success; fueled by government incentives, production of solar panels has skyrocketed in recent years, and in the process, millions of pounds of polluted sludge and contaminated water have also been produced. Disposing of the waste by truck is expensive, so in the absence of regulations, it gets dumped where it shouldn't. The most egregious example is, unsurprisingly, in China, where until recently solar panel makers simply dumped silicon tetrachloride on fields near their factories, according to a 2013 news report.

Study: Clean energy rules hurt economy - Ohio’s mandate that utilities find more of their power from renewable sources is hampering the state’s economic comeback, a study presented Monday to a state panel considering the future of those standards suggested. The study, conducted by Utah State University, suggested that states such as Ohio with renewable electricity standards have not fared as well as states without them. It said this trend will continue, leading to a difference of about 29,000 jobs by 2026, mostly in industrial and manufacturing sectors, which are the biggest users of electricity. “What we see is that the growth that states could be having, the improving economic conditions particularly since the recession, is somewhat less from what they might have been absent a mandate … to purchase electricity from particular places,” . A special joint state House and state Senate Energy Mandates Study Committee held its last hearing Monday. The committee now will prepare its final report to fellow lawmakers regarding where it thinks Ohio should go in terms of the renewable requirements as well as mandates requiring more efficient use of energy. The report is due to lawmakers by Sept. 30.   Ohio is in the middle of a two-year timeout in its march toward renewable energy. State law previously required that utilities such as Toledo Edison parent FirstEnergy find at least 25 percent of their power from renewable and advanced technology sources by the year 2025. Lawmakers last year froze in place the annual benchmarks utilities must meet on that timeline. Should lawmakers lift the freeze, the benchmarks would resume in 2017, although the ultimate 25 percent goal would be delayed until 2027.

John Kasich’s Treatment Of A Renewable Energy Program In Ohio Undermines His Economic Credentials  -- Ohio Gov. John Kasich is the newest entrant to the crowded Republican field for 2016, and his supporters are trying to steer the conversation towards his economic bona fides.  But Kasich’s record on the economy has one major flaw: In 2014 he signed a bill freezing a successful clean energy program. Ohio’s renewable portfolio standard (RPS) had created 25,000 jobs and spurred at least $1 billion in private sector investment.  Kasich disagreed that the RPS had economic benefits. “The well-intentioned strategy developed in 2008 to encourage alternative energy generation mandated levels which are now emerging as a challenge to job creation and Ohio’s economic recovery. They are simply unrealistic and will drive up energy costs for job creators and consumers,” Kasich said in a statement at the time.  In fact, in less than six years, Ohio’s RPS saved consumers roughly $230 million and dropped electricity rates by almost a percent and a half. The efficiency measures that were also frozen had saved ratepayers $1 billion, according to utility company filings. Perhaps unsurprisingly, the policies were supported by 70 percent of Ohioans.  The reasoning behind the freeze — ostensibly billed as a chance to evaluate the costs and benefits of supporting renewable energy and efficiency — is unclear. But the Koch-funded American Legislative Exchange Council (ALEC) has been tied to anti-RPS efforts in Ohio as well as several other states. And it’s unclear how balanced the evaluation process will be. On Monday, the state committee responsible for reviewing the policy heard testimony from the Buckeye Institute’s Greg Lawson and Ryan Yonk from Utah State University, both of whom have been tied to anti-renewable policies, according to the Natural Resources Defense Council (NRDC).

New power plant seen as game-changer as natural gas topples coal in Ohio – A big change is coming to Ohio: Coal is on the way out and cleaner-burning natural gas is moving in. That switch is behind the ceremonial groundbreaking Tuesday southeast of Canton in tiny Carroll County, where a new $899 million natural gas-fired power plant is being built in the heart of Ohio’s Utica Shale. Carroll County Energy hosted a mini-party for the 700-megawatt plant that is already under construction at the 77-acre site off state Route 9, about 2 1/2 miles north of Carrollton. That’s enough electricity to power 750,000 houses. The facility is scheduled to begin operations in December 2017. The plant would have been impossible except for the development of the Utica Shale in eastern Ohio that is producing large quantities of low-cost natural gas, said Thomas Spang, chief executive officer of Advanced Power AG, the Swiss-based company behind the project. An estimated 700 construction jobs and 21 permanent jobs will be created, the company said. The plant will produce 50 percent of the carbon dioxide and less than 10 percent of the sulfur dioxide and nitrogen oxide that would have been produced by a coal-fired plant, the company said. It will also capture waste heat to generate additional electricity. The operation will be close to Kinder Morgan’s Tennessee Gas Pipeline plus American Electric Power transmission lines, officials said.

200 coal plants announced to retire since 2010 in US! That's almost 40% of the country's coal plants --It's been clear for a while that coal is the fuel of the past, not of the future. Just this year, 12,300 megawatts of coal power will shut down in the US, with a lot more to come (it is estimated that between 2012 and 2022, the total reduction in U.S. coal power capacity will have been 46,000 MW!).  The Sierra Club, with its Beyond Coal campaign, is working very hard to move the U.S. off coal and get commitments that coal plants will be retired. They maintain this interactive map that shows "defeated" coal plants, and which ones are still operational... for now: This week they're celebrating a new milestone: The 200th U.S. coal plant retirement announcement since 2010. This is a huge deal, because in 2010 there were 535 coal plants in the country, so this is almost 40% of the fleet that is going away (and while it's not always the biggest power plants that are retired, it's usually the oldest and dirtiest ones). "In 2009, the pollution from the 200 coal plants now slated for retirement caused 6,000 heart attacks, 60,000 asthma attacks and 3,600 deaths each year. The plants emitted more than 188 million metric tons of carbon pollution, equivalent to the annual emissions of more than 39 million passenger vehicles. The coal plants also emitted more than 7,600 pounds of mercury each year. Mercury, a potent neurotoxin, contributes to thousands of birth defects and neurological disorders, putting communities surrounding coal plants at higher risk. "

Nuclear Expert: We should be very worried about ongoing catastrophe at Fukushima… “Complete failure” of ice wall built to contain extremely radioactive water… Plutonium is flowing into Pacific, will for many years to come — Strontium in ocean hits record level, huge increase reported since April (VIDEO) --- Excerpts from presentation by Arnie Gundersen, Fairewinds Chief Engineer, Jul 16, 2015 (emphasis added):

  • Are the meltdowns at Fukushima Daiichi over?… This catastrophe is not over… We should continue to be very worried.
  • 3 of the nuclear cores at Fukushima Daiichi are in direct contact with groundwater.  Nuclear power designers and engineers never anticipated that possibility.
  • Fukushima Daiichi Units No. 1, No. 2, and No. 3 were destroyed… allowing holes and cracks to form… We know for sure that the Fukushima Daiichi containments are full of holes that allow groundwater to come in direct contact with each nuclear core.
  • Groundwater is still leaking in and leaking out, at a rate of at least 300 tons per day… more than 1,500 days have passed… 23,000-tanker truckloads of radioactive water have already leaked into the Pacific Ocean. Worse yet, there is no end in sight.
  • As Fairewinds anticipated, the ‘ice wall’ is a complete failure.
  • Cesium, strontium and plutonium from Fukushima Daiichi will continue to bleed into the Pacific Ocean for decades because the groundwater flow is unmitigated.
  • Japan’s press looks on silently due to the real threat and constraints of the government’s secrecy act… The true human, financial, and environmental costs of this nuclear power catastrophe are not publicized and discussed.

Can U.S. Nuclear Plants Operate For 80 Years? - The nuclear industry in the United States has been at a standstill for several decades. After an extraordinary wave of construction in the 1960s and 1970s, the nuclear industry ground to a halt. A confluence of events killed off new construction, including high interest rates, cost overruns, delays, and the Three Mile Island incident that scared the public and turned it against nuclear power. But despite the nuclear industry’s inability to build more than a handful of new nuclear power plants since the 1980s, nuclear power still accounts for about 19 percent of electricity generation in the United States, the third largest source of electricity behind coal and natural gas. Yet the nation’s 99 reactors are mostly nearing their retirement age. Having originally been planned for 40-year lifespans, many of the reactors would have already been forced to shut down by now, with nearly all of the rest hitting their limits at some point within the next decade. Instead, more than three-quarters of them have already received a 20-year extension, putting off their retirements until the 2030s. But in the nuclear sector, where everything takes a long time, the 2030s are rapidly approaching. With one-fifth of the country’s electricity fleet nearing retirement, and very few nuclear power plants under construction to replace what is expected to be lost, how will the U.S. cope with the lost capacity?

Thanks to anti-fracking group, Athens residents to vote on county's powers - An Athens anti-fracking group won its battle last week to put an issue on the November 2015 ballot that could give the county more legislative power and a community bill of rights restricting certain activities of oil and gas companies within county limits. If residents vote in favor of the measure, Athens County would have a charter form of government, meaning the county would be considered a municipality, as opposed to being governed by the state of Ohio, explained Nancy Pierce of the Bill of Rights Committee, the group heading the issue. She said that structure of government is permitted within Ohio laws and is simply an alternative to statutory government. Pierce said she hopes enacting a charter government will give the county the ability to implement laws such as Title 47, an Athens City law that requires any operator of a drilling or injection waste disposal mechanism within city limits to pay a fee. The fee specifically goes toward tracing and monitoring the drilling or injection sites for contamination.“That mechanism within the state of Ohio, that kind of protection of an area locally, is not preempted by state regulation,” Pierce said. “The state gives permits and they do their thing in terms of regulation.”She does not have the same confidence in the issue’s goal to put a ban on injection wells, though, calling it further reaching in terms of the rights of localities. However, she has a staunch stance on her view against injection wells.“We really want to act to protect our water supply in this county,” Pierce said. “These injection wells are going to migrate and contaminate the water. They’re not given any sort of protection. They drill through the water table; they don’t evaluate the geology around the injection wells.”

Company sues in Ohio courts to finish pipeline surveys (AP) — The company planning to build an industrial-sized natural gas pipeline across northern Ohio has been waging and mostly winning court battles to allow surveyors onto people’s property to determine a preferred route that will be submitted to a federal agency for approval. The $2 billion project is being proposed by NEXUS Gas Transmission, a subsidiary of Houston-based Spectra Energy and Detroit-based DTE Energy. Attorneys for NEXUS have obtained temporary restraining orders in Fulton, Lorain, Sandusky, Lucas and Wood counties that allowed surveyors onto the land of those sued. A case is pending in Erie County and, on Friday, a judge in Medina County denied NEXUS’ request for a restraining order and set a trial date to hear arguments on Sept. 24. Liz Athaide-Victor, one of the leaders of a citizens group opposed to NEXUS’ pipeline plans, likens the company to “schoolyard bullies.” “I think the court battles are just beginning,” Athaide-Victor said. NEXUS has surveyed about two-thirds of the thousands of Ohio properties in the proposed path. It needs to complete the surveys to meet its self-imposed November deadline for submitting an application with the company’s preferred route to the Federal Energy Regulatory Commission for approval.

Local fracking ban struck down - Lexology -  We typically focus on state court class actions when they reach the appellate level, but wanted to note an interesting decision at the trial court level.  An Ohio court has rejected a proposed class action by a group seeking to ban hydraulic fracturing in their community.  See Mothers Against Drilling in Our Neighborhood v. Ohio, No. CV-14-836899 (Ohio Ct. Com. Pl., 7/1/15). Last December, community activists filed the class action against the state, the governor, and some fracking defendants, with the far-reaching argument that the portion of state law (Ohio Rev. Code § 1509) that gives the state Department of Natural Resources exclusive authority to permit, locate, space and regulate oil and gas wells, somehow violates plaintiffs' state constitutional right to local self-governance.  Plaintiffs' community had voted in favor of a city ordinance that bans fracking within the boundaries of their city. The court granted defendants' motion for summary judgment, relying in large measure on a recent Ohio Supreme Court ruling in State v. Beck Energy Corp., Ohio, No. 2013-465, 2015 WL 687475 (Ohio, 2/17/15).  The ban on fracking was an invalid exercise of the city's home rule authority as it was preempted by Ohio Rev.C. 1509 as a matter of law.  In Beck, the state supreme court had noted that Chapter 1509 regulates oil and gas wells and production operations in Ohio. While it preserves certain limited powers for local governments, it gives the state government “sole and exclusive authority” to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state.The supreme court held that the Home Rule Amendment to the Ohio Constitution did not grant to a city the power to enforce its own permitting scheme atop the state system.

Utica and Marcellus activity in Ohio -- Activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to the last well activity update, and one energy company is boosting its game when it comes to electric cars. American Electric Power Company Inc. (AEP) is beginning to pay closer attention to the number of customers it serves that have electric cars and the amount of power they will demand.  According to the Columbus Business First, just last year over 123,000 plug-in electric cars were sold in the U.S., which is only a small portion of the total 16.5 million new vehicles traveling across the nation’s roads. However, people like Tesla Motor’s CEO Elon Musk are being considered visionaries, and if people like Musk continue to improve electric powered vehicles, more and more will be seen on the road.  For AEP, the increase in the number of electric cars means an increase in demand for power.  COO Bob Powers explained that the increasing number of people with electric cars will force the company to upgrade its distribution system.. To read the full article regarding AEP, Tesla Motors and power demand, click here. The following information is provided by the Ohio Department of Natural Resources (ODNR) and is through the week of July 18th. The ODNR reported 445 wells were permitted, 419 drilled, 191 drilling, 925 producing, 25 inactive, 24 in final restoration and three abandoned wells in Ohio’s Utica formation. This brings the total number of wells in the Utica to 1,980. The Marcellus Shale in Ohio remains unchanged from last week’s well report. The area is still sitting at 15 wells permitted, 11 drilled, 17 wells producing and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.

Conservationists Push for Legislation as Kentucky Explores Deep-Well Fracking -- The amount of water used in hydraulic fracturing is increasing across the nation, with the Marcellus and Utica shale formations in neighboring Ohio and West Virginia among the most active.New findings from the U.S. Geological Survey show the average horizontal gas well consumed more than 5 million gallons of water in 2014, up from around 177,000 gallons in 2000.While the deep well boom hasn't reached Kentucky yet, conservationists are urging the state to continue updating its regulations to address concerns over high-volume hydraulic fracking."Trying to get out in front of this, so that the operator identifies the method that they'll use to protect surface and ground waters from contamination,” says Tom FitzGerald, director of the Kentucky Resources Council. “We need to be prepared."The first step came earlier this year when the Kentucky Legislature added before-and-after water sampling at hydraulic fracking sites to the state's oil and gas regulations.FitzGerald says Kentucky is currently on the low end of the water-use spectrum, because all the fracking so far has been on shallower formations."And because of that, you're dealing with a matter of thousands of gallons rather than hundreds of thousands of gallons,” he explains. “So, the wastewater management issues are much smaller."

Consol warns of losses due to natural gas glut -- The low gas and coal prices that prompted layoffs and other recent cost-cutting moves at Consol Energy Inc. are eating into profits. The Cecil-based company warned early Monday it expects to report an operational loss when it announces financial results from the second quarter next week and will write down the value of some of its shallow oil and natural gas assets. Those assets, which include about 10,000 conventional wells in West Virginia and Pennsylvania, are separate from its Marcellus and Utica shale wells. Consol still expects to increase shale gas production by 30 percent this year, it said in an operational update before the market opened. The company last week said it was cutting 470 workers across its coal, gas and corporate operations because of weak prices for both of the fossil fuels it produces. That follows a reduction in hours at its Pennsylvania coal mines, a cut in its gas drilling budget and a sped-up plan to reduce health-care benefits for retirees.

Research Links Living Near Fracking to Illness - - Researchers at the University of Pennsylvania and Columbia University believe proximity to natural gas fracking operations makes people more likely to require hospitalization for heart conditions and neurological illnesses. And Michael McCawley, interim chair of the Department of Occupational and Environmental Health Sciences at West Virginia University, previously found high levels of benzene in the air near one Wetzel County well site, which he said were so bad that those in the area should wear respiratory protection. However, industry leaders in the Mountain State said if living near the drilling and fracking areas is so dangerous, it must be even more hazardous for the on-site workers.  "This is simply Ivy League hogwash with no basis in fact. These institutions are trolling for research dollars," said R. Dennis Xander, past president of the Independent Oil and Gas Association of West Virginia. Researchers at New York City-based Columbia and Philadelphia-based Penn said they evaluated fracking operations in northeastern Pennsylvania, specifically in Bradford and Susquehanna counties. Their findings revealed those who live near natural gas wells are more likely to require hospitalization for heart problems, skin conditions, cancer and urologic issues, as compared to those who live farther from the operations. "This study captured the collective response of residents to hydraulic fracturing in ZIP codes within the counties with higher well densities," said University of Pennsylvania professor of medicine Reynold Panettieri Jr. At this point, we suspect that residents are exposed to many toxicants, noise and social stressors due to hydraulic fracturing near their homes and this may add to the increased number of hospitalizations. This study represents one of the most comprehensive to date to link health effects with hydraulic fracturing."Recently, despite identifying 1,076 chemicals used in fracking - and estimating contractors use an average of 9,100 gallons worth of chemicals per well - Environmental Protection Agency officials said the process does not create "widespread, systemic impacts on drinking water resources."

Study links fracking with serious health issues  -- People who live in areas near hydraulic fracturing activities (fracking) are more at risk of suffering severe health issues, experts from the University of Pennsylvania and the University of Columbia report in research published in the journal PLOS One. In their study, the authors explained that unconventional gas and oil drilling (UGOD) such as the process known as “fracking” has increased significantly in the US over the past decade. However the potential health consequences of exposure of fracking-related toxins remained unclear. They analyzed the association between UGOD drilling wells and healthcare use in Pennsylvania between the years 2007 and 2011. According to Pulse Headlines, the researchers analyzed nearly 200,000 hospitalization records in three northern counties and categorizing 25 different medical scenarios, then associating each case with the proximity to a fracking region. They found a “significant” association between increase in cardiology inpatient prevalence rates and the number of UGOD wells per zip code and wells per square kilometer, as well as increased neurology inpatient prevalence rates with well per square kilometer, the researchers said. Overall they found that more hospitalizations took place in areas where fracking occurs.

Hospital stays up in three PA fracking counties, Penn study shows. - Researchers comparing hospital visits in three rural Northeast Pennsylvania counties found a higher rate of hospital visits in counties with a heavy gas industry presence. Residents of heavily drilled Bradford and Susquehanna counties were admitted to hospitals at higher rates than in neighboring Wayne County where drilling is banned, University of Pennsylvania and Columbia University researchers stated in a paper published in the peer-reviewed PLOS One scientific journal last week.The researchers used hospital-reported inpatient data from 2007, when drilling began, to 2011, the latest year available, said Penn Medicine researcher Dr. Reynold Panettieri Jr., one of the study's authors.Relying on 95,000 inpatient records, the researchers called their study "the most comprehensive one to date to address the health impact of unconventional gas and oil drilling."  "Bradford and Susquehanna, where there was a substantial increase in hydraulic fracturing and active wells, were associated with more cardiovascular hospitalizations as well as more neurologic," Panettieri said. "The association was in proximity to the wells. The closer to active wells, the more Pennsylvanians are getting hospitalized for cardiovascular disease." Cardiology was the category of inpatient records most strongly associated with well count. Visits listed under dermatology, neonatology, neurology, oncology and urology were also linked to the number of wells.

Mercer County joins the “block PennEast” list - Mercer County is the latest county to join several landowners who have created a list in hopes to block the PennEast Pipeline LLC from surveying property to construction the natural gas pipeline. As reported by State Impact Pennsylvania, “The county, which has opposed the project since last year, told PennEast yesterday that the company would no longer have access to the park in Titusville for the purpose of surveying the property to facilitate the project. The county cited soil borings on Baldpate Mountain, which it has deemed as potentially environmentally harmful.” Earlier this month, the Department of Environmental Protection (DEP) made an announcement to PennEast directing them not to apply for the required project permits because landowners are denying the company access to their properties for surveying. The billion dollar proposed pipeline is mainly located through Pennsylvania, but 32 miles of the 108 miles of it will run through Hunderton County and end in Hopewell located in Mercer County, New Jersey. According to State Impact Pennsylvania, “In New Jersey, much of the proposed route — about 3,000 acres, critics say — would run through preserved open space, farmland, and wetlands, as well as cross numerous waterways.” The only way PennEast will be able to survey land in Mercer County is if the project receives federal approval. As of now, the county will not allow any further soil borings to be conducted on Baldpate Mountain, which is the highest point in in the county.

Update: Drilling in Pennsylvania forests - In 2012, the Department of Conservation and Natural Resources (DCNR) conducted its first assessment on Marcellus Shale development in Pennsylvania’s state forests and found development is “neither benign nor catastrophic.” On Thursday, the DCNR released an updated report of Marcellus Shale development in state forests that covers all the way through 2014.  As reported by State Impact Pennsylvania, “The report shows most of the drilling occurring in seven ‘core gas’ forest districts: Sproul, Susquehannock, Elk, Moshannon, Tioga, Loyalsock, and Tiadaghton. Since the onset of shale gas development, DCNR says 1,674 acres have been converted from forest to “non-forest” in those core areas.” The drilling patterns in the forest follow the trends in development of the Marcellus.  It consists of a great amount of roads, wellpads and pipeline development during 2008, hitting its highest point in 2010 and 2011 before flattening out and shifting downward.  According to State Impact Pennsylvania, “In 2013, just four miles of new road were constructed in the core gas districts, and in 2014 it was less than one mile.  Since 2007, 37 miles of new road have been built. And even though 1,020 wells have been approved, so far 608 have been drilled.”

Marcellus permit activity in Pennsylvania -- The Marcellus Shale formation in Pennsylvania saw a little bit of action over the last week, along with one Pittsburgh-based oil and gas development company whose portfolio grew a little more. Trimont Energy Ltd. announced last week that it is the security buyer of Energy XXI’s East Bay Field in the Gulf of Mexico. Trimont spent $21 million on the East Bay Field acquisition, which was made official on July 1st. After selling its field, Energy XXI shared that its stock has dropped by 7 percent. Talk between the two companies began back in March, and according to Welty, a deal of this proportion takes quite a bit of time to agree upon. Welty also mentioned that the East Bay Field has proven to be very stable, with high production numbers and a low purchase price. To read the full story regarding Trimont’s recent acquisition, click here.  The following information is provided by the Pennsylvania Department of Environmental Protection and covers July 13th through July 19th. New: 25 Renewed: 3

13 Arrested Blockading Crestwood Gate With Giant Replica of Pope Francis’ Encyclical -  Sandra Steingraber - In an act of civil disobedience against gas storage in Seneca Lake salt caverns, 13 Finger Lakes residents, led by local members of the Ithaca Catholic Worker Movement, formed a human blockade shortly after sunrise this morning at the north entrance of Crestwood Midstream on Route 14.  Schuyler County deputies arrested the 13 people blockading Crestwood’s gate shortly after 9:30 a.m. today as they sang and read from the Pontifical document.  Carrying with them a 7-foot tall replica of Pope Francis’ recent encyclical on climate change, Laudato Si! On Care for Our Common Home, they blocked traffic from entering or leaving the facility. Schuyler County deputies arrested the 13 people shortly after 9:30 a.m. as they sang and read from the Pontifical document. Their recitation continued the read-aloud from the encyclical that began on June 30, as part of earlier blockade that led to the arrests of 19 individuals, which continued on July 7, as part of an all-day blockade of 11 individuals that resulted in no arrests.

I Don't Want Stokes County To Be Like West Virginia - I’ve been following fracking issues for a while and knew there would be a lot of fracking activity in WV, but not to the extent that we saw. I expected to see many pipelines, for instance. But it seemed there was a pipeline right-a-way just about every mile. They were cleared 50 foot-wide right-a-ways forming a spider web across the county. Then there were the fracking well pads, compressor stations, pigging station (access points to clean the pipelines), extraction plants, holding ponds, and holding tanks just to name a few of the things that go along with fracking. And the size of each one of these structures was double or triple the size of what I thought they would be. There was no distance more than a city block that didn’t have something. This area of WV has had conventional oil and gas drilling operations for years. But there is a BIG, and I mean BIG, difference between conventional gas drilling and fracking. Visually, the difference in size of the two operations is immense. Most conventional wells, that we saw, were a few pipes coming out of the ground with a small tank a few feet away. This covered an area no more than 20 by 30 feet. The fracking well pads on the other hand took up multiple acres and had huge access roads leading to them. Of course the difference in damage to the environment and communities are enough to fill a book. Then if the above isn’t bad enough, we had to constantly stop our car to allow trucks to pass. Like Stokes County, their roads were not designed for the volume and size of the truck traffic needed to support fracking (over 1,000 heavy trucks per well per frack). As a result the roads have to be repaired about every month. Accidents were common.  As we drove around we would get hit with a wave of obnoxious fumes. I can’t imagine living next to something constantly emitting toxic air. The noise from the well pads, compressor stations and extraction stations was like living next to an airport with jet engines running 24/7. There were many “man-camps” where out-of-area workers lived in campers for temporary housing.

