The taming of the Fed’s balance sheet - FT.com: The exact timing of the Federal Reserve’s first interest rate rise is uncertain, but even less clear is what will happen to the $4tn pile of bonds the central bank amassed during the financial crisis. Optimists take the view that, like a skilled pilot, Fed chairwoman Janet Yellen will be able to bring the size of the balance sheet down smoothly and steadily without hitting too much turbulence. Pessimists, however, believe the pilot is flying blindly through dense clouds with a faulty radar and constant risk of storms, making the policy normalisation process particularly risky. “For me the new thing to look out for is what they do to the portfolio,” says Robert Michele, chief investment officer at JPMorgan Asset Management. “We know about moving the [interest rate] corridor. What we should be worried about is what they do with the balance sheet.” The Fed’s strategy for reducing its bloated balance sheet has evolved over time, but in September policy makers said the Fed will cease or start phasing out reinvestments only after it first begins increasing short-term interest rates. The balance sheet would shrink in a “gradual and predictable manner”, but the details were left unclear — as well as the timing, which will depend on how economic and financial conditions evolve. One market concern is that allowing assets to roll off automatically as they mature could lead to a jagged path of balance-sheet reduction. BlackRock’s Investment Institute pointed out in a recent report that a third of the Fed’s entire Treasury portfolio, about $785bn, comes due by the end of 2018. Allowing the balance sheet to deflate that quickly could spook markets. “Letting these bonds run off represents an additional tightening of monetary policy — a dynamic that may well have greater impact on financial markets than the ending of [zero interest rates] in the short run,” the BlackRock report said.
Janet Yellen: The Federal Reserve expects to raise interest rates this year - Federal Reserve chair Janet Yellen said she expected the central bank to raise interest rates this year, as the US economy was on course to bounce back from a sluggish first quarter and headwinds at home and abroad waned. Ms Yellen spoke amid growing concern at the Fed about possible market volatility once it begins to raise rates, and a desire to begin coaxing sceptical investors towards accepting the inevitable: ending a six-and-a-half-year stretch of near-zero interest rates. In a speech to a business group in Providence, Rhode Island, Ms Yellen said she expected economic data to strengthen, and noted that some of the weakness at the start of the year might be due to "statistical noise". While saying the outlook for the economy is always highly uncertain and citing persistently low inflation, Ms Yellen said delaying a monetary policy tightening until employment and inflation hit the central bank's targets risked overheating the economy. "For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target," and begin normalizing monetary policy," Ms Yellen said in a speech at the Providence Chamber of Commerce.
Fed’s Fischer: Weaker-Than-Expected Foreign Growth Could Mean Slower Approach to Raising Rates - The Federal Reserve could take a slower approach to raising interest rates if weaker-than-expected growth overseas affects the U.S. economy, Fed Vice Chairman Stanley Fischer said. “The tightening of U.S. policy will begin only when the U.S. expansion has advanced far enough — when we have seen further improvement in the labor market and when we are reasonably confident that the inflation rate will rise to our 2% goal,” Mr. Fischer said Tuesday in remarks prepared for delivery in Tel Aviv that were largely similar to an October 2014 speech in Washington. But, he said, “if foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.” Mr. Fischer took office as the Fed’s vice chairman last summer. He formerly was governor of Israel’s central bank and earlier served as first deputy managing director of the International Monetary Fund and chief economist at the World Bank. On Tuesday, Mr. Fischer said the Fed isn’t the world’s central bank and must first and foremost pursue its domestic objectives of maximum employment and stable prices. “The most important contribution that U.S. policymakers can make to the health of the world economy is to keep our own house in order — and the same goes for all countries,” he said. But he also said that by dint of its size, “the United States is not just any economy and, thus, the Federal Reserve not just any central bank.” In the course of raising interest rates, the Fed “will take account of how its actions affect the global economy” and will “seek to minimize adverse spillovers,” he said.
Fed’s Jeffrey Lacker Still Undecided on June Rate Rise - —Richmond Federal Reserve Bank President Jeffrey Lacker said Tuesday he still hasn’t decided whether to vote for an interest-rate increase at the central bank’s June 16-17 meeting. Weak economic data during the first quarter—and a shaky start to the second—have pushed back market expectations for Fed rate rises toward the end of the year, with estimates converging around September. But Mr. Lacker, who is a voter on this year’s Federal Open Market Committee and often has expressed concern about the inflationary risks of the Fed’s unconventional policies, says he will make the call based on incoming data between now and then. “I haven’t made up my mind yet about June,” he told reporters after a speech. “I am going to wait and see what the data reveals.” Mr. Lacker said he was hopeful that economic weakness seen during the first quarter was due to transitory factors, and in part related to quirks in the statistics’ seasonal adjustments. He said U.S. inflation should gradually head back up to 2% now that the slump in oil prices has subsided. “Generally the data have borne out the notion that the weakness was transitory,” Mr. Lacker said. “We’re looking to see whether the next few weeks will bear that out as well.”
Williams Says Fed Likely to Raise Rates at Some Point This Year - The Federal Reserve will likely raise interest rates at some point this year as the economy rebounds from a weak first quarter, San Francisco Fed President John Williams said Thursday. Still, recent economic softness appears to have taken its toll on Mr. Williams optimism, since he now sees the U.S. economy growing just 2.0% this year, down from a forecast of 3% as recently as March. A Fed interest rate decision “is on the table in every meeting,” Mr. Williams told reporters in Singapore. He declined to say exactly when a rate increase was likely. “I’ve gotten myself into trouble there. I said at one point that we will do something in summer, and I found out that my definition of summer was not the right definition of summer,” Mr. Williams said. “So, I’ve got to be very careful about these things. I would say sometime [in] the remainder of the year.” A sharp first-quarter slowdown in gross domestic product was an anomaly, and U.S. growth will pick up through the rest of the year, he said. Mr. Williams pointed to labor market data which he said give him “some confidence” that the U.S. is still on a moderate growth trajectory.
Bond Traders Uncover Secret to Rates That Fed Just Doesn’t Get -- For years, the $12.6 trillion U.S. Treasury market has signaled -- correctly -- that the Federal Reserve was too optimistic in its outlook for the economy and interest rates. That’s no different now even though policy makers have moved closer to how traders view the world, which is to say that it wouldn’t be surprising if the central bank failed to lift borrowing costs this year. Despite the backup in yields in recent weeks, bond prices still signal the unexpected slowdown in the economy was more than just the result of some bad weather that kept Americans indoors and idled factories in the first quarter. Regardless of when the first increase comes, futures show traders don’t see rates exceeding 1 percent by the end of 2016, versus the Fed’s estimate of 1.875 percent. Fed officials are “still optimistic and hopeful their policies are going to work the way they are intending,” Brandon Swensen, the co-head of U.S. fixed income at RBC Global Asset Management, which oversees $35 billion, said from Minneapolis. “What we have seen and what the market is pricing in is that it will be more of the same.” RBC predicts rates will only rise to 1 percent by the end of 2016, from near zero now, and as a result holds a greater proportion of short-term Treasuries relative to its benchmark.
Small shoes and headroom - John Cochrane -- I talked with Kathleen Hays and Michael McKee on Bloomberg Radio last week, and they asked (twice!) a question that comes up often in thinking about Fed policy: shouldn't the Fed raise rates now, so it has some "headroom" to lower them again if another recession should strike? I could only answer with my standard joke: That's like the theory that you should wear shoes two sizes too small because it feels so good to take them off at the end of the day. But the question comes up so often, it's worth thinking about a little more seriously. Under what views about the economy does this common idea make any sense?One way to think about the question: is the effect of interest rates on the economy path-dependent, so that a given level of short-term interest rates has more "stimulative" effect if it comes from a previously high value than if short-term interest rates were zero all along? The usual answer is no. The model is usually a linear system, in which lowering the rate from a high value has the same effect as raising to the same rate coming from a low value. In fact, the usual model goes the other way: If, say, a new recession hits in June 2017 and you want more stimulus then, having had rates at zero all along is more "stimulative" than having raised them to 3% between now and then, and lowering rates all of a sudden
Technology, inflation and the Federal Reserve - Ever since the crash in 2008, the central banks in the advanced economies have had but one obsession — how to set monetary policy to ensure the maximum growth rate in aggregate demand. Interest rates at the zero lower bound, followed by a massive increase in their balance sheets, was the answer they conjured up. Now, those central banks contemplating an exit from these policies, primarily the US Federal Reserve and the Bank of England, are turning their attention to the supply side of their economies. When, they are asking, will output reach the ceiling imposed by the supply potential of the economy? The Bank of England has been in the lead here, with the Monetary Policy Committee recently conducting a special study of the supply side in the UK. Its conclusion was that gross domestic product is now only 0.5 per cent below potential, which implies that tighter monetary policy will soon be needed if GDP growth remains above potential for much longer. In the US, the Fed has been much less specific than that, but the unemployment rate has now fallen very close to its estimate of the natural rate (5.0-5.2 per cent). Sven Jari Stehn of Goldman Sachs has used the Fed staffers’ supply side models to calculate that their implied estimate of the US output gap may be only 0.6 per cent, not far from the UK figure. If the UK and US central banks were to act on these calculations, the implication would be that they no longer hold out much hope that they can ever regain the loss in potential output that has occurred in the past decade, relative to previous trends. That would be a massive admission, with an enormous implied sacrifice in future output levels if they are wrong. It would also be very worrying for financial assets, since it would draw the market’s attention to a downgrade in the Fed’s estimation of the long-run path for GDP
Fed’s Fischer Sees Short-Term Rate at 3.25%-4% in Three to Four Years - Federal Reserve Vice Chairman Stanley Fischer said Monday the central bank expects to follow a “gradual and relatively slow” trajectory of short-term interest-rate increases over the next three to four years to bring borrowing costs back to “normal” levels. Mr. Fischer said observers focus too much on when The Fed will start raising its benchmark short-term rate from near zero, and instead should think more about where interest rates are headed over time. He said Fed economists expect the rate will reach from 3.25% to 4% in three to four years. “There is so much importance given to the first move. But I think it’s misleading,” said Mr. Fischer in a lecture at the Interdisciplinary Center Herzliya, a college in a suburb outside Tel Aviv. Mr. Fischer, who served as chief of Israel’s central bank for eight years before becoming the No. 2 U.S. central banker, said the coming Fed rate increases “will be a gradual process.” He said it would not be like the relatively rapid and predictable path of Fed rate increases from 2004 to 2006, when the benchmark rate rose by 0.25 percentage point at each of 11 consecutive monetary policy meetings. His comments echoed those of Fed Chairwoman Janet Yellen, who said Friday the central bank is on track to raise interest rates this year but will likely proceed cautiously because the job market hasn’t fully healed, inflation is low and growth has again disappointed.
Fed’s Mester: Monetary Policy Is Second-Line Defense Against Bubbles - In a speech that didn’t comment on monetary policy outlook, Federal Reserve Bank of Cleveland President Loretta Mester said Monday U.S. officials need to be aware what impact ultra-low rates are having on the banking sector. Ms. Mester, whose comments came from a speech at a conference in Reykjavik, Iceland, also didn’t comment on the economic outlook. Instead, her speech was largely an overview of research on banking-related issues. Ms. Mester said in her speech that it is better for authorities to use regulatory and supervisory powers to deal with final imbalances, rather than monetary policy. “I would opt to use the macroprudential tools as the first line of defense, since they can be more targeted to the markets and institutions where the risks are emerging,” she said. But the official added, “I do think that when we are making policy decisions, we should be cognizant of the linkages between our non-conventional monetary policy of an extended period of essentially zero interest rates and financial stability.” Ms. Mester also said breaking up the biggest banks has limits to financial stability. “I remain skeptical that breaking up the banks, however well intentioned, will be effective,”
Fed’s Williams Says Never Use Rates to Prick Bubbles - The Federal Reserve should refrain from using interest-rate policy to address risks to financial stability “even as a last resort,” San Francisco Fed President John Williams said Thursday. That is because the effects of monetary policy on financial markets and excess risk taking are highly uncertain and potentially detrimental to the central bank’s main objectives of stable inflation and maximum employment. “I am convinced that monetary policy should not be used to address risks to financial stability given the very real and sizable costs, not to mention that the potential benefits are anything but certain,” Mr. Williams said in remarks prepared for delivery Thursday at the Symposium on Asian Banking and Finance in Singapore. His remarks come amid debate over whether central banks should consider raising interest rates to prick apparent financial asset bubbles while they are forming, to forestall the damage to the financial system that could occur if they burst on their own.Former Fed Board Governor Jeremy Stein, for instance, was a proponent of incorporating financial-stability concerns into monetary-policy deliberations. The Bank of England has embraced such an approach, with its Financial Policy Committee providing direct input into the discussions of the Monetary Policy Committee. Mr. Williams firmly pushed back against the notion the Fed should do the same. “Monetary policy is poorly suited for dealing with financial stability concerns, even as a last resort,” he said.
Morality Tales and Capital Flows - When the Federal Reserve finally raises its interest rate target, it will be one of the most widely anticipated policy moves since the Fed responded to the global financial crisis. The impact on emerging markets, which have already begun to see reversals of the inflows of capital they received when yields in the U.S. were depressed, has been discussed and analyzed in depth. But the morality tale of errant policymakers being punished for their transgressions may place too much responsibility for downturns on the emerging markets and not enough on the volatile capital flows that can overwhelm their financial markets. Capital outflows—particularly those large outflows known as “sudden stops”—are often attributed to weak economic “fundamentals,” such as rising fiscal deficits and public debt, and anemic growth rates. Concerns about such flows resulted in the “taper tantrums” of 2013 when then-Federal Reserve Chair Ben Bernanke stated that the Fed would reduce its purchases of assets through its Quantitative Easing program once the domestic employment situation improved. The “fragile five” of Brazil, India, Indonesia, South Africa and Turkey suffered large declines in currency values and domestic asset prices. Their current account deficits and low growth rates were blamed for their vulnerability to capital outflows. There have been subsequent updates of conditions in these countries, with India now seen as in stronger shape because of a declining current account deficit and lower inflation rate, whereas Brazil’s situation has deteriorated for the opposite reasons.
The Fed’s Dereliction of Duty and False Capital Flows Morality - naked capitalism - Yves here. As a result of the US’s push over decades to make the world safe for America’s investment bankers, capital flows across borders easily, and some top experts contend, too easily. Carmen Reinhart and Ken Rogoff, in their work on 800 years of financial crises, found that high levels of international capital flows were strongly correlated with more frequent and severe financial crises. In 2011, Claudio Borio and Piti Disyatat published an extremely important analysis of the crisis which shredded the Bernanke “global savings glut” thesis. It instead found that the culprit was excessive financial elasticity, which basically means deregulation and the resulting high level of cross-border capital flows. Yet the Fed tries to deny the implications of being the steward of the world’s reserve currency in a world of extremely nimble investors who have large pools of funds at their disposal. ZIRP and QE have made the US a major funder of a global carry trade. Remember when global market activity could be summed up by “risk on-risk off” reactions to news? One of the big beneficiaries of “risk on” trades were emerging economies, particularly ones with relatively high domestic interest rates. And when investors got spooked, they’d be the canaries in the coalmine, suffering the most when the tide of money sloshed back to seemingly safer havens. The Fed’s response to considerable unhappiness of central bankers in the countries that are exposed to the moods of hot capitalists has been to try to deny that the Fed has anything to do with these shifts, or to try to blame the other countries, as in it’s their fault that the money left.
A Reawakening of Monetary Policy Research - John Taylor -- Last May a group of economists, central bankers, market participants, and financial journalists convened at Stanford’s Hoover Institution “to put forth and discuss a set of policy recommendations that are consistent with and encourage a more rules-based policy for the Federal Reserve and would thus improve economic performance…” Here’s the agenda, the published volume, and my summary. Since then much has happened: The House Financial Services Committee passed a policy rules bill out of committee, the Senate Banking Committee proposed a similar bill with other structural reforms (which also passed out of Committee), the Bank of England instituted significant communication reforms, a slew of economists and Fed officials weighed in (both pro and con) on proposals to make central bank policy rules more transparent, and Congress held several public hearings. To analyze these new developments, many of the experts from last year’s conference and others convened last week to present papers and discuss key issues. All the papers are posted here. They were novel, on point, and rigorous whether using equations, regressions, history, legal analysis or political theory. The discussion was candid, with new questions raised about the effectiveness of the Fed’s deliberations. In my view it was kind of a reawakening—part of a broader reawakening—of monetary policy research. A written record of the whole conference is planned. In the meantime, here’s a quick summary:
Fed Should Consider New Ways to Counter Weak Growth, Bullard Says - The Federal Reserve should consider new policy options, including directly targeting a non-inflation-adjusted level of economic growth, after more than six years of sustained monetary easing failed to spur a boom, Federal Reserve Bank of St. Louis President James Bullard said Thursday. “It’s time to question the current theory and explore other models about what’s going on at the zero lower bound,” Mr. Bullard said, referring to the Fed’s zero-rates policy that has been in place since December 2008. Mr. Bullard was presenting new research conducted with three other economists that he says shows “the monetary authority may credibly promise to increase the price level…to maintain a smoothly functioning credit market.” The model could be “broadly viewed as a version of nominal GDP targeting,” the paper says, referring to a policy in which a central bank would set a target for gross domestic product growth without an inflation adjustment. The idea would be to signal to markets and the public that the Fed is serious about generating a recovery, thereby spurring investment and spending. The work, which questions the effectiveness of asset purchases and forward guidance on interest rates undertaken by the Fed during the recession and its aftermath, represents a shift for Mr. Bullard, who had long been a strong supporter of bond purchases. “It is unclear how the central bank could use such an intervention to maintain complete credit markets,” the paper suggests. The Fed has more than quintupled its balance sheet to $4.5 trillion since before the recession through purchases of mortgage and Treasury bonds aimed at keeping long-term rates down.
Fed Confronts an Economy Plagued by Mismeasurement - A note from Goldman Sachs economist Jan Hatzius this weekend touches on a theme that seems to be getting a lot of play of late in the world of central banking: Mismeasurement. Do we really know the world economists are trying to describe to us on a daily basis? And if we don’t, are central bankers in any position to feed this world appropriate amounts of money and interest? Goldman’s note raises questions about measurement of productivity, growth and inflation. “Structural changes in the US economy may have resulted in a statistical understatement of real (economic) growth,” Mr. Hatzius argues. The data, he says, might not be picking up changes in the economy resulting from the rapid spread of advanced software and digital content. Inflation statistics, moreover, might not grasp the leaps in quality of, say, the camera on your iPhone. My camera, for instance, can capture my dog catching a ball in slow motion, which is very cool and something I’ve never been able to do before. Mr. Hatzius argues inflation, growth and productivity statistics have been understated because the data don’t pick up the consequences of this technological change. “Confident pronouncements that the standard of living is growing much more slowly than in the past should be taken with a grain of salt,” he says. Mr. Hatzius, often a dove when it comes to monetary policy, adds further that overstated inflation means the Fed can keep interest rates low.Today's Economic Data Enough To Push Q2 GDP By Whopping 0.1% To 0.8% ... at least according to the Atlanta Fed. Based on the one GDP model which hasn't lost all credibility and which for the past 3 months has captured the attention to wannabe weathermen and other Wall Street strategists, today's bevy of stronger than expected data, everything from Durable Goods, to core CapEx, to New Home Sales, to Case Shiller, to Consumer Confidence, and even the Richmond Fed was sufficient to push Q2 GDP... by 0.1% to 0.8%. From the Atlanta Fed GDP Now webpage: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.8 percent on May 26, up slightly from 0.7 percent on May 19. Following this morning's advance durable manufacturing report from the U.S. Census Bureau, the forecast for second-quarter real equipment investment growth increased from 3.5 percent to 5.1 percent while the forecast for the change in inventory investment in 2009 dollars increased from -$22 billion to -$19 billion.
Why Is the U.S. Economy Still Depressed? - Brad DeLong -- Back in 2007 those whose business it was to forecast the American economy were confidently projecting that, come 2015, nominal GDP--the total amount of spending in dollars on currently-produced and marketed goods and services in the United States, plus imputed rent on owner-occupied houses--would be $21.5 trillion. It will be about $18.3 trillion. Back in 2007 they were projecting that real GDP at 2009 prices would, in 2015, be $18 trillion. It will be $16.5 trillion. Back in 2007 they were forecasting that 87% of 25-54 year-old males would have jobs, not 84%. Back in 2007 they were forecasting that 72% of 25-54 year-old females would have jobs, not 70%. Why? At the arithmetic level, it is because residential construction and government purchases have fallen far below their expected trends by a lot, consumption spending has fallen below its previousy-expected trend by a little, business investment is more-or-less at its previously-expected trend, and only exports have boomed relative to 2007 expectations. Just because one component of spending falls off in relative terms does not mean that the economy must fall into depression. Take a look at the graph above over 2005-2008. The housing bubble bursts, housing prices collapse, and the pace of residential construction collapses--but exports and businesses pick up the slack. Why? Because money flows that would have gone to funding residential construction were switched to purchasing exports from America and were loaned to businesses that stepped up their pace of expanding their capital stocks instead. When an excess supply of finance emerges because one component of spending declines, the financial market and the Federal Reserve are supposed to guide interest rates down, thus signaling to other potential components of spending that finance is available and can be put to work.
The residual seasonality puzzle - What’s at stake: While seasonal adjustment is generally considered uninteresting, the repetition of low first quarter GDP releases since 2010 has led many to wonder if a predictable seasonal pattern remains in the published data. The U.S. Bureau of Economic Analysis is investigating the issue and will report on its findings in July. Jeffrey Miron and Joseph Beaulieu write that traditionally macroeconomists regarded seasonal fluctuations as inherently uninteresting. Economists at S.F. Fed write that the raison d’être of seasonal adjustment is to remove fluctuations in economic data that repeat at the same time and in the same fashion every year in order to reveal underlying cyclical and trend movements in the economy. Seasonally adjusted GDP estimates strip out recurring weather or holiday patterns that affect economic activity and make it much easier to observe that underlying nominal GDP growth. Martin Sandbu writes that the poor first-quarter growth results for the US caused a great deal of consternation. The official first estimate came in at only 0.06 per cent growth, or about 0.25 per cent annualized. That was much, much worse than the 0.6 to 0.7 average forecast. Justin Wolfers writes that the pattern of weak first-quarter growth has occurred so often that it has led some economists to ask whether there’s a problem in how the government calculates its G.D.P. numbers. It’s happening now. It happened in the first quarter of last year. And it happened in 2010, 2011 and 2012. Tom Stark writes that from 1985 to the present, half of the slowest intra-year quarterly growth rates occurred in the first quarter, and six of the 10 slowest growth rates over the entire period happened in a first quarter. Economists at S.F. Fed write that this regular, calendar-based statistical pattern is a puzzle because the BEA seasonally adjusts the GDP data to remove such fluctuations. First-quarter seasonally adjusted real GDP growth should not be consistently higher or lower than growth in any other quarter.