Special Report: Uncovering abandoned oil and natural gas wells - For decades, old abandoned wells have leaked oil, natural gas and brine into soil and drinking water, and posed an explosion risk. Abandoned wells lurk beneath homes and buildings in Ohio; under the busy streets of Los Angeles and the sparse Oklahoma plains; and in parks, backyards, forests, cornfields and cemeteries from Appalachia to the Pacific Ocean. More than a million oil and natural gas wells were drilled in this country before anyone really knew how to plug them. Once the oil or gas was gone, the wells were abandoned with little thought of future consequences. Some have been open holes in the ground since the 1800s. Others are plugged with little more than dirt and logs. For decades, old abandoned wells have leaked oil, natural gas and brine into soil and drinking water, and posed an explosion risk. The danger is often hidden. Hundreds of thousands of abandoned wells were never properly mapped. Many of the companies that drilled them no longer exist. Abandoned wells lurk beneath homes and buildings in Ohio; under the busy streets of Los Angeles and the sparse Oklahoma plains; and in parks, back yards, forests, cornfields and cemeteries from Appalachia to the Pacific Ocean. Abandoned wells are the unwanted legacy of 150 years of drilling booms and busts. Now those old wells pose a new danger as the country rides another petroleum boom driven by hydraulic fracturing techniques that unlock vast new reserves.

Eagle Ford rigs plunge to lowest count in 5 years - Just when developers were taking cautious steps towards revving up oil production in the Eagle Ford, rig counts fell to the lowest amount in five years. Baker Hughes produced its weekly rig count numbers which noted that active drilling rigs in the South Texas fields fell to 98. According to a report from the San Antonio Business Journal, this is the lowest count for the Eagle Ford Shale play since 2010. Much of the latest price deletion in national and international oil prices came at the coat tails of the new nuclear arms deal with Iran. After the deal was agreed, investors worldwide are in fear of Iran (eventually) flooding the world market with a new resource of oil due to lightened sanctions. Conversely, all the news for Texas oil wasn’t horrible. Friday’s figures showed that drilling increased by three rigs in the Permian Basin. Overall, the Lone Star State had a net loss of two rigs while the larger U.S. fell by six active rigs. Currently, Brent crude oil sits at $56 per barrel (bbl). West Texas Intimidate is floating right at $50 bbl. In the past weeks, oil seemed on a path of recovery, reaching prices in the high $60’s prior to falling this week.  The largest culprit is by far the impending role of Iran in the oil market. As of now, no one really knows how much oil will flood the market or when Iran will make its move.

Barge Carrying 1 Million Gallons of Naphtha Catches Fire Near Houston, Texas - A barge carrying around 1 million gallons of a petroleum product burst into flames after a collision involving six vessels in a shipping channel near Houston early Monday, the U.S. Coast Guard told NBC News. There were no immediate reports of any spills or injuries following the incident, which happened in the Bolivar Peninsula section of the Intracoastal Waterway, according to Petty Officer Andy Kendrick. The fire was extinguished after more than four hours at around 5:25 a.m. (6:25 a.m. ET), Kendrick said. advertisement The collision happened as two tugboats were each pushing a pair of barges down the waterway, nearly 50 miles from Houston. One tug lost power and caused the vessels to collide, sparking a "rupture" aboard one of the barges and a subsequent fire, Kendrick added. The barge was carrying the petroleum product Naphtha.

Petroleum fire raged from colliding barges -- Fire Fighters near Galveston, Texas have extinguished a fire that broke out when two barges collided around the entrance to the Houston Ship Channel. KHOU 11’s Drew Karedes reported that the fire erupted on a barge carrying about a million gallons of the petroleum product naphtha, a highly flammable liquid used to refine oil into gasoline. The Coast Guard says it first needs to assess damage to the barges and then it can figure out how much cargo was lost. Remaining cargo will then be transferred to other barges before the damaged ones can be towed away. U.S. Coast Guard Petty Officer Andrew Kendrick said two tugboats were pushing a total of four barges early Monday morning near the Bolivar Peninsula when one of the boats lost power. The barge it was pushing then collided with another barge close by. It took crews roughly four hours to put out the blaze early Monday morning. According to testimonies, the burn could be seen for miles. There were no injuries reported but it remains unclear how much of the chemical products leaked into the waterway. An environmental investigation will be soon to follow.

Feds warn railroads to comply with oil train notification requirement - – The U.S. Department of Transportation has warned railroads that they must continue to notify states of large crude oil shipments after several states reported not getting updated information for as long as a year. The department imposed the requirement in May 2014 following a series of fiery oil train derailments. It was designed to help state and local emergency officials assess their risk and training needs. In spite of increased public concern about the derailments, railroads have opposed the public release of the oil train information by numerous states. Two companies sued Maryland in July 2014 to prevent the state from releasing the oil train data to McClatchy. The rail industry fought to have the requirement dropped, and it appeared it got its wish three months ago in the department’s new oil train rule. But facing backlash from lawmakers, firefighters and some states, the department announced it would continue to enforce the notification requirement indefinitely and take new steps make it permanent. There have been six major oil train derailments in North America this year, the most recent last week near Culbertson, Mont. While that derailment only resulted in a spill, others in Ontario, West Virginia, Illinois and North Dakota involved fires, explosions and evacuations. In a letter to the companies Wednesday, Sarah Feinberg, the acting chief of the Federal Railroad Administration, told them that the notifications were “crucial” to first responders and state and local officials in developing emergency plans.

Oil, gas spill reports for July 20 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Kerr McGee Oil & Gas Onshore LP reported on Wednesday that on Monday a valve was left open during a fluid transfer. About 10 barrels of oil was released. Excavation activities were initiated to remove impacted soil. DCP Midstream LP reported on Monday that an unmarked DCP Midstream line was struck by a KP-Kuffman excavator while doing work on a tank battery outside of Longmont. It is estimated that between one and five barrels of condensate was spilled. PDC Energy Inc. reported on July 10 that a historic release was discovered outside of a produced water vault outside of Milliken. It is unknown how much produced water was spilled.  Foundation Energy Management LLC reported on July 10 that a flowline leak was discovered July 8 outside of New Raymer. It is estimated that about five barrels of oil was spilled and between five and 100 barrels of produced water was spilled. Whiting Oil and Gas Corp. reported on July 9 that an operator discovered a pipeline leak outside of New Raymer. It is estimated that less than 100 barrels of condensate released. The free liquids were contained with soil and the pipeline was closed in. Bill Barrett Corp reported on July 8 that a hole in the bottom of a water tank released roughly 40 barrels of produced water into lined containment outside of Briggsdale. The cause of the leak is still under investigation.

Groups in 4 states lobby against proposed Bakken pipeline -- A group of organizations from Illinois, Iowa, North Dakota and South Dakota are speaking out as a unified coalition against the proposed Bakken Oil Pipeline project. The organizations include environmental groups Food and Water Watch and Shawnee Forest Sentinels and social action groups Dakota Rural Action and Iowa Citizens for Community Improvement. They want each state’s utility regulators to consider testimony and evidence from the other affected states and to look at the financial status of Energy Transfer Partners, the parent company behind the pipeline project. The coalition points out that the company self-insures against accidents and declares in its recent annual report it may not have adequate reserves to cover all future liabilities including known contamination. A spokeswoman for Energy Transfer Partners did not immediately respond to messages.

California withholds findings on oilfield contamination — California oil-and-gas regulators have refused for nearly a year to release findings of what they termed a “highest-priority” investigation of possible oilfield contamination into the water aquifers that serve millions of people in and around Los Angeles. Concerns about the safety of oilfield injection wells in the region are among many dogging state oil and gas regulators. California is under orders from the U.S. Environmental Protection Agency to do more to protect drinking-water aquifers from contamination by the oil and gas industry. California is the country’s No. 3 oil-producing state. Home to more than 18 million people, the Los Angeles basin is also the scene of a more than century-oil oil industry that peaked in the 1930s but continues today. The state’s main oilfield regulating office, the Department of Conservation’s Division of Oil, Gas and Geothermal Resources, notified the U.S. EPA last year that it had reviewed the safety of more than 2,000 injection wells pumping oilfield wastewater and other material into water aquifers in and around the Los Angeles area. Specifically, state oil and gas regulators said they looked at whether regulators currently and in the 1930s and 1940s properly evaluated any risk of contamination from oilfield injection wells. Inspectors examined whether old and recent injection wells could be leaking contaminating fluids into drinking-water reserves, oilfield inspectors wrote. The next month, however, California oilfield regulators refused an Associated Press request for the findings on the safety review of the Los Angeles-area oilfield injection wells.

North Dakota oil well completions slow sharply -- No new well completion reports have been filed in North Dakota since July 10, the longest gap this year, according to daily activity records published by the state’s Department of Mineral Resources (DMR). Completions, rather than wells drilled, provide the best guide to short-term changes in output, since operators can always delay completing a well and putting it into production, either because they are waiting for completion crews to be available or to wait for better prices. Completion is usually defined as a single operation including the stimulation and testing of a well as well as the installation of surface production equipment (“Dictionary of petroleum exploration, drilling and production” 2014). North Dakota’s regulators consider a well completed when the first oil is produced through wellhead equipment into tanks from the ultimate producing interval and after the well has been cased. Well operators must file a completion report with state regulators within 30 days of the completion date, and in some circumstances immediately. “In no case shall oil or gas be transported from the lease prior to the filing of a completion report unless approved by the (DMR) director,” according to state rules. Completions reported to the DMR are published in its daily activity reports. The number of completions reported each day is volatile because operators have some discretion about when to file their forms; there are indications that operators often file a clutch of reports for related wells at the same site at the same time.

EIA to lawmakers: Plan for oil price volatility -- Last week hundreds of lawmakers gathered in North Dakota and listened to the head of the Energy Information Administration speak about how state legislators should plan for a broad range of crude oil prices next year, reports the Forum News Service. Adam Sieminski, EIA administrator, stated that the agency’s forecast for Brent global crude of $70 per barrel for 2016 comes with a “huge level of uncertainty.” He added that prices, based on futures market prices, might dip to as low as $30 per barrel or in excess of $100 per barrel. He said, “It’s an enormous range. [This] makes it difficult for legislators trying to plan state budgets, for example, to try to deal with that. I would say that it would be wise to consider all of these alternatives and look for ways that the state and communities could deal with prices at any of these levels.” As reported by the FNS, Sieminski presented his argument at the 70th annual meeting of the Midwestern Legislative Conference of The Council of State Governments, a nonprofit and nonpartisan organization that provides leadership training, educational programs, research and other services for the 50 states. The MLC consists of 11 member states including North Dakota, Minnesota, South Dakota, as well as four affiliate member Canadian provinces. Despite the price drop and rig count decline, though, Assistant Director of the Oil and Gas Division of the North Dakota Department of Mineral Resources Bruce Hicks said the department expects production to grow. Last December North Dakota’s rig count tallied in at 191. As of Monday, that number was 73. Last year the state’s oil production reached 396 million barrels, but officials anticipate production levels to reach 440 million barrels this year.

The Bakken and the world's largest oil field: What's the difference? --What’s the difference between the Bakken and Saudi Arabia’s largest oil reserve? About 50 billion barrels and 13,000 square miles, reports Bloomberg Business. Saudi Arabia, the world’s largest oil producing country, and its Ghawar oil field is a daunting prospect for many U.S. shale oil drillers. Ghawar is the largest conventional oil reserve in the world, and its narrow, deep oil deposits trapped in porous limestone are a closely guarded Saudi state secret. As reported by Bloomberg, University of Utah geology professor Rasoul Sorkhabi estimates that this field alone contributes approximately 60 percent of overall Saudi oil output. Being such a large reserve, the formation’s production has the power to drive prices up or down depending on current market conditions. According to figures Saudi Arabia submitted to OPEC, the country produced a record breaking 10.6 million barrels per day in June. The conventional Ghawar formation, discovered in 1948, only covers an area of 2,000 square miles, but the remaining reserves are estimated to contain approximately 74 billion barrels. The formation’s average production is reported to be 5 million barrels per day. In comparison, the Bakken formation, discovered in 1951, is sprawled out across 15,000 square miles, and its remaining reserves contain about 25 billion barrels. Currently, average daily production of the formation is 1.3 million barrels. Oil and gas producers in the U.S. don’t have it so easy, however, as the unconventional Bakken region in particular is a different beast altogether.Tapping into the Bakken requires utilizing the costly process of hydraulic fracturing. While oil in the Saudi Ghawar formation is produced from existing wells for $5 per barrel, North Dakota state data reports that new wells in the core of the Bakken break even at $29 per barrel. 

Halliburton profit falls 93 percent on lower drilling activity, charges (Reuters) – Oilfield services provider Halliburton Co reported a 93 percent fall in quarterly profit as oil producers pummeled by a steep decline in oil prices cut drilling activity, and the company incurred about $400 million in charges. Net profit fell to $53 million, or 6 cents per share, in the second quarter ended June 30 from $775 million, or 91 cents per share, a year earlier. Revenue fell 26.5 percent to $5.92 billion. Halliburton’s $35-billion takeover of fellow oilfield services company Baker Hughes Inc is now expected to close by Dec. 1, after the two companies agreed with the U.S. Department of Justice on July 10 to extend the date of the review.

Has U.S. oil production started to turn down? -- The plunge in oil prices last year led many to say that a decline in U.S. oil production wouldn't be far behind. This was because almost all the growth in U.S. production in recent years had come from high-cost tight oil deposits which could not be profitable at these new lower oil prices. These wells were also known to have production declines that averaged 40 percent per year. Overall U.S. production, however, confounded the conventional logic and continued to rise--until early June when it stalled and then dropped slightly. Anyone who understood that U.S. drillers in shale plays had large inventories of drilled, but not yet completed wells, knew that production would probably rise for some time into 2015. Shale drillers who are in debt--and most of the independents are heavily in debt--simply must get some revenue out of wells already drilled to maintain interest payments. Only large international oil companies--who don't have huge debt loads related to their tight oil wells--have the luxury of waiting for higher prices before completing those wells. The drop in overall U.S. oil production (defined as crude including lease condensate) is based on estimates made by the U.S. Energy Information Administration (EIA). Still months away are revised numbers based on more complete data. But, the EIA had already said that it expects U.S. production to decline in the second half of this year.  It was inevitable that oil service companies would be forced to discount their services to tight oil drillers in the wake of the price and drilling bust or simply go without work. And, it makes sense that the most inefficient uses of drilling rigs would be halted. But the idea that these changes would somehow allow tight oil drillers to continue without missing a beat were always bunkham promoted by an industry sinking into a mire of overindebedness in the face of lower prices. In order to maintain the flow of capital to the industry--which has consistently spent more cash than it generates--the illusion of profitability had desperately to be maintained. A recent renewed slump in the oil price may finally pierce that illusion among investors.

Wall Street Lenders Growing Impatient With U.S. Shale Revolution -  Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015. Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing. That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to about $50 a barrel. “Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay.  Banks are already preparing for the next reevaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. The loans are based on the value of drillers’ producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel begin to expire. down their credit lines and free up extra cash,” 

U.S. emergency oil reserve tempts Congress at the wrong time - U.S. lawmakers on both sides of the aisle figured this month they had hit on a clever way to fund everything from new drug programs to highway maintenance: sell off part of America’s strategic oil reserves, a supply cushion that no longer needs to be so large. The notion, embedded in a House of Representatives bill that passed earlier in July and in a Senate transportation bill proposed on Tuesday, has met with criticism from energy experts and economists, many calling it the right idea, but the wrong time. A drilling revolution in the United States has left oil supplies robust at the Strategic Petroleum Reserve (SPR), which holds more than 695 million barrels of crude in Texas and Louisiana, just shy of its 714 million-barrel capacity that makes it the world’s largest supply of government-owned emergency crude oil. The boom helped to halve the price for a barrel of domestic crude since last summer to about $50 and cutting the value of the SPR, which holds about $35 billion worth of crude at current prices. Furthermore, a 40-year-old ban on U.S. crude oil exports has already helped lead to a domestic oil glut, pushing down U.S. prices to more than $6 per barrel lower than the global Brent benchmark . “Tapping the SPR and not allowing exports of domestic oil would be a catastrophe,” . “Oil would be trapped here and you’d hurt domestic production.”

The "Energy" Cash Flow Alarm Is Back: Chesapeake Suspends Dividends, Stock Plunges To 12 Year Low --Back in January, the panic surrounding the energy space and specifically the collapse in industry cash flows as a result of the collapse in oil prices, peaked when one after another company announced they would halt dividend payments and all other distributions to shareholders to conserve cash, culminating with the dramatic announcement on January 30 when one of the giants in the space, energy major Chevron, suspended its stock buybacks. Subsequently, oil experienced a brief oily (but dead) cat bounce, with WTI and Brent both making it briefly into the $60 price range and have since resumed their decline with WTI sliding back under $50 yesterday, and as a result all the attention is once again back on energy companies. And as if to confirm just that, earlier today one of Icahn's favorite energy names (you won't find him tweeting about this one much thought) Chesapeake Energy, the second-largest US natural gas producer, announced it too is now scrambling to conserve cash (in this case $240 million per year) by suspending its $0.35/share dividend payment. From the press release: Due to the current commodity price environment for oil, natural gas and natural gas liquids, and the resulting reduction in capital available to invest in its high-quality assets, Chesapeake Energy will eliminate its common dividend effective 2015 third quarter and redirect the cash into its 2016 capital program to maximize the return available to its shareholders.

This Time Is Different: Chesapeake Energy Scraps Dividend Amid Oil And Gas Plunge - Forbes:  Shale oil and gas driller Chesapeake Energy Chesapeake Energy is scrapping its common stock dividend in order to maintain capital expenditure amid a sharp slump in energy prices. The move, which goes in the opposite direction of ConocoPhillips's ConocoPhillips's decision last week to pare back capex and protect its dividend, is being called a “bold decision” by analysts and may minimize risks the asset-rich company falls into a liquidity crunch. Chesapeake’s dividend elimination, the company said, is a direct response to the current commodity price environment. The Oklahoma City-based company will redirect quarterly $0.875 payouts to its 2016 drilling budget, allowing it to continue exploring high-quality shale assets even in a prolonged slump to oil and natural gas prices. For Chesapeake, which maintained a quarterly dividend through the 2008 energy plunge and financial crisis, the move is a watershed moment. “We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets,” Chesapeake CEO Doug Lawler said in a statement. The company paid out 35-cents on an annualized basis, or approximately $240 million, funds that now can be plowed into revenue producing oilfields.

Shell Can Now Begin Drilling In The Arctic - Royal Dutch Shell has received final approval to move forward on its controversial plan to explore for oil in the frigid, remote Arctic waters off Alaska’s coast. On Wednesday, the Obama administration’s Bureau of Safety and Environmental Enforcement granted conditional approval to two permits that will allow the company to begin exploratory drilling in the Chukchi Sea, about 140 miles from Alaska’s northwest shoreline. However, the approval came with conditions that will slightly alter Shell’s plans. Certain oil-rich areas will be temporarily off limits to drilling because of issues with Shell’s safety equipment, and Shell will be prevented from drilling two wells at once. The administration had previously told Shell that it could only drill in one area at a time because the proposed sites are too close to each other. Drilling could begin in just a few days, as Shell has said that it will aim to begin some time this month, the Hill reported.The approval represented a significant loss for the environmental community, which has long argued against Arctic drilling in part due to concerns over the sensitive environment, which is home to vulnerable animal species like the polar bear and walrus. Climate change has also been a concern, as scientists have warned oil extraction there will further exacerbate the human-caused phenomenon.“Shell shouldn’t be drilling in the Arctic, and neither should anybody else,” said Franz Matzner, the director of the Natural Resources Defense Council’s Beyond Oil program, in an emailed statement. “President Obama’s misguided decision to let Shell drill has lit the fuse on a disaster for our last pristine ocean and for our climate.”

Nexen’s Brand New, Double-Layered Pipeline Ruptured, Causing One of the Biggest Oil Spills Ever in Alberta -- A pipeline at Nexen Energy’s Long Lake oilsands facility southeast of Fort McMurray, Alberta, spilled about five million liters (32,000 barrels or some 1.32 million gallons) of emulsion, a mixture of bitumen, sand and water, Wednesday afternoon — marking one of the largest spills in Alberta history. According to reports, the spill covered as much as 16,000 square meters (almost 4 acres). The emulsion leaked from a “feeder” pipe that connects a wellhead to a processing plant.  At a press conference Thursday, Ron Bailey, Nexen vice president of Canadian operations, said the company “sincerely apologize[d] for the impact this has caused.” He confirmed the double-layered pipeline is a part of Nexen's new system and that the line's emergency detection system failed to alert officials to the breach, which was discovered during a visual inspection.   At this time, the company claims to have the leak under control, according to CBC News.  The spill comes at a particularly bad time for Canada’s premiers, who are poised to sign an agreement three years in the making to fast-track the approval process for new oil sands pipelines while weakening commitments to fight climate change, according to Mike Hudema, a climate and energy campaigner for Greenpeace. “As provincial premiers talk about ways to streamline the approval process for new tar sands pipelines, we have a stark reminder of how dangerous they can be,” Hudema said in a statement. “This leak is also a good reminder that Alberta has a long way to go to address its pipeline problems and that communities have good reasons to fear having more built.”

Work at site of Nexen spill done on tight schedule -engineering firm – Infrastructure at the site in northern Alberta of one of the biggest oil-related pipeline spills ever on North American soil was installed on a “tight schedule,” according to the firm that developed some of the pipeline’s safety technology. The engineering firm, French-based ITP Interpipe, said in a June 2014 presentation to the Society of Petroleum Engineers in Calgary that field work at the site at Nexen Energy’s Long Lake oil sands facility, where the spill occurred, was completed in less than 12 months. The pipeline’s leak detection systems failed, and it could have been leaking for weeks before the spill was detected on July 15 by a contractor walking along the line. On a media tour of the spill site on Wednesday, executives from Nexen, owned by China’s CNOOC Ltd, said the project was not rushed. Nexen’s senior vice president, Canadian operations, Ron Bailey, said the company’s safety practices had been strengthened since the CNOOC takeover in 2013. “This is not about a rush job,” Bailey said. “This is not about cuts or anything like that. This is an unfortunate accident. We’re going to get to the bottom of that.” Nexen said it would likely take months to find the root cause of the leak, which released more than 31,500 barrels of emulsion, a mixture of bitumen, water and sand.

5 Years Since Massive Tar Sands Oil Spill, Kalamazoo River Still Not Clean  -- Five years ago today, in the middle of the night, an oil pipeline operated by Enbridge ruptured outside of Marshall, Michigan. It took more than 17 hours before the Canadian company finally cut off the flow, but by then, more than a million gallons of tar sands crude had oozed into Talmadge Creek. The oil quickly flowed into the Kalamazoo River, forcing dozens of families to evacuate their homes. Oil spills of that magnitude are always disastrous, but the Kalamazoo event was historically damaging.  The first challenge was the composition of the oil. Fresh tar sands crude looks more like dirt than conventional crude—it’s far too thick to travel through a pipeline. To get this crumbly mess to flow, producers thin it out with the liquid constituents of natural gas. Diluted bitumen, or dilbit, as it’s called in the tar sands industry, is approximately three parts tar sands crude, one part natural gas liquids. When dilbit gushed into Talmadge Creek in 2010, the mixture broke apart. The volatile natural gas liquids vaporized and wafted into the surrounding neighborhoods. The airborne chemicals were so difficult to find and eliminate that Enbridge decided it would be better to simply buy some of the homes that were evacuated, preventing the residents from ever returning. The tar sands oil, which stayed in the water, presented an even bigger chemistry problem. Most forms of oil, including conventional crude, are less dense than water. Skimmers and vacuums remove it from the surface. Floating booms prevent surface-level oil from moving into environmentally sensitive areas. Tar sands crude behaves differently. “Tar sands bitumen is a low-grade, heavy substance,” “Unlike conventional crude, when bitumen is released into a water body, it sinks.”

Keystone XL Cheerleader Donald Trump Invested At Least $250,000 In TransCanada -- Republican presidential hopeful Donald Trump’s mandatory personal financial disclosure statement was made public on Wednesday, revealing his massive financial holdings. Among his many investments: At least $250,000 worth of stock in TransCanada Pipelines Ltd., the Canadian company hoping to build the controversial Keystone XL tar sands pipeline. Trump has frequently criticized the Obama administration for not yet granting a permit for the project. In 2011, he told a Canadian paper, through a spokesman, that it is “an outrage our president isn’t approving the Keystone pipeline,” and “Canada is lucky to have superior leadership” to America’s. He tweeted: The Keystone pipeline will create 20,000 jobs and lower gas prices. But Obama says No. Dumb.

Oil Rigs Left Idling Turn Caribbean Into Expensive Parking Lot - Imagine parking your $300 million boat for months out in the open sea, with well-paid mechanics hovering around it and the engine running. The Gulf of Mexico and the Caribbean Sea have become a garage for deepwater drillships -- at a cost of about $70,000 a day each. It’s either that or send your precious rig to a scrapyard. The dilemma underscores how an offshore industry that geared up for an oil boom is grappling with a bust. Rig owners are putting equipment aside at unprecedented numbers as customers including ConocoPhillips pull back from higher-cost deepwater exploration. That’s helped make Transocean Ltd. and Ensco Plc two of the three worst performers in the Standard & Poor’s 500 Index over the past year. “Most contractors have never seen an environment like this, where demand is falling as quickly as it is,”  A growing glut of newly built exploration vessels looked worrisome enough before the oil rout. Now it’s beginning to look disastrous. Shipyards continue to roll out new units to meet orders made during the boom, but the rig providers may not need them anymore. As contracts expire, many producers may not renew them, and some are being canceled. U.S. benchmark oil ended in a bear market Thursday at $48.45 a barrel on the New York Mercantile Exchange. Front-month prices are down about 21 percent from this year’s highest close on June 10. Transocean is expected to see earnings tumble to a loss for each of the next two years.

AP Exclusive: Share of aging temporarily sealed wells grows --  Five years after the Obama administration promised to move swiftly to permanently plug unused oil and gas wells in the Gulf of Mexico, even more shafts are lingering for longer periods with only temporary sealing, an Associated Press investigation shows. It is not clear how many incompletely sealed wells may have leaked — they generally are not monitored as carefully as active wells — but they contain fewer barriers to pent-up petroleum and rupture more easily. The threat to the environment increases with time. In July 2010, during the BP oil spill, the AP reported that the Gulf was littered with more than 27,000 unused wells, including 14 percent left with just temporary seals.  The AP’s new analysis of federal data shows that the neglect of long-idle wells has intensified since 2010, despite the federal push after the BP accident:

  • —Twenty-five percent more wells have now stayed temporarily sealed for more than a year, jumping from 2,855 to 3,576.
  • —Wells sealed temporarily for more than a year make up 86 percent of all temporarily sealed shafts, up from 78 percent.
  • —The number of wells equipped with temporary barriers for more than five years has risen from 1,631 to 1,895 — a 16 percent increase.

A New Oil Spill Disaster Waiting To Happen In The Gulf - The number of oil wells in the Gulf of Mexico that have been temporarily sealed is growing, according to a new investigation from the Associated Press. Oil companies sometimes put temporary caps on oil wells if there is the possibility that they will return to use the well at some point in the future. But wells that have not been permanently sealed can suffer from corrosion, leaks, and potential ruptures, posing a safety and environmental risk. After the Deepwater Horizon catastrophe in 2010, the federal government tried to accelerate the permanent closure of wells that are sitting idle. But the AP finds that such an effort it is falling far short of its objective, with the number of temporary wells ballooning since then.  For example, the number of wells that have been placed under temporary seal for more than one year has grown by 25 percent since 2010, jumping from 2,855 to 3,576. In fact, those wells that have been sitting with temporary seals for longer than one year actually make up more than 86 percent of all temporarily sealed wells. Worse yet, there are a handful of wells that have been under temporary seal since the 1950s, and at least 17 since the 1970s.  Permanently sealing a well is a much more involved process that can ensure oil does not migrate up the well and pose a danger of leaking. But permanently closing wells also costs more than a temporary approach.

Hedge funds turn unusually bearish on oil -- Hedge funds and other money managers have rarely been so bearish about the outlook for oil prices, according to the latest positioning data from the U.S. Commodity Futures Trading Commission. Hedge funds boosted short positions in futures and options linked to the price of U.S. crude to 138 million barrels by July 14, from 84 million four weeks earlier. Over the same period, they cut long positions from 340 million to 292 million barrels. The hedge fund community has an inherent long-bias, but the ratio of long to short positions, at just over 2:1, down from 4:1 a month ago, is among the lowest in the last six years. The number of hedge funds with reported short positions was equal to the number of longs last week, which is highly unusual. The liquidation of long positions and establishment of fresh shorts help explain the downward pressure on U.S. crude prices over the last month. The market has not been this bearish about the outlook for oil prices since March, when investors were worried about rising inventories and the possibility storage space at oil refineries and tank farms would run out. In March the number of short positions was much higher, at around 200 million barrels, but so was the number of long positions, at around 380 million barrels.

Oil drops on concerns of glut in refined products - – Oil dropped on Monday as signs of a growing glut in refined products outweighed a fall in Saudi crude exports and slower U.S. rig activity. Crude prices have fallen for three weeks in a row on expectations of increased oil sales from Iran following a deal to ease sanctions against the OPEC producer. Brent crude for September was down 35 cents at $56.75 a barrel by 1100 GMT. The benchmark fell nearly 3 percent last week and is down more than 10 percent so far this month. U.S. crude futures for August were down 13 cents at $50.76 a barrel. The August contract expires on Tuesday. The dollar’s strengthening added further pressure as it makes dollar-priced commodities more expensive for investors using other currencies. Saudi Arabia’s crude exports fell in May to their lowest since December, with official data showing daily shipments at 6.935 million barrels per day (bpd) compared with 7.737 million bpd in April, despite record-high output of over 10 million bpd.

Oil Prices Dip Below $50 on Supply Concerns - WSJ: U.S. oil prices dipped below $50 a barrel Monday for the first time since April on continued concerns that global crude-oil supplies are overwhelming demand. Light, sweet crude for August delivery settled down 74 cents, or 1.5%, to $50.15 a barrel on the New York Mercantile Exchange, the lowest settlement since April 2, after slipping as low as $49.85 a barrel earlier in the session. The August contract expires at settlement Tuesday. The more-actively traded September contract closed down 77 cents, or 1.5%, to $50.44 a barrel. After falling to near-six-year lows in March, oil prices rallied through April on expectations that cuts in U.S. oil drilling would lead to lower production. But prices have slid in recent weeks as output from the U.S. and other nations has stayed robust. While oil consumption has risen this year, many analysts say demand is insufficient to eat away at the global glut of crude and that a drop in output is also needed.

Oil steadies as Saudi crude exports fall -– Oil prices steadied on Monday after data showing a sharp drop in Saudi Arabia’s crude oil exports balanced signs of rising refined products stocks. Brent crude for September was 5 cents up at $57.15 a barrel by 0825 GMT. The benchmark fell nearly 3 percent last week and is down more than 10 percent so far this month. U.S. crude futures for August, also known as West Texas Intermediate (WTI), were up 5 cents at $50.94 a barrel. The August contract expires on Tuesday. Oil prices have fallen for three weeks in a row on expectations of increased exports from Iran following a deal to ease sanctions against the OPEC producer. Investors are worried that a big oversupply of crude in many markets, that has been filling inventories towards record levels, will be exacerbated by more oil from Iran. But not all industry data are bearish. Saudi Arabia’s crude oil exports fell in May to their lowest since December, with official data showing daily shipments stood at 6.935 million barrels a day (bpd) compared with 7.737 million bpd in April, despite record high output of over 10 million bpd as the Kingdom. As refineries around the world continue to operate at near maximum levels to benefit from strong profit margins, there are signs a glut in the crude oil market may be shifting to refined products.“We are seeing the crude surplus moving into the oil products with elevated inventories in Europe for gasoline, naphtha and especially gasoil,”

Oil prices fall on unexpected rise in U.S. crude stocks – Oil prices fell on Wednesday after an unexpected rise in U.S. crude stocks, adding to a picture of global oversupply that has dragged down values over the past year. Industry data released on Tuesday by the American Petroleum Institute (API) showed crude inventories at the Cushing, Oklahoma, hub rose 2.3 million barrels last week, compared with analyst expectations for a decrease of the same volume. “The U.S. crude oil stocks build reported by the API last night is weighing on prices,” said Tamas Varga, analyst at London brokerage PVM Oil Associates. U.S. crude held above $50 a barrel, trading down 64 cents at $50.22 at 1140 GMT, 1.2 percent lower than the previous session’s settlement. In related news, EIA to lawmakers: Plan for oil price volatility. The August contract, which expired on Tuesday, settled at $50.36 a barrel on its last day of trade, after slipping as low as $49.77 during the session, its weakest point in more than three months. Brent crude was down 40 cents at $56.64 a barrel.

Crude Oil Price Struggles to Hold Above $50 After Inventory Report - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 2.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 463.9 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Tuesday evening the American Petroleum Institute (API) reported that crude inventories rose by 2.3 million barrels in the week ending July 17. For the same period, analysts had estimated a decrease of 1.6 million barrels in crude inventories. Total gasoline inventories decreased by 1.7 million barrels last week, according to the EIA, and remain in the upper half of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.6 million barrels a day for the past four weeks, up by 6.9% compared with the same period a year ago. Uncertainty in the crude markets about the potential impact of the lifting of sanctions against Iran have been compounded by increased production from OPEC combined with a stronger dollar, A sizable gain in short futures positions held by hedge funds have conspired to keep crude prices down. In short, supply continues to exceed demand, and with the U.S. summer driving season more than halfway over, the outlook for crude producers is not improving.

Oil falls as rising US crude stocks apply pressure: Oil prices fell on Wednesday as U.S. government data showed crude inventories rose last week and as a stronger dollar and weaker global equities applied pressure. U.S. September crude closed down $1.67, at $49.19 a barrel—the lowest since April 2. It fell intraday after the EIA data to $49.67, two cents below the previous contract low from March. U.S. crude's 14-day Relative Strength Index (RSI) is below 30. A reading below 30 is considered an indication of an oversold condition by technical traders. Brent September crude was down 98 cents at $56.06. U.S. crude oil stocks rose 2.5 million barrels, the Energy Information Administration (EIA) said in its weekly report, contrasting with expectations inventories would be down 2.3 million barrels. "The crude oil inventory rise was driven by a strong rebound in crude oil imports, which neared 8 million barrels per day,"   Crude oil imports from Saudi Arabia rose to 1.44 million barrels per day (bpd), up from 1.32 million the previous week, according to EIA data. Imports from several other OPEC-member countries also rose.

U.S. Oil-Rig Count Increases to 659 in Latest Week - WSJ: The U.S. oil-rig count rose by 21 to 659 in the latest week, reversing last week’s downturn, according to Baker Hughes Inc. BHI -1.01 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, had fallen sharply since oil prices headed south last year. They had dropped for 29 straight weeks before rising for two weeks and then falling again last week. This is the largest increase seen yet this year. Previous increases were by 12 rigs and five rigs. Oil prices fell nearly 60% from June 2014 to a six-year low in March, as soaring production from the U.S. and other countries overwhelmed global demand. There are still about 59% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably recently. In late May, several U.S. shale-oil companies said they were ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices. According to Baker Hughes, gas rigs were down by two to 216 this week.

Crude Slips After Oil Rig Count Surges By Most In 15 Months -- Total US rig count increased a somewhat stunning 19 last week to 876 - the highest since May. This is the biggest rise in rig count since August 2014. The oil rig count surged 21 to 659 - this is the biggest weekly rise since April 2014.  The jump in total rig counts was big:  The reaction - crude is sliding. Charts: Bloomberg

Weekly US oil rig count up by 21, rises for third straight week: U.S. crude closed lower on Friday after Baker Hughes data showed an increase in U.S. oil rigs. Baker Hughes data showed U.S. oil rigs rose by 21 week-over-week to 659. Nevertheless, the count remains down by 903 rigs year-over-year. The gain this week was also only the third increase over the past 33 weeks, bringing the total rig count up to 659, the highest since late May, Baker Hughes said in its report. West Texas Intermediate oil futures settled down 31 cents, or 0.6 percent, at $48.14 a barrel—the lowest since March 31. It hit a session low of $47.72 a barrel after the release. Brent was down 0.6 percent, at $54.60 a barrel. Brent and U.S. crude have posted double-digit losses in July. With U.S. crude off more than 18 percent, it could challenge the 19.4 percent loss in December. U.S. crude losses follow Thursday's fall into bear market territory, with its $48.45 a barrel settlement off 21 percent from the June 10 close at $61.43. A 20 percent downturn is considered by many traders to constitute a bear market.

OilPrice Intelligence Report: Rout Begins As WTI Can’t Stand The Pressure: WTI fell below $50 per barrel this week, ushering in some of the most pessimistic sentiments in months. After a wave of bearish events – the Greek debt crisis, the Chinese stock market meltdown, and the all-important Iran nuclear deal – oil prices cratered and were looking for some direction. The latest bit of data from the EIA did nothing ease the fears of a bear market. The EIA reported on July 22 that crude oil inventories unexpectedly climbed for the week while analysts had expected a drawdown, jumping 2.5 million barrels. Weekly production figures, as suspect as they are, ticked downwards just slightly. On a more bullish note, refineries are running at record highs, taking advantage of cheap crude, processing 16.8 million barrels per day. OPEC officials continue to assert that low oil prices will only be temporary and that there is no need for the group to make a policy change. Kuwait’s oil minister this week said that stronger global demand will lead to a price rebound. Even if prices decline significantly below $50 per barrel, “[p]rices will not stay down forever,” one OPEC official from an Arabian Gulf country told Reuters. The low prices will likely lead to fresh rounds of layoffs across the oil industry, especially if they do not rebound soon. In a sign that such a development could be in the offing, Weatherford International, an oil field services company, announced that it would be cutting an additional 1,000 jobs, bringing its total job casualty number to 11,000 so far in 2015 and 18,000 over the past year and a half. The latest eliminations will mostly take place in U.S. onshore support staff.  In a sign that the appetite for drilling is slowing, orders of rail cars fell by 29 percent in the second quarter from the first. Even more staggering is the fact that the 3,155 rail car orders in the second quarter were down 70 percent from the same period a year earlier. That mirrors the 46 percent decline in energy shipments by rail for Kansas City Southern.

"Far Worse Than 1986": The Oil Downturn Has No Parallel In Recorded History, Morgan Stanley Says - On Tuesday the market got yet another reminder of just how painful the "current commodity price environment" has been for producers when Chesapeake eliminated its common dividend in order to conserve cash. After noting the plunge in Chesapeake’s shares (to a 12-year low) we subsequently outlined why the US shale "revolution" is now running out of lifelines as hedges roll off and as the next round of credit line assessments looms in October. A persistent theme here - as regular readers are no doubt aware - has been the extent to which an ultra-accommodative Fed has contributed to a deflationary supply glut by ensuring that beleaguered producers retain access to capital markets. In short, cash-strapped companies who would have otherwise gone out of business have been able to stay afloat thanks to the fact that Fed policy has herded investors into risk assets. Those who contend that the downturn simply cannot last much longer - that the supply/demand imbalance will soon even out, that the market will clear sooner rather than later, and that even if the weaker hands are shaken out, the pain for the majors will be relatively short-lived - are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does. At heart, this is a struggle between the Fed’s ZIRP and the Saudis, who appear set to outlast the easy money that’s kept US producers alive. Against that backdrop, and amid Wednesday's crude carnage, we turn to Morgan Stanley for more on why the current downturn will be "worse than 1986."  We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that. Still, if oil prices follow the path suggested by the forward curve, our thesis may yet prove too optimistic. Our constructive stance on the majors is based on four factors: 1) supply – we expected production growth to moderate following large capex cuts and the sharp decline in the rig count; 2) demand – we anticipated that the fall in price would boost oil products demand; 3) cost and capex – we foresaw both falling sharply, similar to the industry's response in 1986; and 4) valuation – relative DY and P/BV indicated 35-year lows. So far this year, we can put a tick against three of them [but] our expectation on supply has not materialised: US tight oil production growth has started to roll over, but this has been more than offset by OPEC, which has added ~1.5 mb/d since February.

Dim crude price outlook may force more spending cuts for oil majors - The world’s top oil companies are set to report yet another sharp drop in quarterly profits that could force more spending cuts due to a dim outlook for oil prices. Oil companies rarely scale back capital expenditure (capex) in the middle of the fiscal year. But with oil prices failing to recover and even lurching lower in recent weeks after a nuclear accord between Iran and world powers, boards could take more action beyond cuts already announced, analysts say. “Oil companies are hunkering down for a downturn that will take longer than some initially thought,” Martijn Rats, head of European oil and gas equity research at Morgan Stanley, told Reuters. International oil companies including Exxon Mobil, Chevron, Royal Dutch Shell, BP and Total all reduced 2015 spending by 10 to 15 percent from last year’s levels in response to the low oil prices, cutting operating costs, laying off thousands of workers and scrapping huge and costly projects around the world. “Companies will keep their foot to the peddle with regards to cost savings and capex reductions. They will try to support balance sheets in any way they can, including asset sales,” Rats said. Second-quarter net profits at seven oil majors are expected to decline by at least 40 percent from a year earlier, according to Reuters estimates.

Shell Warns, Oil Price Recovery To Take 5 Years -- Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn’t rebound. In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it.  “Low prices have big implications for exporting countries like Iran, Russia and Venezuela,” he said. “But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand.” For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. “Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015],” he said. “So global oil demand is expected to grow as well.”But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, “Supply … may even decline.” As for Shell itself, though, he said, “We’re determined to avoid a start-stop approach to investment.”  As for the global market, Van Beurden said that at best, “a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario.”

Strategic Petroleum Reserve No Longer Key Part Of US National Security - The U.S. Strategic Petroleum Reserve (SPR), once seen as a cornerstone of America’s energy security, is losing its shine in Washington. The SPR was established in the aftermath of the 1973-1974 oil embargo, which led to high gasoline prices, fuel rationing, price controls, and long lines at gas stations. The U.S. government decided to stockpile oil in salt caverns in Texas and Louisiana, fuel that could be used in the event of a supply outage. Today, the SPR holds 695 million barrels of oil. When President Barack Obama announced the sale of 30 million barrels following turmoil in Libya that knocked supplies offline and raised oil prices, Republicans were incensed.   However, times have changed, apparently. The U.S. Senate reportedly reached a bipartisan agreement this week on a long-term transportation bill that would fund the nation’s highways and transit systems. The problem with transportation legislation is that much of the funding comes from the federal gasoline tax, which, standing at 18.4 cents per gallon, has gone unchanged in over two decades. A combination of inflation and more fuel efficient cars means that the 18.4 cents per gallon tax does not go as far in funding transportation projects as it once did. But with Congress unwilling to raise the gas tax, they are hunting for other sources of revenue to fund the six-year transportation bill. As a result, they have resorted to raiding the SPR. The bipartisan bill reportedly calls for the sale of 101 million barrels of oil from the SPR between 2018 and 2025. Although it is unclear if the bill will pass, what is interesting about the move is that the Senate has shed any pretense of national security with the move to sell off crude from the SPR. The call for the sale of 101 million barrels is being pursued because it will raise an estimated $9 billion for transportation projects. Rather than do what many economists think need to be done – raise the gasoline tax – the Senate has instead decided to abandon a bulwark of U.S. energy security policy put in place four decades ago.

The Crafty Saudis: How They’re Sustaining Low Oil Prices -- I’m writing again about Saudi Arabia’s long game strategy in maintaining its dominance over the global oil market. Part 1 explored the Kingdom’s overall strategy of creating a new “Global Corporate Oil Board” to replace the antiquated OPEC, and Part 2 gave an update on their progress. This piece focuses on a new tactic in the Saudi strategy: shifting some crude from export to refineries. This especially shrewd development is helping keep the Royal Family out front of market developments and in control of the emerging Global Corporate Oil Board. I wrote Part 1 four months ago when people were surprised that the Saudis were leading the effort to create a global glut of oil despite their reliance on oil revenues to secure their state, fund the country’s “private” economy, and wage proxy wars in Syria and Yemen. Four months later, the market is still oversupplied, Saudi production is at the same levels and crude oil has wavered upwards from about $45 then to only $10 higher today (still well below the country’s fiscal break-even price). Two months ago I wrote Part 2, and while conditions hadn’t changed – there was still a glut, prices remained low, the Saudis continued pumping oil and fighting in Syria and Yemen, and the domestic economy hadn’t liberalized or diversified – the Saudis hadn’t changed a thing on their end. The only thing that changed was the American oil industry’s ability to sustain low prices through greater efficiencies. Today, well, these conditions still persist. As I explained in Part 1, the Saudi strategy was to accept that OPEC would never be able to manage the market like it once had and therefore replace it with a new global corporate board that it could manipulate. This time the board would have to include liberal states whose governments did not control domestic production (namely America, but also Canada) as well as countries with state-run industries that didn’t care about anyone but themselves and so wouldn’t likely volunteer to cut production to sustain a global price target because of how reliant they are on the revenue (namely Russia). In order to be able to steer these countries’ oil production, then, the Saudis would have to beat them into submission the free market way: use the Kingdom’s unique swing production capacity to force changes in private market company decision-making in the United States and pin Putin up against the fiscal margins.

Algeria cuts spending as energy revenue forecast falls 50 percent --  Algeria will trim spending in its 2015 budget by 1.35 percent, expecting a slump in oil prices to reduce its energy earnings by 50 percent, the government said on Thursday. Oil and gas account for 95 percent of Algeria's exports and energy revenues make up 60 percent of the budget. The government expects economic growth outside oil and gas to reach 5.1 percent, unchanged from an initial forecast early this year, the cabinet said in a statement. Inflation is expected to be 4 percent in 2015, up from the 3 percent initially expected, it said. The budget is now based on an oil price of $60 a barrel, much lower than the $90 initially anticipated. Oil and gas earnings are expected to drop to $34 billion from the $68 billion earned in 2014, the statement said. Imports are projected at $57.3 billion for this year, exceeding by far exports for the first time. The supplementary budget law sets spending at 7,692 billion dinars, down from 7,588 billion dinars ($112 billion) approved earlier this year. Aiming to avert social unrest, the government has said the drop in energy revenues would affect social programmes. The country, with a population of 40 million, spends heavily on subsidies, including cereals, milk, medicine, cooking gas, electricity and housing. Algeria posted a trade deficit of $7.78 billion for the first half of 2015, compared with a $3.2 billion surplus a year earlier. It imports most goods it needs, including food, medicine and manufacturing parts. Its foreign exchange reserves, usually used to finance deficits, dropped by $19 billion to $159 billion in the first quarter of the year.

With petrodollars also go global reserves -- Izabella Kaminska - US energy independence alongside labour re-shoring is contracting the global pool of petro and sweatdollars and with it the business that is petro/sweatdollar recycling, especially to the EM world.  We’ve speculated before that this could create a financing hole that not only slows EM demand and trade, but weirdly enough also leads to the emergence of the petroeuro as the global funding and reserve currency.  It’s really only the ECB that in our opinion has the global presence, reputation and gravitas — not to mention the need — to be able to extend its balance sheet to the emerging markets, whilst maintaining the euroeuro shadow/parallel market in check. Whether we’re right or wrong about the euro, one thing’s for certain, the hypothetical eventuality of no more petrodollars is already having an impact on global reserves. Note the following chart from Citi’s Steven Englander this week (our emphasis): As can be seen, a simply massive shift is under way. And it totally ties in with the decline in the oil price. As Englander comments (our emphasis): In our judgment the blue bars are better estimates of what reserves managers are actually buying and selling than the red bar which is the change in the value of their reserves portfolios. The Q2 drop in reserves also matches the sharp drop in EM investor FX positioning that we highlighted in Figure 4 of USD position shift, so the story looks like EM reserve managers selling reserves to partially offset the private sector outflow from EM.In the last decade, the only other period we see clear reserve depletion is the financial crisis (2008 Q4 to 2009 Q1), where we see capital outflow from the EM countries to safe haven assets. EM countries had few alternatives but to sell their FX reserves and buy back their domestic currencies, in order to slow their domestic currency depreciation. Nevertheless, as the period was characterized by strengthening USD, the actual net selling is more subdued than the nominal change.

Greece looks to offshore oil and gas: Greece is in an economic depression. Whether or not it agrees to the ruinous terms imposed upon it by its creditors in order to obtain a bailout, or if Greece opts for a much more uncertain route out of the Eurozone, Greece has years of hardship ahead of it. The government is turning to offshore oil and gas as a potential source of revenues. Greece has almost no oil and gas production to speak of, and has failed in the past to make any major discoveries. But it still holds out hope of large potential reserves located offshore. Under the previous government, Greece proposed tax cuts for oil and gas exploration in order to attract more investment. It also conducted extensive 2D seismic surveying of offshore tracts in the Ionian and Mediterranean Sea between 2012 and 2014, in an effort to improve data on its reserves. On Tuesday, the Greek government said that it had received three bids for offshore oil drilling, to the west in the Ionian Sea and south of Crete in the Mediterranean. There were over 20 blocks up for bid accounting for over 200,000 square kilometers. The Greek government had invited Russian and Chinese companies to bid, but so far the Energy Ministry has not revealed which companies submitted the three bids. To a large degree, Greece's oil and gas fortunes depend on Energean Oil & Gas, the country's only domestic oil producer. Energean is trying to boost production at Greece's only producing field, the Prinos. It just completed a 3D seismic survey of the field, which will help it learn more about what is located beneath. But the field is mature and only produced 1,300 barrels per day in 2014. The company has a multiyear plan to lift that to 10,000 barrels per day,still a paltry sum by global standards.