The U.S. Is About to Change the Way It Calculates GDP - The way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth. In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said. Although the agency adjusts its figures for seasonal variations, growth in any given first quarter still tends to be weaker than in the remaining three, economists have found, a sign there may be some bias in the data. It’s a phenomenon economists call “residual seasonality.” “BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon,” the division said in the post. More information will be available in a BEA Survey of Current Business report scheduled for mid-June publication. The agency is exploring ways to address possible issues in measures of federal government defense spending, where research has shown that first- and fourth-quarter growth rates are lower on average, the BEA said, reiterating a statement given to Bloomberg published May 18. It will also start seasonally adjusting some inventory components that currently aren’t, and also some data from the U.S. Census Bureau’s quarterly services survey, it said. The latter should boost the accuracy of consumer spending estimates, it said. The changes to the calculations will cover the period from 2012 to the present.
Forecasting Q1 Second Estimate GDP: Gazing Into the Crystal Ball --The big economic number this week will be the Q1 Second Estimate for GDP on Friday at 8:30 AM ET. With the BEA's Advance Estimate of 0.2% behind us, what do economists see in their collective crystal ball for Q1 of 2015? Let's take a look at the latest GDP forecasts from the latest Wall Street Journal survey of economists conducted earlier this month. Here's a snapshot of the full array of WSJ opinions about Q1 GDP with highlighted values for the median (middle), mean (average) and mode (most frequent). In the latest forecast, the median (middle) and the mode (16 of 59 forecasts) was for a negative print at -0.5%. In fact, 43 of the respondents, that's 73%, expect Q1 GDP to have been in contraction. The mean (average) forecast of 0.3% was the result of a few rather bizarrely optimistic outliers. The Investing.com consensus is for -0.8%. The Briefing.com consensus is fractionally higher at -0.7%, but its own estimate is for -1.0%. Friday's release of the Second Estimate for Q1 GDP is, of course, a rear-view mirror look at the economy. The WSJ survey also asks the participants to forecast GDP for the four quarters of 2015. Here is a table documenting the median, mean and extremes for those forecasts. Not surprisingly, the median and mean for the next five quarters both hover in a tiny 0.4% range, the average median at 3.0% and the average mean at 3.1%.
Q1 GDP Revised Down to -0.7% Annual Rate -- From the BEA: Gross Domestic Product: First Quarter 2015 (Second Estimate) Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- decreased at an annual rate of 0.7 percent in the first quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP increased 0.2 percent. With the second estimate for the first quarter, imports increased more and private inventory investment increased less than previously estimated ... Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 1.9% to 1.8%. Residential investment was revised up from 1.3% to 5.0%. Net exports was revised down, private inventory investment was revised down, and government was revised down (from -0.8% to -1.1%).
Why U.S. GDP Shrank – At A Glance -- The U.S. economy faltered in the first quarter of 2015, according to Commerce Department data released on Friday. Here’s a quick look at the report. U.S. gross domestic product contracted at a 0.7% seasonally adjusted annual rate in the opening months of the year, a significant downward revision from an initial estimate of 0.2% growth. This marks the third time since the recession ended that the official measure of GDP fell into negative territory. The latest numbers highlight the fragility of the expansion but also raise questions about potential statistical quirks in government data that may be depressing first-quarter figures. Trade was the biggest drag on top-line GDP figures in the opening months of the year. U.S. exports of goods fell by the most since the first quarter of 2009–the midst of the recession–while overall imports climbed. The widening deficit subtracted 1.9 percentage points from economic growth. A stronger dollar has tamped down overseas demand for U.S.-made goods while making foreign products cheaper to import. Meanwhile, congestion at West Coast ports constrained trade earlier in the year. U.S. corporate profits rebounded in the first quarter of the year. Profits after tax, without inventory valuation and capital consumption adjustments, advanced 3.1% in the first quarter of 2015 from the fourth quarter of 2014, after falling 3% in the prior period. Profits were up a healthy 9.2% from the same quarter a year earlier, the biggest increase since 2012. That measure of corporate profits most closely matches what companies report in earnings statements. Profit data is not inflation adjusted. Federal Reserve officials have been looking for signs of firming inflation. They won’t find any in Friday’s GDP report. The price index for personal consumption expenditures fell 2.0% in the first quarter of the year. Prices excluding food and energy rose a downwardly revised 0.8%, well below the Fed’s 2% inflation target. U.S. consumers ratcheted back spending in the first quarter of the year, one factor behind halting economic growth. Personal consumption expenditures rose at a downwardly revised 1.8% rate from January through March. Spending on services climbed 2.5% but purchases of goods rose a modest 0.5%. By contrast, consumer spending was up at a 4.4% pace in the final quarter of 2014.
Will First-Quarter GDP Get Better After It Gets Worse? - The U.S. economy shrank in the first quarter of the year. Again. Gross domestic product contracted at a 0.7% seasonally adjusted annual rate, the Commerce Department said Friday. That’s the third time since the recession ended that first-quarter numbers have gone into reverse. It seems to be part of a pattern, perhaps partly related to a a statistical problem known as residual seasonality. In a blog post last week, Commerce’s Bureau of Economic Analysis said it “is looking for ways to minimize this phenomenon.” If that’s the case, the first-quarter economy could end up looking a little better after the agency adjusts its statistical models. Of course, what it adds to the first quarter, it would take away from the others, leaving full-year growth unchanged. So what’s happening? Economists have some different ideas. But since 1995, GDP growth has averaged 1.3% in the first quarter and 2.9% in all other periods. The disparity appears to have widened since the recession ended, with first-quarter figures averaging 0.4% versus 2.9% in all other periods. There may be real, underlying economic reasons for shifting growth patterns. But there may also be a degree of mismeasurement. Commerce tries to account for recurring seasonal factors–things like weather, holidays and production schedules–to better identify underlying trends in the economy. So normal winter weather shouldn’t affect the data but a particularly fierce series of storms would show up. Starting this summer–with the release of second-quarter GDP on July 30–Commerce is looking to tweak some measures, including federal government defense services spending, inventory investment numbers, figures from the Census Bureau’s quarterly services survey, and possibly others. It’s not clear how the details will change, though the big picture will remain the same.
Why helicopter money is a political economy issue - When we have a recession caused by demand deficiency such that interest rates hit their Zero Lower Bound (ZLB), the obvious response from a macroeconomic point of view is fiscal stimulus. Instead governments have become obsessed by their debt and deficits, and so we have austerity instead. It is important to understand that this deficit obsession is not a worry about the long run sustainability of government finances. We know this for two reasons. First, if it was only a concern about long run sustainability, there would be little need to act on that concern now (when doing so is so costly), rather than waiting a few years for the ZLB problem to be safely behind us. Indeed, governments should be worried that austerity now could actually damage long run sustainability, because of the hysteresis effects examined by DeLong and Summers (pdf, and note that their arguments could equally be applied to the impact of cutting back public investment even if there was no hysteresis). Second, governments seem happy to cut current deficits using measures that actually detract from long run sustainability (because it worsens their intertemporal budget constraint). Privatisation at give-away prices is an obvious example. This political economy point is important, because it means that ideas such as Miles Kimball’s alternative to tax cuts - which is to give everyone a fixed period loan - will not be considered because it still increases the current budget deficit, even though long run sustainability is potentially unaffected. The political economy problem is that governments are obsessed with the deficit over the next few years.
Look, a Deficit!: How NPR Distracts You From Issues That Will Actually Affect Your Life - Billionaire Pete Peterson is spending lots of money to get people to worry about the debt and deficits, and National Public Radio is doing its part to try to promote Peterson’s cause with a Morning Edition piece that began by telling people that the next president “will have to wrestle with the federal debt.” This is not true, but Peterson apparently hopes that he can distract the public from the factors that will affect their lives, most importantly the upward redistribution of income, and obsess on the country’s relatively small deficit. (A larger deficit right now would actually promote growth and employment.),... The reason the Fed raises interest rates is to slow the economy and keep people from getting jobs. This will prevent the labor market from tightening, which will prevent workers from having enough bargaining power to get pay increases. In that case, the bulk of the gains from economic growth will continue to go to those at the top end of the income distribution. The main reason that we saw strong wage growth at the end of the 1990s was that Alan Greenspan ignored the accepted wisdom in the economics profession, including among the liberal economists appointed to the Fed by President Clinton, and allowed the unemployment rate to drop well below 6.0 percent. At the time, almost all economists believed that if the unemployment rate fell much below 6.0 percent, inflation would spiral out of control. The economists were wrong; inflation was little changed even though the unemployment rate remained below 6.0 from the middle of 1995 until 2001, and averaged just 4.0 percent for all of 2000. (Economists, unlike custodians and dishwashers, suffer no consequence in their careers for messing up on the job.)
Delusional Thinking in Washington, The Desperate Plight of a Declining Superpower - Michael Klare - Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance? This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”
TPP Remains Classified after Trade Transparency Act is Blocked by Senate Republicans -- The battle between organized labor, progressive Democrats and President Obama over the Trans Pacific Partnership continued on Thursday when U.S. Senators Elizabeth Warren and Joe Machin filed the Trade Transparency Act, a bill requiring that the public and Congress have at least 60 days to review and debate any trade legislation before being moved to the floor for a vote. The move was intended to highlight the issue many Americans see with continuing to categorize trade negotiations as classified, especially when it effects the personal finances of millions of workers and business owners alike. Senators are forced to go into a classified viewing room in order to read the full text of the document, but are not allowed to bring in key staff or take notes on what is included in the bill text. Not only this, but as you would assume for classified documents, elected officials are unable to speak to anyone without proper security clearance about the specific details of the trade negotiations without suffering potential criminal legal ramifications. This becomes a serious issue when dealing with complicated and technical negotiations regarding the largest trade deal in American history. It also raises serious questions about the legislative process and democracy generally when the public is unable to view the content of a bill introduced in Congress, but foreign government officials and private corporations are.
Another Decapitator-in-Chief Of America's Working Class -- It is not Senators Elizabeth Warren and Bernie Sanders who don’t get it. It is our near-sighted Globalist-in-Chief who really doesn’t get it, following in the footsteps of that other Republican-lite president, William Jefferson Clinton. But what can one expect, given the advice he’s getting from a cadre of Wall-Streeters working with, or influencing, the White House? Or, from a president who has confessed to being a “great admirer” of celebrated JP Morgan Chase chief, Jamie Dimon? A few days ago President Obama honored our Portland (Oregon) area with a visit to promote the Trans-Pacific Trade Partnership (TPP) agreement; which for all intents and purposes is but another addition to the gallery of NAFTA, CAFTA, and PNTR ugly siblings. Perhaps an even uglier sibling in this period of expanding economic inequality! It seems comical, yet ill-omened, how Barack Obama is herding the already decimated middle class along a path sure to reach economic oblivion, while maintaining support from much of the old guard of school-government-trade unionists which has kept the Democratic Party afloat during the last five decades in a conservative sea dominated by currents of old-time religion and misguided patriotism. Common sense and humanity, and not just blind acceptance of global economics, tell us that eventually most barriers to competition should be coming down; and that there will be a significant trend towards greater homogenization in both productivity and personal income throughout much of world. But we might still be two or three generations away from such happening, assuming changes take place in an orderly and least painful fashion… Could it be that Obama is suffering from the same illusionary political disease as Bill Clinton, after the latter’s receipt of unmerited kudos for all the low-paying jobs created during his two terms in office? Is it so difficult to understand that job numbers can have a profoundly different significance in economic, social and political terms than labor income?
Hypocritical Sloth - Krugman - Yesterday Politico posted a hit piece on Elizabeth Warren, alleging that she’s being hypocritical in her opposition to a key aspect of TPP, that’s interesting in several ways. First, it was clearly based on information supplied by someone close to or inside the Obama administration – another illustration of the poisonous effect the determination to sell TPP is having on the Obama team’s intellectual ethics. Second, the charge of hypocrisy was ludicrous nonsense – “You say you’re against allowing corporations to sue governments, yet you were a paid witness against a corporations suing the government!” Um, what? And more generally, the whole affair is an illustration of the key role of sheer laziness in bad journalism. Think about it: when is the charge of hypocrisy relevant? Basically, only when a public figure is preaching about individual behavior, and perhaps holding himself or herself up as a role model. So yes, it’s fair to go after someone who preaches morality but turns out to be a crook or a sexual predator. But articles alleging that someone’s personal choices are somehow hypocritical given their policy positions are almost always off point. Someone can declare that inequality is a problem while being personally rich; they’re calling for policy changes, not mass self-abnegation. Someone can declare our judicial system flawed while fighting cases as best they can within that system — until policy change happens, you have to live in the world as it is. Oh, and it’s very definitely OK to advocate policies that would hurt one’s own financial interests — it’s just bizarre when the press suggests that there’s something insincere and suspect when high earners propose tax increases.
TPP is in trouble, thanks to public interest - The public debate over the proposed Trans-Pacific Partnership has been a lot more robust and educational than the one that preceded the passage of the North American Free Trade Agreement more than two decades ago. During that fight, then-Washington Post editorial page editor Meg Greenfield didn’t see a problem with a six-to-one ratio of space for pro- vs. anti-NAFTA editorials. Today there are more economists in the news debunking the arguments put forth to promote the TPP, and this has contributed to the collapse of some of these talking points. This week, economists Dean Baker and Paul Krugman warn that people should be suspicious of any agreement that leads its proponents to lie and distort so much in order to sell it. They called attention to President Barack Obama’s former Chief of Staff William M. Daley, who made the ridiculous claim in a New York Times op-ed that it is “because our products face very high barriers to entry overseas in the form of tariffs, quotas and outright discrimination” that the U.S. ranks 39th of the 40 largest economies in exports as a share of GDP. This is just one of the many arguments in TPP’s favor that cannot pass the smell test. Take the Investor-State Dispute Settlement (ISDS) mechanism, which enables businesses to sue governments and can force them to overrule their laws, even the decisions of their highest courts, or pay hefty fines. Proponents’ alleged rationale for including this provision is to protect foreign investors in countries where the rule of law is weak. Joseph Stiglitz, a Nobel laureate economist like Krugman, pointedly asks why it is included in the proposed trade agreement with Europe (the Transatlantic Trade and Investment Partnership). It’s not because Germany and France are likely to expropriate factories owned by foreign investors, or that their judicial systems are weak on investors’ rights
Update: Rand Paul Comes Out Against Fast Track -- In a previous article, I stated that Rand Paul and Ted Cruz supported “fast track” authorization, officially known as trade promotion authority or TPA, for the Trans-Pacific Partnership (TPP). I pointed out Paul and Cruz in particular because I thought it was noteworthy and disappointing that the two candidates who are running the most conspicuously as anti-establishment outsiders would take such a quintessentially establishment position. I was even working on a separate article expressing my particular dismay with Rand Paul for his apparent support of fast track given the unique role his father Ron Paul played in uniting hard-core libertarians and fair traders against “free” trade deals such as NAFTA and the more recent trade deal with Korea. Then, the junior Senator from Kentucky belatedly came out against fast track. He made his clear opposition public on May 11, the day before the first fast track vote in the Senate. (Fast track was initially blocked, but was advanced later after some serious arm twisting of wayward Democrats by President Obama.) Rand’s opposition was a pleasant development, but it sure did mess up the article I was writing and necessitated this clarification to my previous article. . Ted Cruz’s support of fast track was always unambiguous. He co-authored with Rep. Paul Ryan an op-ed in the Wall Street Journal in support of fast track. (Way to stick it to the man, there Ted.) To make matters worse, the article is absurdly titled “Putting Congress in Charge of Trade” which is precisely the opposite of what fast track does. Does the notoriously bright Cruz think we are all stupid?
America’s First Black President Throwing Slaves Under the Bus on TPP - Yves Smith - Huffington Post has reconfirmed its reporting from over the past weekend, namely, that the Administration has a hairball to untangle to get Malaysia to sign the TransPacific Partnership. Basically, Malaysia needs to have an anti-slavery provision that was inserted in the bill in committee watered down. And the reason that that has to happen, as our reader Antifa pointed out in comments, is that Malaysia controls the Straits of Malacca, a critical shipping choke point. One of the major objectives of the pact is to strengthen America’s position in the region relative to China. Thus Malaysia’s location makes it a critically important signatory to the pact. From the Huffington Post account: On Friday night, in an impressive display of dysfunction, the U.S. Senate approved a controversial trade bill with a provision that the White House, Senate leadership and the author of the language himself wanted taken out.The provision, which bars countries that engage in slavery from being part of major trade deals with the U.S., was written by Sen. Bob Menendez (D-N.J.). At the insistence of the White House, Menendez agreed to modify his language to say that as long as a country is taking “concrete” steps toward reducing human trafficking and forced labor, it can be part of a trade deal. Under the original language, the country that would be excluded from the pending Trans-Pacific Partnership pact is Malaysia. But because the Senate is the Senate, it was unable to swap out the original language for the modification. (The chamber needed unanimous consent to make the legislative move, and an unknown senator or senators objected.) So the trade promotion authority bill that passed Friday includes the strong anti-slavery language, which the House will now work to take out to ensure that Malaysia (and, potentially, other countries in the future) can be part of the deal. Observers are left with a deeper question: Why, in the year 2015, is the White House teaming up with Republican leaders essentially to defend the practice of slavery?
4 New Realities Shaping the TPP Debate The debate thus far represents a seismic change in the trade conversation. Now the argument is not about whether to incorporate labor and environmental standards. This year the debate is about the fundamentals—are the kinds of trade agreements we have been negotiating good for the country at their core? Four new dynamics are shaping this debate.
- 1. Fast Track has become a transparent Executive Branch power grab—angering even pro-business conservative Republicans. Fast track’s original premise was that Congress would tell the Administration what its broad limits were—what features must or must not be included. If the agreement met those standards, Congress would vote it up or down. Congress would not second guess, say, a Japanese concession on rice in exchange for a U.S. concession on auto parts.
- 2. Concerns about climate highlights the reality that how goods are produced does not just impact the countries where production takes place. One of the core principals of the World Trade Organization and the North American Free Trade Agreement was that importing countries could not set worker, health or environmental standards for goods coming into their markets. This was always a misguided theory—pollution, for example, does not respect national boundaries.
- 3. Current trade doctrine shrinks the space for democracy. Public opinion has less and less influence over drug pricing, health and environmental standards, food safety, anti-trust and banking regulation.
- 4. Finally, too much evidence is in from past trade agreements. They have not been not good for the average American, have slowed growth and significantly contributed to increasing inequality.
Outside Congress, Democrats Actually Like Trade Agreements, Pew Survey Shows -- Just when you thought Washington politics couldn’t be any more confusing, a new survey Wednesday showed that most Democrats across the country agree with President Barack Obama on a hot-button economic issue, even though the Democratic lawmakers in Congress overwhelming reject the policy. And on that issue—whether to clinch trade agreements with other countries—Republicans in Congress are among the biggest cheerleaders, pushing key legislation through the Senate last week, even though the Republican electorate is more ambivalent. Welcome to the politics of free trade. According to Wednesday’s study from the Pew Research Center, 58% of Democrats polled this month said free-trade agreements have been good for the U.S., or five percentage points more than Republicans. (But a vote in the Senate five days ago appeared to show the opposite, with all but five Republicans voting for so-called fast-track legislation that would give Mr. Obama the authority to wrap up a trade agreement with Pacific countries that would get a simple vote in Congress, with no amendments or procedural delays. Just over a dozen Democrats supported the bill, also known as trade promotion authority, around the same number believed to support the measure in the much larger House of Representatives, which is set to consider the bill in June. Both independent senators voted against fast track Friday, including Sen. Bernie Sanders of Vermont, one of the biggest critics of Mr. Obama’s trade policy. The Pew poll showed independent voters like trade agreements more than Republicans or Democrats.
Blog: Sen. Sessions explains Obamatrade in key Senate speech -- Senator Sessions’s floor speech against Obamatrade on Friday could go down as one of the most important Senate speeches ever. Already it is getting rave reviews: You can watch Sessions speak here beginning at the 2:17:25 mark. Sessions’s speech became electrifying as he explained the Living Agreement provision within the Trans-Pacific Partnership (TPP), the first of the secret trade bills that Obama is negotiating. Sessions’s entire speech is worth watching. But every American needs to read this passage carefully. Sessions said: As a part of this trade agreement that I’ve mentioned before that I’m very concerned about, that’s gotten very little discussion and it needs to be discussed, and I want to take a minute to discuss it. According to the Congressional Research Service, our own group, the TPP's Living Agreement provisions is unprecedented. Indeed, I’m one of the few I think that went to the secret room to read the secret document, and when it described the Living document, it said it was “unprecedented.” I presume I won’t be arrested for making that quote from the secret document. The United States Trade Representative’s website is very candid about the purpose of this living agreement provision. It is to "enable the updating of the agreement as appropriate to address trade issues that emerge in the future as well as new issues that arise with the expansion of the agreement to include new countries." It creates a commission, another commission, consisting of representatives from each member nation, which has vast powers to govern the agreement, and govern, to some degree, the countries who participate in it. Among the power given to the commission is the authority to consider any matter relating to implementation and operation of the agreement and to consider amendments and modifications. What we have to understand is that this is a new entity, an international entity of which we are a member and it gets to meet and vote and set new behaviors, unlike what we approve in the Senate. But it can be amended as time goes by. And it’s unprecedented. This has not been done before.
Rush Limbaugh Attacks Obama's Trade Agenda -- Conservative talk radio icon Rush Limbaugh slammed President Barack Obama's Trans-Pacific Partnership trade deal on Friday, telling listeners, "The odds are the United States is gonna take it in the shorts." Limbaugh argued Republicans shouldn't do Obama any favors by helping him pass a secretive trade agenda that his own party does not support. "Republicans are providing the necessary push to get it passed, which kind of bothers me," Limbaugh said. "Since it's an Obama deal, the odds are it isn't good. Since it's an Obama deal, the odds are the United States is gonna take it in the shorts, as we have on so much of the Obama agenda, both domestic and foreign policy." A host of tea party groups have opposed Obama's trade agenda for months. But Limbaugh's entrance into the debate significantly disrupts Republican leaders' hopes of securing a deal with Obama by overriding objections from House Democrats, given the radio host's substantial influence over conservatives.
TPP not about trade - The Trans-Pacific Partnership (TPP) has nothing to do with trade. While it officially embraces 11 countries plus the U.S., 76 percent of our trade with these nations is with Mexico and Canada, already covered by the North American Free Trade Agreement (NAFTA). Any export growth is likely to have been already covered by NAFTA, making the TPP irrelevant to our trade relations. The TPP is nothing but an effort by the globalists to circumvent American sovereignty, transferring a host of issues from the control of the U.S. Congress and the various state legislatures to international trade courts.But the main impact of the TPP is to create legal obstacles in the way of American attempts to regulate access to our market. Does American or state law restrict genetically modified food? The TPP won’t permit it. Does the U.S. Congress impose limitations on the “free flow of labor” between America and Mexico? The TPP can stop it. Will Congress refuse to take action to restrict greenhouse gas emissions? Lawmakers can be required to under the environmental provisions of the TPP. Obama has labored long and hard to strip Congress of its authority over immigration, emissions and the environment, food regulations and energy policy. Congress, in turn, has worked to take away state power over insurance regulation and banking. Now comes the coup de grâce: a treaty taking many of these powers away from the United States — executive and legislative branches — and state government.
Julian Assange on the Trans-Pacific Partnership: Secretive Deal Isn’t About Trade, But Corporate Control | Democracy Now! (video and transcript) As negotiations continue, WikiLeaks has published leaked chapters of the secret Trans-Pacific Partnership — a global trade deal between the United States and 11 other countries. The TPP would cover 40 percent of the global economy, but details have been concealed from the public. A recently disclosed "Investment Chapter" highlights the intent of U.S.-led negotiators to create a tribunal where corporations can sue governments if their laws interfere with a company’s claimed future profits. WikiLeaks founder Julian Assange warns the plan could chill the adoption of health and environmental regulations. Watch more from our Julian Assange interview: Part 1 || Part 3 || Part 4 || Part 5
Julian Assange On TPP: Only 5 Of 29 Sections Are About "Traditional" Trade, "Essentially Every Aspect Of A Modern Economy" | Video & transcript: First of all, it is the largest ever international economic treaty that has ever been negotiated, very considerably larger than NAFTA. It is mostly not about trade, only 5 of the 29 Chapters are about traditional trade. The others are about regulating the internet, and what information internet service providers have to collect, they have to hand it over to companies under certain circumstances, the regulation of labor conditions, regulating the way you can favor local industry, regulating the hospital, health care system, privatization of hospitals, so essentially every aspect of a modern economy, even banking services are in the TPP. So that is erecting and embedding new ultramodern neoliberal structure over U.S. law and the laws of other countries. And putting it in treaty form. By putting it in a treaty form, there are 14 countries involved, that means it is very hard to overturn, so if there is a desire, a democratic desire to do it on a different path. For example, to introduce more public transport. Then you can't easily change the TPP treaty, because you have to go back to the other nations involved. Now looking at that example, what if the government or a state government decides it wants to build a hospital somewhere, and there is a private hospital has been erected nearby. Well the TPP gives the constructor of the private hospital the right to sue the government over the expect loss, the loss in expected future profits. This is an expected future loss, this is not an actual loss that has been sustained, this is a claim about the future.
Stop Calling the TPP a Trade Agreement – It Isn’t. | BillMoyers.com: This is a message to activists trying to fight the Trans-Pacific Partnership (TPP). Stop calling the TPP a “trade” agreement. TPP is a corporate/investor rights agreement, not a trade agreement. Trade is a good thing; TPP is not. Every time you use the word trade in association with the TPP, you are helping the other side. Trade is a propaganda word. It short-circuits thinking. People hear trade and the brain stops working. People think, “Of course, trade is good.” And that ends the discussion. Calling TPP a trade agreement lets the pro-TPP people argue that TPP is about trade instead of what it is really about. It diverts attention from the real problem. It enables advocates to say things like, “95 percent of the world lives outside the US” as if that has anything to do with TPP. It lets them say, “We know that exports support American jobs” to sell a corporate rights agreement. It enables them to say nonsense like this about a corporate rights agreement designed to send American jobs to Vietnam so a few “investors” can pocket the wage difference: “Exports of US goods and services supported an estimated 9.8 million American jobs, including 25 percent of all manufacturing jobs … and those export-supported jobs pay 13 to 18 percent higher than the national average wage.” Trade is good. Opening up the border so you can get bananas and they can get fertilizer is trade because they have a climate that lets them grow bananas and you already have a fertilizer plant. Enabling companies to move $30/hour jobs to countries with $.60/hour wages so a few billionaires can pocket the difference is not trade. Calling TPP a trade agreement lets TPP supporters say people opposed to TPP are “anti-trade.”
Is the TPP a Huge Deal or No Big Deal? | Cato --As more journalists and commentators discuss the Trans-Pacific Partnership, we’ve seen very conflicting descriptions of the agreement. For some, the TPP isn’t about trade at all but about giving power to corporations and ending U.S. sovereignty, or about containing China and building U.S. influence in Asia. When commentators do focus on the potential economic impact of the agreement, they either describe the TPP as a very big deal or as a very small one. It all depends on your perspective.My colleague Simon Lester has written about problems in how GDP gains from the TPP have been estimated. I’d like to take issue with a different figure commonly cited to bolster the idea of the TPP’s hugeness—that the 12 countries involved account for almost 40% of global GDP. This number is correct but highly misleading as a gauge of the TPP’s economic significance. For one thing about 22.5% of global GDP comes from the United States. So, one could claim accurately that the U.S.–Jordan Free Trade Agreement covers almost a quarter of the global economy. Also, most of the remainder comes from Canada and Mexico, with whom the United States already has a free trade agreement. In fact, the United States has free trade agreements with all but five countries in the TPP negotiations. The only large economy country in the TPP that the United States doesn’t already have a free trade agreement with is Japan. So, if you’re going to measure the “size” of the TPP, it would be best understood as a U.S.–Japan free trade agreement. That’s a pretty big deal, actually, but it’s not two-fifths of the world.
Yes, Trade Deficits Do Indeed Matter for Jobs - The issue of currency management by U.S. trading partners that increases U.S. trade deficits has become a front-burner issue in debates over the proposed Trans-Pacific Partnership (TPP). The discussion about whether or not trade deficits can really affect U.S. employment, however, occasionally gets very muddled. Here’s a quick attempt to un-muddle a couple different issues. Trade deficits occurring when the U.S. economy is stuck below full employment and at the zero lower bound (ZLB) on short-term interest rates are a drag on economic growth and overall employment, period. And this describes the U.S. economy today, so a reduction in the trade deficit in the next couple of years spurred by a reversal of trading partners’ currency management would boost growth and jobs. The logic is simple—exports boost demand for U.S. output while imports reduce demand for U.S. output. When net exports (exports minus imports) fall, then aggregate demand is reduced. Trade deficits are the mirror image of capital inflows into the U.S. economy, and there are times when these capital inflows can reduce domestic interest rates and boost economic activity, providing an offset to the demand-drag caused by trade flows. Today is not one of those times—further downward pressure on already rock-bottom interest rates (particularly since most of these inflows go into U.S. Treasuries) do very little to boost domestic investment to counteract the demand drag from trade flows.
Here’s how much corporations paid US senators to fast-track the TPP bill -- Using data from the Federal Election Commission, this chart shows all donations that corporate members of the US Business Coalition for TPP made to US Senate campaigns between January and March 2015, when fast-tracking the TPP was being debated in the Senate:
- Out of the total $1,148,971 given, an average of $17,676.48 was donated to each of the 65 “yea” votes.
- The average Republican member received $19,673.28 from corporate TPP supporters.
- The average Democrat received $9,689.23 from those same donors.
The amounts given rise dramatically when looking at how much each senator running for re-election received. Two days before the fast-track vote, Obama was a few votes shy of having the filibuster-proof majority he needed. Ron Wyden and seven other Senate Democrats announced they were on the fence on 12 May, distinguishing themselves from the Senate’s 54 Republicans and handful of Democrats as the votes to sway.
- In just 24 hours, Wyden and five of those Democratic holdouts – Michael Bennet of Colorado, Dianne Feinstein of California, Claire McCaskill of Missouri, Patty Murray of Washington, and Bill Nelson of Florida – caved and voted for fast-track.
- Bennet, Murray, and Wyden – all running for re-election in 2016 – received $105,900 between the three of them. Bennet, who comes from the more purple state of Colorado, got $53,700 in corporate campaign donations between January and March 2015, according to Channing’s research.
- Senator Rob Portman of Ohio, who is the former US trade representative, has been one of the loudest proponents of the TPP. He received $119,700 from 14 different corporations between January and March, most of which comes from donations from Goldman Sachs ($70,600), Pfizer ($15,700), and Procter & Gamble ($12,900). Portman is expected to run against former Ohio governor Ted Strickland in 2016 in one of the most politically competitive states in the country.
- Seven Republicans who voted “yea” to fast-track and are also running for re-election next year cleaned up between January and March. Senator Johnny Isakson of Georgia received $102,500 in corporate contributions. Senator Roy Blunt of Missouri, best known for proposing a Monsanto-written bill in 2013 that became known as the Monsanto Protection Act, received $77,900 – $13,500 of which came from Monsanto.
- Arizona senator and former presidential candidate John McCain received $51,700 in the first quarter of 2015. Senator Richard Burr of North Carolina received $60,000 in corporate donations. Eighty-one-year-old senator Chuck Grassley of Iowa, who is running for his seventh Senate term, received $35,000. Senator Tim Scott of South Carolina, who will be running for his first full six-year term in 2016, received $67,500 from pro-TPP corporations.
20 years of data reveals that Congress doesn't care what you think.: Professors Martin Gilens of Princeton University and Benjamin Page of Northwestern University looked at more than 20 years of data to answer a pretty simple question: Does the government represent the people? This video gives a quick rundown of their findings and explains what's going on in the simple graph above: Things start out bleak, but stick with it — it's not all depressing.
IRS Hacked: Government Admits 100,000 Taxpayers' Data Stolen -- In an unprecedented move against a government agency, which we are just waiting to hear blamed on Russia, The IRS has admitted that its data has ben compromised...As AP reports, Thieves used an online service provided by the IRS to gain access to information from more than 100,000 taxpayers, the agency said Tuesday. The information included tax returns and other tax information on file with the IRS. The IRS said the thieves accessed a system called "Get Transcript." In order to access the information, the thieves cleared a security screen that required knowledge about the taxpayer, including Social Security number, date of birth, tax filing status and street address. "The IRS notes this issue does not involve its main computer system that handles tax filing submission; that system remains secure," the agency said in a statement. The IRS said thieves targeted the system from February to mid-May. The service has been temporarily shut down. "In all, about 200,000 attempts were made from questionable email domains, withmore than 100,000 of those attempts successfully clearing authentication hurdles," the agency said. "During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts."Tax returns can include a host of personal information that can help someone steal an identity, including Social Security numbers and birthdates of dependents and spouses. However, the IRS said the thieves appeared to already have a lot of personal information about the victims. The IRS said it is notifying taxpayers whose information was accessed.
Congress wants to know how thieves stole tax info from IRS: Congress is demanding answers about how identity thieves were able to steal the personal tax information of more than 100,000 taxpayers from an IRS website. Senate Finance Committee Chairman Orrin Hatch has requested a confidential briefing by IRS officials by the end of next week. "It is critical that this committee fully understand what took place, what information was at risk, how this may affect tax administration, and what appropriate legislative responses may be needed to reduce the risk of this occurring again," Hatch said Wednesday in a letter to IRS Commissioner John Koskinen. The information was stolen as part of a sophisticated scheme to claim fraudulent tax refunds, Koskinen told reporters. It was taken from an online system called "Get Transcript," where taxpayers can get tax returns and other tax filings from previous years. In order to access the information, the thieves cleared a security screen that required knowledge about the taxpayer, including Social Security number, date of birth, tax filing status and street address. "We're confident that these are not amateurs," Koskinen said. "These actually are organized crime syndicates that not only we, but everybody in the financial industry, are dealing with."
How Hackers Breached the IRS and Stole $50 Million -- The IRS announced this week that hackers successfully stole sensitive information from over 100,000 taxpayers using the IRS' online Get Transcript service. Identity thieves used this data to file fraudulent tax returns, stealing an estimated $50 million in tax refunds. In their statement, the IRS says they discovered the fraudulent activity last week. However, evidence of identity theft via the Get Transcript service has been available since at least March. And while the scale of the breach suggests sophisticated planning by organized cybercriminals, the techniques used to steal these transcripts are surprisingly simple. The online Get Transcript service employed knowledge-based authentication of users. The service asked for Social Security Number, filing status, address, and other various questions using data from Equifax credit reports. For example, it might ask about previous addresses or credit card application dates.Nicholas Weaver, a researcher at the University of California, Berkeley, previously tried to access his own transcripts without resorting to personal knowledge. Using the real estate website Zillow and personal information site Spokeo, he was able to successfully find answers to the personal questions that only he should have known. Cybercriminals who specialize in stealing and processing this personal data en masse were able to answer these identifying questions at scale. Much of the information used by the IRS to verify identity is either publicly available or for sale to underground cybercriminals. Hackers can buy access to stolen consumer or financial data, and then write a program to plug answers into the questions asked by the IRS. Once hackers successfully claim an identity, they can use the information from previous years' tax returns to file new, fraudulent returns and steal tax refunds.
IRS data theft: 5 things you need to know - As you may have heard, criminals used the Internal Revenue Service’s own website to steal taxpayer information for about 100,000 U.S. households, the agency said Tuesday, showing how vulnerable it remains as fraud proliferates. By using data stolen elsewhere, including Social Security numbers, birth dates and street addresses, thieves cleared past verification questions and gained access to old tax transcripts through the IRS website from February to Mid-May — information that can be used to file fraudulent refunds. The IRS says it has shut down the “get transcript” feature and plans to add more security features before reviving it . The breach doesn’t involve the agency’s main computer system, which “remains secure,” it says. For years, the IRS has been struggling to keep tax refunds out of the hands of crooks, especially as online tax filing became common. It gave criminals who filed fraudulent refunds an estimated $5.8 billion in 2013, according to the U.S. Government Accountability Office. Earlier this month, the IRS set up a new cybercrime unit to fend off hackers. And after inadvertently giving out millions of dollars to prisoners who sent in fake filings while behind bars , the agency in 2013 began sharing more information with federal and state prisons to better match records. This scenario, unlike the typical breach of a website or hack into a database, shows how criminals can harvest information from the growing market for stolen personal data and leverage it for financial gain in other contexts. Here’s what taxpayers should know:
Top 0.01% of households gain as income concentration rises - — The top 0.01 percent of Americans—fewer than 14,000 households—received 5.6 percent of adjusted gross income in 2012, according to data released Wednesday by the IRS. That was the biggest share of income concentrated at the very top of the distribution scale since 2007. Those in that group had a minimum income of $12.1 million. An even more exclusive group—the top 0.001 percent—also had its best year since 2007. Their average tax rate was 17.6 percent, which is lower than the average rate for the top 10 percent of the U.S. population. That year—2012—was unusual for high earners, because it was the end of the 15 percent top rate on capital gains and dividends. The increase to 23.8 percent on Jan. 1, 2013, prompted many high earners to sell their appreciated assets before the deadline and take advantage of lower rates. The Internal Revenue Service report also shows how the U.S. tax system remains broadly progressive -- meaning those with higher incomes pay higher tax rates. The top 3 percent of households, who received 30.9 percent of adjusted gross income, paid more than half of individual income taxes. And that was before tax increases for top earners took effect in 2013. Payroll taxes and state taxes are typically regressive and counteract the federal income tax.
Supreme Court Agrees to Settle Meaning of ‘One Person One Vote’ - The Supreme Court agreed on Tuesday to hear a case that will answer a long-contested question about a bedrock principle of the American political system: the meaning of “one person one vote.” The court’s ruling, expected in 2016, could be immensely consequential. Should the court agree with the two Texas voters who brought the case, its ruling would shift political power from cities to rural areas, a move that would benefit Republicans. The court has never resolved whether voting districts should have the same number of people, or the same number of eligible voters. Counting all people amplifies the voting power of places with large numbers of residents who cannot vote legally, including immigrants who are here legally but are not citizens, illegal immigrants, children and prisoners. Those places tend to be urban and to vote Democratic. A ruling that districts must be based on equal numbers of voters would move political power away from cities, with their many immigrants and children, and toward older and more homogeneous rural areas.
The Corporate Archipelago - Paul Krugman - At HowTheLightGetsIn, the other Hay festival, where I just participated in a panel on the future of capitalism. I know, why such a small topic? But what I found myself thinking and talking about is actually the present of capitalism — and in particular about the peculiar delusion that we live in a world of individual competition in freewheeling markets. I mean, some of us do — by and large, men gathered at street corners in the early morning, waiting to be picked up by vans that carry them off to various forms of day labor. But most people work in organizations. Even in the private sector, two-thirds of workers are employed by firms with more than a hundred workers, half by firms with more than 500, a quarter by firms with more than 10,000 employees. We may live in a market sea, but most of us live on pretty big command-and-control islands, some of them very big indeed. Some of us may spend our workdays like yeoman farmers or self-employed artisans, but most of us are living in the world of Dilbert. And there are reasons for this situation: in many areas bureaucracy works better than laissez-faire. That’s not a political judgment, it’s the implicit conclusion of the profit-maximizing private sector. And people who try to carry their Ayn Rand fantasies into the real world soon get a rude awakening.
The WSJ and Barron’s Apologists for the Banksters Peddle Wallison’s Fables - William K. Black -- Few people’s efforts at myth-making have been as devastatingly refuted as Peter Wallison. But fables that are designed to make the banksters look less criminal are always welcome by the banksters. Any honest discussion of Wallison’s claims would begin with three points. First, Wallison’s adult life has been devoted, on behalf of the banksters, to pushing the three “de’s” – deregulation, desupervision, and de facto decriminalization. He is therefore as culpable as anyone in the world for the epidemics of accounting control fraud that drove the financial crisis and the Great Recession. Second, he was appointed by the Republican leadership to the Financial Crisis Inquiry Commission (FCIC) to assure that the banksters would have the benefit of their leading apologist. The chances that he would ascribe any problems to the three “de’s” was always non-existent because he does not have a scholarly instinct in his body. He is rabidly ideological and a willing tool of the banksters. Third, the Republicans appointed three other members to the FCIC, each of them a highly partisan Republican who was known to oppose effective financial regulation – yet none of them was willing to join Wallison’s dissent. They were unwilling to do so because Wallison’s dissent was discredited so effectively by the FCIC investigation and report. The data destroyed Wallison’s screed – repeatedly.But the WSJ editorial pages are no fans of data and huge fans of the banksters and anti-governmental dogma. In the WSJ’s alternate history:“Peter Wallison, a scholar at the American Enterprise Institute, demonstrates in a new book that the subprime housing boom was fostered mainly by federal housing politics and policy, not by the rampant “deregulation” that many have imagined out of whole cloth.
Three Former SEC Commissioners Urge Mary Jo White to Stop Protecting Corporate Cronyism via Inaction on Disclosure of Political Spending -- Yves Smith - If you still harbored any doubt that SEC Chairman Mary Jo White sees a major part of her job as defending the rich and powerful, the letter below should end it. Three former SEC commissioners, two of them ex-chairmen, wrote White to urge her to move forward on rulemaking to require public companies to disclose their political spending. During the comment period, this issue elicited 1.2 million letters, a remarkable level (see here for more background on the effort to get this rule implemented). Yet White continues to stonewalling on an issue of great public interest and importance. I urge you to read the letter in full. It’s short and well done. From its close: The Commission’s inaction is inexplicable. Its failure to act offends not only us, who are alumni of this agency struggling to retain our deep pride of association, but investors and the professionals who serve them. And it flies in the face of the primary mission of the Commission, which has since 1934 been the protection of investors. To use a metaphor, mandatory disclosure of corporate political activities should be a “slam dunk” for the Commission. Ouch.
The "Revolving Door" Goes Full Retard: SEC Hires Goldmanite Who Previously Worked At The SEC -- Just when you thought the US regulators may have finally become less tone deaf to the shame of the revolving door, especially following last year's latest scandal confirming Goldman runs the New York Fed (and every other central bank), here comes the SEC with an absolute shocker, not only proving once and for all that when it comes to regulatory capture, there is nobody in charge quite like Lloyd Blankfein, but unveiling what may have been the first ever double revolving door in SEC history, after the SEC announced it had hired as its new chief of staff a former Goldman worker who had previously worked at... the SEC. And with that the we have gone not only full circle but full retard as well. From the SEC: The Securities and Exchange Commission today announced that Andrew J. “Buddy” Donohue has been named the agency’s chief of staff. Mr. Donohue will replace Lona Nallengara who will leave the agency in June. As chief of staff, Mr. Donohue will be a senior adviser to the Chair on all policy, management, and regulatory issues.
Political Fights Throw Sand in Gears of S.E.C. - More than once this year, the Securities and Exchange Commission was close to securing a landmark accounting fraud case. Then it came undone, the result of divisions within the S.E.C. And now the case might be back on track — that is, unless it’s not.Behind the scenes at the regulator, an extraordinary political battle has disrupted the case against the Computer Sciences Corporation, forcing on-again, off-again negotiations that at times have imperiled the case altogether. This week, the agency explored new ways to break the stalemate, including a reduction of the penalty that Computer Sciences would have to pay, according to lawyers briefed on the matter. The S.E.C., which already backed down from demands that the company admit wrongdoing, has proposed imposing a roughly $100 million penalty against Computer Sciences, a large technology company that holds contracts with governments around the world. That sum falls far short of the $190 million that the company had already agreed to pay when it struck a tentative settlement with the S.E.C. last year, the lawyers briefed on the matter said. Even so, the S.E.C. discussed whether to penalize a former controller of the company, whom the agency had not originally planned to charge. The S.E.C. is weighing whether to bring a complaint against that executive, as well as the company’s former chief executive and chief financial officer, according to the lawyers. The S.E.C. could announce the case as soon as next week, though the discussions could fall apart, as they have before.
Whatever Happened to Antitrust? -- Robert Reich - Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust. The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch. But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business. America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits. No longer. Now, giant corporations are taking over the economy – and they’re busily weakening antitrust enforcement. The result has been higher prices for the many, and higher profits for the few. It’s a hidden upward redistribution from the majority of Americans to corporate executives and wealthy shareholders. Wall Street’s five largest banks now account for 44 percent of America’s banking assets – up from about 25 percent before the crash of 2008 and 10 percent in 1990. That means higher fees and interest rates on loans, as well as a greater risk of another “too-big-to-fail” bailout. But politicians don’t dare bust them up because Wall Street pays part of their campaign expenses. Similar upward distributions are occurring elsewhere in the economy.