Oil and gas crunch pushes Russia closer to fiscal crisis -  'Russia is going to be in a very difficult fiscal situation by 2017. By the end of next year there won’t be any money left in the oil reserve fund,' says Unicredit. Russia has fallen into full-blown depression and faces a mounting fiscal crisis as oil and gas revenues plummet. Output from country’s state-owned gas giant Gazprom has collapsed by 19pc over the past year as demand shrivels in Europe, falling to levels not seen since the creation of the company at the end of the Cold War. A report by Sberbank warned that Gazprom’s revenues are likely to drop by almost a third to $106bn this year from $146bn in 2014, seriously eroding Russia’s economic base. Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues. It will be several years at best before the country benefits from a new pipeline deal with China. Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia’s tax income comes from oil and gas. Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. This time there is no recovery in sight as Western sanctions remain in place and US shale production limits any rebound in global oil prices. “We’ve seen the full impact of the crisis in the second quarter. It is now hitting light industry and manufacturing,”

Europe backs Iran nuclear deal in signal to U.S. Congress - The European Union approved the Iran nuclear deal with world powers on Monday, a first step towards lifting Europe’s economic sanctions against Tehran that the bloc hopes will send a signal that the U.S. Congress will follow. In a message mainly aimed at skeptical voices in the U.S. Congress and strong resistance from Israel, EU foreign ministers meeting in Brussels stressed that there was no better option available. “It is a balanced deal that means Iran won’t get an atomic bomb,” said French Foreign Minister Laurent Fabius. “It is a major political deal.” Ministers left the details of their endorsement until after a U.N. Security Council vote scheduled for 9 a.m. EDT (1300 GMT), but have formally committed to a gradual lifting of sanctions along with the United States and the United Nations. Following the deal in Vienna, Iran has agreed to long-term curbs on a nuclear program that the West suspected was aimed at creating an atomic bomb, but which Tehran says is peaceful. The European Union will retain its ban on the supply of ballistic missile technology and sanctions related to human rights, EU diplomats said. A senior Western official involved in the accord said a combination of limitations and verification was enough to ensure Iran would not obtain a nuclear bomb.

Iran eyes $185 bln oil and gas projects after sanctions -- Iran on Thursday outlined plans to rebuild its main industries and trade relationships following a nuclear agreement with world powers, saying it was targeting oil and gas projects worth $185 billion by 2020. Iran’s Minister of Industry, Mines and Trade Mohammad Reza Nematzadeh said the Islamic Republic would focus on its oil and gas, metals and car industries with an eye to exporting to Europe after sanctions have been lifted, rather than simply importing Western technology. “We are looking for a two-way trade as well as cooperation in development, design and engineering,” Nematzadeh told a conference in Vienna. “We are no longer interested in a unidirectional importation of goods and machinery from Europe,” he said. The United Nations Security Council on Monday endorsed a deal to end years of economic sanctions on Iran in return for curbs on its nuclear program. Sanctions are unlikely to be removed until next year, as the deal requires approval by the U.S. Congress. Nuclear inspectors must also confirm that Iran is complying with the deal. While the Iranian and U.S. presidents have been promoting the accord, hardliners in Tehran and Washington have spoken out strongly against it.

History Shows Iran Could Surprise the Oil Market - Iran could restore oil production halted by sanctions faster than anyone anticipates if the history of previous shutdowns is any guide. The consensus among analysts and traders is that Tehran needs at least a year after sanctions are lifted to raise output to the level prevailing before restrictions were imposed in 2012. Similar pessimistic assessments for supply disruptions at OPEC members Libya and Venezuela were confounded by quicker-than-expected recoveries, according to data compiled by Bloomberg. Here's Venezuelan oil production before and after a strike at state oil company Petroleos de Venezuela SA that started in late 2002: Case study two is Libya's recovery after the civil war that ousted Muammar Qaddafi in 2011: Libyan Civil War The conflict all but halted production and analysts, traders and the Libyan rebels themselves said it would take 18 months to increase output to about 1 million barrels a day. In reality, production surpassed that level in just six months. Wrong-footing the pessimists and delivering an additional one million barrels a day by the middle of next year, as promised by Oil Minister Bijan Namdar Zanganeh, could add to the oil glut, depressing prices further. “We would advise against underestimating the ability of a country to grow its production when it needs dollars,” said Edward Pybus, oil analyst at Exane BNP Paribas in London. The market consensus is conservative and there is “upside” to forecasts of a gradual increase in Iranian output, he said. Advance preparations to restore output may see Iran reach as much as 3.7 million barrels a day within six months, according to Boston Petroleum Research.

Historic Iran Nuke Deal Resets Eurasia's "Great Game" - This is it. It is indeed historic. And diplomacy eventually wins. In terms of the New Great Game in Eurasia, and the ongoing tectonic shifts reorganizing Eurasia, this is huge: Iran — supported by Russia and China — has finally, successfully, called the long, winding 12-year-long Atlanticist bluff on its “nuclear weapons.” And this only happened because the Obama administration needed 1) a lone foreign policy success, and 2) a go at trying to influence at least laterally the onset of the new Eurasia-centered geopolitical order. So here it is – the 159-page, as detailed as possible, Joint Comprehensive Plan of Action (JCPOA); the actual P5+1/Iran nuclear deal. As Iranian diplomats have stressed, the JCPOA will be presented to the United Nations Security Council (UNSC), which will then adopt a resolution within 7 to 10 days making it an official international document. Looking ahead, Iranian President Hassan Rouhani tweeted now there can be “a focus on shared challenges” – referring to the real fight that NATO, and Iran, should pursue together; against the fake Caliphate of ISIS/ISIL/Daesh, whose ideological matrix is intolerant Wahhabism and whose attacks are directed against both Shi’ites and westerners. Right on cue, Russian President Vladimir Putin stressed the deal will contribute to fighting terrorism in the Middle East, not to mention “assisting in strengthening global and regional security, global nuclear non-proliferation” and — perhaps wishful thinking? — “the creation in the Middle East of a zone free from weapons of mass destruction.”

Iran rejects sanctions extension beyond 10 years | Reuters: Iran will not accept any extension of sanctions beyond 10 years, an official said on Wednesday, in the latest attempt by its pragmatist government to sell a nuclear deal with world powers to skeptical hardliners. Abbas Araqchi, one of several deputy foreign ministers, also told a news conference Iran would do 'anything' to help allies in the Middle East, underlining Tehran's message that despite the deal Iran will not change its anti-Western foreign policy. Ayatollah Ali Khamenei, the highest authority in Iran, told supporters on Saturday that U.S. policies in the region were "180 degrees" opposed to Iran's, in a Tehran speech punctuated by chants of "Death to America" and "Death to Israel". Under the accord, Iran will be subjected to long-term curbs on its nuclear work in return for the lifting of U.S., European Union and U.N. sanctions. The deal was signed by the United States, Britain, China, France, Germany, Russia and the EU. The world powers suspected Iran was trying to create a nuclear bomb; Tehran said its program was peaceful. The accord was a major success for both U.S. President Barack Obama and Iran's pragmatic President Hassan Rouhani. But both leaders have to promote it at home to influential hardliners in countries that have been enemies for decades.

US Government Reinstates Arm Sales To Bahrain Despite Rampant Human Rights Abuses -- One of the many destructive myths Americans like to tell themselves is that the U.S. government is a staunch defender of human rights and democracy around the world. In reality, nothing could be further from the truth. Yes its true, there are plenty of well intentioned individuals and organizations across America that do care very deeply about such things; the U.S. government just isn’t one of them. The facts on the ground clearly prove this to be the case. The only thing those in charge care about is raw imperial power and money. Of course, they know this. They also know that keeping the myth alive is extremely important in order to maintain the moral high ground and some degree of legitimacy in the eyes of the public. The most recent example of what a sham the government’s purported commitment to human rights is, was last week’s revelation that the State Department may be prepared to upgrade Malaysia’s trafficking in persons ranking just to move the TPP forward. Here’s an excerpt from the post, To Pass TPP, U.S. State Dept. Upgrades Malaysia’s Human Trafficking Ranking Despite Discovery of Mass Graves:  Today, we learn about how the U.S. government has reinstated arm sales to Bahrain despite horrific human rights abuses.

Oil and Coal Indicate the Global Economy is in a Free Fall -- In the US, Coal has become a political hot button. Consequently it is very easy to forget just how important the commodity is to global energy demand. Coal accounts for 40% of global electrical generation. It might be the single most economically sensitive commodity on the planet. With that in mind, consider that Coal ENDED a multi-decade bull market back in 2012. In fact, not only did the bull market end… but Coal has erased ALL of the bull market’s gains (the green line represents the pre-bull market low). For all intensive purposes, the last 13 years were a wash. Those who believe that the global is in an economic expansion will shrug this off as the result if the US’s shift away from Coal as an energy source. The US accounts for only 15% of global Coal demand. The collapse in Coal prices goes well beyond US changes in energy policy. What’s happening in Coal is nothing short of “price discovery” as the commodity moves to align itself with economic reality. In short, the era of “growth” pronounced by Governments and Central Banks around the world ended. The “growth” or “recovery” that followed was nothing but illusion created by fraudulent economic data points. We get confirmation of this from Oil.

Commodities Plunging To 2002 Level Sends "Investors" Rushing To Safety Of Overpriced Tech Megacaps -- Overheard at The NY Fed today... Volume continues to leak lower and breadth gets worserer but The Nasdaq can't help itself and The S&P so desperately wanted new record highs... Bullard broke the rally early but all that did was inspire JPY-driven carry to mount an attack on new highs in stocks.. Notable divergence once again today as Small Caps and Trannies were major underperformers... Notably, from last Thursday's gap open, the divergence is very dramatic as the 4 horsemen of tech have gone exponential... And off the lows pre-Greek deal... As The Big 4 surge (but rolled over a little in last 30 minutes) VIX was not playing along... Nor is HY Credit... Nor is breadth... Finally - consider Nasdaq +10.5% YTD, Trannies -9.5% YTD 52-Week Lows soared again today despite some of the indices surging... Treasury yields were volatile until Europe closed then died... The USDollar managed a very small gain with Swissy weakness offset by SEK strength... By the close Silver and copper were 1% lower, crude slipped further, and gold dropped 2.6%... Gold monkey hammered overnight but scrambled some of the flush back - closes at 5 year lows... Crude clubbed back below $50... driven almost perfectly by USD strength Finally a reminder from earlier... Commodities are at 13 year lows!!!!!!  (15 Charts: Bloomberg)   Bonus Chart: What happens historically after Friday's 1%+ gain with terrible breadth?

What the Crash in Commodity Prices Is Saying About Global Growth Prospects -- Yesterday, domestic oil (West Texas Intermediate or WTI) dipped below $50 a barrel during intraday trading, reaching a level not seen since April. Gold closed at the lowest price in five years while sugar traded at a six year low. Wheat has lost almost 9 percent since last week. The Bloomberg Commodities Index traded at a 13-year low yesterday. The selloff in commodity prices is sending the following market messages: China is highly likely overestimating its economic growth rate of 7 percent that it reported last week; despite six years of central banks’ efforts to rev up economic engines, the money isn’t reaching consumers – it’s still flowing to the one percent. The chart below showing the relapse in commodity prices and stock prices in 1937, after the Fed thought it had beaten the worst of the Great Depression, should send an important warning message to today’s Fed.

Gold just got destroyed - The price of gold, courtesy of stop-loss selling and thin market conditions, endured a wild ride Monday. At 11:25 a.m. AEST (9:25 p.m. Sunday EDT) the spot price crashed 3.8%, or $43, to $1,087 an ounce in just a matter of seconds. "We have seen gold undergo what can really only be described as its mini 'flash crash,'" Chris Weston, IG's chief market strategist, said. "Talk from one local bank has been that 5 tonnes was dumped onto the Shanghai exchange, which is a huge order regardless of the time of day."

Speculators smash gold as dollar squeeze tightens - Powerful speculators have launched an unprecedented attack on the world gold market, driving prices to a five-year low as commodities wilt and the US Federal Reserve prepares to tighten monetary policy.  Spot prices slumped by more than 4pc to $1,086 an ounce in overnight trading after anonymous funds sold 57 tonnes of gold in Shanghai and New York, choosing the moment of minimum market liquidity in what appears to have been a synchronized strike intended to smash confidence.  The move came after China’s central bank dismayed "gold bugs" by revealing that the country’s bullion reserves stand at just 1,658 tonnes, far lower than widely assumed. While holdings have risen 60pc since the last update in 2009, they are still a fraction of China’s total $3.7 trillion foreign exchange reserves.   Ross Norman, a veteran gold analyst at brokers Sharps Pixley, said sellers dumped 7,600 contracts covering 24 tonnes on the Globex exchange in New York in a two-minute span after it opened late on Sunday night.  A further 33 tonnes were sold at almost exactly the same time in Shanghai. The combined hit of 57 tonnes in such a short period is an extraordinary event in the world’s relatively small gold market.   Michael Lewis, commodities chief at Deutsche Bank, said the “fair value” for gold is around $750. This is based on an index of eight indicators, such as oil, copper, income per capita and equity prices, that dates back to the early 1970s. Gold tends to “mean revert” over time. “The prospect of Fed tightening and rising real interest rates in the US is really hazardous for gold,” he said.

Commodity Carnage Continues - Copper Crashes To 6 Year Lows -- Across the board commodities are weak again today as CCFD unwinds and mal-investment booms collapse across the world. Copper is under the most pressure today, plunging to its lowest since June 2009... but of course, Dr.Copper now knows nothing about economics because eyeballs trump reality in the new normal...In July, things are not going well... Smashing copper to its lowest since June 2009... Ignore this chart... it's different this time… And meanwhile, Goldman has turned decisively bearish with a forecast that's some 30% below consensus as macro and micro factors conspire to create a veritable perfect storm: Though we have been bearish on copper on a 12-mo forward basis for the past two and a half years, we have maintained a more bullish medium to long-term stance on the assumption of Chinese copper demand growth of 4% per annum and a major slowing in supply growth around 2017/2018. We substantially lower our short, medium, and long-term copper price forecasts, on the back of lower Chinese copper demand growth forecasts (we have been highlighting that the risk has been skewed to the downside for some time), increased conviction in copper supply growth over the next three years, and less conservative assumptions regarding mining cost deflation in dollar terms.Charts: Bloomberg

China Furious Over Rig Pictures: "What Japan Did Provokes Confrontation" --On Wednesday, we detailed China’s latest maritime dispute with a US ally. Just as the back-and-forth banter and incessant sabre-rattling over Beijing’s land reclamation activities in the Spratlys had died down, Washington and Manila passed the baton to Tokyo in the race to see who can prod the PLA into a naval confrontation first.  To recap, Japan apparently believes that China is strategically positioning rigs as close to a geographical equidistance line as possible in order to siphon undersea gas from Japanese waters. Here’s a map showing the position of the rigs and the line which divides the countries’ economic zones:  And here are the rigs themselves: Tokyo’s position is that Beijing’s exploration activities violate a 2008 joint development agreement between the two countries. Beijing, on the other hand, "erroneously" believes it has the right to development gas fields located in its territorial waters.As we noted yesterday, Chief Cabinet Secretary Yoshihide Suga’s assurance that the spat would not endanger the slow thaw of Sino-Japanese relations didn’t sound convincing under the circumstances:  Sure enough, China has taken the rhetoric up a notch. Reuters has more:Japan's release of pictures of Chinese construction activity in the East China Sea will only provoke confrontation between the two countries and do nothing for efforts to promote dialogue, China's Foreign Ministry said.In a statement late on Wednesday, China's Foreign Ministry said it had every right to develop oil and gas resources in waters not in dispute that fall under its jurisdiction."What Japan did provokes confrontation between the two countries, and is not constructive at all to the management of the East China Sea situation and the improvement of bilateral relations," it said

Capital exodus from China reaches $800bn as crisis deepens - Telegraph: China is engineering yet another mini-boom. Credit is picking up again. The Communist Party has helpfully outlawed falling equity prices. Economic growth will almost certainly accelerate over the next few months, giving global commodity markets a brief reprieve. Yet the underlying picture in China is going from bad to worse. Robin Brooks at Goldman Sachs estimates that capital outflows topped $224bn in the second quarter, a level "beyond anything seen historically". The Chinese central bank (PBOC) is being forced to run down the country's foreign reserves to defend the yuan. This intervention is becoming chronic. The volume is rising. Mr Brooks calculates that the authorities sold $48bn of bonds between March and June. Charles Dumas at Lombard Street Research says capital outflows - when will we start calling it capital flight? - have reached $800bn over the past year. These are frighteningly large sums of money. China's bond sales automatically entail monetary tightening. What we are seeing is the mirror image of the boom years, when the PBOC was accumulating $4 trillion of reserves in order to hold down the yuan, adding extra stimulus to an economy that was already overheating. The squeeze earlier this year came at the worst moment, just as the country was struggling to emerge from recession. I use the term recession advisedly. Looking back, we may conclude that the world economy came within a whisker of stalling in the first half of 2015.

Stock Downturn Hits Chinese Investors in the Heart, Not Just the Wallet - — Farmers turned village community centers into makeshift trading floors. Young workers quit low-paying jobs to play the market full time. Retirees started investment clubs, counseling one another on stock picks.China fell under the spell of the stock market over the last year, as millions of factory owners, university students, wheat growers and other investors jumped at a chance to strike it rich.“When we eat breakfast, we think of the stock market. When we sleep, we see flashing red and green screens,” said Elizabeth Xu, 37, a customer service supervisor at an electronics company in Shanghai, who invested $2,500 last fall. “This is our new sport.”But with the market stumbling in recent weeks, investors are now engaged in a national game where the risks are increasingly outweighing the rewards.  That reality has prompted reflection among some traders, and it has touched off a wider debate about wealth in a society caught between the proud egalitarianism of its socialist past and the lure of capitalist riches. Some Chinese citizens have taken to social media to question the amount of attention devoted to the market and to criticize what they describe as an unhealthy materialist tendency in society. “The stock market is all about filling your pockets,” said Zhou Lian, 32, a visual artist in Beijing who wrote a critical post on WeChat, a popular mobile messaging application. “Is that what we want to stand for?” A recent opinion article in China Daily, a state-run newspaper, warned, “It is dangerous to play with greed.”

China’s Stocks Advance in Longest Winning Streak in Two Months - China’s stocks rose for a sixth day, the benchmark index’s longest stretch of gains since May, as volatility fell amid unprecedented government intervention to support equities. The Shanghai Composite Index climbed 2.4 percent to 4,123.92 at the close, led by material producers and financial companies. Some 531 companies were suspended from trading on mainland exchanges, equivalent to 18 percent of total listings. The measure has rallied 18 percent since bottoming out on July 8 as a gauge of 10-day price swings dropped to a one-month low.  “The upshot is that this sideways grind is going to stay for a while longer as onshore markets slowly resume normalcy, with the government carefully scaling back the support measures.” The Shanghai index has rebounded from a rout that wiped out $4 trillion in value after officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes, suspended initial public offerings and gave a government agency access to more than $480 billion of borrowed funds to help finance equity purchases. Margin traders increased holdings of shares purchased with borrowed money for a fourth day in Shanghai on Wednesday. China should exit from some contingency measures to stabilize financial markets at an “appropriate time,” the People’s Daily said in an article on Thursday. The government should also normalize some measures that are consistent with reforms, the newspaper said. The median trailing price-to-earnings ratio on mainland bourses is 73, higher than in any of the world’s 10 largest markets. It was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.

Shanghai Margin Debt Rises Most in Seven Weeks Amid Stock Rally - Chinese stock investors increased leveraged positions in Shanghai by the most in almost two months as the benchmark equity index extended a rebound. The outstanding balance of margin debt on the Shanghai Stock Exchange rose 1.3 percent to 941.4 billion yuan ($152 billion) on Thursday, the biggest increase since June 2. Shares rose 1.1 percent Friday to head for a third weekly advance. An increase in margin debt would provide support to a rally that’s lifted the Shanghai Composite Index up 19 percent from a low on July 8. A slump in leveraged bets helped spur a rout that erased $4 trillion in value in less than a month. The margin balance for Ping An Insurance Group Co. was 32.2 billion yuan Thursday, the highest among Shanghai-traded stocks, the data show.

China business sentiment slumps to six-year low - Chinese business sentiment fell sharply in July, suggesting that recent dramatic falls in company share prices had severely dented optimism.  The MNI China Business Indicator fell 8.8 per cent to 48.8 in July, below the 50 score which marks optimism. The reading matches the April level, which was the lowest since January 2009. In June the index had jumped 7.6 per cent in June to 53.5.  MNI, a part of Deutsche Börse Group, surveys 200 companies listed on the Shanghai and Shenzhen stock exchanges. It said the overall fall in sentiment outstripped actual recorded declines in production and new orders, suggesting that other factors were at play. The likeliest is the the steep decline in Chinese stock markets, which wipe some $3tn off the market cap of the two exchanges. The weakening also comes in spite of the recent stimulus measures implemented by the People's Bank of China, the central bank, amid deflationary pressures and rising labour and regulation costs. Philip Uglow, chief economist of MNI Indicators, said:   The sharp pullback in the MNI China Business Sentiment Indicator, after the more positive June reading, marks a disappointing start to Q3. The woes of the stock market over the past month may well have dented confidence, although at present it is difficult to gauge the impact.  More positively, increased credit availability among our panel suggests that stimulus measures are starting to feed through more prominently which may help to underpin growth ahead.

Quickly revisiting those dodgy China growth stats --As above, we got a 7 per cent print for Q2 GDP growth in China last week. Here’s the breakdown from CreditSights — do note the weakness generally vs the contribution from the financial sector. As CreditSights say “The finance sector’s contribution grew by over 20% in 1H15 ­­ this is no thanks to the banks and more likely due to profit growth at securities firms and possibly asset management companies. In contrast, the industrial sector, which contributes over a third to GDP, is growing at under 2% YoY.” Of course, it’s real (ish) activity but it most probably isn’t going to be repeated at that level and without it GDP would have been down closer to 6 per cent, according to UBS.  Which is all interesting stuff, but it’s not why we’re here. Thing is we suggested that following the trend in China’s GDP stats is probably the best thing to do — basically because one can’t really be sure of the numbers and you’re a bit short of options otherwise. Simon Rabinovitch over at the Economist said basically the same thing: “There is a difference between smoothing data and totally fabricating it. Evidence suggests that China is guilty of the former (the lesser charge) but not the latter (the more serious allegation).”  But we (being AV, not Simon) wonder if we’re right to advocate even that level of belief. Stuff like this from Christopher Balding and this from JCap’s Anne Stephenson-Yang doesn’t help:  Once, for example, while conducting our cement survey, we ran into an executive who thought we were calling from the cement association, Digital Cement, that gathers statistics for the NBS. The executive asked us to please stop asking him to change the data—he had already made changes. This happens because the NBS pays companies to participate in surveys, and giving a low-ball estimate of production is one sure way to get booted from the survey panel. Hence there is no pressure to reform but political pressure not to.

As Beijing Becomes a Supercity, the Rapid Growth Brings Pains - For decades, China’s government has tried to limit the size of Beijing, the capital, through draconian residency permits. Now, the government has embarked on an ambitious plan to make Beijing the center of a new supercity of 130 million people.The planned megalopolis, a metropolitan area that would be about six times the size of New York’s, is meant to revamp northern China’s economy and become a laboratory for modern urban growth.“The supercity is the vanguard of economic reform,” said Liu Gang, a professor at Nankai University in Tianjin who advises local governments on regional development. “It reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”The new region will link the research facilities and creative culture of Beijing with the economic muscle of the port city of Tianjin and the hinterlands of Hebei Province, forcing areas that have never cooperated to work together.AdvertisementContinue reading the main story This month, the Beijing city government announced its part of the plan, vowing to move much of its bureaucracy, as well as factories and hospitals, to the hinterlands in an effort to offset the city’s strict residency limits, easing congestion, and to spread good-paying jobs into less-developed areas.Jing-Jin-Ji, as the region is called (“Jing” for Beijing, “Jin” for Tianjin and “Ji,” the traditional name for Hebei Province), is meant to help the area catch up to China’s more prosperous economic belts: the Yangtze River Delta around Shanghai and Nanjing in central China, and the Pearl River Delta around Guangzhou and Shenzhen in southern China.  But the new supercity is intended to be different in scope and conception. It would be spread over 82,000 square miles, about the size of Kansas, and hold a population larger than a third of the United States. And unlike metro areas that have grown up organically, Jing-Jin-Ji would be a very deliberate creation. Its centerpiece: a huge expansion of high-speed rail to bring the major cities within an hour’s commute of each other.

What Will Become Of China's Ghost Cities? - Forbes: Little did we know that most of that iron ore being shipped to Guangzhou from Rio de Janeiro and Port Hedland, Australia was going to build Chinese cities; cities that would remain vacant for years. China single-handedly topped the phrase “bridge to nowhere” and made ghost cities a euphemism for lousy development planning in the world’s No. 2 economy. Anyone can build a useless overpass, but it takes China to build a city for a million people with no buyers in sight. The naysayers loved the Western media’s discovery of China’s ghost cities. It was evidence that China’s growth of the last 20 years was based on building things nobody needed or wanted.  Many of them are debt burdens carried by the developers who haven’t sold a single unit. From shopping malls to soccer stadiums, hundreds of new cities in China are largely empty. And yet more cities are still being built deep in the heart of the country. All in hopes that its rural population will one day move to a flat in a city without a mayor. It’s plausible, of course. That’s because over the next 15 years, the country’s urban population will be 1 billion; three times that of the United States. China’s developing its urban architecture three ways: new cities (xinshi), new districts (xinqu) and the so-called townification (chengzhenhua). Townification is quite a departure from the way Chinese cities have developed to date. This is the transformation of small rural centers and even tribal villages and building a small urban center around them. The Communist Party planners in Beijing want to urbanize over 100 million rural Chinese over the next five years alone. That would require the construction of 50 Bostons, or six Shanghais, by 2020. Townification is lower intensity than that. These are small cities rather than sky scraper zones designed to house suits and high heels. It’s more widespread than traditional urbanization, and will define the way China develops socio-economically over the coming years.

China outlook weakens as Caixin/Markit flash PMI hits surprise 15-month low: A private gauge of Chinese manufacturing unexpectedly fell to the lowest in 15 months, reinforcing the need for further policy support in an economy that had seen signs of stabilisation recently. Regional stocks fell. The preliminary Purchasing Managers' Index from Caixin Media and Markit Economics was at 48.2 for July, down from 49.4 the previous month. The median estimate in a Bloomberg survey was for an increase to 49.7. Numbers below 50 indicate contraction. The release weakens the outlook for the world's second-largest economy, which grew more than analysts estimated in the second quarter as policy makers stepped up support and a stock market boom spurred services. Authorities remain under pressure to do more to meet Premier Li Keqiang's 2015 growth target of about 7 percent amid a slump in property investment and the recent stocks rout. "It's very hard to say that China's economy has bottomed out -- it's still too early to make that call," Zhu Haibin, chief China economist with JPMorgan Chase & Co., said at a press briefing in Beijing earlier this week. It remains to be seen whether effects from China's pro-growth measures "can be sustained," he said.

China Manufacturing PMI Hits 15-Month Low: Is This a Big Deal? -- I have been bearish on China manufacturing and growth in general for years. It is no surprise to me that news is generally negative.  For example, on news today that China's PMI "unexpectedly" declined Yahoo!Finance reported China Factories Falter, Commodities Take the HitActivity in China's factory sector seemingly contracted at the fastest pace in 15 months in July, a preliminary private survey showed on Friday in a blow undercutting recent signs of stabilization in the struggling economy. The drop confounded forecasts for a rise to 49.7, from June's final reading of 49.4, and slugged the Australian dollar to a six-year low.   "Today, it's big, bad news with this number well below consensus," . "It shows there's no signs of recovery in small and mid-sized business in China, but I think it's also related to the summer weak season for demand." In a complete rehash of the above, but under a different title Yahoo!Finance reported one hour later Asian Shares Tumble as Weak China PMI Revives Demand Concerns. There's actually less information in the second article than the first.  Let's go straight to the Markit Report for the results of the latest Flash China General Manufacturing PMI™. Key Points:

  • Flash China General Manufacturing PMI™ at 48.2 in July (49.4 in June). 15-month low.
  • Flash China General Manufacturing Output Index at 47.3 in July (49.7 in June). 16-month low.

The above chart shows Chinese manufacturing has been languishing for years. I do not believe, and have not believed Chinese GDP reports for at least as long.

The Chilling Thing China’s Electricity Consumption Just Said about the Economy -- China has been building what is by now the largest high-speed rail system in the world. Subway systems are growing faster than anyone can imagine anywhere else. Ridership is soaring. High-rise buildings are sprouting up like mushrooms, to be occupied by businesses and consumers that are splurging on tech products, appliances, and air conditioning. All powered by electricity. China built over 23 million cars, trucks, and buses last year, far more than any other country, in plants that are massive consumers of electricity. It’s producing building materials, solar panels, trains, ships, plastic trinkets, smartphones, and a million other things for its own use and for the rest of the world. All these activities require a lot of electrical power. China is booming. GDP for the second quarter, despite rumors of a slowdown, came in at a once again astonishing annual rate of 7.0%, just as planned, once again confounding hard-landing gurus. Nothing is going to slow down China. It’s fueled by monetary propellants, endless credit that never turns bad and never has to be paid off, and a stock market run by fiat. So it would seem that electricity consumption would be soaring in parallel. But no. Electricity consumption in the first half of 2015 inched up to 2,662.4 billion kWh across the country. Compared to the same period last year, that was up a tiny 1.3%. The flimsiest growth rate in 30 years. In 19 provinces, power consumption grew at above the national average of 1.3% compared to prior year, the People’s Daily Online reported, based on a brief by the China Electricity Council; but in 9 provinces, power consumption during the first half actually fell. While electricity consumption in light industry rose by 2.1%, it dropped 0.5% in secondary industry and 0.9% in heavy industry. So was the economy of China suddenly not growing at an annual rate of 7% during the first half?

China’s Global Ambitions, With Loans and Strings Attached - Where the Andean foothills dip into the Amazon jungle, nearly 1,000 Chinese engineers and workers have been pouring concrete for a dam and a 15-mile underground tunnel. The $2.2 billion project will feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than a third of Ecuador.Near the port of Manta on the Pacific Ocean, Chinese banks are in talks to lend $7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products.Across the country in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galápagos Islands. State-owned Chinese banks have already put nearly $11 billion into the country, and the Ecuadorean government is asking for more. Ecuador, with just 16 million people, has little presence on the global stage. But China’s rapidly expanding footprint here speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground.While China has been important to the world economy for decades, the country is now wielding its financial heft with the confidence and purpose of a global superpower. With the center of financial gravity shifting, China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources. It represents a new phase in China’s evolution. As the country’s wealth has swelled and its needs have evolved, President Xi Jinping and the rest of the leadership have pushed to extend China’s reach on a global scale.

S. Korean economy sputtering, falling short of growth projections --In the second quarter of this year, the South Korean economy only grew 0.3% compared to the previous quarter. This was the lowest level of growth in six years, since the first quarter of 2009 (0.1%), during the global financial crisis. While the Middle East Respiratory Syndrome (MERS) and the drought were unexpected developments that had negative effects, the “growth shock” in the second quarter materialized as the country’s growth potential weakened on the back of a slump in exports and domestic demand. As a consequence, there are concerns that South Korea’s growth rate may not even meet the Bank of Korea’s projection of 2.8%, let alone the government’s target of 3.1%. Quarterly GDP and growth rate According to figures released by the Bank of Korea on July 23, South Korea’s real GDP for the second quarter increased by 0.3% from the previous quarter. For the fifth consecutive quarter since the growth rate fell to 0.5% in the second quarter last year following the sinking of the Sewol ferry, the growth rate has stayed below 1%. The second quarter growth rate of 0.3% is the same as the fourth quarter of last year, when a shortfall in tax revenues led to a fiscal cliff. In the past 10 years the only quarters with growth lower than that were the fourth quarter of 2008 (-3.3%) and the first quarter of 2009 (0.1%), in the aftermath of the global financial crisis. To explain the sharp decline in the growth rate for the second quarter, the Bank of Korea cited the temporary shocks of MERS and the drought and the structural factor of declining exports. Indeed, consumption in the private sector fell 0.3% compared with the previous quarter as spending contracted because of MERS and the number of foreign tourists decreased. This is the first time that private consumption has faltered since the second quarter of last year (-0.4%), when spending patterns were interrupted by the Sewol tragedy.

Korea mulls curbs on capital outflow: Finance Minister Choi Kyung-hwan indicated Tuesday that the government may take action to stabilize financial markets if there is a sudden capital outflow. Minister Choi also tried to ease concerns among foreign shareholders about the nation’s negative views on short-term speculative investments. \“If the U.S. Fed rate hike gives a severe boost to capital outflow (from Korea), we may revise the system and bring in more control policies,” he said during a meeting with foreign correspondents in Seoul. He added that the current supervision system imposes partial restriction on short-term capital influx, which is sufficient under current circumstances. He reiterated that all forms of legitimate foreign investment is welcome here, if it abides by South Korea’s laws and regulations.

Japan govt says won't meet FY 2020 fiscal discipline targets -- Japan's government said on Wednesday that it will not achieve its target of returning to a primary budget surplus in fiscal 2020, suggesting further steps will be needed to boost revenue and lower spending. The target is considered an important checkpoint for Japan as it seeks to reduce a debt/GDP ratio that is the worst in the industrialised world, with public debt standing at around twice the size of its economy. Giving greater priority to bolstering economic growth, Prime Minister Shinzo Abe's leading panel of advisers agreed budget guidelines on Wednesday that eschew spending cut targets, raising concerns the government could easily increase fiscal spending and add to the debt burden. The Cabinet Office, which helps coordinate economic policy, said it expects consumer prices to rise more slowly than the Bank of Japan's 2 per cent inflation target in fiscal 2016 due to declines in oil prices.It also forecast the primary budget deficit, which excludes debt servicing costs and income from bond sales, will reach 6.2 trillion yen or 1.0 per cent of gross domestic product in fiscal 2020. This is better than a previous forecast in February that put the primary deficit at 1.6 per cent of GDP in fiscal 2020, The improvement reflected recent gains in tax revenue. However, this still falls short of meeting the goal of returning to surplus in fiscal 2020. Consumer prices were forecast to rise 0.6 per cent in fiscal 2015, a far slower than the 1.4 per cent forecast in February. The sharp downward revision reflects a collapse in oil prices. Consumer price inflation is expected to accelerate to 1.6 per cent in fiscal 2016, partly as economic growth picks up due to gains in consumer spending. Still, this is below the previous forecast of 1.8 per cent growth.

Japan Inc Rocked By Massive Accounting Scandal: Toshiba CEO Quits After Admitting 7 Years Of Cooked Books --While Abenomics has been an unmitigated disaster for Japan's ordinary population, where the soaring stock market has benefited the top decile of the population while everyone has been slammed by a record 25 consecutive months of declining real wages and soaring input costs, there had been one bright spot: corporate earnings, which unlike in Europe or even the US, have been growing at a steady double-digit clip. What was surprising is that Japan was perhaps the one place where currency debasement was leading to an immediate flow through to rising EPS. Then on Friday, a report out of Reuters caught our attention when news hit that 140 year old electronics conglomerate, and "pillar of Japan Inc", Toshiba had inflated profits by a stunning $1.2 billion for a whopping 7 years, with fabricated figures amounting to 30% of the company's "profits" since 2008! Suddenly we saw Japan's profitability "renaissance" in a very different light as Toshiba's scandal suggested that, if endemic,  Japan Inc's house of soaring profits was built on nothing more than fabricated foundations. And while we await to see which other companies will admit they too had been cooking their books in the past few years, we will have to do it without Toshiba's CEO Hisao Tanaka, who together with five members of his senior staff, resigned earlier today. According to the FT, "Tanaka said on Tuesday at a news conference, following a 15-second bow of contrition, that he “felt the need to carry out a major overhaul in our management team in order to build anew our company." “We have suffered what could be the biggest erosion of our brand image in our 140-year history."

Pakistan's Rising College Enrollment and Graduation Rates  -- There are over 3 million students enrolled in grades 13 through 16 in Pakistan's colleges and universities, according to Pakistan Higher Education Commission report for 2013-14.  The 3 million enrollment is 15% of the 20 million Pakistanis in the eligible age group of 18-24 years.  In addition, there are over 255,000 Pakistanis enrolled in vocational training schools, according to Technical Education and Vocational Training Authority (TEVTA).Pakistani universities have been producing over half a million graduates every year since 2010, according to HEC data. The number of university graduates in Pakistan increased from 380,773 in 2005-6 to 493,993 in 2008-09. This figure is growing with rising enrollment and contributing to Pakistan's growing human capital. Higher education in Pakistan has come a long way since its independence in 1947 when there was only one university, the University of Punjab. By 1997, the number of universities had risen to 35, of which 3 were federally administered and 22 were under the provincial governments, with a combined enrollment of 71,819 students. A big spending boost by President Pervez Musharraf helped establish 51 new universities and awarding institutions during 2002-2008. This helped triple university enrollment from 135,000 in 2003 to about 400,000 in 2008, according to Dr. Ata ur Rehman who led the charge for expanding higher education during Musharraf years.

Gold's plunge sparks retail demand in China, India - --Gold's plunge to five-year lows this week has prompted a swift rise in demand from jewelry retailers in China and India, the world's top consumers of gold, leading to a doubling of premiums paid on physical gold. At the same time, sales of gold coins from Australia's biggest bullion mint have been rising sharply, likely thanks to some bargain-hunting. The increase in demand is expected to provide a cushion to the battering that gold has taken this week, although it may not be enough to offset the bearish outlook on the yellow metal amid growing expectations of a rise in U.S. interest rates and a lack of safe haven demand. India, together with China, accounts for around half of the global demand. Spot gold traded Wednesday at $1,094 an ounce, just above the more than five-year low touched Monday and off nearly 5% from a week ago. Prices for the precious metal, which peaked at nearly $1,900 in August 2011, have been under pressure since Federal Reserve Chairwoman Janet Yellen said late last week that a rise in U.S. interest rates is in the cards this year and China's central bank reported much lower-than-expected gold reserves.

Indian banks opt for offbeat tactics to tackle $49 billion of bad debts (Reuters) - Under pressure to do more to cut a $49 billion (31.42 billion pounds) mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale. India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors. Now, bank executives say pressure - from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility - has left little choice but to get tougher and faster. Tactics include targeting smaller borrowers with aggressive 'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms. P.K. Malhotra, a deputy managing director at the State Bank of India , the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets.

India blocks Colgate patents for spices: India has successfully blocked two patent claims of US consumer goods major Colgate-Palmolive, which wanted intellectual property right (IPR) cover on two oral compositions made from Indian spices and other herbs. One patent battle took almost seven years, after the New York-based company filed a claim at the European Patent Register on September 29, 2008, for a composition containing botanical extracts from three herbs, including cinnamon, a common kitchen spice across India, known here as “dalchini”. India opposed the claim using the traditional knowledge digital library (TKDL) database, created in the last decade to fight biopiracy. The database, maintained by the Council of Scientific and Industrial Research (CSIR), submitted its plea in May 2011, and the European patent office ruled in India’s favour last month. Two years after filing the first patent claim, Colgate-Palmolive moved another application in 2010 before the European patent office, seeking protection for another oral composition containing nutmeg, ginger, “Bakul” tree, camphor, cinnamon, turmeric, Indian banyan, black pepper, long pepper, Neem and clove. The solution is for treating oral cavity diseases.

AIIB: The first international financial institution of the 21st century -- Today, infrastructure funding remains insufficient, and nations still experience sudden stops of private funding that official lending can temporarily cushion. But the global economy has evolved much faster than the operations of either the Bretton Woods institutions or some of their regional siblings like the Asian Development Bank (ADB), the African Development Bank (AfDB), the Inter-American Development Bank (IDB), and the European Bank for Reconstruction and Development (EBRD).What happens when official international financial institutions (IFIs) fail to respond to a changing environment? The same thing that happens to firms that stop innovating. New, more competitive institutions (firms) arise that compel them to change or – like dinosaurs – become extinct.We may be witnessing this process of creative destruction right now. Last month, a group of 57 founding nations led by China signed the articles of agreement to establish the Asian Infrastructure Investment Bank (AIIB) with an initial subscribed capital of $100 billion. While most of the G20 nations, including the big European states, Australia, and South Korea, are among the founding members, the United States, Japan, and Canada are noticeably not. No one disputes the need for more official infrastructure funding: the World Bank projects infrastructure spending needs over the next 20 years in east and south Asia at about $500 billion per year (see figure 0.4 here). The ADB’s estimate is even higher, putting Asian infrastructure investment needs at $8 trillion in the current decade (2010 to 2020). Yet, all types of loans on the balance sheets of the ADB and the World Bank (which includes lending outside of Asia) together total only a bit over $200 billion (see here and here).

Egads, a WTO Deal...on Expanding IT Goods --  OK, so it isn't the completion of the Doha Round (in progress from 2001 to, well, never evermore it seems). I suppose that it's still an achievement that the Information Technology Agreement (ITA) has been moved expanded to include more kinds of electronics--including game consoles [!]--and more tariff reductions. In this day and age where skepticism about the benefits of trade are evident around the world, any sort of multilateral deal is worth mentioning: Trade negotiators on Saturday tentatively agreed to eliminate tariffs on an array of technology products valued at US$1 trillion worth of global commerce. The breakthrough toward the WTO’s Information Technology Agreement (ITA) took place at an ambassadors’ meeting at the EU embassy in Geneva.“Very optimistic that we’ll have a final successful deal by the end of next week,” WTO Director-General Roberto Azevedo said on Twitter. “We have the basis for an agreement.”US Trade Representative Michael Froman hailed a “major breakthrough” in what would be the first significant tariff-cutting deal at the WTO in 18 years. “This will open overseas markets for some of America’s most competitive companies and workers,” he said in an e-mailed statement. “We are confident that all parties will now give formal approval to their participation.” And of course, what would this news be without mentioning cutting tariffs on game consoles to zero along with optimistic trade creation figures being bandied about: Tariffs on semiconductors, magnetic resonance imaging machines, global positioning system devices, printer ink cartridges, video game consoles and other products would be cut to zero under the deal, according to the US Trade Representative office.

TISA Stocktaking Meeting Reveals There Is Still Ground To Cover: The ambassadors for the Trade in Services Agreement (TISA) have endorsed a deadline of notifying any additional new annexes by 31 July, and submitting completed offers by 15 September. This is the result of the most recent meeting of negotiators of the 25 TISA parties, according to a spokesperson for the Australian Department of Foreign Affairs and Trade. Australia hosted the TISA round from July 6-10 in Geneva. TISA negotiations have been ongoing for several years in an effort to create a trade agreement to push cross-border trade. Currently, 24 parties are parties to the TISA negotiations: Australia, Canada, Chile, Taiwan, Colombia, Costa Rica, European Union, Hong Kong, Iceland, Israel, Japan, Liechtenstein, New Zealand, Norway, Mexico, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Turkey, and the United States. Uruguay and Mauritius recently joined the club of the so-called “very best friends.” Parties met last week to take stock of how far advanced the negotiations are. The DFAT spokesperson in a written statement summarized: “We made useful progress at the 12th round of TISA negotiations. The parties agreed to time frames for ongoing negotiations. There is appetite for intensified discussions in some areas, including market access.” The spokesperson added that “large elements of the core text are stabilised,” and “good progress was made on a number of annexes at the 12th round and we expect to stabilise a number by the end of the year.”

Trade agreements and modern-day slavery - The media have been preoccupied with the Confederate battle flag as a symbol of slavery that cannot be tolerated. Politicians of both parties jump on the bandwagon to stuff the offending piece of cloth down the memory hole.  Once again, image triumphs over substance: Elected officials pose as Great Emancipators for purging the Confederate battle flag from TV reruns, but turn their back as slavery thrives in the real world. The Southeast Asian nation of Malaysia is notorious for its slave trade. It's estimated that Malaysia has 2 million illegal migrant workers. These workers are routinely kidnapped, held against their will and sold and used as slaves on plantations and in garment and electronics factories. Women are turned into sex slaves. Just two months ago, police found mass graves in Malaysia containing the bodies of 139 migrant workers who had been trafficked or held for ransom.  The State Department's annual human rights reports ranks Malaysia as one of the worst places on earth for slavery, a so-called "Tier 3" country, in the same category as Zimbabwe and North Korea. According to the State Department, the situation in Malaysia is getting worse. It reported 89 human trafficking investigations in the year ending March 2014 — fewer than half the number of investigations done the previous year. Convictions dropped from 21 to nine.

In Myanmar, Garment Factories That Source Popular Brand-Name Clothing Retailers Aim To Defeat A 40-Cent Hourly Minimum Wage : Factories in Myanmar that supply major Western clothing companies are fighting a government proposal to set the country’s first-ever minimum wage at roughly $3.25 a day. At the same time, the brands themselves -- Gap Inc. and H&M Hennes & Mauritz AB among others -- have declined to say where they stand on the proposed rate, which amounts to 40 cents an hour. The ongoing debate, pitting the government against a burgeoning export-driven garment-manufacturing sector, sheds light on the spectacular competitive pressures that define the global apparel industry. It also exposes a clear divide between the views of on-the-ground suppliers and the public assurances of brands they serve. In the last few years, top Western clothing retailers such as Gap, H&M, Marks and Spencer Group PLC and Primark Stores Ltd. have signed contracts with more than a dozen garment factories in Myanmar, the former British colony also known as Burma. The country emerged from decades of military dictatorship in 2011 and major U.S. and European sanctions shortly thereafter. It now offers some of the cheapest labor costs on the planet combined with easy access to Asian markets -- both attractive features for corporations looking to source low-cost, ready-made garments for export. Last summer, Gap raised eyebrows when it became the first American apparel company to publicly sign a contract in Myanmar since President Barack Obama eased sanctions. At the time, Gap said, “The apparel industry will play a key role in helping to fuel the economic prosperity of the country.” But if garment-factory bosses get their way, comparatively little of that newfound wealth will flow to workers.

Australian Banks to Set Aside Billions More as Home Loan Risk Rises - WSJ: Australia’s biggest banks will need to set aside billions of dollars more against potential home-loan losses as the industry regulator continues to tighten settings to ensure lenders can better resist future crises. The latest change, introduced Monday by the Australian Prudential Regulation Authority, will require large banks that dominate the local mortgage market to increase average home-loan risk weights -- a capital requirement held by banks as a buffer against the riskiness of their assets -- to at least 25% of banks’ average residential home loan- exposure from next July, from about 16% currently. The move follows a sweeping government-backed review of the financial industry published late last year that recommended risk weights rise to between 25% and 30%--and effectively requires lenders to hold more capital against their mortgage books. On Monday, the regulator said the latest rule was an interim measure, and that further changes may be made depending on the outcome of a broader review by the international Basel Committee on Banking Supervision. Analysts estimate that the additional buffer will amount to between 11 billion Australian dollars (US$8.1 billion) and A$12 billion for the four largest banks combined.

Central banks dump up to $260 billion FX reserves in second quarter: Citi - Central banks dumped as much as $260 billion of foreign exchange reserves in the second quarter as emerging market central banks tried to mitigate the impact of capital fleeing their own economies, according to Citi. The decline is the largest drop in global FX reserves in more than a decade, outstripping the depletion in 2008-09 when central banks frantically tried to manage the fallout from the global financial crisis. The International Monetary Fund published official reserves data only for the first quarter on June 30. Official second-quarter data will not be released for several weeks. But most of the world's major reserves managers have already published their end of June headline totals, which Citi estimates fell by around $85 billion to $11.35 trillion. That underestimates the true scale of decline. Once exchange rate effects and estimated portfolio shifts between currencies are taken into account, central banks actively liquidated up to $260 billion of reserves assets, estimates Steven Englander, global head of foreign exchange strategy at Citi in New York. "Central banks sold reserves to prevent their currencies from falling off a cliff," Englander said. "The difference between Q2 and previous episodes is that the same thing was happening in China, too, giving us a larger capital outflow."

The greatest sustained EM reserve slump in 20 years -- Bigger than Greece, bigger than China (or at least one of the most significant parts of the China story) is the massive shift occurring in global currency reserves. Long story short: they’re being depleted, rapidly. Especially the reserves of emerging market sovereigns. On Thursday we suggested the evolving dynamic could be linked to a contraction of petrodollar/sweatdollars in the global monetary system, thanks to growing US energy independence and US labour/tech-based re-shoring. We failed to mention, however, how the situation is exacerbated by China’s growing inability to throw renminbi at its export competitiveness problem due to not insubstantial dollar leverage exposure on the country’s books. Which is to say: China can only help its exporters — and by extension other emerging markets — by shedding a whole bunch of dollar reserves at the same time. To wit, see the following from BNP Paribas’ EM analysts on Friday. As they note: In a highly unusual development, emerging-market FX reserves have been falling steadily since the middle of last year. The IMF’s COFER figures, the gold standard for FX reserve data, show that emerging-market reserves have dropped for three successive quarters, from a peak of USD 8.06trn at end Q2 2014 to USD 7.5trn by end Q1 2015. COFER data are not yet available for Q2, but we have been able to build an estimate from already released second-quarter national data. Our bottom-up estimate of around USD 6.9trn at the end of Q1 captures 92% of the IMF’s emerging-market aggregate. By our estimates, emerging-market reserves continued to fall in Q2, albeit marginally, by USD 21bn or so. Q2’s modest fall brings the drop-off in emerging-market reserves to USD 575bn since the middle of last year. Looking at a longer run of COFER data from 1995 shows how unusual recent developments are. Even in the jaws of the global financial crisis, emerging-market reserves only dropped for two quarters before snapping back vigorously. Emerging-market reserves have not fallen on such a sustained basis in at least 20 years (Chart 2).