JPMorgan Chase Writes Arrogant Letter to Its Swindled Forex Customers - As the U.S. Department of Labor deliberates giving JPMorgan Chase a waiver to continue business as usual after it pleaded guilty to a felony charge for engaging in a multi-bank conspiracy to rig foreign currency trading, a letter the bank sent to its foreign currency customers should become Exhibit A in the deliberations. The letter effectively tells JPMorgan’s customers, here’s how we’re going to continue to rip your face off. Two sections of the letter stand out in particular. One section reads: “As a market maker that manages a portfolio of positions for multiple counterparties’ competing interests, as well as JPMorgan’s own interests, JPMorgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for JPMorgan…” Most of the general public believes that proprietary trading (trading for the house) was outlawed by the Volcker Rule under the Dodd-Frank financial reform legislation. Most of the public believes that trading ahead of your client’s order is called front-running and is illegal. On both points, the public is dead wrong. First, the Volcker Rule has yet to be implemented. Its effective date continues to be pushed forward. Secondly, foreign exchange spot trading between big banks and institutions (like the folks who manage your pension money) is an unregulated market left to the non-legally-binding “best practice” agreements by the biggest banks. Another section of the JPMorgan letter states: “JPMorgan is not required to disclose to a counterparty when the counterparty attempts to leave an order that JPMorgan is handling other counterparties’ orders or JPMorgan orders ahead of, or at the same time as, or on an aggregated basis with, the counterparty’s order. JPMorgan is under no obligation to disclose to a counterparty why JPMorgan is unable to execute the counterparty’s order in whole or in part, provided that JPMorgan will be truthful if we agree to disclose such information.” In other words, despite five of the largest banks in the world pleading guilty to felonies, JPMorgan Chase still is not required to disclose a flaming conflict of interest to a customer unless it chooses “to disclose such information.”
Is Finance Parasitic? - We all know what a parasite is: an organism that attaches itself to another organism and derives nourishment from the host organism and in so doing weakens the host possibly making the host unviable and thereby undermining its own existence. In earlier posts, I have observed that a lot of what the financial industry does is not really productive of net benefits to society, the gains of some coming at the expense of others. Financial trading to a large extent involves nothing but the exchange of existing assets, real or financial, and the profit made by one trader is largely at the expense of the other party to the trade. Because the potential gain to one side of the transaction exceeds the net gain to society, there is a substantial incentive to devote resources to gaining any small, and transient informational advantage that can help a trader buy or sell at the right time, making a profit at the expense of another. The social benefit from these valuable, but minimal and transitory, informational advantages is far less than the value of the resources devoted to obtaining those informational advantages. Thus, much of what the financial sector is doing just drains resources from the rest of society, resource that could be put to far better and more productive use in other sectors of the economy. So I was really interested to see Timothy Taylor’s recent blog post about Luigi Zingales’s Presidential Address to the American Finance Association in which Zingales, professor of Finance at the University of Chicago Business School, lectured his colleagues about taking a detached and objective position about the financial industry rather than acting as cheer-leaders for the industry, as, he believes, they have been all too inclined to do. Rather than discussing the incentive of the financial industry to over-invest in research in search of transient informational advantages that can be exploited, or to invest in billions in high-frequency trading cables to make transient informational advantages more readily exploitable, Zingales mentions a number of other ways that the finance industry uses information advantages to profit at expense of the rest of society.
Why finance is too much of a good thing - Martin Wolf -- Is it possible to have too much finance? Harmed by the aftermath of financial crises, enraged by bailouts of financial institutions, irritated by the generous remuneration, aghast at repeated malfeasance and infuriated by the impunity of those responsible, most ordinary people would find it all too easy to answer: yes. They are not alone. Both scholars and staff of influential international institutions, such as the International Monetary Fund and the Bank for International Settlements, agree. It is possible to have too much finance. More importantly, significant economies are in this position, among them Japan and the US. It is easy to question the role of financial activity. After all, between January 2012 and December 2014, financial institutions paid $139bn in fines to US enforcement agencies. More fundamental is the contrast between the 7 per cent average share of the financial sector in US gross domestic product between 1998 and 2014 and its 29 per cent average share in profits (see chart). An organised society offers two ways of becoming rich. The normal way has been to exercise monopoly power. Historically, monopoly control over land, usually seized by force, has been the main route to wealth. A competitive market economy offers a socially more desirable alternative: invention and production of goods and services. Alas, it is also possible to extract rents in markets. The financial sector with its complexity and implicit subsidies is in an excellent position to do so. But such practices do not only shift money from a large number of poorer people to a smaller number of richer ones. It may also gravely damage the economy.
When is a Felony Not a Felony? When You’re a Bank! - Alexis Goldstein - Good news, America: We can now get guilty pleas from banks! Bad news, America: That’s only because guilty pleas from banks are now absolutely meaningless. Last week, JP Morgan, Citigroup, Barclays, and Royal Bank of Scotland pled guilty to felony charges of conspiring to manipulate currency prices, and UBS pled guilty to manipulating benchmark interest rates. Regulators and prosecutors found the misconduct because the traders left extensive, written tracks — in chatrooms called “The Cartel” and “The Mafia.” James Kwak wrote that Stringer Bell from the popular television series The Wire would never have tolerated the brazen, “amateurish behavior” these traders exhibited. But why should traders bother to cover their tracks, when they know they have the absolute best clean-up crew in the business — the financial regulators and law enforcement meant to police them? When an individual is convicted of a felony, they face years of disenfranchisement — from being denied the right to vote in many states, to facing barriers to finding work, felony convictions have real-world consequences for people. But when it comes to banks, regulators and law enforcement work together to ensure collateral consequences don’t occur. It’s not supposed to be that way. When a bank is charged with a crime, there are certain penalties that automatically kick in. Here is what the banks were facing as a result of their felonies:
- Disqualification from managing mutual funds and exchange-traded funds for RBS, JP Morgan, Citigroup and UBS.
- New barriers for issuing securities. All the convicted banks are “well-known seasoned issuers,” which is a special status that lets them quickly raise capital without having to get SEC approval first.
- No more immunity for earnings projections.
- UBS and Barclays could no longer raise unlimited amounts of money though the sale of private securities.
Finance must blow the whistle on foul play - FT.com: Four years ago, I received a phone call from a mysterious man keen to talk about Deutsche Bank’s accounts. Initially I was tempted to hang up. Journalists often get crank calls and this tale was particularly baffling. But in my two decades as a journalist I have learnt (the hard way) that it is difficult to tell a crank from a genuine whistleblower on the first encounter. My colleagues duly investigated, published a story, and this week there was a denouement of sorts: Deutsche Bank agreed to pay a $55m penalty over its apparent failure to reveal a “material risk for potential losses estimated to be in the billions of dollars” in its accounts during the financial crisis. As punishments go, this looks disappointingly feeble given the implications of this alleged accounting misstatement. The SEC says that Deutsche overstated its derivatives holdings by at least $1.5bn. However, whistleblowers insist that the amount was several times bigger, and that if the accounts had been correct in 2008 the losses might have forced Deutsche to ask for a government bailout. Either way, there has now at least been a clear acknowledgment that Deutsche’s accounts were wrong. Sometimes, whistleblowing (and some investigative journalism) can produce results. There is a big lesson here for regulators, in finance as in football. Western governments have issued endless edicts in response to the 2008 crisis: bank capital standards have been raised, tougher penalties introduced for wrongdoing, bank bonuses placed under scrutiny, and so on. But amid all these banking reforms, there is one issue that has not got nearly enough attention: whistleblowing. For if you dig into recent financial scandals, it seems that many of them would never have come to light were it not for the actions of some brave employees who were willing to talk about what was going on.
Big Banks Still Seen as Too Big to Fail, Fed’s Lacker Says - The Federal Reserve and other financial regulators have yet to adequately deal with the problem of banks that are viewed as too big to fail—and many of their interventions only heighten the perception, Richmond Fed President Jeffrey Lacker said Tuesday. “Perceived guarantees thus encourage fragility, which induces interventions, which encourages further fragility,” Mr. Lacker said in prepared remarks to the Louisiana State University Graduate School of Banking. “The ultimate result of this cycle is taxpayer-funded subsidies to financial firms that are widely viewed as deeply unfair.” Mr. Lacker a frequent critic of the Fed’s interventions during the financial crisis, including some of its less conventional monetary policy actions, said new regulations stopped short of ensuring regulators will resist the urge to bail out very large Wall Street firms that run into trouble, Mr. Lacker said. The financial crisis of 2008 led to numerous unpopular bailouts of the banking sector, and to new legislation of financial reforms known as Dodd-Frank. But Mr. Lacker said the view that certain institutions would never be allowed to go under persists. “Regulation alone is not likely to be enough to counteract the moral hazard afflicting such a large — and growing — share of the financial sector’s liabilities,” said Mr. Lacker. “Creditors must not expect government support in the event of financial distress. Policymakers must actually allow financial firms to fail without government support.”
Perry Mehrling: Derivatives Remain a Blind Spot in the TBTF Debate -- naked capitalism -- Yves here. One of my pet peeves has been the way legislators and regulators have come up with various remedies to the Too Big to Fail problem, like living wills and Dodd Frank Article II resolutions, and have gone into Mission Accomplished mode. We’ve written lots of nitty-gritty posts debunking ideas like these when they were fresh. As we stressed then, dealing with a problem like that of TBTF banks is like disarming a very large, live bomb. It has to be done carefully and in a certain order so as not to create lots of devastation. And as top risk manager Richard Bookstaber stressed in his book, A Demon of Our Design, the first step in reducing risk in a tightly-coupled system is to reduce the tight coupling. Implementing any other type of risk reduction effort will make matters worse. We’ve identified derivatives as the biggest source of tight coupling, which means it needs to be given top priority in “end TBTF” efforts, and needs to be addressed in a informed manner. This very readable post by Perry Mehring illustrates that the officialdom still has a very long way to go. While they’ve at least included some aspects of derivatives risk in their efforts (like moving many to central clearinghouses), Mehrling exposes the glaring problems in one element of the plan to deal with derivatives that banks intermediate. And Merhling makes a key point: that too much of the thinking about TBTF focuses on solvency of individual institutions. In a system of market-based credit, the authorities feel they must keep financial markets operating. Bear was not bailed out because it was a systemically important institution by virtue of size. It was seen as too important to let fail because it was a critically important player in the credit default swaps market by virtue of being the number three prime broker. Money market funds were rescues not to protect the funds themselves, but because they were a major source of funding in the repo market, which was and remains an critical source of liquidity to the major capital markets trading firms.
Bailout Barometer: How Large is the Financial Safety Net? - Richmond Fed - The Bailout Barometer is our estimate of the share of financial system liabilities for which the federal government provides protection from losses. In addition to protection from explicit government guarantee programs, our estimate includes implicit protection that people are likely to infer from past government actions and statements. Despite efforts to end ad hoc bailouts, the financial safety net that protects certain firms remains large under current government policies. Our latest estimate shows that the financial safety net covers 60 percent of the financial sector. This estimate also includes a breakdown by sector. These measures, compiled in March 2015, use data as of December 31, 2013. Our Bailout Barometer has grown considerably since our first estimate in 1999. When creditors expect to be protected from losses, they will overfund risky activities, making financial crises and bailouts like those that occurred in 2007-08 more likely. An extensive safety net also creates a need for robust supervision of firms benefitting from perceived protection. Over time, shrinking the financial safety net is essential to restore market discipline and achieve financial stability. Doing so requires credible limits on ad hoc bailouts. Read more on our perspective.
FDIC: Fewer Problem banks, Residential REO Declines in Q1 - The FDIC released the Quarterly Banking Profile for Q1 today: Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $39.8 billion in the first quarter of 2015, up $2.6 billion (6.9 percent) from a year earlier. The increase in earnings was mainly attributable to a $4.3 billion rise in net operating revenue (net interest income plus total noninterest income). Financial results for the first quarter of 2015 are included in the FDIC's latest Quarterly Banking Profile released today..."Problem List" Continues to Shrink: The number of banks on the FDIC's Problem List fell from 291 to 253 during the first quarter. This is the smallest number of banks on the Problem List in six years. The number of problem banks was down 72 percent from the peak of 888 in the first quarter of 2011. Total assets of problem banks fell from $86.7 billion to $60.3 billion during the first quarter. Deposit Insurance Fund (DIF) Rises $2.5 Billion to $65.3 Billion: The DIF increased from $62.8 billion to $65.3 billion in the first quarter, largely driven by $2.2 billion in assessment income. The DIF reserve ratio rose to 1.03 percent from 1.01 percent during the quarter.The FDIC reported the number of problem banks declined (Note: graph shows problem banks for Q1 2015, and year end prior to 2015): The number of insured commercial banks and savings institutions filing quarterly financial reports declined from 6,509 to 6,419 in the first quarter. Mergers absorbed 86 institutions, while four insured institutions failed. For a fifth consecutive quarter, no new charters were added. The number of full-time equivalent employees declined by 5,349 to 2,042,596. The number of institutions on the FDIC’s “Problem List” declined for the 16th consecutive quarter, falling from 291 to 253. Total assets of problem institutions fell from $86.7 billion to $60.3 billion.
Scholars need access to public and private big data - - Big Data holds the promise of a wealth of information to uncover new insights into how our economy works but also the peril of exposing private information that could harm individual citizens. We all know that commercial ventures primarily use data gathered on their customers to track their purchases and spending habits—promising to varying degrees to protect such individual information—but now some private companies are allowing select scholars access to this information for research usage after the companies “anonymize” it. One case in point is the JPMorgan Chase Institute, which last week unveiled its first report on the financial habits of retail banking customers at JPMorgan Chase & Co. The new research institute tapped into the commercial banking arm’s internal administrative data to determine how income and consumption fluctuate on a monthly and yearly basis. These findings will have important policy implications for lawmakers seeking to improve citizen’s financial well-being. Researchers are constantly looking for new sources of information in order to answer the most challenging economic questions. But it is important to understand that by definition, JPMorgan Chase’s data can only tell us about their own customers. It cannot give us insight into the whole U.S. population—or even specific demographic groups. To create effective policies, we must gather information on all banking customers, not just those from one bank.
Loans For Builders Not Quite Keeping Pace - U.S. construction lending continued to recover on a glacial pace in the first quarter, amid signs that home building has gained momentum this spring. Data released Wednesday by the Federal Deposit Insurance Co. shows that the outstanding balance of construction loans issued by FDIC-backed institutions stood at $246.1 billion in the first quarter, a nearly 3.2% increase from the previous quarter. The total value of outstanding construction loans – for both residential and commercial projects – has increased for eight consecutive quarters. The amount is now 22.1% above the post-crash low hit in early 2013. But the latest measure is closer to its nadir than its peak. The first-quarter tally is 61% less than the market’s peak of $629.5 billion in late 2007. In the past year, the quarter-to-quarter increase in the outstanding balance of construction loans has steadily declined to nearly 3.2% in the first quarter from 4% a year earlier. Economists say the momentum is slowing partly because developers and builders are more often seeking financing from nonbank lenders not backed by the FDIC. For example, some home builders have landed loans from nonbank lenders such as iStar Financial Inc. and Sabal Financial Group LP. “The very low yield that people have been getting from keeping money parked in banks has encouraged more to go outside the banking system to get some return for their money,” “That maybe has made it easier to get nonbank money to do development.”
Freddie Mac: Mortgage Serious Delinquency rate declined in April --Freddie Mac reported that the Single-Family serious delinquency rate declined in April to 1.66%, down from 1.73% in March. Freddie's rate is down from 2.15% in April 2014, and the rate in March was the lowest level since November 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are mortgage loans that are "three monthly payments or more past due or in foreclosure". Although the rate is declining, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.49 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016. So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).
MBA: Mortgage Refinance Applications Decrease in Latest Weekly Survey, Purchase Index up 14% YoY --From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 22, 2015. ... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index was essentially unchanged compared with the previous week and was 14 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.07 percent from 4.04 percent, with points increasing to 0.35 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. It would take much lower rates - below 3.5% - to see a significant refinance boom this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 14% higher than a year ago.
Case-Shiller: National House Price Index increased 4.1% year-over-year in March -- S&P/Case-Shiller released the monthly Home Price Indices for March ("March" is a 3 month average of January, February and March prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: Home Price Gains Accelerate, Led by San Francisco and Denver According to the S&P/Case-Shiller Home Price Indices Data released today for March 2015 show that home prices continued their rise across the country over the last 12 months. ... Both the 10-City and 20-City Composites saw year-over-year increases in March. The 10-City Composite gained 4.7% year-over-year, while the 20-City Composite gained 5.0% year-over-year. The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 versus a 4.2% increase in February 2015...The National index increased again in March with a 0.8% increase for the month. Both the 10- and 20-City Composites increased significantly, reporting 0.8% and 0.9% month-over-month increases, respectively. Of the 19 cities reporting increases, San Francisco led all cities with an increase of 3.0%. Seattle followed next with a reported increase of 2.3%. Cleveland reported an increase of 0.4%, its first positive month-over-month increase since August 2014. New York was the only city to report a negative month-over-month change with a -0.1% decrease for March 2015.The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The National index is off 7.6% from the peak, and up 0.1% (SA) in March. The National index is up 24.7% from the post-bubble low set in December 2011 (SA).The second graph shows the Year over year change in all three indices. Prices increased (SA) in all 20 of the 20 Case-Shiller cities in March seasonally adjusted. (Prices increased in 19 of the 20 cities NSA) Prices in Las Vegas are off 40.6% from the peak, and prices in Denver and Dallas are at new highs (SA).
Case-Shiller Home Prices Rise Over 5% YoY To 7 Year High - Despite stagnating incomes, record low home-ownership, surging interest rates, and stalling employment data, home-prices in America rose 5.04% YoY in March - the biggest jump since August - as overseas money floods into American real estate and crushes the affordability dream for Hillary's 'everyday American'. No surprise, San Francisco and Denver reported the highest year-over-year gains, with price increases of 10.3% and 10.0%, respectively, over the last 12 months. This is the highest home price index since Feb 2008. As Case-Shiller notes: Both the 10-City and 20-City Composites saw year-over-year increases in March. The 10-City Composite gained 4.7% year-over-year, while the 20-City Composite gained 5.0% year-over-year. The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 versus a 4.2% increase in February 2015. San Francisco and Denver reported the highest year-over-year gains, with price increases of 10.3% and 10.0%, respectively, over the last 12 months. San Francisco’s 10.3% annual gain is its first double digit year-over-year increase since July 2014. Dallas reported a 9.3% year-over-year gain to round out the top three cities. Ten cities reported higher price increases in the year ended March 2015 over the year ended February 2015. Tampa led the way with a reported increase of 1.4%. Ten cities saw their prices decrease annually, led by Cleveland, down 1.2% in the year ending March 2015.
Housing Bubble? Despite Rising Prices, Most Economists Still Say No - The S&P/Case-Shiller Home Price Index released on Tuesday was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another bubble forming? According to Tuesday’s data housing prices have been climbing for 35 consecutive months, but economists pointed to several reasons why that isn’t a concern, namely that while prices keep rising the rate of growth has slowed. In the first three months of this year home prices gained 0.8%, according to the S&P Case-Shiller national index. That’s down from 2.8% in the first three months of 2013 and 1.2% during the same period of last year. “There is no bubble to be anxious about,” said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. Price growth in most markets is “a lot softer” than it was a year ago, he noted. Economists also aren’t concerned about a price bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply. And most buyers are using cash or getting 30-year, fixed-rate mortgages that don’t carry the same risks as the subprime, adjustable-rate mortgages that many received during the boom. To be sure, some markets, such as San Francisco and Denver, have seen staggering gains. Denver has surpassed its peak home prices in 2006 by nearly 17%.
Real Prices and Price-to-Rent Ratio in March -- The expected slowdown in year-over-year price increases has occurred. In October 2013, the National index was up 10.9% year-over-year (YoY). In March 2015, the index was up 4.1% YoY. However the YoY change has only declined slightly over the last six months. As I've noted before, I think most of the slowdown on a YoY basis is now behind us (I don't expect price to go negative this year). This slowdown in price increases was expected by several key analysts, and I think it was good news for housing and the economy. In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted). Case-Shiller, CoreLogic and others report nominal house prices. As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%). That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak. In the Case-Shiller release this morning, the National Index was reported as being 7.6% below the bubble peak. However, in real terms, the National index is still about 21% below the bubble peak.The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through March) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to June 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to February 2005 levels, and the CoreLogic index (NSA) is back to March 2005. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to June 2003 levels, the Composite 20 index is back to May 2003, and the CoreLogic index back to July 2003.
Zillow Forecast: Expect Case-Shiller National House Price Index up 4.0% year-over-year change in April - The Case-Shiller house price indexes for March were released this yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Expect More of the Same from Case-Shiller in April The March S&P/Case-Shiller (SPCS) data published [yesterday] showed home prices continuing to appreciate at around 5 percent annually for both the 10- and 20- City Indices, and roughly 4 percent for the national index. March marks the seventh consecutive month in which the national home price index has appreciated at a less than 5 percent annual appreciation rate (seasonally adjusted). In March, the 10-City Index appreciated at an annual rate of 4.7 percent, compared to 5.0 percent for the 20-City Index (SA). The non-seasonally adjusted (NSA) 10-City Index was up 0.8 percent month-over-month, while the 20-City index rose 0.9 percent (NSA) from February to March. We expect the change from March to April to show increases of more than 1 percent (NSA) for both the 10- and 20- City Indices. All forecasts are shown in the table below. These forecasts are based on the March SPCS data release and the April 2015 Zillow Home Value Index (ZHVI), published May 21. Officially, the SPCS Composite Home Price Indices for March will not be released until Tuesday, June 30.
Just Released: 2015 SCE Housing Survey Shows Households Optimistic about Housing Market -- NY Fed - The Federal Reserve Bank of New York today released results from its 2015 SCE Housing Survey. The survey, administered to 1,205 U.S. household heads in February, is a follow-up to the one conducted in February 2014. The purpose of the effort is to collect rich and high-quality information on consumers’ experiences and expectations regarding housing. The survey collects data on individuals’ perceptions and expectations of the growth in home prices, intentions regarding moving or buying a new home, and their access to credit, among other things. The main findings from the 2015 survey can be summarized as follows. Households expect home price growth to continue at a similar pace as they did a year ago. On average, households expect mortgage rates to increase in coming years, but at a moderate pace. Attitudes towards housing as a financial investment remain overwhelmingly positive. Finally, most renters express a preference for owning over renting if they had the necessary financial resources. As was the case last year, a majority of renters believe it would be difficult for them to get a mortgage, although responses suggest a slight easing in perceived credit access. The housing report can be viewed here, with the detailed background report available here. We discuss one particular finding from the survey next.
NAR: Pending Home Sales Index increased 3.4% in April, up 14% year-over-year - From the NAR: Pending Home Sales Climb in April to Highest Level since May 2006 Pending home sales rose in April for the fourth straight month and reached their highest level in nine years, according to the National Association of Realtors®. Led by the Northeast and Midwest, all four major regions saw increases in April. The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 3.4 percent to 112.4 in April from a slight upward revision of 108.7 in March and is now 14.0 percent above April 2014 (98.6) — the largest annual increase since September 2012 (15.1 percent). The index has now increased year-over-year for eight consecutive months and is at its highest level since May 2006 (112.5). This was abpve expectations of a 0.8% increase. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in May and June.
Pending Home Sales Jump Most Since September 2012 To Highest Since 2006, Driven By The Northeast - Following the March pending home sales report which saw growth moderate after February's 3.6% surge to 1.1%, the flurry of contract signings, not actual purchases, in April rebounded by 3.4% - the biggest jump since September 2012 - far above the 0.9% consensus estimate and 14% higher than a year ago, pushing the pending home sales index to 112.4, the highest level since 2006. The driver: pending sales in the Northeast, which soared 10.1% from the month before, and 9.4% from a year ago. Quote NAR's chief economist Larry Yun:"Realtors are saying foot traffic remains elevated this spring despite limited — and in some cases severe — inventory shortages in many metro areas," he said. "Homeowners looking to sell this spring appear to be in the driver's seat, as there are more buyers competing for a limited number of homes available for sale." Adds Yun, "As a result, home prices are up and accelerating in many markets." He is hopeful the jump in contract signings means a comparable increase in actual existing home sales:
New Home Sales Increase 6.8% While Prices Surge - The April 2015 New Residential Single Family Home Sales surged 6.8% to 517,000 in annualized sales. For the year, new single family home sales are up 26.1% from the year ago 410,000 sales levels. The annual increase is well above the ±15.4% margin of error. In no uncertain terms people are buying up new homes again. Figures are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year. These figures are seasonally adjusted as well. The monthly percentage changes are always in between error margins (this month ±15.8%) and sales are almost always revised. Still sales are a blow out. The April 2015 average home sale price was $341,500. This is a 5.0% increase from a year ago and almost no change, -0.5%, from last month. The median new home price is now frightening as most wage earners simply cannot afford it. The median home price is $297,300. From April 2014, the median new home sales price has increased 8.3%. 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. New homes available for sale is now 205,000 units. This is a 7.3% increase from a year ago and outside the ±6.5% margin of error. The graph below shows how long it would take to sell the new homes on the market at each month's sales rate. For April the time stands at 4.8 months. This is a -5.9% monthly change and a -14.3% annual one. Clearly the market is tightening up 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 3.2 months. This implies the median time to move new properties is fairly stable. Overall this report shows new home sales are increasing, although still below pre-recession levels.
New Homes Sales Surprise Forecast - This morning's release of the April New Homes Sales from the Census Bureau at 517K was 7K above forecast, with the previous month an upward revision. The Investing.com forecast was for 510K sales, which would have been a 5.1% increase from the revised previous month. The actual increase was 6.8%. Here is the opening from the report: Sales of new single-family houses in April 2015 were at a seasonally adjusted annual rate of 517,000, 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 (±15.8%)* above the revised March rate of 484,000 and is 26.1 percent (±15.4%) above the April 2014 estimate of 410,000. [Full Report] For a longer-term perspective, here is a snapshot of the data series, which is produced in conjunction with the Department of Housing and Urban Development. The data since January 1963 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 70.4% increase in the US population since 1963. Here is a chart of new home sales as a percent of the population.
New Home Sales increased to 517,000 Annual Rate in April --The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 517 thousand. The previous three months were revised up by a total of 5 thousand (SA). "Sales of new single-family houses in April 2015 were at a seasonally adjusted annual rate of 517,000, 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 above the revised March rate of 484,000 and is 26.1 percent above the April 2014 estimate of 410,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are still close to the bottoms for previous recessions. The second graph shows New Home Months of Supply. The months of supply decreased in April to 4.8 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).
New Home Sales Bounce From Dismal April Numbers -- Last month, new home sales fell a very steep 11.4 percent to a 481,000 annual rate. Given the volatile nature of this series one might have expected a bounce in May and sure enough we got one, albeit not enough to wipe out April's dismal performance. May new home sales came in at an annualized rate of 517,000 units, stronger than the Bloomberg Consensus Estimate of 509,000 but pretty much in the middle of the consensus range of 485,000 to 540,000. New home sales bounced back solidly in April, up 6.8 percent to a 517,000 annual rate that is on the high side of Econoday expectations. Strength is centered in the South which is the largest and important housing region and where sales rose 5.8 percent, this however fails to reverse the region's 11.8 percent drop in the prior month. Supply rose slightly in the month, to 205,000 new homes on the market, but supply relative to sales fell to 4.8 months from 5.1 month. Low supply should encourage builders to bring more homes on the market but at the same time low supply hurts current sales. Price readings are mostly favorable led by a 4.1 percent rise in the median price to $297,300 for a strong 8.3 percent year-on-year gain. Readings in this report are always volatile month-to-month but the gains for April underscore the recent surge in housing starts & permits and help offset last week's disappointing weakness in existing home sales. The housing sector is still trying to get off the ground but indications, taken together, are improving.
New Home Sales Rebound Despite Median Price Rising To Just Shy Of All Time High - Following last month's disappointing slump to only 481K new home sales in March (now revised to 484K) which was the biggest drop in nearly 2 years driven by a collapse in Northeast transactions, according to the latest new home sales data by the Census Bureau housing rebounded back over 500K, printing at 517K thanks to a 37% sequential jump in Midwest new home sales, which rebounded from 57K to 78K, even as sales in the Northeast continued to decline and even the West saw a modest drop. Curiously, while there are double digit annual increases from April of 2014 across 3 of America's 4 housing regions, the Northeast continues to deteriorate, and is now down 19% from a year ago. The total sales figure represented 4.8 months of supply, down from 5.1 the month before. However, as the long-term chart shows, new home sales have a long way to go before they regain the levels seen during the last bubble.Yet while the actual number of sale transactions has a long way to go,the median price rose once more and at $297,300 per new house, is not only the highest of 2015, but just shy of the record highest median price seen of $302,700 hit in November of 2014.
Comments on New Home Sales --The new home sales report for April was above expectations at 517 thousand on a seasonally adjusted annual rate basis (SAAR). The Census Bureau reported that new home sales this year, through April, were 179,000, Not seasonally adjusted (NSA). That is up 23.7% from 145,000 during the same period of 2014 (NSA). That is a solid first four months! Sales were up 26.1% year-over-year in April, but that was an easy comparison. 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. 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. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 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 move sideways (distressed sales will continue to decline and be offset by more conventional / equity sales). And I expect this gap to slowly close, mostly from an increase in new home sales.
Hotels: RevPAR up almost 50% since 2009 - Revenue per available room (RevPAR) is now at $85.50. In May 2009, RevPAR had fallen to $58.39. So, RevPAR is up 46.9% over the last 6 years - and the occupancy rate will probably be at a new record high this year. A great year for hotels! From HotelNewsNow.com: STR: US hotel results for week ending 16 MayThe U.S. hotel industry recorded positive results in the three key performance measurements during the week of 10-16 May 2015, according to data from STR, Inc.In year-over-year measurements, the industry’s occupancy increased 0.5 percent to 70.3 percent. Average daily rate increased 5.2 percent to finish the week at US$122.10. Revenue per available room for the week was up 5.7 percent to finish at US$85.80. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.
Gasoline Prices: Down a Dollar from last year on Memorial Day -- According to Gasbuddy.com (see graph at bottom), gasoline prices are down to a national average of $2.75 per gallon. One year ago for the week of Memorial Day, prices were at $3.75 per gallon, and for the same week two years ago prices were $3.70 per gallon. Ten years ago, price were at $2.17 per gallon, and fifteen years ago at $1.57. According to Bloomberg, WTI oil is at $59.40 per barrel, and Brent is at $65.37 per barrel. Last year on Memorial Day, Brent was at $110.01 per barrel, and two years ago Brent was at $103.77. Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.
Gasoline prices and consumer sentiment -- U.S. retail gasoline prices last week averaged over $2.80 a gallon, thirty cents higher than a month ago. The preliminary University of Michigan index of consumer sentiment for May was 88.6, down 7 points from the month before. Are these two developments related? The consumer sentiment index is plotted in black in the graph below with units on the left scale. The negative of the gasoline price in real terms (deflated using the CPI) is shown in blue, with units on the right scale. I have plotted the negative of gasoline prices to help highlight the negative relation between the two series– when gasoline prices go up (a fall in the blue line), consumer sentiment goes down (a fall in the black line). Consumer sentiment had been improving steadily as gas prices fell (or the blue line rose) last autumn. Since gas prices came back up, sentiment has tumbled. One quick way to describe the relation between these series is with a regression of each month’s change in consumer sentiment on that month’s change in the real price of gasoline. Results of that regression are reported below, with t-statistics in parentheses. If the monthly price of gasoline were to jump by $1.00/gallon, the regression would predict about a 5-point decline in consumer sentiment.
A Modest Improvement in Consumer Confidence -- The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through May 15. The headline number of 95.4 was a small increase from the revised April final reading of 94.3, a slight revision from 95.2. Today's number was slightly below the Investing.com forecast of 94.9. Here is an excerpt from the Conference Board press release. “Consumer confidence improved modestly in May, after declining sharply in April,” “After a three-month slide, the Present Situation Index increased, propelled by a more positive assessment of the labor market. Expectations, however, were relatively flat following a steep decline in April. While current conditions in the second quarter appear to be improving, consumers still remain cautious about the short-term outlook.” The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference.
Consumer Comfort Plunges For Longest Streak In 7 Years -- With business confidence collapsing, Bloomberg's Consumer Comfort index - after dropping to its lowest since December - plunged once again this week to 40.9 (from 42.4). This is the lowest since Novemeber and extends the losing streak to 7 weeks - something we have not seen sionce May 2008. This confirms Gallup's weekly tracking of consumer confidence dropped back to its lowest levels since early December 2014 with 53% of Americans now saying the economy is getting worse. Despite all the exuberance over lower oil prices, Consumer Comfort in The South is crashing. Perhaps even worse - for a consumer-driven economy - is that the "buying-climate"suffered its biggest drop since Dec 2011.
Americans Feeling Better About Household Finances — Fed Survey - Americans are feeling better about their household finances but many remain on shaky ground when it comes to saving for emergency expenses and retirement, according to a Federal Reserve survey. A total of 65% of respondents in the Fed’s 2014 Survey of Household Economics and Decisionmaking said they were “living comfortably” or “doing okay,” up from 62% in the 2013 survey, the central bank said Wednesday. Some 29% in 2014 said they expected their income to be higher in the next year, up from 21% a year earlier. Some 29% in last year’s survey said they were better off financially than they were a year earlier, compared with 21% who said they were worse off. A total of 40% said they were better off than they were five years ago, versus 28% who said they were worse off compared with 2009. But for many Americans, household finances remain fragile: 47% said they wouldn’t be able to cover a $400 emergency expense or would have to borrow money or sell something, and 31% said they went without some form of medical care in the last year because they couldn’t afford it. One in five said their spending exceeded their income over the last year, just 63% said they saved any money at all over the past 12 months and 31% of nonretirees said they had no retirement savings or pension. “The survey results reveal a lack of economic preparedness among many adults,” the Fed said in a news release.
The Median Household Income Rose in April - The Sentier Research monthly median household income data series is now available for April. The nominal median household income was up $375 month-over-month and up $1,549 year-over-year. That's a 0.7% MoM increase and 2.9% YoY. Adjusted for inflation, the latest income was up $309 MoM and $1,606 YoY. The real numbers equate to a 0.6% MoM increase and a 3.0% YoY. In real dollar terms, the median annual income is 4.7% lower ($2,703) than its interim high in January 2008 but well off its low in August 2011. The first chart below is an overlay of the nominal values and real monthly values chained in the dollar value as of the latest month. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). Callouts show specific nominal and real monthly values for the January 2000 start date and the peak and post-peak troughs.
The Shafting, Um, Sharing Economy - Yves Smith - The Wall Street Journal had a surprising story over the weekend, How Everyone Gets the ‘Sharing’ Economy Wrong, with the subtitle, “Uber isn’t the Uber for rides—it’s the Uber for low-wage jobs.” While the Journal maintains separation of church and state between its rabidly right wing editorial section and its news sections, I’ve been close enough to some stories to know on good authority that the Journal has refused to publish some stories (and reported sections of stories) because they were deemed to be too business-unfriendly. So what does one make of the Journal giving prominent placement (first page above the fold in the digital version) that depicts Uber and its ilk i the manner you’d expect to see at Salon or Huffington Post, as mainly in the business of crushing wages? Is it that the Journal is skeptical of new economy hype? Or is it that the rental extraction aspects of the “sharing” economy are so bloomin’ obvious that the editors didn’t see it as controversial to depict them in an unvarnished manner? The article goes after the canard of the feel-good “sharing” branding: The first thing everyone misses about the sharing economy is that there is no such thing, not even if we’re being semantically charitable. Increasingly, the goods being “shared” in the sharing economy were purchased expressly for business purposes, whether it’s people renting apartments they can’t afford on the theory that they can make up the difference on Airbnb, or drivers getting financing through partners of ride-sharing services Uber and Lyft to get a new car to drive for those same services.
The Happiness Industry: How Government and Big Businesses Manipulate Your Moods For Profit - naked capitalism - Yves here. We’ve long focused on the role of propaganda in creating the consent, or at least the appearance of consent, for policies that often serve very narrow interests. This post discusses a broader phenomenon, how businesses and governments try to foster more intense involvement while at the same time implementing programs that create disengagement and anomie. One thing I find intriguing is the emphasis in the US on “happiness” which I see as an illusory goal. Happiness American style is giddiness or euphoria and is by nature a fleeting state. Contentment is more durable and more attainable, but being content is the opposite of the dissatisfaction, insecurity, and anxiety that is what drives most people to perform.
Durable Goods Orders May 26, 2015: The capital goods sector is showing life, helping to limit April's aircraft-related decline in durable goods orders to a roughly as-expected 0.5 percent. Ex-transportation offers a core reading which is encouraging, up 0.5 percent following a 0.6 percent gain in the prior month. Strength in nondefense capital goods excluding aircraft reflects strength in business investment which has been soft. New orders for this reading rose a strong 1.0 percent following an even stronger 1.5 percent gain in the prior month. Shipments, after rising 1.0 percent in March, rose another 0.8 percent in April which may give a bit of a boost to second-quarter GDP estimates. Civilian aircraft have been, as they often do, distorting headlines for this report. Orders for civilian aircraft fell 3.6 percent in April, which of course pulled down today's headline, after surging 54.9 percent which really inflated the headline from March, now at a revised plus 5.1 percent (initially plus 4.7 percent). Orders for motor vehicles are showing strength, up 0.3 percent in the month following a very strong 4.2 percent rise in March. Transportation all together fell 2.5 percent following an outsized 15.2 percent gain in March. Other sectors of note include a 3.1 percent order surge for machinery which is the center of the capital goods group. Orders for fabricated metals rose 1.9 percent with primary metals up 1.0 percent. Computers & electronic products showed weakness, down 3.6 percent.
Durable Goods Shows Steady As She Goes - The Durable Goods, advance report shows new orders declined by -0.5% in April. In March new orders increased 5.1% yet in February, new orders dropped by -3.5%. For April, transportation was the culprit as new orders in this category dropped -2.5%. Core capital goods, on the other hand, gained 1.0%. Without transportation new orders, which includes aircraft, durable goods new orders would have increased by 0.5%. Without the Department of Defense, new orders would have increased 0.2%. Below is a graph of all transportation equipment new orders, which dropped by -2.5% for the month. This all due to volatile aircraft orders. Motor vehicles & parts increased by 0.3%. Aircraft and parts new orders from the non-defense sector decreased -4.0%. Aircraft & parts from the defense sector decreased by -12.8%. Aircraft orders are notoriously volatile, each order is worth millions if not billions, and as a result aircraft manufacturing can skew durable goods new orders on a monthly comparison basis. Core capital goods new orders increased by 1.0%. March's core capital goods new orders increased by 1.5%, but February was a disaster with a -5.1% decline. Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods. Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on. Capital goods are basically the investment types of products one needs to run a business. and often big ticket items. A decline in new orders indicates businesses are not reinvesting in themselves. This month machinery new orders increased by 3.1%, while computers & electronics declined by -3.6% and primary metals increased 1.0%. To put the monthly percentage change in perspective, below is the graph of core capital goods new orders, monthly percentage change going back to 2008. Shipments showed a slight -0.1% decline after a 1.5% increase in March. February showed a -1.1% decline. New orders are not necessarily shipped the next month an order is made. Below is the monthly shipments; percent change for all durable goods shipments. Inventories, which also contributes to GDP, increased 0.2%. March showed no change in inventories and February saw a 0.3% gain. This all implies don't expect a GDP save from changes in inventories for Q2, at least not yet from this pattern.
US durable goods orders fell 0.5% in April vs. 0.2% drop expected: U.S. business investment spending plans increased solidly for a second straight month in April, a hopeful sign for manufacturing activity after a long spell of weakness. The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.0 percent last month after an upwardly revised 1.5 percent increase in March. The so-called core capital goods orders were previously reported to have increased 0.6 percent in March. Business spending has slackened as a sharp decline in energy prices forced oilfield companies, including Schlumberger and Halliburton, to slash their capital expenditure budgets. Investment has also been undermined by a strong dollar, which has squeezed profits of multinational corporations. The rebound in business spending, together with a sturdy labor market and firming underlying inflation, should keep the Federal Reserve on course to raise interest rates later this year. U.S. government debt prices trimmed gains on the data. The dollar rose against a basket of currencies. The increase in core capital goods orders offers cautious optimism that business spending outside the energy sector will pick up in the coming months and support manufacturing, and the broader economy, after a dismal first quarter.
April Durable Goods: Another Mixed Bag - The May Advance Report on April Durable Goods released today by the Census Bureau was another disappointment. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in April decreased $1.2 billion or 0.5 percent to $235.5 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 5.1 percent March increase. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders increased 0.2 percent. Transportation equipment, also down two of the last three months, drove the decrease, $2.0 billion or 2.5 percent to $77.9 billion. Download full PDF The latest new orders headline number at -0.5 percent was slightly below the Investing.com estimate of -0.4 percent. However, this series is down 2.3 percent year-over-year (YoY). If we exclude transportation, "core" durable goods came in at 0.5 percent month-over-month (MoM), slightly beating the Investing.com estimate of 0.4 percent. However, the core measure is down -0.9 percent YoY.If we exclude both transportation and defense for an even more fundamental "core", the latest number was up 1.6 percent MoM, but up 5.6 percent YoY. Core Capital Goods New Orders (nondefense capital goods used in the production of goods or services, excluding aircraft) is an important gauge of business spending, often referred to as Core Capex. It posted a 1.0 percent monthly gain but it is down 1.4 percent YoY. For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.
Durable Goods Orders Slide YoY 4th Month In A Row Despite Dramatic Upward Revisions - After dramatically upwardly revised data from last month - double-seasonal adjustments anyone? - the highly noisy series of Durable Goods Orders printed -0.5% (from +5.1% in March, revised up from +4.0%). Capital Goods Orders (non-defense Ex-Air) beat expectations MoM (printing +1.0% vs 0.3%) and was revised remarkably up from the biggest drop since 2012 to a 1.5% rise in March. Core Capital Goods Orders, however, remains negative YoY for the 4th months in a row. The last time this happened was either a recession... or The Fed unleashed QE3. The 4th month in a row of YoY weakness in Core Capital Goods Orders
Richmond Fed: Manufacturing Flattened in May -- Today the Richmond Fed Manufacturing Composite Index squeaked back above the flatline with a 4 point increase to 1 from last month's -3. Investing.com had forecast a rise to 0. Because of the highly volatile nature of this index, we include a 3-month moving average to facilitate the identification of trends, now at -3.3, in modest contraction. The complete data series behind today's Richmond Fed manufacturing report (available here), which dates from November 1993. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series. Here is the latest Richmond Fed manufacturing overview. new orders leveled off, while the backlog of orders declined further compared to last month. Hiring edged up, while the average workweek increased slightly. However, average wage growth accelerated this month. Despite the soft conditions this month, manufacturers continued to look for improved business conditions in the next six months. Expectations were for solid growth in shipments and in the volume of new orders in the six months ahead. In addition, survey participants looked for increased capacity utilization and expected order backlogs to grow more quickly. However, producers looked for little change in vendor lead times. Manufacturers' outlook for the months ahead included faster growth in the number of employees and average wages than in the current month. In addition, they expected modest growth in the length of the average workweek. Here is a somewhat closer look at the index since the turn of the century.
Richmond Fed Manufacturing Index May 26, 2015: Regional Fed reports on the manufacturing sector continue to be soft with Richmond's at only plus 1 for May following two prior months of declines. New orders, after three straight declines, did rise but only to plus 2. Backlog orders, however, remain deep in the negative column at minus 10. Employment growth is down while shipments are in contraction for a 4th month. Price readings are flat except for wages which show a big 11-point gain to 20. Wage pressures are a trigger for an FOMC rate hike and this reading, though isolated, will get the attention of the hawks at the Fed. First it was Empire State, then the Philly Fed, then Kansas City, all showing weakness this month and now including Richmond. Data from the Dallas Fed, also released this morning, is especially weak. The manufacturing sector is having a tough time gaining momentum, held down by weak exports and contraction in the energy sector.
Near-Record Wage Spike Stabilizes Richmond Fed Manufacturing Survey - Against expectations of a '0' print, Richmond Fed Manufacturing rose from -3 to +1 in May - the first positive print since January. Despite expectations for future shipments sliding to 4-month lows and a decline in number of employees, the index itself was driven higher mainly by a huge spike in the wages subcomponent - from 9 to 20. This is the 2nd biggest spike in wages on record...Under the surface, it was wages that single-handedly saved the index...
Dallas Fed Manufacturing Index Collapses: Lowest Production Reading in 6 Years, New Orders Contract 7th Month -- Fed manufacturing surveys remain weak at best. Today the Dallas Fed Business Activity Index fell to negative 20.8, well below the bottom end of any Bloomberg Estimate. Contraction in the energy sector continues to pull the Dallas Fed report into deeply negative ground, to a headline minus 20.8 vs minus 16.0 and minus 17.4 in the prior two months. Production shows a turn for the worse, at minus 13.5 vs April's minus 4.7, as does employment, at minus 8.2 vs plus 1.8. New orders remain deeply negative, at minus 14.1 vs minus 14.0. Prices paid also fell further though the decline is easing, to minus 1.7 from minus 11.2. The regional Fed reports all point to another slow month for the manufacturing sector which is struggling with energy contraction, especially evident in this report, as well as weakness in exports.