Economists No Longer So Negative on Negative Rates -- Is it time to make negative interest rates a standard part of the central banker’s tool kit? A surprisingly large number of economists seem to think so. Even before they finally decide that the time is right for liftoff, central bankers in the U.S. and the U.K. have been making it clear that in this cycle, their key policy rates will rise only gradually, and peak at levels well below those that were considered normal before the financial crisis. But what happens if the U.S. and U.K. economies enter a sharp downturn in the next few years? That’s not an unlikely turn of events, since in both cases the current economic expansion is already relatively long lived. With growth slowing, and inflation likely remaining low, policy makers might quickly be confronted once again with what is known as the zero lower bound–or ZLB. Until recently, it was thought that policy rates could not go negative, because there would be an immediate flight to cash, which can be thought of as a zero-interest bearer bond. But then some European central banks started to set policy rates marginally below zero, and there was no widespread flight to cash or massive disruption of the financial system, probably because it’s quite costly and risky to hold cash in large amounts. That experience has led economists to question the existence of the  ZLB. According to a survey released earlier this week, a significant minority of U.K. economists now think that “materially” negative interest rates could be an option for central bankers, where “materially” means between 2% and 3%. Right now, the Swiss National Bank and the Danish central bank have gone furthest below the putative ZLB with deposit rates of minus 0.75%.

Emerging market currencies crash on Fed fears and China slump - The currencies of Brazil, Mexico, South Africa and Turkey have all crashed to multi-year lows as investors flee emerging markets and commodity prices crumble. The drastic moves came as fears of imminent monetary tightening by the US Federal Reserve combined with shockingly weak figures from China, which stoked fears that the country may be sliding into a deeper downturn and sent tremors through East Asia, Latin America and Africa. The Caixin/Markit manufacturing survey for China fell to a 15-month low of 48.2 in July, with a sharp drop in new export orders. Danske Bank said the slide “pours cold water” on hopes of a quick recovery from the slump seen earlier this year.Brazil's real plummeted to a 12-year low of 3.34 to the dollar, reflecting the country's heavy reliance on exports of iron ore and other raw materials to China. The devaluation tightens the noose on Brazilian companies saddled with $188bn in dollar debt taken out during the glory days of the commodity boom. The oil group Petrobras alone raised $52bn on the US bond markets. Mexico’s peso hit a record low of 16.24 against the dollar. The country’s foreign exchange commission is mulling emergency action to defend the currency, despite the extreme reluctance of the Mexican authorities to meddle with market forces. Colombia’s peso collapsed 5.2pc to a historic low on Friday, a huge move in a single day. Similar dramas played out in Chile and a string of countries deemed vulnerable to the combined spill-overs from China and the US. The MSCI index of emerging market equities fell to 1.8pc to 36.92 and may soon test four-year lows. Bernd Berg, from Societe Generale, said Brazil faces a “perfect storm” as the economy slides into deeper recession and corruption scandals spread. New worries about political risk may soon push the real to 3.60, a once unthinkable level.

Brazil needs extra $157 billion by 2030 to avert crisis, study shows (Reuters) - Brazil's government needs an additional 500 billion reais ($157 billion) from taxpayers over the next 15 years to put public finances and the national debt on a sustainable path, a private study showed, underscoring the challenge facing a economy grappling with a high tax burden and stagnation. Spending commitments in education, social security and healthcare that the government assumed after the global financial crisis are adding the equivalent of 0.4 percent of gross domestic product a year to the budget, according to the paper by economists Mansueto Almeida, Marcos Lisboa and Samuel Pessoa. This year, the government needs to raise over 100 billion reais to meet its goal for the primary budget surplus, or the difference between government revenues and expenses, excluding debt servicing, of 1.1 percent of GDP. Through 2030, the economists estimated that over 300 billion reais worth of extra revenue or spending cuts will be required to prevent the gross national debt from surpassing the current level of about 60 percent of GDP. Almeida was a key adviser to Aécio Neves, who lost a run-off presidential election to Dilma Rouseff last October. Lisboa, an economic policymaker in 2003-2007, teaches business at Insper, which released the academic paper this week together with the Fundação Getulio Vargas University, where Pessoa is a professor. "The outlook is worrisome because the country can't take any more tax hikes and it's becoming harder by the day to change the country's lavish government spending culture," Almeida said in a phone interview. "Brazilian society must learn to make choices."

Mexican Peso Plunges To 16/USD - Record Lows -- The Mexican Peso has devalued 23.5% in the last 12 months, breaking 16.00/USD for the first time in history today... This is the fastest collapse in the currency since Lehman. Charts: Bloomberg

Mexico: Making the Dogs Dance - Within a few hours of his relaxed escape from Mexico’s highest security prison early Saturday evening, Joaquín Guzmán Loera, better known as “el Chapo” for his stocky build, was back on Twitter, hopping about the ether, crowing and taunting like some sort of manic cartoon character. “Never say never,” the world’s most wanted drug trafficker cried at @ElChap0Guzmán. “There’s no cage for this great Chapo!” He sent greetings to his family, thanked his collaborators, praised his sons, looked forward to working again with his compadre, Ismael “el Mayo” Zambada, who had run the Sinaloa Cartel since Chapo’s arrest; and Don Rafa—Rafael Caro Quintero, a patriarch of the drug trade who was scandalously released from prison two years ago by a compliant judge and is now a fugitive. Lapsing momentarily into a bitter, mulling mode, Guzmán made rude references to president Enrique Pena Nieto: “And you, @EPN, don’t call me a delinquent again, because I give people jobs, not like your piddling cheap government.” Back in manic mode, the trickster taunted: “Tricks are more effective than brute force, that’s what’s worked for me.” Whether the tweets were typed by Guzmán himself, who is known to be barely literate, or dictated, with constant spelling errors, by minions, was hardly the issue. He and his equally boastful older sons have all had the same accounts for some years. The tweets were taken as authentic, and provoked fervent responses from any number of young women twittering love emojis and young men praising his courage or crying, “Welcome, Great Lord!” Another form of tweeted submission was popular among men, who tuned in to exclaim ¡Eres la Verga! (“You are the Big Penis!” or, more precisely “You are the Mammalian Penis!”) in response to their hero’s missives.

EU TTIP chief negotiator: ISDS proposal being finalized – POLITICO: The European Union will soon give the United States a formal proposal for revamping an investment dispute settlement mechanism that has raised concerns in Europe over the proposed Transatlantic Trade and Investment Partnership pact. “We would be aiming to put forward a proposal to the United States that is different from the existing ISDS [investor-state dispute settlement] regime,” Ignacio Garcia Bercero, the EU chief TTIP negotiator, told reporters in Brussels at the end of the 10th round of talks on the proposed pact. Opponents of the TTIP agreement have criticized the ISDS procedure included in many free trade and investment pacts because it allows private corporations to sue against government actions that damage their investments. They say it undermines the right of governments to regulate. The European public furor has blocked TTIP investment negotiations for more than a year while the EU undertook a public consultation on the issue. With that completed, “we very much believe that it should be possible for us to engage in a good discussion with United States, hoping to achieve a good outcome satisfactory for both sides,” Garcia Bercero said. Chief U.S. negotiator Dan Mullaney said he expected to receive the EU’s proposal in the “very near future,” although no specific date was mentioned. He said the United States has already revamped its ISDS system in a way “that we think address some of the same concerns that have been raised here: impartiality and the right of regulators to regulate in the public interest.” Garcia Bercero said the European Commission would consult further with EU member states and the parliament as it finalizes its proposal.

The ratification of TTIP in the European Parliament promises to be a highly contested issue: Once negotiations over the Transatlantic Trade and Investment Partnership (TTIP) are completed, the agreement will need to be approved in the European Parliament before it can enter into force. But would TTIP be able to secure enough support in the current parliament? Pieterjan Vangerven and Christophe Crombez present an analysis of the recent decision to postpone the debate on a resolution on TTIP in the European Parliament on 10 June. They note that the vote on the postponement indicates the centre-right to be supportive of TTIP, the left and far-right to be opposed, while the centre-left is deeply divided. Nevertheless, the ideological basis for MEPs’ voting behaviour suggests that negotiators should be able to achieve an agreement that attracts support from sufficient numbers of MEPs who abstained in the 10 June vote.

Poles Suddenly Far Less Interested in Joining Euro  - For years, ever-closer integration into the European Union has been one of the driving forces in Polish politics, widely viewed as a process that would finalize Poland’s place in the Western order. But suddenly—what could have inspired this?—opinion has taken a sharp turn against the euro in the run-up to the country’s general election. As both the NYT and the Financial Times report, the events in Greece have become a flashpoint in Poland, where the Law and Justice party will face the Civic Platform party this October. NYT: The governing party in Poland, Civic Platform — whose members include Donald Tusk, the president of the European Council — has long favored a move to the euro, but lately has taken a decidedly more cautious tone. “I have never said I would adopt the euro,” Prime Minister Ewa Kopacz said in a recent interview on state television. “Not today, not tomorrow, not in five years. We will introduce the euro when it will benefit Poles and Poland.”The right-wing Law and Justice party, whose presidential candidate, Andrzej Duda, was just elected to a five-year term, has made its aversion clear.“We reject this bad idea unless you want Poland to become a second Greece,” said Beata Szydlo, the party’s candidate for prime minister in parliamentary elections this fall. “Unless the eurozone deals with its own problems, there should be no discussion about Poland adopting the euro.” The Polish people, too, seem to oppose the euro, even though their country is legally required to adopt it; the FT cites one survey of Poles showing that 54 percent of respondents don’t want the currency. Even the ruling party, for its part, is defending itself in anti-Greek terms, characterizing Law and Justice as offering “populist” and “carefree” spending prescriptions that will lead to Greek-style ruin

Angry French farmers protest low meat prices with manure, road blocks -- French livestock farmers, furious at falling prices for dairy and meat, used farm vehicles to block access to the tourist hotspot Mont Saint-Michel and two towns in Lower Normandy Monday in a bid to push officials to address the crisis. French Agriculture Minister Stéphane Le Foll described the situation as an “agricultural crisis”, stating on Saturday that one in ten of all French livestock farmers (some 25,000 farms), are now facing bankruptcy. Livestock farmers, many located in Western France, have been protesting against the recent squeeze in margins by retailers and food processors, and the government’s lack of response to the crisis. A large protest began Sunday in Lower Normandy, and grew in momentum Monday, with protests spreading across the region and to neighbouring Brittany. Almost 300 tractors and farm vehicles, including skips filled with manure, blocked access Monday to the cities of Caen and Lisieux, both located in Lower Normandy. Protestors also blocked access to Mont Saint-Michel, one of the most-visited tourist sites in France. Some protesting farmers in Caen targeted supermarkets, who they accuse of keeping prices low, and left buckets of manure in front of other businesses in the meat production sector, including a slaughterhouse, a distribution company and a meat-processing plant, who they also believe are part of the problem. Le Foll offered to meet with the Norman farmers on Thursday in Paris after examining a report on the prices of agricultural products but the angry livestock farmers declined the invitation, saying that they are waiting for the minister to come to them. “We don’t have the money for the train tickets,”

Hollande Calls for the Creation of a Euro Zone Government - French President Francois Hollande called on Sunday for the creation of a euro zone government and for citizens to renew their faith in the European project, which has been weakened by the Greek crisis. Reviving an idea originally put forward by former European Commission chief Jacques Delors, Hollande proposed "a government of the euro zone (with) a specific budget as well as a parliament to ensure its democratic control". The French president said the 19 member states of the euro zone had chosen to join the monetary union because it was in their interests and no one had "taken the responsibility of getting out of it". "This choice calls for a strengthened organization, an advance guard of the countries who will decide on it," he said. The euro zone's members are currently united in the informal body the Eurogroup, which comprises each country's finance minister, presided over by Dutch Finance Minister Jeroen Dijsselbloem. "What threatens us is not an excess of Europe but its insufficiency," Hollande wrote in an op-ed in the Journal du Dimanche weekly newspaper.

German Economic Growth Likely Picked Up, Says Bundesbank - - Economic growth in Germany, Europe’s largest economy, likely picked up in the second quarter, the country’s central bank said in a report Monday. “The expansion of economic activity in Germany likely strengthened in the second quarter,” said the Bundesbank in its monthly bulletin. The central bank said that momentum came from the consumer sector which is being supported by good labor market conditions and “considerable” wage increases. “In addition, Germany’s export business has strongly picked up,” it said. The bank’s comments were made less than a month before Germany’s statistics office reports an initial estimate on growth in the second quarter. The economy grew by 0.3% in quarterly terms in the first three months of the year, buoyed by domestic demand. The Bundesbank said in June that it expected the economy to grow by 1.5% this year in calendar-adjusted terms, to be followed by growth of 1.7% both next year and the year after. The bank also said that industry in the economy was poised to recover, despite sluggish growth in the early spring months after a lull in orders during the winter. Still, the “strong increase” in orders in April and May, especially foreign orders, pointed to a rebound in coming months. After declining in the first two months of the year, industrial orders data have made monthly gains in two out of the last three months, official data show.

EU Markets Watchdog: Excessive Asset Class Prices Could Undermine Bloc’s Recovery -A European markets watchdog headed by European Central Bank President Mario Draghi has warned that excessive prices in certain asset classes in Europe could undermine the fragile recovery on the continent. In its annual report, which spans the period from April 1, 2014 until March 31, 2015, the European Systemic Risk Board said that asset price trends in credit and equity markets in the European Union “may signal excessive valuation.” “This is also the case for real estate prices in several Member States,” the report added. The development is worrying because a rapid drop in asset prices could hurt the economic recovery in Europe, which is just starting to gain momentum. “A sudden drop in asset prices may have systemic consequences, such as the disruption of credit provision to the real economy or even the failure of financial institutions,” said the report. “This could set back the current fragile economic recovery.” The report said that its period under examination “has been marked by the first signs of normalization of economic activity in Europe, after a long period of crisis.” The report also said the impact of the low interest rate environment on financial stability needed “to be monitored closely in order to enable macroprudential policy and/or financial regulation to react swiftly to safeguard financial stability.”

Greece, Europe, and the United States, by James K. Galbraith - The full brutality of the European position on Greece emerged last weekend, when Europe’s leaders rejected the Greek surrender document of June 9, and insisted instead on unconditional surrender plus reparations. The new diktat—formally accepted by Greece yesterday—requires 50 billion euros’ worth of “good assets”–which incidentally do not exist—to be transferred to a privatization fund; all financial legislation passed since SYRIZA took control of parliament in January to be rolled back; and the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) to return to Athens. From now on, the Greek government must get approval from these institutions before introducing “relevant” legislation—indeed, even before opening that legislation for public comment. In short: as of now, Greece is no longer an independent state. Comparisons have been drawn to the Treaty of Versailles, which set Europe on the path to Nazism after the end of World War I. But the 1968 Soviet invasion of Czechoslovakia, which ended a small country’s brave experiment in policy independence, is almost as good an analogy. In crushing Czechoslovakia, the invasion also destroyed the Soviet Union’s reputation, shattering the illusions that many sympathetic observers still harbored. It thus set the stage for the final collapse of Communism, first among the parties of Western Europe and then in the USSR itself. SYRIZA was not some Greek fluke; it was a direct consequence of European policy failure. A coalition of ex-Communists, unionists, Greens, and college professors does not rise to power anywhere except in desperate times. That SYRIZA did rise, overshadowing the Greek Nazis in the Golden Dawn party, was, in its way, a democratic miracle. SYRIZA’s destruction will now lead to a reassessment, everywhere on the continent, of the “European project.” A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long.

The Euroskeptic Vindication - Krugman --Bloomberg had a piece trying to find a small group of heroic iconoclasts who predicted the euro crisis. But as David Beckworth rightly points out, many American economists warned about exactly the flaws in the euro that are now the source of so much suffering. Beckworth reminds us of a January 2010 article by Jonung and Drea that has become an accidental classic. Their intent was to mock U.S. economists who were negative on the euro and were made to look foolish by its success; to that end they provided an impressive bibliography and literature review of academic euroskepticism — and in so doing provided us with a sort of honor roll, because all the dire warnings from those ugly Americans came to pass within months of their article’s publication.So why were the ugly Americans right? Because the theory of optimum currency areas turns out to be basically right. And that theory is best seen, I’d argue, as an application of the same Hicks/Keynes style of analysis that has worked so well on interest, inflation, and austerity.All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.

Celebrities and world’s rich lining up to snap up Greek islands -- Johnny Depp has reportedly become the latest celebrity to take advantage of Greece’s plunging economic woes to score a deal and gift himself a small private island. According to the Athens Macedonian News Agency, Depp is said to have purchased a piece of uninhabited land in the Aegean Sea spanning about 0.2 km for 4.2 million euros. Likewise it was reported last month that Brad Pitt and wife Angelina Jolie-Pitt were eying up Gaia Island to possibly snap it up and add it to their real estate portfolio which already includes a French castle. As part of Greece’s bailout plan, the government will have to sell off €50 billion in assets. And much of that will likely come from selling off some of their 1,200 to 6,000 islands. Aside from wealthy celebrities, it’s reported that affluent Russian and Chinese investors are also lining up to pick up Greek properties. If you’re in the market for a private getaway in the Mediterranean, privateislandsonline.com has a directory of islands for sale with prices starting at €3 million, including Gaia Island which, according to the site, has yet to be snatched up. Described as “the perfect millionaires’ playground,” Gaia spans 43 acres and is part of the Echinades. The waters are also said to present prime conditions for water sports, sailing, fishing, deep sea diving and swimming. Other celebrities who already own property in Greece include Sean Connery and Tom Hanks and Rita Wilson.

Lagarde Is NOT Threatening To Scuttle Bailout Deal The endless march of misreporting on the IMF and Lagarde’s statements continues. An added wrinkle is that her latest statement was made on a french news service Europe1, making it more difficult (at least for me) to check up on what she really said. Luckily IsabelPS is a reader as well as a great translator. Before we get to what she actually said, lets go to how Lagarde’s statements have been reported. The FT headline was “IMF’s Lagarde: Greek plan not viable”. If this headline was accurate this would mean that the current deal being offered to Greece was “not viable” in Lagarde’s eyes. A “non-viable” deal would presumably be a deal the IMF can’t be involved in. Another implication of this headline is that the IMF, as an organization, is threatening to destroy the current deal. The lede goes on to say: The head of the International Monetary Fund said Eurozone creditors’ plan for Greece is “categorically” not viable without a reduction in debt. Speaking on France’s Europe1 Radio from Washington, Christine Lagarde reiterated that Greece needs debt relief. She wouldn’t say what amount of relief Greece would need, but said the current plan isn’t viable.This walks back the headline somewhat because it makes clear that she was not speaking of the “current” deal but about a hypothetical deal that didn’t include “a reduction in debt”. As always, lets check up on what Lagarde actually said in context. IsabelPS introduces her statement this way: She is asked if the thinks that the plan that is being devised is possible without debt relief and she answers:“The answer is quite categorically no. I think that is the reason why the European partners [agreed] totally [to] the principle of debt relief at the end of that document that was signed in the early hours of monday that states the principle of debt relief without, of course, stating neither the amount nor the way to go about it, but the principle is  non disputable

Varoufakis Slams Bailout #3 As "Greatest Macroeconomic Disaster In History" While Tsipras "Doesn't Eat Or Sleep" -- In an rare convergence of Greek and German viewpoints, overnight former Greek finance minister Yanis Varoufakis told the BBC that "economic reforms imposed on his country by creditors are "going to fail", ahead of talks on a huge bailout. At the same time, Germany's most noted Eurosceptic, Hans-Werner Sinn, in an interview with the newspaper "Passauer Neue Presse" also earlier today warned that any new aid would be "totally worthless" and "would never come back."  In what was practically a race who can find harsher terms to describe the Greek bailout, Varoufakis said that Greece was subject to a programme that will "go down in history as the greatest disaster of macroeconomic management ever". As reported yesterday, the German parliament approved the opening of negotiations of Greece's third €86 billion bailout when it rushed to vote through a bridge loan to Greece so the insolvent nation had some funds to repay the ECB's Monday debt maturity, as well as repay the roughly €2 billion for Greece is in default to the IMF. Of note was the jump in German MPs who voted "no" to 119 from just 32 in the February vote to extend the Greek bailout. In a damning assessment, Varoufakis told the BBC's Mark Lobel: "This programme is going to fail whoever undertakes its implementation." Asked how long that would take, he replied: "It has failed already."He also said Greek Prime Minister Alexis Tsipras, who has admitted that he does not believe in the bailout, had little option but to sign. "We were given a choice between being executed and capitulating. And he decided that capitulation was the ultimate strategy."

Greece debt crisis news: Alexis Tsipras shows his Machiavellian streak in a purge of Syriza rebels - Greece’s Prime Minister Alexis Tsipras has shown no mercy in axing left-wing cabinet colleagues in order to implement the austerity measures that saw a quarter of his MPs desert him and violence flare in the streets of Athens. Only by silencing his critics can he hope to introduce the tax hikes, labour reforms and privatisations which were ordered by the Troika (the European Commission, European Central Bank and International Monetary Fund) but are anathema to most of his party. Among the nine changes, hard-left energy minister Panagiotis Lafazanis was replaced by moderate Panos Skourletis, while Trifon Alexiadis became deputy finance minister after Nadia Valavani’s resignation ahead of Wednesday’s vote. For someone hailed by many as Greece’s first frank, fearless and forthright leader, Mr Tsipras is showing a remarkably Machiavellian streak. Within the past few days, his pledge to quit in the face of a parliamentary revolt evaporated with the alacrity of earlier promises to protect the country’s crippled economy from further austerity measures. Pundits say his resolve comes from a new conviction that a Grexit would be more catastrophic for his country than was previously imagined.  But despite the political and economic chaos, Mr Tsipras remains popular among many Greeks who see him as less corrupt than previous leaders, and prepared to battle for his country. His rhetoric, painting Greece as a small country fighting for survival against merciless international powers, has struck a chord. “Against us there are great forces. We are a little country battling for our rights. We’ve managed to give the whole world a lesson in dignity.”

Greece Orders Banks To Re-Open Monday: (Reuters) - The Greek government ordered banks to open on Monday, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week. The decree to re-open the banks came hours after new ministers were sworn in following a cabinet reshuffle in which Tsipras replaced dissident members of his ruling Syriza party following a revolt over the tough bailout terms. In a move that marked a split with the main leftist faction in the ruling Syriza party, Tsipras sacked hardline former Energy Minister Panagiotis Lafazanis and two deputy ministers following a party rebellion in which 39 Syriza lawmakers withheld support from the government over the package. Panos Skourletis, a close Tsipras ally who left the labor ministry to take over the vital energy portfolio, said the reshuffle marked "an adjustment by the government to a new reality." The reshuffle allowed Tsipras to replace cabinet rebels with allies of his own or from his junior coalition partners, the right-wing Independent Greeks party. The first action of the new cabinet was to sign off on a decree to reopen banks on Monday with slightly more flexible withdrawal limits that allow a maximum of 420 euros a week in place of the strict limit of 60 euros a day currently in place. But restrictions on transfers abroad and other capital controls remain in place.

The Great Greek Bank Drama, Act II: The Heist - The banks are re-opening, though just for transactions, so people can pay their bills and their taxes, pay in cheques, that kind of thing. The cash withdrawal limit has been changed to a weekly limit of 420 EUR per card per person, enabling households to manage their cash flow better. But the capital controls remain: money cannot leave the country without the agreement of the Finance Ministry. And the banks remain short of cash: although the ECB has raised the funding limit by 900 EUR, that only amounts to about 80 EUR per Greek so won't go very far. But the tourist season is in full swing, and tourists have been advised to bring cash into the country rather than using ATMs in Greece. On balance, therefore, Greece's monetary conditions should be easing. But there is another tranche of bailout conditions to be agreed by the Greek Parliament by Wednesday 22nd July:

  • the adoption of the Code of Civil Procedure, which is a major overhaul of procedures and arrangements for the civil justice system and can significantly accelerate the judicial process and reduce costs; 
  • the transposition of the BRRD with support from the European Commission.

The first of these is uncontroversial, though a tall order to implement at the speed that the creditors demand. But the second has serious implications for Greek banks and their customers, especially in the light of this part of the bailout agreement: Given the acute challenges of the Greek financial sector, the total envelope of a possible new ESM programme would have to include the establishment of a buffer of EUR 10 to 25bn for the banking sector in order to address potential bank recapitalisation needs and resolution costs, of which EUR 10bn would be made available immediately in a segregated account at the ESM.   The Euro Summit is aware that a rapid decision on a new programme is a condition to allow banks to reopen, thus avoiding an increase in the total financing envelope. The ECB/SSM will conduct a comprehensive assessment after the summer. The overall buffer will cater for possible capital shortfalls following the comprehensive assessment after the legal framework is applied.