Dallas Fed Crashes To Six Year Lows As Employment Collapses - Having missed for a record 5 months in a row, Dallas Fed Manufacturing Outlook collapsed further in May to -20.8 (against expectations of -12.4). Thisis the 5th drop in a row (only ever seen in a recession) and 6th monthly miss in a row (never seen before) as it appears Former Dallas Fed Fisher was talking crap once again when he said "net, low oil prices were good for Texas." Despite Consumer Confidence indicating, somehow, that Texans are the most confident in a year (up from 121 to 130 in May), business survey continues to point to notable weakness with employment collapsing, hours worked crashing, and production plunged. However, on a bright note, expectations for the future jumped from -5.9 to +4.9 - hope springs etermal eh?
Regional Manufacturing Reports Comparative Wrap-Up: Empire State, Philly, Kansas City, Richmond, Dallas -- Two more regional manufacturing reports came out today, from Dallas and Richmond. The Dallas region was the weakest in six years thanks to oil. For details, please see Dallas Fed Manufacturing Index Collapses: Lowest Production Reading in 6 Years, Orders Contract 7th Month, New Orders 5th Month. Comparative Results (table) - Significant Points:
- The Dallas and Kansas City regions were both hammered by collapse in oil prices and oil related services.
- Order Backlog was negative across the board.
- Employee Workweek was down in four of five regions.
- Prices Received was down in three of four regions.
In aggregate, these are weak to very weak reports.
Regional Fed Manufacturing Surveys for May and the ISM Index - Earlier today the last two regional Fed surveys for May were released. As expected, the Dallas Fed was especially weak due primarily to weakness in the oil sector. From the Dallas Fed: Texas Manufacturing Activity Contracts Further: Texas factory activity declined again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. ... The general business activity index fell to -20.8 in May, its lowest reading since June 2009.Labor market indicators reflected employment declines and shorter workweeks. The May employment index declined 10 points to -8.2, after rebounding slightly above zero last month. Twelve percent of firms reported net hiring, compared with 21 percent reporting net layoffs. The hours worked index fell from -5 to -11.6. And from the Richmond Fed: Manufacturing Sector Activity Remained Tepid; Employment Edged Up, Wage Growth Accelerated: Manufacturing activity remained soft this month, with several components flattening. The composite index for manufacturing moved to 1 following April's reading of −3, while the shipments index leveled off to −1 from −6. In addition, the index for new orders gained eight points, reaching a nearly flat reading of 2. ... Manufacturing employment continued to grow at a modest pace in May. The index ended the survey period at 3 compared to last month's reading of 7. The average workweek increased; the index moved up two points to end at 6. Additionally, the index for average wages advanced 11 points to finish at a reading of 20. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:
Final May Consumer Sentiment at 90.7, Chicago PMI declines Sharply -- The final University of Michigan consumer sentiment index for May was at 90.7, up from the preliminary reading of 88.6, and down from 95.9 in April. This was close to the consensus forecast of 90.0. Chicago PMI May 2015: Chicago Business Barometer Back into Contraction in May The Barometer fell 6.1 points to 46.2 in May from 52.3 in April. All five components of the Barometer weakened with three dropping by more than 10% and all of them now below the 50 breakeven mark. April’s positive move had suggested that the first quarter slowdown was transitory and had been impacted by the cold snap and port strikes. May’s weakness points to a more fundamental slowdown with the Barometer running only slightly above February’s 5½-year low of 45.8. Chief Economist of MNI Indicators Philip Uglow said, “We had thought that the April bounce was consistent with a partial return to normal following the weather and port related slowdown in the first quarter. The latest data for May, however, suggest that this was a false dawn and that sluggish activity has carried through to the second quarter.”This was well below the consensus forecast of 53.0.
Vehicle Sales Forecasts for May: Over 17 Million Annual Rate -- The automakers will report May vehicle sales on Tuesday, June 2nd. Sales in April were at 16.5 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales will be strong in May too. Note: There were 26 selling days in May, one less than in May 2014. Here are a few forecasts: From Edmunds.com: Nearly 1.6 Million New Cars Sold in May Push Seasonally Adjusted Annual Rate (SAAR) to Impressive 17.4 Million, says Edmunds.com Edmunds.com ... forecasts that 1,591,221 new cars and trucks will be sold in the U.S. in May for an estimated Seasonally Adjusted Annual Rate (SAAR) of 17.4 million. From J.D. Power: New-Vehicle Retail Sales SAAR in May to Hit 14.1M Units, Highest Level So Far in 2015 Total light-vehicle sales in May 2015 are projected to reach 1,591,100, a 3 percent increase on a selling day adjusted basis compared with May 2014. [Total forecast 17.3 million SAAR] From Kelley Blue Book: New-Car Sales to Reach 17.3 Million SAAR in May 2015, According to Kelley Blue Book New-vehicle sales are expected to decline 1 percent year-over-year to a total of 1.59 million units in May 2015, resulting in an estimated 17.3 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book .... "While we expect an overall decline in volume versus last year, the difference is the result of one fewer sales day from May 2014, and total SAAR will reflect year-over-year improvement."
Crony Capitalism At Work - Boeing Threatens To Leave US If Ex-Im Subsidy Yanked -- When has crony capitalism really gotten out of control? How about when a major U.S. corporation (a huge defense contractor, no less) is publicly threatening government officials to leave the country if the federal government doesn’t continue to boost their profits through government handouts: Boeing is stepping up pressure on opponents of the US Export-Import Bank with threats to shift manufacturing abroad if the agency that finances purchases by foreign customers is killed off next month. The threats come as a new push is being made in Congress to find ways of wresting reauthorisation of the bank from a committee controlled by one of the agency’s fiercest opponents. Scott Scherer, Boeing’s head of regulatory strategy at Boeing Capital, said the aerospace and defense group would “not sit idly by” if the ExIm Bank’s mandate was not renewed by the end of June. “Boeing is not going to let itself be hurt by the lack of an ExIm Bank,” he said in an interview with the Financial Times. “If it means sourcing … to other countries who will support us we may have to look at that. Other countries have more aggressive export policies. We will find an alternative.”
US Services PMI Slides To Lowest Since January -- After a hopeful start to the year - despite the weather, the West Coats ports, and every other excuse - US Services PMI has slipped the last 2 months, back to the lowest since January. At 56.4, below expectations, this is the biggest 2-month drop since December. Input prices edged up to 9-month highs. This is the first YoY drop in the Services PMI since December. As Markit proclaims hopefully, "policymakers will be eager to see if this slower growth trend develops
further over the summer months before risking any tightening of policy." Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said: “The US economy looks to have grown at a healthy pace in May, providing further evidence that the rate of expansion has picked up from the weak start to the year. The resilience of domestic demand in particular helped encourage companies to take on extra staff at the fastest rate for almost a year. “An upturn in business optimism to a six-month high also bodes well for robust growth to be sustained in coming months. “The survey data put the economy on course to rebound in the second quarter, with GDP rising at an annualised rate of around 3%, with non-farm payroll growth continuing to run around the 200,000 level. “Such keen hiring and robust economic growth inevitably tips the scales in favour of the Fed hiking rates later this year rather than waiting until 2016.
FCC Chairman Wants Subsidized Internet for the Poor -- Earlier this year, the Federal Communications Commission approved net neutrality rules to regulate the broadband Internet as a utility, treating it the same as it does telephone networks. On Thursday, FCC chairman Tom Wheeler is expected to reiterate high speed Internet’s status as a public good when he introduces a plan to ensure that even the poorest Americans have access to broadband Internet.Wheeler will announce changes to the $1.7 billion subsidy program created by the Reagan administration in 1985 that currently provides low-income Americans with affordable landline telephone service. Twelve million households participate in the program called Lifeline, which was expanded in 2008 to cover the cost of cell phone service. To be eligible for the program, households must have an income at or below 135% of the federal poverty line or must receive Medicaid or food stamp benefits.The 2008 expansion of Lifeline boosted enrollment, but that increase coincided with a rise in abuse of the program, as some households received more than their one allotted subsidy. Wheeler’s proposal will give recipients a choice between phone service, Internet access, or a combination of both, according to The New York Times.In 2013, the Pew Research Center found that only 54% of people making less than $30,000 annually had broadband services versus 88% of those earning $75,000 or more.
The basic truth about broadband that cable companies want to hide -- The Obama administration wants to find ways to deliver subsidized broadband internet to low-income families. It's a nice idea. But the truth is that poor people have trouble affording all kinds of things — that's the definition of being poor. The striking thing about broadband in America is how bad the value proposition for middle class Americans is. And a read of the excellent October 2014 "Cost of Connectivity" report from the New America Foundation makes it clear what the solution should be. Start with the good news it offers for the United States: in a handful of cities, Americans are enjoying world-class speeds: And the prices are pretty darn affordable: This achievement is really impressive when you consider that Chattanooga, Kansas City, and Lafayette aren't even remotely as dense as Seoul or Hong Kong or Tokyo, which get similar speeds. But there's a catch. The American cities that are delivering best-in-the-world speeds at bargain prices are precisely the cities that aren't relying on Verizon, AT&T, Comcast, Time-Warner, etc. to run their infrastructure. In Kansas City, Google built a state-of-the-art fiber optic network largely just to prove a point. In Chattanooga and Lafayette, the government did it. At the moment, the US federal government could issue 5-year bonds at a 1.58 percent interest rate and make grants to cities interested in following Chattanooga and Lafayette down that path. But it doesn't happen, because while broadband incumbents don't want to spend the money it would take to build state-of-the-art fiber networks, they are happy to spend money on lobbying.
Free-market dogma has jacked up our electricity bills - David Cay Johnston - A new analysis shows that people pay 35-percent higher prices for electricity in states that abandoned traditional regulation of monopoly utilities in the 1990s compared to states that stuck with it. That gap is almost certainly going to widen more in the coming decade. Residential customers in the 15 states that embraced wholesale markets paid on average 12.7 cents per kilowatt-hour last year versus 9.4 cents in states with traditional regulation. Now 3.3 cents extra may not seem like much until you consider the volume of power people consume. Last year American residential customers paid for 1.4 trillion kilowatt hours of electricity. You might think that the higher prices in the 15 states with markets would encourage investment, creating an abundance of new power plants. That, at any rate, is what right-wing Chicago School economic theories on which the electricity markets were created say should happen. The validity of these theories, and flaws in how they were implemented, matter right now because Congress is considering a raft of energy supply bills that include some expansion of the market pricing of wholesale electricity. The theory is that high prices will signal investors to build more power plants, bringing down future prices. Yet just 2.4 percent of new electric generating capacity in 2013 “was built for sale into a market,” electricity-market analyst Elise Caplan showed in a study last fall fittingly titled “Power Plants Are Not Built on Spec.” The rest were built in states with traditional regulation or under long-term supply contracts that essentially guaranteed repayment of loans to build the plants.
Is the slowdown in productivity growth a result of energy costs? -- Slowing productivity growth in the United States has been in the news in recent months. It has become a concern to policymakers because they believe it is one of the primary contributors to a middle-class economic squeeze according to the annual report of the White House Council of Economic Advisors. Simply put, productivity growth refers to the growth in economic output per worker or more precisely, per hour of work. When this growth slows, the potential for real wage increases diminishes since the growth in wages typically reflects the ability of workers to create more output per unit of time. To the obstensibly naive observer the following idea may seem a plausible explanation: Higher-cost energy inputs into the production of goods and services reduce productivity growth because the economic output per dollar of energy consumed declines. And, though energy inputs aren't the only thing to consider, they are important. The high energy prices of the last decade or so may be, in part, responsible for low productivity growth. (Conversely, low energy costs would imply more output per dollar of energy consumed.) But strangely, almost all economic models for productivity consider only so-called "tangible" factors, that is, labor and capital. In the bizarro world of modern economics, energy and materials are not considered "tangible." Now, the way in which that productivity growth which is attributable to "technological advances" is typically calculated is to add up contributions to productivity growth from labor and capital (machines, buildings, vehicles, tools of any kind) and then subtract this sum from the known amount of total productivity growth. What is left is the so-called "residual" which is presumed to result from "technological advances" caused by increases in human knowledge. These advances and the increases in capital per worker are assumed to be the drivers of productivity growth.
Why fewer workers are moving for better jobs - Does income growth increase faster for workers who are loyal to their employers and work their way up within an organization, or for workers who are willing to move to a job with a new employer? Economic research tells us that workers who are willing to change employers tend to experience higher wage growth. But if this is true, why has labor mobility been declining since the 1980s? You would think workers would be moving to take advantage of higher wage offers. Maybe the cost of changing employers has increased, or maybe it's become less lucrative. Or perhaps it's due to the aging of the population coupled with the fact that older workers tend to move less. Researchers at the Federal Reserve in Washington, D.C., looked at this question in 2014 and concluded that worker mobility is falling because of a decline in the benefits of changing jobs. In particular, the attractiveness of offers to workers making a transition has fallen, while the costs -- which include factors such as more dual-earning households and the need to retain employer-sponsored health care coverage -- appear to have remained relatively constant. The researchers are unable to determine the precise reasons for this, but the decline in the benefit of moving does explain why labor force mobility has declined. More recent research from the Federal Reserve Bank of St. Louis notes that when looking at this issue, it's important to distinguish between workers who are moving directly from one job to another and those who become unemployed for some period of time before moving to a new job.Workers who made a direct job-to-job change to a new geographic area had slightly lower wages than workers who changed jobs but remained in the same geographic area. But for workers who moved from unemployment to a new job, making a geographic change resulted in wages that were significantly higher than they received in their last job.
Weekly Initial Unemployment Claims increased to 282,000 -- The DOL reported: In the week ending May 23, the advance figure for seasonally adjusted initial claims was 282,000, an increase of 7,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 274,000 to 275,000. The 4-week moving average was 271,500, an increase of 5,000 from the previous week's revised average. The previous week's average was revised up by 250 from 266,250 to 266,500. There were no special factors impacting this week's initial claims. The previous week was revised to 275,000. The following graph shows the 4-week moving average of weekly claims since 1971.
New Data Spotlights America’s ‘Contingent Workforce’ - The nature of employment seems to be undergoing radical change. Among the trends weakening the traditional model of steady, full-time employment are on-demand work platforms like Lyft and Instacart; software to help companies schedule employees’ shifts almost in real time; and a desire among many workers for greater flexibility. The pace of change has been so rapid that officials have struggled to quantify how these shifts are playing out in the broader U.S. workforce. Last week, the U.S. Government Accountability Office quietly stepped into the information breach, releasing a report that analyzes much of the available data on the contingent workforce, the broad category of workers who aren’t full-time, permanent employees. Depending on who’s counting, the contingent workforce covers everyone from part-time cashiers with steady jobs to day laborers looking for work on street corners to freelance business consultants earning hundreds of thousands of dollars a year. The GAO found that contingent workers, broadly defined, comprised 40.4% of the workforce in 2010, up from 35.3% in 2006. Most of that growth came not from typical freelancers or temp workers but from an increase in permanent part-timers, a category that grew as employers cut hours and hired fewer full-time workers during the recession.The GAO said its findings could shed light on policy decisions related to, among other things, income inequality, economic growth, and fiscal issues.
Public-Sector Jobs Vanish, Hitting Blacks Hard - For the Ingram clan, working for the Miami-Dade County transit system has led to regular paychecks, a steady advance up the economic ladder and even romance. Two of their children later followed them to the county bus depot. For the Ingrams and millions of other black families, working for the government has long provided a dependable pathway to the middle class and a measure of security harder to find in the private sector, particularly for those without college degrees.Roughly one in five black adults works for the government, teaching school, delivering mail, driving buses, processing criminal justice and managing large staffs. They are about 30 percent more likely to have a public sector job than non-Hispanic whites, and twice as likely as Hispanics.“Compared to the private sector, the public sector has offered black and female workers better pay, job stability and more professional and managerial opportunities,” said Jennifer Laird, a sociologist at the University of Washington who has been researching the subject.During the Great Recession, though, as tax revenues plunged, federal, state and local governments began shedding jobs. Even now, with the economy regaining strength, public sector employment has still not bounced back. An incomplete recovery is part of the reason, but a combination of strong anti-government and anti-tax sentiment in some places has kept down public payrolls. At the same time, attempts to curb collective bargaining, like those led by Wisconsin’s governor, Scott Walker, a likely Republican presidential candidate, have weakened public unions.
Millennials Aren’t Lazy: Millennials Aren’t Working Because the Economy Isn’t Either -‘Tis the season to be a graduate and members of the class of 2015 may be wondering: what are my chances in this job market? The class of 2015 is entering an economy still in recovery from the Great Recession. Job prospects for the class of 2015 are better than for the several classes that graduated before them, but young graduates today still face many economic challenges, including stagnant wages and high levels of unemployment and underemployment. The class of 2015 joins the six classes before it in graduating into an acutely weak labor market and competing with more experienced workers for a limited amount of job opportunities.Although unemployment rates of young graduates have come down in recent years after skyrocketing during the Great Recession, they still remain elevated compared to where they were before the recession began. Underemployment rates for the class of 2015 also remain high. This means that many young graduates either want a job but have recently given up looking for work, or have a job that does not provide the hours they need.Among young college graduates who are employed, many are working in a job that does not require a college degree at all. This is another sign of continued slack in the labor market, and a sign that young graduates’ high unemployment is not because they lack the right skills, but because of a continued lack of economy-wide demand for workers.
How Employers Get Out of Paying Their Workers: In America, we love to talk about crime. Usually, the rhetoric is focused on the acts we can see: bank heists, stolen bicycles and cars, alleyway robberies. But often, the more egregious crimes are the ones that are “unseen” -- those that happen behind closed doors in Wall Street suites, or over late-night email exchanges on virtual private networks. Among these, one stands out as particularly heinous: wage theft. In its simplest terms, wage theft refers to instances in which workers are not paid the legal and/or contractual wages promised by their employers. This includes the non-payment of overtime hours, the failure to give workers a final check upon leaving a job, paying a worker less than minimum wage, or, most flagrantly, just flat out not paying a worker at all. Most commonly, wage theft comes in the form of overtime violations: When it comes to ripping employees off, employers do not discriminate: wage theft exists in all professions, and affects all workers, regardless of gender, race, or legal status. Generally though, it is more prevalent among lower income jobs. Here's a breakdown of the fields most affected by employers who illegally deny overtime pay (note that the average salary on this list is roughly $19,000 per year):
Minimum wage workers can’t afford rent -- The gap between stagnant incomes and rising rents in many parts of the country is growing out of control. Renter households need to make $19.35 an hour working full time to afford a two-bedroom unit, which is $4 more than the estimated average wage of workers, an article in The Wall Street Journal said. Rental affordability has grown as a challenge in recent years due to a number of factors, including increasing demand as more people choose to rent or are forced to because they can’t get mortgages; a relative lack of rental construction in recent years in comparison to past cycles; and stagnant wage growth. And to make matters worse, according to the article, there is no state in the country where someone earning either the state or federal minimum wage can afford a market-rate one-bedroom apartment. A minimum wage worker would need to work 86 hours per week to afford a one-bedroom apartment.San Francisco was the most expensive metropolitan area, followed closely by Stamford-Norwalk in Connecticut, where a typical two-bedroom apartment demands that income earners in the household make a combined $37.37 an hour working full-time.
In No State Can A Minimum Wage Worker Afford A One Bedroom Apartment - Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one's family out of poverty. That rather stunning revelation comes as Democrats in the US push for a $12 minimum wage by 2020 and as pressure grows on companies like McDonald’s to raise wages for its lowest-paid employees. Of course rising minimum wages can also have the rather counterintuitive side effect of harming those they’re meant to help because after all, when the cost of labor goes up, employers may simply fire people or, as we saw yesterday when McDonald’s pledged to reduce the number of company-owned restaurants by 10% over the next several years, resort to other measures aimed at getting around pay floor hikes. So while one can debate pros and cons of addressing abysmal wage growth by legislating a non-market-driven solution, what is not up for debate is this: it’s getting harder and harder to subsist above the poverty line for low-income workers.In fact, as the following map shows, in no state can a minimum wage worker afford a one bedroom apartment.
U.S. Pay Inequality Is Growing More Between Firms Than Within Them, Paper Says - U.S. earnings inequality has increased greatly in the last three decades, but the trend is due primarily to rising differences in pay between firms, not growing gaps within them, according to a new working paper published by the National Bureau of Economic Research. In other words, the pay gap is rising not because the top earners within a firm are being paid so much more than their lower-paid colleagues. It’s climbing because some firms pay much better than others, and employees at those firms get paid a lot more than workers at lower-paying firms. So while CEO pay has rapidly outpaced workers’ median wages in recent decades, “virtually all of the rise in earnings dispersion between workers is accounted for by” the widening gap in average wages paid by different employers from 1978 to 2012, says the paper, titled “Firming Up Inequality.” In contrast, the authors say, “pay differences within employers have remained virtually unchanged,” and this is true across industries, geographical regions and firms of different sizes. For example, the gap between the highest paid employees within a firm, such as the top executives, and the average employee “has increased only a small amount,” they find.
A Conversation About Inequality and Atkinson - Paul Krugman -- Tony Atkinson, in many ways the father of modern inequality research, has a terrific new book — “Inequality: What Can be Done?” — that is, um, about inequality and what can be done. A few weeks ago Janet Gornick, director of the LIS data center, led Bob Solow and yours truly in a wide-ranging discussion of issues raised by Tony’s book. Here it is:
The Vicious Cycle of High Inequality - Conservative political leaders and economists often say that we should not worry about growing inequality because it is not hurting growth or the ability of poor people to become richer by simply working harder. Many liberals have long rejected that argument and a report out Thursday provides fresh evidence that income inequality is indeed bad for the economy and appears to be self-perpetuating. The report from the Organization for Economic Cooperation and Development, a Paris-based group of industrialized nations, says that greater inequality is associated with slower economic growth. That is in large part because in more unequal societies the poorest people have less access to education, training and good jobs.By the group’s calculations, the rise in inequality in 19 of its members between 1985 and 2005 reduced economic growth in those countries by 4.7 percentage points between 1990 and 2010. The O.E.C.D. countries where inequality is the highest include the United States, Mexico, Turkey and Chile.What’s most interesting about the report is that it provides strong evidence that greater inequality hurts the economy by denying opportunities to the poorest people in society. In countries with high inequality, the O.E.C.D. says that people at the bottom of the income distribution are less likely to graduate from a university, spend less time in school or college and are more likely to be unemployed. In other words, the report says, “in societies experiencing higher inequality, individuals might become less and less able to move outside the earnings class in which they were born.”