Bank IT, Grexit, and Systemic Risk - Yves Smith - The fact that Greece is submitting to being shoved hard into even deeper economic misery and the loss of much of its sovereignity should in and of itself serve as an indirect proof of the fact that a Grexit would be even worse. We’ve argued that the acute distress created by two weeks of a bank holiday was only a mild foretaste of what was in store. Greece would lose much if not all of its tourist industry (18% of GD) and would find it difficult to impossible to import, when Greece is not self sufficient in food and imports petroleum and pharmaceuticals. Experts were warning that if the bank holiday persisted much longer, not only would more businesses fail, but food shortages, which were starting to take hold, would become a problem by the end of July. Readers had a great deal of difficulty accepting that in the case of a Grexit, it would take far longer than they imagined to get physical currency in circulation, and that that was actually easy compared to the systems issues. Many commentors seemed unable to grasp how they are so dependent on functioning payment systems that they have difficulty thinking through what not having them implies. Try imaging a world without an electrical grid for the foreseeable future. While the decay slower than that of a power outgage, the level of disruption over time becomes similar.  Most experts contend that it would take a minimum of six months, even with advanced planning, to get drachma printed and distributed; typical estimates are 12 to 18 months. Yanis Varoufakis gave a simple illustration: In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available. On the IT front, the challenge is vastly larger due to the state of financial firm IT systems. They are required to run to mission critical standards: enormous transaction volumes, extremely high demands for accuracy of end output, high uptimes. Yet the code base is an aggolmeration, with many important operations relying in meaningful ways on legacy systems. Thus, as our expert with relevant experience stressed, changes that seem simple are anything but.

European Commission prepared extensive report on Grexit - An extensive report covering all the consequences of a Greek exit from the euro was compiled in secrecy over the last few weeks by a team of European Commission officials, Kathimerini has learned. The report is currently housed in a safe a few meters from European Commission President Jean-Claude Juncker’s office on the 13th floor of the Berlaymont building in Brussels. It was compiled toward the end of June by a team of 15 Commission officials, many of whom had previously had direct involvement in the Greek bailout programs. The report addresses some 200 issues that could arise from a Greek exit from the single currency, including potentially devastating social consequences. One of the matters examined in the report is whether Greece would also be forced to leave the European Union, and therefore the Schengen Area, if it had to abandon the euro. The content of the study was explained verbally by Juncker to Prime Minister Alexis Tsipras before the eurozone leaders’ summit that took place two days after the July 5 Greek referendum. The European Commission president suggested to journalists in his press conference afterward that such planning had taken place. In an interview with Kathimerini and other European newspapers on Thursday, European Council President Donald Tusk said that Greece and its lenders came very close on Monday morning to failing to agree a deal to keep the country in the eurozone. “I told them, ‘If you stop this negotiation, I’m ready to say publicly: Europe is close to catastrophe because of 2.5 billion,’”

Why it's time for Germany to leave the eurozone - Germany's finance minister, Wolfgang Schauble, has drawn opprobrium and praise in equal measure for his suggestion that Greece takes a "time-out" from the eurozone. In proposing that Greece could be better off outside the euro, the irascible 72-year-old crossed a political rubicon: he confirmed that the single currency was "reversible" after all. But having broken the euro's biggest taboo, commentators have now suggested that it should be Mr Schaeuble's Germany, rather than Greece, that should now take the plunge and ditch the euro. Figures as esteemed as the former Federal Reserve chief Ben Bernanke used last week's decision to press ahead with a new, punishing bail-out for Greece as an opportunity to remind Germany of its responsibilities to the continent.  Mr Bernanke took to his blog to highlight that Berlin's excessively tight fiscal policy has helped scupper the euro's dreams of prosperity and "ever-closer" integration between 18 disparate economies.  In its latest assessment of Germany's economic strength, even the IMF (seen in many German circles as chief disciplinarian against the errant Greeks) urged Berlin to carry out "more ambitious action... and contribute to global rebalancing, particularly in the euro area".

Greece reopens banks, starts repaying some debts | Reuters: Greece reopened its banks and ordered billions of euros owed to international creditors to be repaid on Monday in the first signs of a return to normal after last week's deal to agree a tough new package of bailout reforms. Customers queued up as bank branches opened for the first time in three weeks on Monday after they were closed to save the system from collapsing under a flood of withdrawals. Increases in value added tax agreed under the bailout terms also took effect, with VAT on processed food and public transport jumping to 23 percent from 13 percent. The stock market remained closed until further notice. The bank closures were the most visible sign of the crisis that took Greece to the brink of leaving the euro earlier this month, potentially undermining the foundations of the single European currency. Their reopening followed Prime Minister Alexis Tsipras' reluctant acceptance of a tough package of bailout demands from European partners, but a revolt in the ruling Syriza party now threatens the stability of his government and officials say new elections may be held as early as September or October. "It is positive that the banks are open, though the effect is psychological for people more than anything else," said 65-year-old pensioner Nikos Koulopoulos. "Because to be honest nothing much changes given the capital controls are still in place," he said.

In Greek crisis, one big unhappy EU family  (Reuters) - The latest paroxysm of Greece's debt crisis has exposed growing rifts in the euro zone which, unless addressed soon, could lead to the break-up of European monetary union, the EU's most ambitious project. The most worrying sign for European leaders is that public opinion and domestic politics are pulling them increasingly in opposing directions - not just between Greece and Germany, the biggest debtor and the biggest creditor, but almost everywhere. Germans, Finns, Dutch, Balts and Slovaks no longer want taxpayers' money to go to bail out Greeks, while the French, Italians and Greeks feel the euro zone is all about austerity and punishment and lacks solidarity and economic stimulus. With central and east European states growing more assertive and the Dutch and Finns facing mounting domestic constraints, a compromise between euro zone leaders Germany and France, increasingly hard to find over Greece, is no longer sufficient to settle the problems. There are so many stakeholders with divergent views that crisis management is becoming ever more difficult. A far-reaching reform of the 19-nation currency area's flawed structure seems a remote prospect.

Greeks Worry About Bailout’s Push for an Economic Overhaul - — For Greece, it’s the economic equivalent of the Big Bang.So far, the questions about the tentative Greek bailout deal have focused on the pact’s austere insistence on further cost cuts and new tax increases. But just as disruptive to Greek life could be the fundamental changes the pact is demanding in the cozy old ways that the country conducts business — changes meant to make Greece a more modern, efficient eurozone economy.The question is whether the economic overhaul, assuming that Prime Minister Alexis Tsipras can make it happen, would enable Greece to grow its way out from under the country’s staggering debts.The roots of Greece’s problems run deep. Nearly every area of the economy is ensnarled by rules and practices that discourage investment and innovation. The bailout agreement asks Greece to open some of the main bottlenecks, like the sluggish judicial system in which it can typically take more than four years to enforce a commercial contract.  Cosseted industries like pharmacies, which are protected by fixed working hours and a guaranteed profit margin on medicine sales that keep drug prices artificially high, would face new competition. And creditors want a further crackdown on corruption in the public sector, where the average asking price of a bribe, for services ranging from a tax audit to a driver’s license, runs around 1,400 euros, or about $1,500. Eurozone officials like Mario Draghi, president of the European Central Bank, contend that the €86 billion bailout plan can work. The measures, Mr. Draghi said last week, “ensure that Greece will become a thriving economy.”

Buffett, Johnny Depp Snap Up "Cheap" Greek Islands -- On Monday, we brought you a day in the life of a Greek realtor. Courtesy of Bloomberg, we got a first-hand account of what it’s like in the Athens real estate market now that the Greek economy has collapsed.  "For the last 15 days," the Athenian realtor featured in the video says, "the market has been really dead." That’s not surprising. Capital controls have gripped the country since PM Alexis Tsipras called for a referendum on creditors’ proposals and Greeks are more concerned about whether they’ll be food on the shelves and gas at the pumps (an acute credit crunch threatens to leave the country with a shortage of imported goods) than they are about buying homes.  "At least 50% of real estate agents have closed down," the realtor continues, adding that "the market has been only those who can afford [to pay] cash in recent years." But who can afford to pay cash for property in Greece? For the answer, we go to Newsweek.Billionaire investor Warren Buffett has joined up with Italian real estate agent Alessandro Proto to purchase a Greek island off the coast of Athens. Consistently ranked as one of the wealthiest men in the world, Buffett and Italian millionaire Proto, acquired the island of St Thomas for €15m last Thursday, Proto Enterprises confirmed today.

Zoo animals in Athens at risk as crisis hits feed imports ---Three weeks after capital controls were imposed on Greece's moribund banking system, supplies of the special imported dietary supplements needed to feed 2,200 animals from 345 species at Athens' only zoo are under threat. Like other foreign companies, suppliers of products ranging from frozen fish from the Netherlands to meal worms from Germany or special additives from France who used to be paid 60 days after delivery are now demanding payment in advance. “Many of our animals require a special diet, which demands specific nutrition that can only be imported,” Lesueur, a 71-year-old Frenchman who has lived in Athens for more than 45 years, told Reuters. Two weeks ago on July 7, he received a call from his suppliers, telling him that the regular three-week delivery due in two days time would have to be paid in advance. Lesueur tried to keep calm but realised that with the banks closed, he could not meet the payment. “You can't do this, we're talking about animal lives here,” he told the suppliers, who eventually relented and agreed to make an exception. But they warned that future orders would have to be paid in advance.

The Myth Of The EU's €35bn Investment Package For Greece: We can all recall an enthusiastic Commission President Jean-Claude Juncker. Shortly before negotiations with Greece broke off at the end of June he supposedly promised Alexis Tsipras an investment package worth €35bn. At first glance this sounded pretty generous, particularly for a country in which, since 2010, the stock of capital has shrunk because Greeks are no longer fully replacing worn-out machines and plant. Even so, the Commission itself assumes that the stock of capital will continue to shrink until 2016 at least. Just one figure is enough to give you an idea of the extent to which productive capacities in Greece have been laid to waste: in Germany the equivalent of €600bn worth of capital and thousands of jobs would have been lost by 2016. So any seed capital appears more than welcome if the economic depression in Greece finally comes to a halt. But we’ve already learned that these promised EU monies are in the main drawn from current Structural and Investment Funds which each country can call upon willy nilly – just as with the subsidy pots for farmers. What Mr Juncker didn’t tell us straight up – and the Commission didn’t publish in detail until last week – is that hidden behind the €36bn (the exact total) due to Greece in the period 2014-2020 there is a significant decline in EU aid. Compared with the period 2007-2013 Greece should get, on current reckoning, 14% less – that’s around €6bn less. In concrete terms: Monies from the fund drop from €24bn to €20bn and the farming subsidies (direct payments to farmers and market support measures) from €17bn to €15bn. Hardly a surprise therefore that Tsipras didn’t exactly shed tears of joy at so much generosity. Either Juncker himself didn’t understand what he’s talking about or he’s just acting like a demagogue.

Dan Davies: Greek Banks Were Bigger Beneficiaries of the 2010 Bailout Than French and German Banks - Yves Smith - There’s nothing that beats looking at data to confound conventional narratives.  One of the things that we’ve found to be difficult to combat in covering the Greek crisis is the tendency of the media and pundits to force fit event into convenient black/white narratives. It’s a large-scale manifestation of a cognitive bias called halo effect, in which people (or in this case, governments and institutions) are seen as all good or all bad. Dan Davies, in a must-read post at Medium, 2010 and all that — Relitigating the Greek bailout, takes on an important element of conventional wisdom, namely, that the Greek bailout was a money-laundering operation to French and German banks. We’ve cited data in the comments section that runs counter to that narrative, namely, that French banks held €93 billion in Greek government bonds at the time of the rescue, Greek banks held €59 billion, and German banks, €40 billion. That factoid alone strongly indicates that the Greek banks would have been toast if the earlier bailouts had not taken place, which would have hurt depositors and imposed massive costs on the Greek economy. Now that is not to say that the Greek banks were the intended beneficiaries of the rescues. The rolling sovereign crisis was seen as a potential systemic crisis. If any periphery country went down, it posed a threat to the ability of all similarly-situated countries to be able to fund themselves. So the bailouts were to address both the government debt crisis and its tight linkage to banks, particularly the systemically important ones like SocGen, Paribas, and Deutsche Bank. And it is completely fair to say that Greek citizens bore disproportionate costs of this salvage operation. I strongly urge you to read the Davies post in full. You’ll see his figures are different than the onse I cited, which came from news stories at the time of the rescues. Here is the key section: It is terribly easy to get confused about patterns of exposure to Greece from European banks, because the statistics at the time were reported every which way, and the fact that three of the biggest banks in Greece were owned by foreign entities meant that the consolidated numbers were often heavily distorted….You can see that the headings on this contemporary table put together by the BIS have a scattering of footnotes indicating various data issues — however….I think these numbers are broadly correct. For the purposes of this analysis, I will go with about EUR25bn in Germany, and about EUR27bn in France.

Greece crisis: Tsipras takes on Syriza critics before vote - BBC News: Alexis Tsipras attacked rebel MPs who opposed an agreement with creditors, accusing them of "hiding behind the safety of my signature". MPs need to back the reforms for talks to start on a new €86bn bailout. The vote is expected to pass with the support of opposition parties, but Mr Tsipras hopes to avoid a rebellion from within the ranks of Syriza. Parliament began debating the second set of reforms earlier on Wednesday. Some 32 of the radical-left party's 149 MPs - including former Finance Minister Yanis Varoufakis - voted against the first tranche of bailout measures last week. Another six abstained. The rebellion reduced Mr Tsipras's support within his own ruling coalition to 123 MPs, barely more than the minimum 120 required to sustain a minority government. He said the Greek people had "pinned their hopes" on the government's ability to find a solution to the debt crisis, addressing Syriza MPs on Tuesday night.  For a man who was forced into a fairly abrupt U-turn, Alexis Tsipras remains extraordinarily popular. If he calls an early election in the coming months - and that still feels like the most likely option - it would be a huge surprise if he didn't win comfortably and emerge stronger. That's partly because the opposition is in disarray. But also because many Greeks like the fact that he appeared to stand up for national pride.

Alexis Tsipras Transforms Himself as He Sells Greek Bailout Terms - — On the eve of his election in January, Prime Minister Alexis Tsipras of Greece talked with pride about how his leftist Syriza party rejected “the mentality of establishment parties” and provided space for the diverse views of its members.But last week, Mr. Tsipras ousted members of his cabinet who had defied him by voting against the package of austerity measures that Greece’s European creditors had demanded as the price of new bailout negotiations. To Syriza members of Parliament who voted against that package and are threatening to oppose a second bill scheduled for a vote on Wednesday, Mr. Tsipras has made clear that he might call a new election and replace them with a slate of lawmakers loyal to him.  If Mr. Tsipras was an idealistic young radical six months ago, dedicated to the overthrow of the Greek establishment and austerity policies, he is emerging from the showdown with the creditors as something else entirely: a popular, canny and pragmatic politician with a stake in the success of the very measures he came to power vowing to eradicate. In the process, he has defied what appeared to be European efforts to oust him, even as he has bowed to much of the agenda the creditors imposed on him. And now the question is whether he can create a new center of gravity in Greek politics, one focused not on ending austerity, but on carrying it out in a progressive way and restoring some sense of fairness and hope to a country that has been short on both. If he pulls it off, it will be a remarkable political transformation for himself and for Greece.

Almost everything in sight in Greece to be taxed, including its 14th century moonshine | Public Radio International: It’s a new day in Greece, as if someone has pressed the re-start button. (Listen to the Story.PRI.org) That’s how Athens-based reporter Christos Michaelides describes the fact that banks re-opened in Greece on Monday after being forced to close for three weeks to prevent a run on their cash machine, and that new taxes have gone into effect adding roughly 10 percent to the cost of just about everything, including transportation, sugar, cocoa, taxis and funerals. The ability once again to withdraw cash is seen by some as a sign of confidence in a three-year, 93 billion dollar bailout plan that will hopefully keep Greece from crashing out of the Euro zone. The new taxes are seen as austerity measures that will help pay for the Euro-loans. Hardly anything, with the exception of fresh meat, vegetables and fruit, has been spared by the new tax laws. Even one of Greece’s national drinks has come in for a new tax. But it’s controversial. Tsipouro is a traditional, often homemade spirit. Technically it’s a strong brandy that’s made from pomace (the residue of pressed grapes). It’s quintessentially Greek because it was first made by Greek Orthodox monks in the 14th century living on Mount Athos and it remains popular to this day.

Tsipras To Call For Elections "As Soon Bailout Agreed", Wants "Clean Start" -- Greek politics are back in the spotlight Wednesday as lawmakers are set to vote on a second set of prior actions that would clear the way for formal bailout discussions to begin by the end of the week (see here and here). Although the package is expected to pass with the help of opposition support, the vote is nonetheless an important indicator for the future of Syriza and for Tsipras' future as premier. In short, if Tsipras' support within the party weakens further, it will have broader implications for how the political landscape will look once the bailout is official. The PM is expected to call a party meeting in September to discuss "the day after" (a reference to the fact that by then, Greece is expected to have formalized the third bailout). At that juncture, Syriza "will split in two groups, the followers of Tsipras and the leftist wing led by Lafazanis," one unnamed source told MNI on Tuesday. Now, it looks as though Tsipras will look to call elections as soon as the third bailout is in place.

Greece Approves Second Set of Changes Needed for Bailout - Under the threat of yet another deadline, the Greek Parliament approved a second package of policy changes early Thursday that the country’s creditors had said must be in place before the detailed negotiations for an 86-billion-euro bailout could begin.The new measures, overhauling the banking and judicial systems, passed easily with significant support from opposition parties eager to do whatever it takes to keep Greece from leaving the eurozone. The vote was 230 to 63, with five abstentions and two absences.Prime Minister Alexis Tsipras was able to win over only two additional members of his leftist Syriza party compared with the first major vote last week on the bailout accord. Most of the party’s hard-liners continued to rail against what they said was the creditors’ “blackmail” and voted no, making it likely that new elections would be held in the fall. Mr. Tsipras spoke just before the vote, telling members of Parliament that the final terms of the deal with creditors were still under negotiation and that more would be done to protect the poorest members of Greek society. “We’re not done here,” he said, adding: “We are fighting to improve the final text of the deal. We will fight for countermeasures and for funds for society.”The rift within Mr. Tsipras’s party has grown heated in recent days, with both sides taking shots at each other and the government’s spokesman saying that a “divorce” might be inevitable. The vote showed that Mr. Tsipras had gained support from one of his most vocal critics lately, his former finance minister, Yanis Varoufakis, who stepped down this month in an apparent gesture to European creditors who had found him difficult to deal with. Mr. Varoufakis, who voted no last week, voted yes this time. But 36 Syriza members remained opposed, deeply frustrated with Mr. Tsipras’s decision to bow to the creditors in the face of closed banks and an economy on the verge of collapse.

Greek parliament approves next phase in bailout reforms - Greece’s prime minister easily won a crucial vote on a third bailout programme for the debt-stricken nation early on Thursday, hours after the European Central Bank infused cash-starved Greek banks with further emergency liquidity. A total of 230 MPs backed the economic reforms programme demanded by Greece’s creditors, while 63 voted against the plan at the late-night vote. Alexis Tsipras again faced down rebels within his own party who oppose a third bailout. Thirty-six Syriza MPs either voted no or abstained, three fewer than at a similar vote last week. Yanis Varoufakis, the high-profile former finance minister, supported the measures. Last week he had voted against the first set of bailout conditions, including VAT rises and pension cuts, after resigning his post. But in this case, Varoufakis said, the specific measures being voted on included reforms he had previously put forward himself. The vote clears the way for Greece to begin formal talks with its lenders on a three-year package of loans that could be worth €86bn. Before the vote Tsipras had urged MPs to support the bailout, which will save Greece from bankruptcy and preserve its place in the eurozone. “We made difficult choices and now we must all adapt to the new situation,” he told MPs, repeating that he did not agree with many of the reforms but would do his best to implement them.

Why the Greek deal will work – Now that Greek banks have reopened and the government has made scheduled payments to the European Central Bank and the International Monetary Fund, does Greece’s near-death experience mark the end of the euro crisis? The conventional answer is a clear no. According to most economists and political commentators, the latest Greek bailout was little more than an analgesic. It will dull the pain for a short period, but the euro’s deep-seated problems will metastasize, with a dismal prognosis for the single currency and perhaps even the European Union as a whole. But the conventional wisdom is likely to be proved wrong. The deal between Greece and the European authorities is actually a good one for both sides. Rather than marking the beginning of a new phase of the euro crisis, the agreement may be remembered as the culmination of a long series of political compromises that, by correcting some of the euro’s worst design flaws, created the conditions for a European economic recovery. To express guarded optimism about the Greek deal is not to condone the provocative arrogance of former Greek Finance Minister Yanis Varoufakis or the pointless vindictiveness of German Finance Minister Wolfgang Schäuble. Neither is it to deny the economic criticism of the bailout provisions presented by progressives like Joseph Stiglitz and conservatives like Hans-Werner Sinn. . Joining the euro was certainly ruinous for Greece, but there is always “a great deal of ruin in a nation,” as Adam Smith remarked 250 years ago, when losing the American colonies seemed to threaten Britain with financial devastation.

Greece crisis: EU negotiators in Athens for bailout talks - BBC News: European negotiators have arrived in Athens to begin discussions about a third Greek bailout. Government officials are expected to meet representatives of EU creditors, in the first high-level negotiations in the Greek capital since leftist Alexis Tsipras became prime minister. It comes after Greek MPs approved tough new conditions set by the EU lenders. It is unclear when representatives of the IMF will join the talks on the proposed €86bn (£60bn) bailout. The Washington-based International Monetary Fund wants Greece's debt burden to be reduced to a level it considers "sustainable", but it faces resistance from reluctant European partners. "Clearly it's a difficult path ahead, we're just at the beginning of the process," IMF spokesman Gerry Rice said. Greek negotiators are likely to begin by meeting representatives from the European Commission, European Central Bank (ECB) and European Stability Mechanism (ESM) - the eurozone's main bailout fund. Talks on the bailout package are expected to last a month. Tight capital controls, introduced at the end of June, remain in place to prevent a run on Greece's cash-strapped banks.

Security issues delay start of Greece's new bailout talks -- No date has been set for the beginning of formal talks on a new rescue program for Greece because international creditors are still looking for a secure place to hold negotiations in Athens, a European Commission official said on Friday. Greek government officials have said repeatedly that the talks on a bailout of up to 86 billion euros ($94 billion) would start in Athens on Friday. But representatives of Greece's creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- say they cannot start until the right location is found, given the sensitivity of the talks and the fact that many Greeks detest the lenders after two painful bailouts. "There are some logistical issues to solve, notably security-wise," a European Commission official said. "Several options are on the table," the Commission official said, without giving more details. At the moment only technical talks are underway to sort out logistical issues, several officials said.

The great Greece fire sale - In the early days of the Greek debt crisis, two German politicians came up with a radical solution: Greece should sell off some of its uninhabited islands and property to pay back its creditors. “Sell your islands you bankrupt Greeks! And sell the Acropolis too!” was how the German tabloid Bild summed up their idea. While selling off ancient monuments was never a serious idea, the privatisation of state assets has always been an integral feature of Greece’s international bailouts. Over the past five years, Greece has faltered on promises to sell vital parts of its infrastructure – ports, airports, marinas and waterworks – in exchange for billions of euros in loans. Related: Greek debt crisis talks stall over choice of hotel Privatisation remains a vital element of Greece’s latest bailout deal. Under threat of being forced out of the eurozone, Athens agreed to transfer “valuable assets” to an independent fund, with the aim of raising €50bn (£35bn). Half the proceeds will be used to shore up capital reserves at Greek banks; a quarter will be used to repay Greece’s creditors, and the remainder will be spent on unspecified investments. The privatisation fund was the issue that almost forced a Grexit at the marathon 17-hour, all-night summit of European leaders in Brussels earlier this month. “It was the only thing discussed at the summit,” recalls one diplomat. The idea of the privatisation fund first emerged in a leaked German government paper which argued Greece should leave the eurozone if it did not agree to put €50bn in a Luxembourg fund as collateral for its debts. Although drafted in Berlin, the plan soon found support among Greece’s hardline creditors in central Europe and the Baltics.