How to reduce income inequality: Tim Smeeding knows more than virtually anyone else about inequality and poverty in the United States and other rich nations. I asked him what he recommends to reduce income inequality. His response:
- Tax appreciated assets when inherited or transferred inter-vivos.
- Raise income tax rates on capital income — capital gains and dividends — to levels just below labor, e.g. maximum rate at true current marginal tax rate or 30%. And curtail practices of defining earnings as capital income, e.g. “carried interest” provisions.
- Reduce political rents: close tax loopholes that benefit mainly the wealthy (e.g. cap on deductions for employer-provided health insurance); turn deductions that benefit the richest into credits, many refundable, to benefit lower- and middle-income families; allow drug purchases at “best price” rates, not market rates, for Medicare; get rid of oil and gas exploration tax subsidies; limit and phase out agricultural subsidies.
- Use tax revenue to improve public infrastructure (including internet).
- Improve college prep classes and college counseling for students.
- More and better apprenticeships (get employers involved).
- Raise the minimum wage to $10 per hour, index it, and enforce labor laws (e.g. on scheduling).
- Universal child allowance at $2,500 per child, refundable if this is more than income taxes owed, and separate from the EITC.
- Profit sharing among all long-term (full year or more) employees.
The Earned Income Tax Credit - - The single largest federal program for providing cash assistance to those with low incomes is the Earned Income Tax Credit, which in 2014 reduced taxes owed by the working poor by about $3.6 billion while transferring to those households an additional $60.8 billion (according to Table 14-1 in the Analytical Perspectives volume of the proposed US budget. This isn't as much as programs with non-cash benefits, like Food Stamps and Medicaid. But it's more than what is spent on welfare, or on the Supplemental Security Income program for the low-income disabled and elderly. In "Earned Income Tax Credit in the United States," which appears in the Journal of Social Security Law (2015, 22:1, pp. 20-30), Elaine Maag provides a useful overview of the program. For economists, the big selling point of the EITC is that it rewards work. The classic problem that arises when government provides assistance to those with low income levels is that as a person works to earn an extra $100, they often find that the government benefits are then reduced by nearly that same amount or sometimes even more. As a result, many low-income people who work are saving the government some money, but not much increasing their actual after-benefits, after-taxes standard of living. In contrast, the EITC is set up so that the work disincentives are greatly reduced. Maag offers a graph familiar to those who know the program that shows how it operates.
Appeals court rules against Obama on immigration program - A federal appeals court on Tuesday refused to allow one of President Obama’s signature immigration proposals to move forward, throwing into doubt whether the program will even begin before the president leaves office. In a split 2-to-1 decision, the U.S. Court of Appeals for the 5th Circuit in New Orleans denied the Obama administration’s emergency request to lift a lower court’s injunction on an initiative to defer the deportations of illegal immigrants and grant them work permits. Obama announced the program through executive action in November, after House Republicans blocked an effort to pass a comprehensive immigration bill. The president said the federal government does not have resources to remove all of the nation’s 11 million undocumented immigrants and must focus on hardened criminals and potential terrorists. But Texas and 25 other states sued the administration, calling the move unconstitutional, and U.S. District Judge Andrew Hanen in Brownsville, Tex., ruled in February that the launch of the expanded program should be put on hold until the case is resolved. The Obama administration sought an immediate stay from the 5th Circuit last month, arguing that the states lacked the legal authority to sue the U.S. government over policies that relate to federal control of the nation’s borders. The 5th Circuit panel rejected that argument Tuesday. In a 68-page ruling, Judge Jerry Smith stated that Hanen’s injunction will remain in place because the administration is “unlikely to succeed on the merits of its appeal.”
Obama Loses Immigration Battle As States Block Executive Order -- On the heels of a tough Senate fight that initially saw Democrats oppose granting fast-track authority on trade deals, President Obama was just dealt a fresh blow related to what some say is another example of Presidential overreach. As Reuters reports, the 5th U.S. Circuit Court of Appeals in New Orleans ruled that an executive order on immigration designed to prevent the deportation of undocumented immigrants will remain on hold as 26 Republican state governors oppose the plan. Here’s more: By a 2-1 vote that could pave the way to a Supreme Court ruling, the judges from the 5th U.S. Circuit Court of Appeals in New Orleans ruled that Obama's executive action should remain on hold pending further judicial proceedings. The decision further delays Obama's immigration order, which was first blocked by a Brownsville, Texas lower court judge in February. The plaintiffs, all states led by Republican governors, said the federal government exceeded its authority in demanding whole categories of immigrants be protected. Democrat Obama's administration has said it is within its rights to ask the Department of Homeland Security to use discretion before deporting nonviolent migrants with U.S. family ties. But the judges' opinion said the approval rate of Obama's earlier executive action on immigration, aimed at people brought into the United States as children, was too high to reflect true discretion.
Obama-Style Immigration Reform May Be Dead As DoJ Won't Seek High Court's Help -- On Wednesday, we discussed a ruling by the 5th U.S. Circuit Court of Appeals in New Orleans that will serve to further delay the implementation of an executive order from President Obama designed to shield nonviolent immigrants from deportation. Republican governors from 26 states oppose the order and have accused the President of overreaching in his efforts to bypass what he views as an ineffectual Congress. Texas Attorney General Ken Paxton went so far as to accuse the administration of “brazen lawlessness.” For its part, The White House says it is by no means out of bounds for the President to ask Homeland Security to exercise an appropriate level of discretion prior to deporting immigrants with US family connections. Irrespective of who is right, the court ruling threatens to push a final decision on the subject well into next year, an eventuality which would further politicize the issue. Some commentators suggested that the President may well ask the Supreme Court to allow for the order’s immediate implementation. Now, the DoJ says The White House will not seek to use the high court as an end-around.
BLS: Twenty-Three States had Unemployment Rate Decreases in April --From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in April. Twenty-three states and the District of Columbia had unemployment rate decreases from March, 11 states had increases, and 16 states had no change, the U.S. Bureau of Labor Statistics reported today. ... Nebraska had the lowest jobless rate in April, 2.5 percent. Nevada had the highest rate among the states, 7.1 percent. The District of Columbia had a rate of 7.5 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. Nevada, at 7.1%, had the highest state unemployment rate although D.C was higher. 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 two states (Nevada and West Virginia) and D.C. are still at or above 7% (dark blue).
The Jobless Rate Rose in Only One State Over the Past Year: North Dakota - North Dakota is the only state in the country where the jobless rate was significantly higher in April than it was a year earlier, highlighting the impact of plunging oil prices in energy-rich states. The state’s unemployment rate is still among the lowest in the nation at 3.1%, the Labor Department said in a report Wednesday. But that’s up 0.4 percentage point from April 2014, when the jobless rate was 2.7%. North Dakota had boasted the lowest jobless rate in the country throughout the recession, but lost the top spot in February to Nebraska, which has a 2.5% unemployment rate. States that rely heavily on the oil industry have experienced significant job cuts, even as the U.S. economy continued to add jobs. But Wednesday’s report suggests the trend may have stabilized in recent weeks amid rising oil prices. Texas and Oklahoma, the two states with the biggest job losses in March, had no statistically significant monthly changes in employment in April. North Dakota, which lost 3,000 jobs in March, didn’t experience any significant losses from the prior month, either, the Labor Department said. Overall, payrolls increased last month in 40 states and the District of Columbia, decreased in nine states and were unchanged in Hawaii. California added the highest number of jobs in April—29,500. Pennsylvania added 27,000 jobs and Florida added 24,500. The biggest job losses last month occurred in New York, Missouri and Arizona. Compared with a year earlier, only one state lost jobs—West Virginia, where payrolls declined 0.7%. The biggest over-the-year percentage increases occurred in Utah, where payrolls grew 4%, followed by Florida and Washington, which grew by 3.6% each.
A Few Green Shoots in the April State Jobs Report, Mostly Just Mud - The April State Employment and Unemployment report, released today by the Bureau of Labor Statistics, showed most states are still plodding along with job growth sufficient to slowly bring down unemployment rates. A few states, particularly on the west coast, are showing more robust signs of improvement. At the same time, the states that had seen strong job growth from the oil and gas boom of the past few years may have cooled somewhat in recent months. Between January and April, 38 states and the District of Columbia added jobs, with Maine (+1.3 percent), South Dakota (+1.1 percent), South Carolina (+1.1 percent), Nevada (+1.0 percent), and Oregon (+1.0 percent) making the largest percentage gains. These states more than doubled the average pace of growth for the country over the same period (+0.4 percent). Oregon and its neighbor to the north, Washington, have had the second and third largest percentage gains in the country, respectively, over the past year. Over the same period, 12 states lost jobs, with the largest percentage losses occurring in West Virginia (-1.1 percent), Oklahoma (-0.4 percent), North Dakota (-0.3 percent), Wyoming (-0.3 percent), and Louisiana (-0.2 percent). The declines in Oklahoma, North Dakota, Wyoming, and Louisiana are likely the result of slowdowns in oil and gas production, following the boom that has fueled relatively strong growth in these states over the past several years. The decline in West Virginia is more troubling: West Virginia is the only state in the country that has lost jobs over the past year.Now nearly 6 years into recovery, 36 states and the District of Columbia still have unemployment rates above their pre-recession levels. Although there are stronger signs of improvement in a few parts of the country, there is no reason to think we are anywhere close to a full recovery. Job prospects remain weak for too many job-seekers, especially for young high school and college graduates. Policymakers nationwide, and particularly those at the Federal Reserve, need to keep faster job growth as their number one priority.
These states rob from the poor and give to the rich - The Washington Post: The federal tax code is a powerful tool for reducing income inequality: in general, high-earners are taxed at higher rates than low-income people, with a significant part of that money going toward programs that help the poor, like food stamps and other safety net payments. But we don't usually think as much about the impacts of state taxes on inequality. A team of researchers at the Federal Reserve recently released a paper exploring the topic and found something, if not surprising, discouraging. When it comes to taxes, some states build on federal efforts to reduce inequality and take steps to further decrease the gap between rich and poor. But plenty of others actually undermine the federal government's anti-inequality measures. In essence, they take from the poor and give that money to the rich. I've mapped each state's contributions to inequality reduction below. States in green have tax policies that build on the federal tax code, making the gap between rich and poor smaller. States in purple have tax laws that undo federal measures to address inequality. In some cases, the magnitude of the effects are quite large. The tax code of Tennessee, for instance, decreases federal anti-inequality efforts by nearly one-third. Other Southern states have laws that take a big bite out of inequality relief, too. On the other hand, places such as Minnesota and Oregon add to federal efforts by 18 percent or so.
Kansas Faces Federal Backlash to Shameful New Offensive In Its War on the Poor - If the states are the "laboratories of democracy," then Kansas is beginning to look more and more like the cellar of Dr. Frankenstein's Bavarian castle. An inventively cynical group of state legislators, backed by the administration of Gov. Sam Brownback, a conservative Republican vessel for all the worst and most destructive economic policies of the past 30 years, passed an amendment in April prohibiting welfare recipients from making withdrawals in excess of $25 from their government-issue debit cards. The initial backlash caught the attention of the federal Department of Health and Human Services, which is now scrutinizing the amendment and could, according to McClatchy, pull federal funds from the state under the authority of the Social Security Act, which requires recipients be guaranteed "access to using or withdrawing assistance with minimal fees or charges." Barring an about-face, on July 1 the state will effectively cut off its poorest citizens from needed funds while directing a healthy cut of their aid to financial companies who collect fees on ATM transactions. According to the Washington Post's calculations, "a single mother with two children seeking to withdraw just $200 in cash could incur $30 or more in fees, which is a big chunk of the roughly $400 such a family would receive under the program in Kansas."
America's crumbling infrastructure -- America’s infrastructure could be reaching a breaking point. Literally. When it comes to our transportation infrastructure — that’s railroads, water pipelines, ports, dams, bridges, airports and roads — the United States has gotten way off track.In fact, the American Society of Civil Engineers’ most recent report card gave America’s infrastructure a D+. And according to the World Economic Forum, the U.S. ranks 16th in quality of overall infrastructure, behind countries like France, Spain and Japan.Our roads, for example, require a lot of maintenance, especially after a long winter. All those potholes and rough roads cost drivers an estimated $324 a year spent on car repairs. Many roads are often jammed with traffic. Forty-two percent of America’s major urban highways are considered congested. And that costs the economy an estimated $101 billion in wasted time and fuel each year. It’s not just the highways and roads. Around 70,000 bridges are structurally deficient, which means they’re not unsafe but are in poor condition due to deterioration. According to the ASCE report, an estimated $1.7 trillion is needed by 2020 for our surface transportation to be improved. State and local governments largely finance infrastructure in the U.S., but when they’re short on funds, infrastructure moves down the priority list. The federal government provides crucial funding through something called the Highway Trust Fund, which gets its revenue mostly from a gas tax. It’s 18.4 cents per gallon, but it hasn’t been raised since 1993. The tax brings in around $34 billion each year, which isn’t enough for all the infrastructure projects across the nation.
Crumbling infrastructure belies US power - From decaying roads and bridges to airports that are, in the words of US Vice President Joseph Biden, comparable to "some third-world country," US infrastructure is increasingly decrepit. Despite the country's economic might, the American Society of Civil Engineers (ASCE) rated US overall infrastructure with a D+ grade in 2013 and estimated that about $3.6 trillion would be needed in order to effectively update and expand the nation's infrastructure by 2020. The challenge facing the country is a daunting one. Roads, sewage treatment systems, water networks, dams and electrical grids have all faced increasing demand in the face of an ever-growing population, while infrastructure funding has plunged to historic lows. In part, these declines were due to the 2008 recession, when state and local governments struggled with massive funding shortfalls. However, even before the recession, many experts were sounding the alarm over decaying infrastructure. Today, the US spends under 2 percent of its annual GDP on infrastructure compared to 5 percent in Europe and 9 percent in China. While other nations roar ahead, the American people find their own government unable to maintain its position in the face of this growing infrastructure deficit. In many cases, this decaying infrastructure can produce a serious danger to public safety. For example, the ASCE has claimed that in 2013 there were 2,000 dams that were considered deficient and potentially posed a serious threat to local populations if they failed. Similarly, improperly maintained roads and bridges can pose an immediate threat to the individuals using them.
Roads, Schools, Sales and Wills - Just before leaving town for its Memorial Day recess, and with no funding solution in the tank, Congress extended spending authority until the end of July. That’s about the time lawmakers will be heading out for their summer vacation. Perhaps that deadline will inspire a solution. Or not. Will California raise its gasoline tax? Over the past ten years, the state has spent most of its transportation money on widening roads or on projects that expedite commercial shipping. Yet to be done and with no money to do it: $59 billion worth of road maintenance. Now, even anti-tax Republicans are open to a gas tax increase to fund those deferred projects. Democratic State Senator Jim Beall would raise the state’s 48.6 cents-per-gallon gas tax by a dime and Senate GOP leader Bob Huff called Beall's plan “a ‘creative' solution to a vexing problem.” Arizona’s Governor Doug Ducey will not raise taxes for public schools. The Republican promised not to raise taxes, and he won’t, even though public school spending in Arizona has dropped 25 percent per student since 2008. Some business leaders, however, are wondering whether the state should invest more dollars in public education. A new sales tax signals brighter days for Puerto Rico… In the bond market, anyway. The price of bonds issued in March, 2014 reached a two-month high after the island’s House approved a sales tax increase from 7.5 percent to 11.5 percent to help balance the 2016 budget. After March of 2016, the levy would transition to a value-added tax. Puerto Rico’s Senate will likely vote on the tax today, and has the votes to pass it.
New Jersey Faces a Transportation Funding Crisis, With No Clear Solution - Bridges across the state are falling apart. Roads are rife with potholes. Frustrated New Jersey Transit riders are facing another fare increase.As many commuters bemoan the mounting delays and disruptions, state officials say New Jersey is confronting a transportation funding crisis with no easy way out. Voters are so fed up, support is growing for a revenue option long viewed as politically untenable: raising the state’s gas tax, which is the second lowest in the country.Whatever happens with the gas tax, many New Jerseyans soon will be paying more to get to work. New Jersey Transit has proposed raising fares by about 9 percent for its 915,000 daily riders, and an increase of some amount is all but certain. Federal and state subsidies as a share of the agency’s annual budget have been falling, and that has left it increasingly reliant on fares to cover costs, even as many passengers say service is slipping.Here at one of the busiest rail hubs in the state, the exasperation was evident, in interviews with people headed home, and in the pointed testimony of commuters who turned out last week for a public hearing on the proposed fare increase.Gov. Chris Christie, a Republican, has said little in recent months about roads and transit even as his own transportation commissioner, Jamie Fox, has forcefully called for revenue for the state’s depleted transportation trust fund. Despite the governor’s relative silence, the troubles of the state’s transportation agencies have emerged as a grinding issue for him, including the scandal involving his appointees to the Port Authority of New York and New Jersey and the growing backlash over his decision to halt construction of a new rail tunnel under the Hudson River.
California Democrats And Republicans Could Agree To Hike Gas Tax - This is an incredibly heavy lift and the pollsters I’ve talked to have called this “Mission Impossible”. Voters just aren’t inclined to raise the gas tax, despite business and developers’ interests. Even if you are able to get voters at the 50 percent range, it’s usually done by small incremental increases.It’s a challenge for California, because the roads are crumbling and one way or another, we’re going to have to pay to fix them up. Even some members from California’s Republican Party say they’re willing to go along with the plan, but of course they’ll do it on condition.The argument has been made that raising the gas tax won’t bring in enough revenue because we’re using less gas with more hybrids and other types of advanced-technology vehicles on the roads.And speaking of electric vehicles, what about Tesla owners? Why should they, the drivers of some of the heaviest cars that are tearing up the roads that don’t pay into the gas tax, get to ride on the highway? What should they pay? Politicians are suggesting ideas like this where drivers of hybrids and electric cars would pay their own separate fee to go towards road maintenance.
Pensions and Politics Fuel Crisis in Illinois - Illinois is facing one of the worst fiscal crises of any state in recent decades, largely because it has mismanaged its pension system.The shortfalls could potentially mean sharply higher taxes and cuts in spending. And even though the state’s highest court just this month threw out a landmark plan to cut worker and retiree benefits, some lawmakers say they may have to find another way to make those reductions as well.Illinois’s problems resonate well beyond its borders. Pennsylvania, New Jersey and Kentucky are among the states confronting similar problems, and to them, Illinois is a model of what can go wrong — with political intransigence, mounting costs and a complicated legal terrain. So elected officials, union leaders, investors, fiscal hawks and even bankruptcy lawyers across the country are watching Illinois closely to see how it addresses the crisis. In Washington, some Republicans have even raised pointed concerns that President Obama’s home state might someday seek federal help. The state faces a range of problems. Illinois has one of the worst-funded pension systems in the nation. Chicago also has a pension crisis, leading Moody’s Investors Service to downgrade its credit rating to junk status on May 12, potentially threatening the city’s ability to borrow.And the state faces an expected budget deficit of $6 billion, which it needs to address quickly. With just days before a legislative deadline, the new Republican governor, who ran on cutting costs and holding down taxes, is at odds with Democrats who hold a veto-proof supermajority in the legislature.
IL Democrats proposing budget with $3 billion worth of debt - Illinois lawmakers have a week to pass a new state budget, but the democrats’ plan could be a non-starter. House Speaker Michael Madigan says democrats are ready to pass a $36.3 billion spending plan, but he admits the state doesn’t have the money. “Democrats in the legislature, both the House and the Senate, will offer a spending plan that’s consistent with our view of what the state of Illinois should do for Illinoisans who need the government to be helpful to them,” Madigan said. “We will publicly acknowledge that we don’t have the money to pay for this budget.” That budget is at least $3 billion short.
Bond Girl on Chicago and the Quality of Credit Analysis in the Municipal Bond Market --On May 13, Moody's shocked the municipal bond market by downgrading Chicago to junk. At that time S&P rated Chicago five notches higher, the widest spread between bond raters in history. Kristi Culpepper, AKA "Bond Girl" comments on the event in What Chicago’s Fiscal Emergency says about the Quality of Credit Analysis in the Municipal Bond Market. In a sense, Moody’s was only validating the bond market’s opinion of the city’s creditworthiness — the bonds had already been trading at junk levels for several months. This should have been a straightforward event for the chattering class to process intellectually. Rating actions tend to lag the market rather than lead it. Oddly, however, Moody’s downgrade sparked a debate over whether Moody’s was being “fair” to Chicago. How could Moody’s cut the city to junk when the other rating agencies rate the city so much higher? (That has obviously never happened before in an era of ratings shopping and superdowngrades.) Wouldn't having a diverse economy and large tax base cancel out the costs associated with machine politics? (It’s not like this is Chicago’s third fiscal crisis in the past century.) This was probably the first instance in the history of the capital markets that a rating agency was accused of having too radical an attitude toward risk.
Colorado's Marijuana Revenue High and Pending TABOR Refunds - The experiment with marijuana legalization is yielding an unexpected high, with state revenues substantially outpacing projections. Under the influence of these and other unanticipated revenues, the state is moving forward with a provision of the Taxpayer’s Bill of Rights (TABOR) that has languished unused for years: taxpayer refunds. Colorado’s Taxpayer's Bill of Rights, enshrined in Article X of the state constitution, requires voter approval for tax increases and institutes taxpayer refunds when state revenues under existing tax rates exceed the rate of inflation and population growth. From TABOR’s adoption in 1992 through 2001, over $2 billion has been returned to taxpayers, but there haven’t been any refunds since, the consequence of recession and a voter referendum suspending the revenue limit from 2006-2010, designed to allow state revenues to recover in the wake of the economic downturn of the early 2000s. This voter measure, designated Referendum C, allowed the state to spend $11.6 billion that would have otherwise been subject to refund during what has been termed the “five-year timeout period.”
‘Breathtaking in its stupidity': Wisconsin GOP bill would allow high school dropouts to teach high school: epublicans lawmakers in Wisconsin have proposed a rule change that would allow high school dropouts to be licensed to teach in public schools, which critics have slammed as “breathtaking in its stupidity.” The Journal Sentinel reported that the measure proposed by Republican state Rep. Mary Czaja was slipped into a 1:30 a.m. Legislature’s Joint Finance Committee vote last week with other K-12 budget items. According to a statement from the Wisconsin Department of Public Instruction, the new rule would require DPI to “license anyone with a bachelor’s degree in any subject to teach English, social studies, mathematics, and science.” And DPI would be required to “issue a teaching permit for individuals who have not earned a bachelor’s degree, or potentially a high school diploma, to teach in any subject area, excluding the core subjects of mathematics, English, science, and social studies.” Czaja said that the new requirements were necessary to give rural school districts more leeway when hiring staff.