Renewed bailout talks between Greece and creditors hit snags - FT.com: Talks to agree a new €86bn bailout for Greece ran into trouble on Friday after Athens raised hurdles for negotiators in the Greek capital, forcing them to postpone their arrival amid renewed acrimony. Alexis Tsipras, the Greek prime minister, agreed last week to “fully normalise” talks with creditors on the ground in Athens after resisting their presence for months — a key demand made by eurozone leaders when they agreed to reopen rescue talks after coming close to pushing Greece out of the eurozone.  But three senior officials from Greece’s bailout monitors said Athens had instead demanded restrictions on negotiators, including on whom creditors could meet and what topics were to be discussed in the talks. Two of the officials said Greek authorities had also insisted negotiators no longer use the Athens Hilton as their base — a hotel close to central Syntagma Square and a short drive to the finance ministry — instead proposing hotels far from the capital’s government quarter. “It is fundamentally more of the same,” said a senior official from one of the bailout monitors, colloquially known as the “troika” after the three institutions originally involved in the talks, the European Commission, European Central Bank and International Monetary Fund. “They don’t want to engage with the troika.” Greek officials insisted the renewed stand-off was only a temporary delay and that talks would resume over the weekend or Monday at the latest. George Stathakis, economy minister, said he was confident the negotiations would be finished by mid-August, when Athens needs the bailout cash to pay off a €3.2bn bond held by the ECB.

This is the end of the line for Syriza -- Greek banks have reopened after weeks of closure. The patient and orderly way customers queued outside to use ATMS during the big shut down was an impressive sight, especially for those people who are fond of considering Greek people as somehow incapable of doing things right. But nothing is harmonious. The queues outside the job centres are as long as ever, while many of the shops that shut down at the same time as the banks, still haven’t reopened. Anti-austerity and anti-governmental protests have started to take place for the first time since Syriza came to power. Dozens were arrested as the Greek parliament voted to accept a new bailout deal from Europe, based on the very terms that were rejected just days earlier in a national referendum. Fresh riots took place as the parliament passed a law that allows the confiscation of people’s homes. As Syriza burns its bridges with the general public, life for the majority of people has returned to hopeless normality – indeed, many people have spent more time talking about the wildfires that have broken out around the country than the troika in the past few days. Greece’s ruling party might be called the coalition of the radical left but it seems to be rejecting a basic argument put forward by activists at that end of the political spectrum for years: It is impossible to transform this unequal, structurally and physically violent world into a better place if you try to do it via the institutional route. State governance, the parliamentary system, prime ministerial meetings and the rest are all the enemies of meaningful change. Perhaps to a certain extent Syriza’s leaders were aware of the risks they were taking when they sought to continue negotiating with Europe. They could end up crossing the political spectrum to join the rest of the austerity governments or, less likely, be overthrown for failing to comply with the requests of creditors and international bankers.

Did Putin Sell Out Greece?  -- There's been a rash of conspiracy theories about secret concessions that Russian President Vladimir Putin is supposed to have made to Western leaders. The latest asserts that Putin could have helped Greece exit the euro but reversed course at the last moment, thus pushing Greek Prime Minister Alexis Tsipras into the cold embrace of European Union leaders. Vladimir PutinThe Greek newspaper To Vima reported earlier this week that Tsipras had asked Putin for a $10 billion loan so that Greece could transition back to the drachma. If it reintroduced the national currency, it would need foreign reserves to back it up, and Greece was out of euros. According to the report, Russia floated the idea of a $5 billion advance on the construction of a gas pipeline through Greece, a branch of the Turkish Stream project that Russia and Greece agreed to build in June. To Vima is a reputable newspaper with good political sources, so 17 legislators from the opposition New Democracy party have officially asked Tsipras whether the report was true. The prime minister probably will deny it, as the Kremlin did Wednesday. Putin's press secretary, Dmitri Peskov, told the news agency Interfax that "the Greek leadership never asked Russia for help." Still, if the report were true, it would tie up a few loose ends. In a recent interview, former Greek Finance Minister Yanis Varoufakis said there was a "small group, a 'war cabinet' within the ministry, of about five people" that worked on a scenario for a Greek exit from the euro, but no decision was made to carry out the plan. On July 10, Varoufakis wrote in The Guardian that an exit from the euro would have required resources that Greece didn't have:

Why Greece Should Leave the Eurozone - Hans-Werner Sinn — THERE are not many issues on which I agree with my colleagues Paul Krugman and Joseph E. Stiglitz and the former Greek finance minister Yanis Varoufakis. But one of them is the view that an exit from the eurozone would be advisable for Greece. Unfortunately for Greece and for Europe, we may now have to live with a third bailout program, in which Greece will receive a rescue package worth 86 billion euros (about $94 billion) in return for additional austerity measures. The new agreement will most likely drag Greece through three more years of a long-lasting, costly experiment that has so far failed miserably. As of June, the eurozone countries, the European Central Bank and the International Monetary Fund had provided the Greek government and banking system with 344 billion euros ($375 billion) worth of public credit — nearly double Greece’s annual economic output, or about 31,000 euros ($33,000) for each Greek citizen. One-third of the public credit that has flowed to Greece since 2008 has been used to bail out private creditors; one-third went to finance the Greek current account deficit (the excess of imports and net interest payments to foreigners over exports and transfer payments from abroad); and one-third vaporized by financing the capital flight of Greeks. The public credit has delayed a Greek bankruptcy, but it has failed to revitalize the Greek economy. To compete, Greece needs a strong devaluation — a relative decline of its price level. Trying to lower prices and wages in absolute terms (for example, by slashing wages) would be very difficult, as it would bankrupt many debtors and tenants. It would arguably be better to inflate prices in the rest of the eurozone, as the European Central Bank is trying to do through quantitative easing: purchasing large quantities of bonds to drive down the value of the euro. If the rest of the eurozone posts inflation rates of slightly less than 2 percent, as the E.C.B. hopes, Greece would be competitive after a decade or so, provided that its price level stays put. However, even such a mild form of an “internal devaluation” would be very arduous, as it would require precisely the kind of fiscal restraint that the Greeks rejected in the referendum.

Once Again on the IT Challenges in Converting to the Drachma - On July 14th I wrote an article titled “Convert to the drachma–piece of cake. Right…” that was a first take on the difficulties in implementing a Grexit from an IT standpoint. Since then I have tracked down a number of high-level strategic planning documents written in the late 90s that give me a much better handle on what those difficulties amount to. Except for the folks at Naked Capitalism who reposted my original article, there are very few people on the left who have any inkling of the problem. One of them is Robert Urie who alluded to it in a recent CounterPunch article: A central difference between Argentina and Greece is that ‘all’ that Argentina had to do was to break the peg (fixed currency exchange ratio) with the USD while implementation of the Euro was a massive technological undertaking that replaced the Greek technology and institutions that supported the drachma. In the event of a forced Greek exit recovery of these technologies and institutions would take time that the Greeks don’t have. Breakdown of the supply-chain— the integrated economic relations that together facilitate economic production, causes a cascade effect where once lost, has to be rebuilt from the ground up. Instead what I have mainly heard is that it is much more of a piece of cake than my article would suggest. For example, Canadian leftist Ken Hanley, who wrote an article titled “The German Grexit plan may have been the lesser of two evils”, commented: “The creditors were able to develop a Grexit plan. Schaeuble even presented a Grexit plan as an alternative to deal and many think that his whole plan was to force a Grexit.” He also referred me to an article by an Australian economist that assured his readers “A Greek exit is not rocket science”. Well, it might not be rocket science but computer science is certainly relevant notwithstanding the economist’s failure to refer to IT once in his article.

Mean Squared Errors: Easier than you think: How to devalue the Greek Euro: It's more-or-less universally agreed that if Greece still had its own currency, devaluation could help the country recover from its current economic depression. It's also agreed that, lamentably, this is not possible without Grexit. But there may be a way. Consider: devaluation works by raising the prices of imports (in the local currency) while reducing the prices of exports (in foreign currency). That is, a devaluation acts like a tariff -- a positive tax on imported goods and services and a negative tax (i.e. a subsidy) on exports. Do you know what else acts like tariffs? Tariffs. So if we want to emulate a Greek currency devaluation, we could simply impose a tariff on Greek imports and dedicate the revenue thus collected to export subsides. (And yes, it would probably be a good idea to have an outside entity involved in collecting and disbursing the money involved, rather than relying on local authorities.) Now, like any option that might actually help the Greek economy (and, by the way, increase the probability that Greece's creditors will someday be repaid), this strategy will undoubtedly be ruled UNTHINKABLE by the Wise Old Heads of Europe. (Aside 1, Aside 2). Of course, the real fun to be had by tabling a proposal like this would be to watch German politicians complain that a tariff along these lines (especially if it might be generalized to other depressed debtors in the Euro zone) would hurt German exports. (For an explanation of why this is so funny -- and it is -- see Aside 3.)

The Coming Greek Bank Nationalization, Bail-In and Privatization -- Yves here. We’ve warned for some time that the ECB’s threat of bank resolutions in Greece would give it a great deal of leverage over the government, since the Greek banks have for some time been deeply insolvent. As we’ll show in a post later today, they would have been toast in 2010 were it not for the sovereign debt bailout; they’ve since fallen prey to ever-rising levels of bad debts. In Europe, thanks to the lack of any deposit guarantees on the Eurozone level and weak national deposit guarantee programs (and Greece’s is very weak), the result when banks get sick and need to be put down is bail-ins. That means creditors are wiped out, starting with shareholders and moving to more and more senior creditors. In Cyprus, the template for what is likely to occur in Greece, depositors in excess of €100,000 took haircuts. That meant the wealthy as well as small and medium-sized businesses. Greek banks, like banks in Cyprus, are heavily deposit funded. Their loan books can only have gotten worse in the wake of the bank holiday.  Frances Coppola does a fine job with the extant data to give an idea of how destructive bank resolutions are likely to be to the Greek economy. She concludes the impact will be very destructive. We agree, particularly since we believe the asset side of the balance sheet is in even worse shape than she does and therefore the deposit whackage is likely to be even worse than she assumes.  However, we disagree with her conclusion, that when the Greek government realizes how destructive the resolutions will be, it will decide to leave the Eurozone. The problem is, as we have stressed, is that the reason that Greece continues to prostrate itself before its creditors is that the bank holiday has given the population a very watered-down idea of what a Grexit would entail: a loss of access to payment systems. Bye-bye tourist industry, which is roughly 18% of GDP. As we’ve shown in Links, even a two week bank holiday has led to all sorts of disruptions to imports and damage to importers. Greece is not self sufficient in food, petroleum, or pharmaceuticals. So if submitting to bank bail-ins is economically analogous to having your arm cut off, a Grexit would be tantamount to having both legs amputated.

Goldman Sachs – Masters of the Eurozone --- Gaius Publius - Interesting headline, yes? I have a two-point intro and then the piece. First, when a “private” group’s chief individuals flow back and forth constantly between government and that group, the group can be said to be “part” of government, or to have “infiltrated” government, or to have been “folded into” government. (Your phrasing will be determined by who you think is the instigator.) For example, a network of private “security consulting” firms does standing business with the (Pentagon’s) NSA, and by some accounts performs 70% of their work. Are those firms part of the NSA or not? Most would say yes, to a great degree. It’s certain that the NSA would collapse without them, and many of these firms would collapse without the NSA (though many have other … ahem, international … clients, which starts an entirely different discussion). As another example, the role of mega-lobbying firms as a fourth branch of government was explored here. Same idea. In the case of the security firms, one might say they have been “folded into” government. In the case of the lobbying firms, one might say they have “infiltrated” government. I hope you notice the difference; both modes of incorporation occur. Second, consider how in general the “world of money” and the parallel world of “friends of money” — its enablers, adjuncts, consiglieri and retainers — flow in and out of the world of government, of NGOs, of corporate boards, of foundation boards, attends Davos and the modern Yalta (YES) conference, and so on. Now consider how someone like Hillary Clinton — not money per se, though she has a chunk, but certainly a “friend of money” — ticks off most of those boxes (foundation board, corporate board, government, Davos, Yalta, and so on). There are many people like Hillary Clinton; she’s just very front-and-center at the moment. What we’re about to see is the infiltration of “friends of money” into key positions in the eurozone, and in particular, the infiltration of friends of money from one huge repository of money and guardian of its perquisites — the megabank Goldman Sachs — into those governmental positions.

Depression's Advocates - Brad DeLong - Back in the darker days of late 2008 and 2009,  I would say, this time we will not make the same mistakes policymakers made in the 1930s. This time we will make our own, different--and hopefully lesser--mistakes. I was wrong. The eurozone is making the mistakes of the 1930s once again. And it is on the point of making them in a more brutal, more exaggerated, and more persistent form than they were made back in the 1930s. But I did not see that coming. And so, when the Greek debt crisis emerged in 2010, it seemed to me that because the lessons of history were so obvious, the path to the Greek crisis's resolution would be straightforward. The syllogistic logic seemed to me clear:

  1. If Greece were not not part of the eurozone, the obvious and effective path out of the crisis would be for it to default and restructure its debt, and to depreciate its currency.
  2. Brussels and Frankfurt really did not want to see Greece exit the eurozone--that would have been a major setback for "Europe" as a political project.
  3. Therefore Brussels and Frankfurt would offer Greece enough aid, support, additional money, debt write downs, and debt reschedulings to make Greece better off by staying in the eurozone than it would have been if it had exited, depreciated, defaulted, and restructured back in 2010.

But that did not happen. Greece right now appears to me to be vastly worse off than if it had abandoned the euro and its euro parity in 2010. Just look at the relative degree of recovery--essentially complete, and none--in Iceland and Greece, respectively.

How to fix the Euro - Steve Randy Waldman - I broadly agree with the Angloamerican consensus about the, um, challenges associated with the Euro from an economic perspective. (David Beckworth has a very nice explainer.) We do understand that the Euro was adopted for political more than economic reasons. Unfortunately, with the benefit of hindsight, the hoped-for political benefits of the common currency seem to have materialized less than the long-warned economic problems, and the economic problems have now poisoned the politics. But we are where we are. I think it unlikely that the Euro will be dismantled except in the context of a crisis that would put the whole European project at risk, even more than recent crises already have. So the challenge, I think, is to come up with institutions that would help mitigate the economic flaws of the common currency, and that might be acceptable in a political union whose electorates, for the moment, feel no great solidarity with one another. Ideally, Europe might pursue a US-style union, where transfers made upon universal criteria to households and business blunt regional wealth and income asymmetries, without provoking the indignation that direct intergovernmental transfers provoke (and would provoke in the US as well). But, after the trauma of recent events, I doubt that a Pan-European safety net will be politically achievable anytime soon.  If “ever closer union” is on pause for now, perhaps Ashoka Mody has it right when he advises, “To stay close, Europe’s nations may need to loosen the ties that bind them so tightly.” Mody’s specific suggestion is that Germany and other Northern European countries depart the Euro, replacing one very suboptimal currency area with two more reasonable blocs. He makes a good economic case, but the political symbolism of a Dollar/Peso Europe would be pretty terrible. I think there is a better way.

The Mother of All Storms Builds Over Catalonia’s Independence - Don Quijones -- For the last six months, tensions between Madrid and Barcelona seemed to have subsided, as most of the attention of Spanish government, the media, and the public was diverted by the seemingly unstoppable rise of Pablo Iglesias’ anti-austerity party Podemos — a rise that has suddenly stopped. Now it seems that what first appeared as reduced tensions between Madrid and Spain’s north-eastern province was merely the calm before the mother of all storms. Last Friday the coalition of pro-independence parties in Catalonia announced a single list of candidates for regional elections scheduled for Sept. 27. They include the two main parties’ leaders, Artur Mas (Catalonia’s current premier) and Oriol Junqueras, as well as the leaders of the two grassroots movements Ómnium Cultural and the Catalan National Assembly. Also included on the list as a symbolic candidate is Pep Guardiola, the popular former coach of Barcelona Football Club and fervent Catalan separatist. If the pro-independence coalition wins a majority of seats in September’s elections, it has pledged that it will unilaterally declare national independence within six months. Adding fuel to the fire is a new report just out from the Brussels-based Centre for European Policy Studies that concludes that not only would the Catalan economy benefit from untethering itself from Spain, but the region would make a perfectly viable nation state – at least at an economic level.  If solutions aren’t found to these problems soon, Madrid’s spat with Catalonia could soon have ugly repercussions both within and far beyond Spanish borders. Some are even predicting that it could result in Catalonia’s expulsion or exit – AKA Catexit (no, seriously) — from the EU.

The Crisis In Europe Has Only Just Begun --Five months ago I attempted to explain why the conflict between Germany and Greece was destined culminate as it has: Following the recent elections in Greece, Germany and its EU compradors are making it clear who is in charge. The Germans are currently not offering any compromise, but iterate the same blunt demand: Greece has to accept what is being dictated; in other words, capitulate or be annihilated. This time it will not be the Wehrmacht und Luftwaffe that are to force the Greek nation into submission, but a weapon just as lethal: national bankruptcy. This conflict has nothing to do with Greek debt or finances. Syriza’s strategy was based upon the rational assumption that the nation’s debt and recovery are being stifled by austerity. As we know from most any respected economist, Greece’s debt can never and will never be repaid. This has been a conflict between a small European nation, led by a leftist government, attempting to reassert its autonomy under crushing German predominance. That may sound simplistic, but there is not much more to it. The negotiations have been surprisingly linear. Syriza’s main goal was debt relief. They always saw Chancellor Merkel as the lone decision maker in the negotiations. Ms Merkel on the other hand has unremittingly demanded unconditional capitulation. The rest has been spectacle. There is a saying: “Clowns entertain in the intervals between the acts. The circus director runs the show”. Dijsselbloem, Juncker and the rest may have had a lot to say to the media, but little to say in negotiations. Finland, Slovakia and Slovenia are irrelevant. The only other player of any importance besides Merkel was ECB president Mario Draghi, who assisted Germany’s financial blitzkrieg by questionably terminating the ECB’s support of Greek banks. Schäuble was Merkel’s executioner.The intervention of France’s President Francois Hollande was uncannily reminiscent of Neville Chamberlain. The only thing lacking was his arrival at Charles de Gaulle Airport brandishing a letter from Chancellor Merkel. The conclusion of “negotiations” was reminiscent of the Munich Dictate. Greece has been “saved”, much as Czechoslovakia 77 years ago

It's Not Just Greece: Total European Debt Hits New All Time High -- With all the talk of Greek debt unsustainability (and now, thanks to Jack Lew and the IMF, forgiveness), one would think that Greece - whose debt/GDP is set to rise to 238% according to Citi - is the only country in Europe which has debt problems. It's not, and as the latest data from Eurostat confirms, as of Q1 2015, European debt rose to €9.4 trillion from €9.3 trillion, which is a new record high debt/GDP of 92.9%, up from 92.0% the previous quarter. It wasn't just the Euroarea of 19 EUR member nations that saw their debt increase: the broader European Union of 28 countries also saw its debt rise, and by a far more noticeable €300 billion, from €12.1 trillion to €12.4 trillion. As Eurostat reports, "The highest ratios of government debt to GDP at the end of the first quarter of 2015 were recorded in Greece (168.8%), Italy (135.1%) and Portugal (129.6%), and the lowest in Estonia (10.5%), Luxembourg (21.6%) and Bulgaria (29.6%)." Besides the averages, debt/GDP increases were recorded in 15 European countries; debt declined in 12 countries most notably in Greece where it declined by just over 8%. Courtesy of the Third Greek bailout we no know this won't last.

Eurozone borrowing rises to record as recovery remains weak - FT.com: Debt in the eurozone has reached a record high despite an incipient economic recovery, underlining the challenges governments face in tackling the legacy of the sovereign debt crisis. The European Central Bank’s programme of quantitative easing has pushed down interest rates to ultra low levels, encouraging governments to borrow more in the early part of this year, despite turmoil in Greece. Steven Major, head of fixed income research at HSBC, said the increase was due to “opportunistic borrowing at current low rates by some countries, less austerity by others”. “What’s certain is that anyone who thinks Europe’s debt stock is shrinking is sorely mistaken,” he said. Across countries that use the euro, average debt to gross domestic product reached 92.9 per cent in the first quarter of 2015, up from 92 per cent in the previous quarter and 91.9 per cent in the same period last year, according to figures from Eurostat, the EU’s statistical agency. Greece remains the EU’s most indebted nation, with debt equal to 169 per cent of annual GDP, but Italy, Belgium, Cyprus and Portugal also carry government debt that exceeds 100 per cent of economic output. The rise in debt comes despite a pickup in the pace of recovery in the eurozone, with the region’s economy expanding 0.4 per cent in the first quarter of this year — while the US saw a contraction. Economists expect growth to continue this year, as the ECB’s easing programme and a cheaper euro bolster domestic demand and exports. But economic growth is still too weak to make up for the volume of government borrowing. While the aggregate budget deficit for the eurozone has fallen more than a third since 2011, it remained as high as 2.4 per cent in 2014, according to Eurostat figures.

Toxic' Loans Wallop French Towns - The mayor of this sleepy town near the Mediterranean coast gathered a crowd in the community hall on a recent day to discuss complex instruments that most of them had never heard of: financial swaps. Over three hours, he described how a loan pegged to the Swiss franc that municipal officials took out years ago had become so burdensome that the southern French town could no longer afford to build the school it needed. "This toxic loan has considerably impacted the town's finances," said Roland Mouren. Like several hundred cities across France, Châteauneuf-les-Martigues took out a variable-interest-rate loan in the mid-2000s to restructure debt and reduce interest payments. The loans offered very low interest rates for the first few years, before the rate would start to vary according to the value of the Swiss franc. Contracts that convey currency risk in this way fall under the category of what are known as financial swaps. At their inception, the loans had appeal to both parties. Borrowers were guaranteed low initial interest payments, and they didn't expect the rates to rise to anywhere near where they ended up. "At the time, it seemed like an easy way to get money," said Mr. Mouren, whose predecessor took out the loan pegged to the franc.

France’s staggering debt levels are far more worrying than ours - Telegraph: During the recent shenanigans about Greece, it slipped out that the German government is increasingly worried about France’s public debt. With regards to the French who, according to George W Bush, are held back by their lack of a word for entrepreneur, we British are inclined to feel something that can only be described by a German word, namely schadenfreude. But is the French debt position really so much worse than ours? This year it looks as though, in gross terms, the French debt to GDP ratio will be just above 98pc. That sounds pretty horrific. Yet the equivalent UK figure will be about 87pc. These figures refer to gross debt. If you deduct the government’s financial assets to get a measure of net debt the figures are about 91pc for France and about 80pc for the UK. So the gap between the two countries is about the same whether you look at debt on a net or gross basis. The Maastricht debt criterion governing a country’s eligibility for joining the single currency was that the gross debt to GDP ratio was to be no higher than 60pc, or at least converging on 60pc “at a satisfactory pace”. Meanwhile, Gordon Brown set himself a tougher test. One of his fiscal rules said that the net debt ratio should be no higher than 40pc. Clearly, on either of these tests both countries have a significant debt problem. The French situation is worse, although not by a country mile.

UK debt at £1.5trilion as borrowing falls less than expected -  The amount of money owed now accounted for 81.5 per cent of Gross Domestic Product (GDP) at the end of June, up from 80.8 per cent just a month earlier, according to figures released by the Office for National Statistics (ONS). At the same time borrowing fell by less than expected to deal Chancellor George Osborne a double blow in the first figures on UK's finances since the emergency Budget earlier this month. Public sector borrowing in June fell £800million, or eight per cent, to £9.4billion from last year, but the drop has been predicted at 22 per cent over the entire year. If the trend stays over the remaining nine months of the financial year, this year’s deficit would be £71.5bn, £2bn higher than the Office for Budget Responsibility (OBR) forecast in the Summer Budget. Growing debt has been fuelled by a growth in spending, which is now up to £58.1bn, around a four per cent increase compared to the same time last year. Around half the money was spent by Government departments, such as health, education and defence, and around a quarter on benefits, including pensions and unemployment payments. However, the Chancellor should be cheered by the boost to Treasury coffers with a rise in income tax receipts to £11.5bn, the best June performance on record since 1997. The corporation tax take of £1.7bn also represented the best June on record.

BOE Minutes Show Rate Rise Debate Intensifying - —Bank of England officials voted unanimously in July to keep the central bank’s benchmark interest rate steady, but their united front masks an increasingly lively debate over when to start raising borrowing costs. Minutes of the Monetary Policy Committee’s July policy meeting published Wednesday, show all nine members of the rate-setting panel voted to keep the BOE’s benchmark rate at a record low of 0.5% earlier this month. All nine also voted to leave the BOE’s bond portfolio at 375 billion pounds ($583.51 billion). The minutes record that for “a number” of officials, the decision not to raise rates was a close call. For these unnamed officials, the debt crisis in Greece, was “a very material factor” in voting to keep rates on hold. “Absent that uncertainty, the decision between holding bank rate at its current level versus a small increase was becoming more finely balanced,” the minutes record, referring to the BOE’s benchmark rate. The minutes imply that support on the panel for a rate increase soon is broadening. Previous minutes have recorded that only two officials were torn over whether to vote for a rate rise. The new language of “a number” of officials suggests that at least one other rate-setter has joined their ranks.