Income inequality, social mobility, and the decision to drop out of high school: Compared to other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating.
Teens are fleeing religion like never before: Massive new study exposes religion’s decline: Religion is rapidly losing the youngest generation of Americans, according to new research. America’s rising generation of adults are the least religiously observant of any generation in six decades, determined an expansive study led by Jean Twenge, a psychology professor at San Diego State.“Unlike previous studies, ours is able to show that millennials’ lower religious involvement is due to cultural change, not to millennials being young and unsettled,” Twenge says in a San Diego State University news release. . In one of the largest studies ever conducted on Americans’ religious involvement, researchers from Case Western Reserve University and the University of Georgia collaborated with Twenge and her colleagues in California to analyze data from four national surveys of U.S. adolescents between the ages of 13 and 18. The surveys were taken between 1966 and 2014, and include responses from some 11.2 million people. The researchers’ findings were published this month in PLOS One. According to Twenge and her cohorts, today’s adolescents view religion as less important, report less “approval” of religious organizations, and spend less time on prayer than did their similarly-aged predecessors. Some 75 percent of American 12th graders, the paper finds, believe that religion is “not important at all” in their lives.
Reforms aimed at fighting grade inflation are falling short --Grade inflation is rampant on American campuses. According to a study by Stuart Rojstaczer and Christopher Healy, A’s represent 43 percent of all grades awarded today—up from 15 percent in 1960. In fact, an “A” is now the most common grade awarded in college, and 73 percent of all grades are A’s and B’s. The problem is especially acute at private colleges and top public universities, particularly in the humanities and social sciences (except economics). How then, in the face of all this blurring of lines between good, bad, and excellent, can higher education maintain a system of meaningful measures of student performance? A couple of approaches conceived to deal with the problem of grade inflation have gained traction in the last few decades, with varying degrees of success and failure. One approach attempts to address grade inflation by adding grade distributions and class GPAs to transcripts. The other caps the percentage of “A” grades or mandates a specific grade distribution. The first approach—adding grade distributions to transcripts—is intended to give students, faculty, administrators, and employers more information about an individual’s relative academic standing. Such grading transparency, the thinking goes, will make easy course schedules less attractive, encourage academic exploration on the part of students (rather than have them flock to degree programs traditionally regarded as easy), and give hiring managers and graduate school admission officers more insight into applicants’ true abilities. UNC-Chapel Hill has been especially susceptible to grade inflation. In 1967, the average GPA at the North Carolina flagship was 2.49. By 2008 it had risen to 3.21, and 82 percent of all grades were A’s and B’s. Moreover, 40 percent of undergraduates made the Dean’s List in 2008, up from 28 percent in 1995.
Student Debt Horror Story? This Consumer Agency Wants to Know - Alexis Golddstein - If you’re one of the 43 million Americans with student debt, you’re probably all too familiar with student loan servicers — companies like Navient (formerly known as Sallie Mae), Great Lakes, Nelnet, and FedLoan Servicing. Have any of these companies, who are paid by the government to service student loans, ever caused you stress? If they have, the Consumer Financial Protection Bureau (CFPB)— the consumer agency dreamed up by Senator Elizabeth Warren — wants to hear about it. There is no shortage of student loan horror stories. Servicers were found to have deliberately maximized late fees, and over-charged borrowers who were in income-based repayment plans. Sallie Mae was reported to have hounded family members for huge sums of money following the death of a loan’s co-signer. And Navient was sued by the Department of Justice for systematically overcharged members of the military. In an attempt to improve the service student loan borrowers receive — and hopefully avoid abuses going forward — the CFPB is asking the public to weigh in on their experiences. Specifically, the Bureau wants to know if borrowers have run into any of the following: [P]ayment processing problems, servicing transfer snags, communication confusion, or any other challenges when repaying your student debt. The CFPB’s website includes a link that will generate an email that you can then fill in with your experience. Your story will then be included in the public record. Comments are being accepted from now through July 13, 2015.
Primer For Indebted Students: Here Are Your Options -- Last week we brought you the US government’s official message to heavily-indebted students. In short, the Department of Education is promoting so-called “Income Based Repayment” which allows borrowers to make monthly payments based on their disposable income. In the event a borrower cannot afford to service his or her debt — which is exceedingly likely in an economy characterized by what Moody’s calls “high unemployment rates for recent graduates” — some debtors will be allowed to count payments of $0 towards the 300 “eligible payments” necessary to have the balance of their debt forgiven. In other words, if you don’t make enough money and are willing to wait 25 years, your student loans will be written off at the expense of the US taxpayer. So that’s one option available to 2015’s graduating college seniors who, as we reported earlier this month, are the most indebted college class in the history of US higher education. There are other options available as well including (gasp), repaying your loan in full and on time, but as the following graphic from the government shows, offloading some of the burden is always a possibility: Do you have student loans? Calculate what your monthly payments will be: http://t.co/5y2HRfqkfl pic.twitter.com/3AMLzjzmy9
U.S. SEC charges Atlanta firm over public pension funds (Reuters) - The U.S. Securities and Exchange Commission on Thursday announced fraud charges against an Atlanta-based investment advisory firm and two of its executives for their handling of the city's pension funds for police, firefighters, transit workers and other employees. An SEC statement said Gray Financial Group Inc steered public pension fund clients into an investment fund that did not comply with state law and collected more than $1.7 million as a result. The group, its founder and president, Laurence Gray, and co-Chief Executive Officer Robert Hubbard IV breached their responsibilities to act in the best interest of the pension funds by recommending investments in an alternative fund called GrayCo Alternative Partners II LP. "The claims and arguments in the SEC's filing today are without merit," said Terry Weiss, a lawyer at Greenberg Traurig LLP in Atlanta, who represents the firm, Gray and Hubbard. The SEC said the investments violated Georgia law because they did not have at least four other investors and did not have a minimum of $100 million in assets. In addition, a Georgia public pension fund's investment is limited to no more than 20 percent of the capital in an alternative fund, but two of the pension funds' investments exceeded the limit, according to the SEC. The firm and Gray made misrepresentations when asked if the investments complied with the law and about the number and identity of prior investors, the statement said. Gray Financial, which has said it has been under investigation since at least August 2013, manages about $11 billion in assets.
U.S. company pensions less solvent in 2014 -UBS | Reuters: U.S. corporate pension funds turned less solvent in 2014 versus 2013, approaching risky levels based on regulations, as their liabilities ballooned by more than $180 billion, according to UBS analysts. The solvency ratio of retirement schemes among Russell 1000 companies fell to 81 percent last year from 87 percent in 2013. Unfunded liabilities of these pensions grew to $426 billion or about 2.5 percent of nominal gross domestic product, they said. "Consequently, dropping so perilously close to the 80 percent level should sound an alarm for the entire corporate pension space," UBS analysts Boris Rjavinski and Matthias Rusinski wrote in a May 27 research report released on Thursday. The drop in solvency occurred even as the Russell 1000 companies put $55 billion into their pensions in 2014, compared with $60 billion in 2013, they said. "Poorly" funded plans outnumbered "well-funded" ones by a ratio of nearly four to one.
Marco Rubio Wasn't the Only One Who Cashed Out an IRA Last Year -- It is easy to mock Senator Marco Rubio, who cashed out $68,241 in IRA retirement funds last September. The GOP presidential hopeful, who made about $230,000 last year, told Fox News he needed the dough to prepare for his campaign, buy a new $3,000 refrigerator, and fix his busted a/c. As it happens, he is far from alone. Using retirement money to buy a high-end appliance may not be the wisest financial decision. But it turns out that Rubio is not the only 40-something draining a retirement account. Substantial assets leak because people under age 59 ½ take early withdrawals or borrow against their IRAs or 401(k). And the problem raises an important and challenging policy question: Should the money in these accounts be available for non-retirement purposes? Exactly how much is lost is unclear, but it is not a trivial sum. My Urban Institute colleagues Barbara Butrica, Sheila Zedlewski, and Philip Issa estimate that more than 8 percent of working-age retirement account owners made at least one withdrawal between 2004 and 2005. And they pulled out about 20 percent of their total balances. Overall, at least 1.5 percent of all retirement savings leaks out of the system each year, although some studies estimate it is much more than that. And even withdrawals at the low end of the estimates can result in a substantial reduction in retirement savings. According to Alicia Munnell and Tony Webb at the Center for Retirement Research at Boston College, early withdrawals of about 1.5 percent ultimately reduce total IRA and 401(k) wealth at retirement by about one-quarter.
Health insurance plans are getting crummier, and these charts prove it - Vox: If you ask any economist the main purpose of health insurance, the answer you'll probably get back is this: to protect against financial catastrophe. Yes, the free annual check-ups or discounted gym memberships that health plans sometimes offer are nice. But the real thing you're purchasing with your monthly premium is protection against financial ruin. You're paying for someone else to be on the hook for the big medical bills that can and will pile up in the case of serious illness or accident. Except, increasingly, insurance does not provide that type of protection. That's the main takeaway from a new Commonwealth Fund report on the "underinsured," or people who have health insurance that leaves them exposed to really big costs — and who appear to skip care due to the price. The Commonwealth Fund counts adults as underinsured if they meet one of two conditions: their out-of-pocket costs totaled 10 percent or more of their income or if their deductible was 5 percent or more of total income. And they found that 23 percent of Americans with insurance fit into this category — up from 12 percent in 2003. Underinsurance matters because it appears to deter people from seeking care. Underinsured people are far more likely to not go to the doctor when they have a medical problem; a quarter of the underinsured report doing this, compared with 12 percent of those with more robust coverage. They skip prescriptions, follow-up tests, and specialist visits at a rate that's inching closer to the uninsured — people with no coverage at all. Among lower-income adults, who would be hit significantly harder by a large medical bill than higher-earning insured adults, underinsurance is especially prevalent. The Commonwealth Fund data shows that people with lower incomes (less than 200 percent of the poverty line, or about $22,000 a year for an individual) are underinsured at twice the rate of people with higher incomes (those earning more than 200 percent of the poverty line).
Obamacare's big overhead bill? Try $273.6 billion - Obamacare is set to add more than a quarter-of-a-trillion-that's trillion-dollars in extra insurance administrative costs to the U.S. health-care system, according to a new report out Wednesday. The $273.6 billion in additional insurance overhead represents an average of of $1,375 per newly insured person, per year, from 2012 through 2022. The overhead cost equals a whopping 22.5 percent of the total estimated $2.76 trillion in all federal government spending for the Affordable Care Act programs during that time, according to the authors of the online report on the Health Affairs blog. In contrast, the federal government's traditional Medicare program has overhead of just 2 percent, according to the report. "Insuring 25 million additional Americans, as the [Congressional Budget Office] projects the ACA will do, is surely worthwhile," the authors of the Health Affairs blog post write. "But the administrative cost of doing so seems awfully steep, particularly when much cheaper alternatives are available." The eye-popping Obamacare overhead tally cited by the Health Affairs blog report comes from calculations based on data posted online in July 2014 by the federal Centers for Medicare and Medicaid Services' Office of the Actuary.
Four Words That Imperil Health Care Law Were All a Mistake, Writers Now Say - They are only four words in a 900-page law: “established by the state.”But it is in the ambiguity of those four words in the Affordable Care Act that opponents found a path to challenge the law, all the way to the Supreme Court.How those words became the most contentious part of President Obama’s signature domestic accomplishment has been a mystery. Who wrote them, and why? Were they really intended, as the plaintiffs in King v. Burwell claim, to make the tax subsidies in the law available only in states that established their own health insurance marketplaces, and not in the three dozen states with federal exchanges? The answer, from interviews with more than two dozen Democrats and Republicans involved in writing the law, is that the words were a product of shifting politics and a sloppy merging of different versions. Some described the words as “inadvertent,” “inartful” or “a drafting error.” But none supported the contention of the plaintiffs, who are from Virginia.“I don’t ever recall any distinction between federal and state exchanges in terms of the availability of subsidies,” said Olympia J. Snowe, a former Republican senator from Maine who helped write the Finance Committee version of the bill. “It was never part of our conversations at any point,” said Ms. Snowe, who voted against the final version of the Senate bill. “Why would we have wanted to deny people subsidies? It was not their fault if their state did not set up an exchange.” The four words, she said, were perhaps “inadvertent language,” adding, “I don’t know how else to explain it.” Former Senator Jeff Bingaman, Democrat of New Mexico, said there may have been “some sloppiness in the drafting” of the bill. “As far as I know, it escaped everyone’s attention, or it would have been deleted, because it clearly contradicted the main purpose of the legislation,” When the Supreme Court offers its judgment, it could affect more than 7.5 million people now receiving subsidies through the federal exchange and a health care industry that accounts for 17 percent of the nation’s gross domestic product.
What’s up with the Hep C lawsuits? - -- Yesterday, Austin flagged two lawsuits that have been filed in California against Anthem Blue Cross over its refusal to pay for Harvoni to treat Hepatitis C. Setting aside the question of whether Harvoni is cost-effective—check out Allan Joseph on that—what are the lawsuits about? And are they likely to succeed? Anthem denied Harvoni to the plaintiff in the lead California case on the ground that it wasn’t medically necessary for someone with her limited extent of liver damage. The rejection appears to be inconsistent with prominent clinical guidelines, which say that some kind of therapy should be provided to anyone with Hep C, although priority should be given to those with serious liver damage. The American Association for the Study of Liver Disease, for example, has said that successful treatment “is tantamount to virologic cure, and as such, is expected to benefit nearly all chronically infected persons.” Nonetheless, Anthem refused to pay for Harvoni based on its own internal guidelines, which you can see here. (I have no idea what resources Anthem used to develop its guidelines; the guidelines themselves don’t say.) Although Harvoni is only one of three recommended therapies for someone with the plaintiff’s type of Hep C, it doesn’t look like Anthem would have paid for the two alternatives either. Judging from the Wall Street Journal article about the lawsuit, Anthem thinks that Harvoni is still experimental for those Hep C patients with healthy-ish livers. As an Anthem spokesperson explained, “[b]roader use of these drugs and knowledge about the long term effects and potential harms and outcome of various alternative therapies are needed on those with limited effects of infection.”
I Don’t Want to Be Right - Last month, Brendan Nyhan, a professor of political science at Dartmouth, published the results of a study that he and a team of pediatricians and political scientists had been working on for three years. They had followed a group of almost two thousand parents, all of whom had at least one child under the age of seventeen, to test a simple relationship: Could various pro-vaccination campaigns change parental attitudes toward vaccines? Each household received one of four messages: a leaflet from the Centers for Disease Control and Prevention stating that there had been no evidence linking the measles, mumps, and rubella (M.M.R.) vaccine and autism; a leaflet from the Vaccine Information Statement on the dangers of the diseases that the M.M.R. vaccine prevents; photographs of children who had suffered from the diseases; and a dramatic story from a Centers for Disease Control and Prevention about an infant who almost died of measles. A control group did not receive any information at all. The goal was to test whether facts, science, emotions, or stories could make people change their minds.The result was dramatic: a whole lot of nothing. None of the interventions worked. The first leaflet—focussed on a lack of evidence connecting vaccines and autism—seemed to reduce misperceptions about the link, but it did nothing to affect intentions to vaccinate. It even decreased intent among parents who held the most negative attitudes toward vaccines, a phenomenon known as the backfire effect. The other two interventions fared even worse: the images of sick children increased the belief that vaccines cause autism, while the dramatic narrative somehow managed to increase beliefs about the dangers of vaccines.
Government R&D, Private Profits and the American Taxpayer - The Academy of Radiology Research has resorted to a creative tactic in a bid to halt the decline in public funding for science: It showed Congress a picture of how much the nation earns from the government’s research dollar. Every $100 million invested in research by the National Institutes of Health, according to the R&D consulting firm Battelle, generates almost six patents. At the National Science Foundation $100 million generates more than 10. At the National Institute of Biomedical Imaging and Bioengineering — which finances research in radiology — it produces almost 25 patents. And these patents sparked $578.2 million worth of additional R&D further downstream. “N.I.H. research has helped lower the burden of disease, and people in both parties recognize its importance,” said Jonathan Lewin, chairman of the department of radiology at Johns Hopkins University and head of the academy of radiology. “We decided to look at the economic value of our research to make the argument about this value, too.” Radiologists hope this sort of analysis could help prioritize public funding in a tight budget era: National Institutes of Health budgets are almost 20 percent smaller than they were 10 years ago. But beyond the narrow objective of allocating a shrinking budget, the analysis offered by the radiologists raises another possibility to consider. Taxpayer-financed research can generate large rewards down the road. Perhaps the taxpayer could reap a share? In an era of tight budgets, this could finance the research to power American innovation.
Military "Accidentally" Sends Live Anthrax To 9 States Via FedEx -- A week after the 9/11 terrorists attacks that destroyed the Twin Towers in New York, letters laced with anthrax began to pop up across the US. By the end of November, 2001, 17 people had been hospitalized for anthrax exposure and five people were dead from inhalation. A subsequent FBI investigation pinned the entire ordeal on one Bruce Ivins who killed himself in 2008. Fast forward to yesterday and 26 people are now being treated for exposure after live anthrax was sent via FedEx. The culprit: the US military. CNN has more: Four lab workers in the United States and up to 22 overseas have been put in post-exposure treatment, a defense official said, following the revelation the U.S. military inadvertently shipped live anthrax samples in the past several days. CNN learned on Wednesday a Maryland-based lab received the live samples, which prompted an across the board urgent review to see whether any other live anthrax has been shipped. Officials are concerned because samples left over at the lab in Dugway, Utah, where the samples originated, were tested and determined to contain live agent. The shipments, thought to be dead, were shipped under less rigorous conditions than the live agent protocol. NBC News reported that the anthrax was sent via FedEx.
As Antibiotic Resistance Spreads, WHO Plans Strategy To Fight It -- The world is losing some of the most powerful tools in modern medicine. Antibiotics are becoming less and less effective at fighting infections. The problem has gotten so bad that some doctors are starting to ponder a "post-antibiotic world." Common infections that have been easily treatable for decades could become deadly if the current growth of antimicrobial resistance continues. "Globally this is a really big issue," says Keiji Fukuda, assistant director-general for health security at the World Health Organization. "We are seeing the same patterns of resistance basically occur everywhere." In Europe alone, 25,000 people now die each year from infections that used to be treatable with antibiotics, Fukuda says. Some Staphylococcus infections acquired in hospitals have become almost impossible to cure. The pathogens behind malaria and tuberculosis are evolving to elude even the best treatments. "If we look at an infection like gonorrhea," Fukuda says, "there are several countries in which gonorrhea is now essentially untreatable by any of the available antibiotics." When drug resistance develops in one part of the world, it tends to quickly spread, he says.At the WHO's annual meeting in Geneva this week, representatives from 194 countries approved a new global plan to counter antimicrobial resistance. The plan calls for every country to have a system in place by 2017 to monitor for drug resistance. It also tries to reduce the use and misuse of antibiotics in health care settings and agriculture. The plan calls for more investment in new drugs. It even emphasizes the need to cut the incidence of new infections with simple measures, such as increased hand-washing in hospitals and clinics.
US egg prices soar as avian flu batters poultry industry - US farmers have been forced to kill almost 40 million chickens and other birds, causing egg prices to soar as a deadly version of the avian flu attacks the poultry industry. An outbreak of a particularly infectious version of the bird flu, believed to come initially from wild ducks and geese, has spread into 15 US states and two Canadian provinces, requiring the mass slaughter of egg-laying chickens and turkeys in particular. That has turned into an 80 percent surge in the wholesale price of eggs, and a more modest hike in turkey meat costs, which could last for the rest of the year even if the flu outbreak can be successfully contained, according to industry officials. The midwest state of Iowa, the largest US egg producer, has seen some 25 million birds, mostly chickens for egg production, killed. The state has declared a state of emergency against the disease, and after discovering avian flu on a 63rd farm, on Thursday banned any public exhibition of live birds, including at fairs, auctions, swap meets and other events. "The scale of this outbreak has been unprecedented, so we think it is important we take every possible step to limit the chance that this disease will spread any further," said Iowa Secretary of Agriculture Bill Northey.
Bird flu egg-splained: The impact goes far beyond your breakfast table - Because of a bird flu outbreak, wholesale prices for eggs have risen to over $2.00 a dozen, up a whopping 71% since late April. Retail prices haven't risen nearly as fast -- up 17% in the past month according to The Guardian...but grocers can only hold off passing on the price increase to consumers for so long. The avian flu has forced American farmers in 16 states to kill 40 million birds so far, the vast majority of them egg-laying hens. More than 10% of the entire U.S. egg supply has already been affected by the outbreak, according to The Washington Post, with Iowa farms particularly hard hit. The impact of this bird flu outbreak goes far beyond your breakfast table. The price of liquid, dried and frozen eggs used by food manufacturers has risen nearly 30% in the past month. And a potential shortage of these so-called breaker eggs is forcing corporations like McDonald's, Unilever, Panera and General Mills to scramble to find alternative suppliers and substitute ingredients. If the bird flu does lead to shortages, expect to pay more for all kinds of egg-rich products like mayonnaise, baked goods and ice cream in the weeks and months ahead. And this Thanksgiving could be more expensive too. Hormel Foods says its Jennie O Turkeys might be in short supply because of the avian flu outbreak, which has forced farmers to euthanize over 3.3 million turkeys in Minnesota, which produces nearly 20% of America's turkey flock.
Factory Farms Are a #LoadOfCrap, Says New Report (video) Factory farming has been expanding in the U.S. over the last two decades, and the size of those farms has increased dramatically—dominating the market, squeezing out smaller producers and setting the agenda for farming practices—to the detriment of food consumers. That’s the conclusion of a new study, Factory Farm Nation: 2015 Edition, released by Food & Water Watch. “Over the last two decades, small- and medium-scale farms raising livestock have given way to factory farms that confine thousands of cows, hogs and chickens in tightly packed facilities,” says the report. “Farmers have adopted factory farming practices largely at the behest of the largest meatpackers, pork processors, poultry companies and dairy processors. The largest of these agribusinesses are practically monopolies, controlling what consumers get to eat, what they pay for groceries and what prices farmers receive for their livestock.” This is occurring as the public is marching in the other direction, as demonstrated by McDonald’s declining profits, the positive public response to Chipotle’s moving toward organic, non-GMO and locally raised products, and raised awareness of the issues around meat and dairy products containing growth hormones and antibiotics used for preventive purposes due to factory farming confinement practices.
In A Historic Move, California Farmers Agree To Cut Their Water Use California state water officials announced Friday that they have accepted a historic proposal by farmers in the Sacramento-San Joaquin River Delta to voluntarily curtail their water or land use in an attempt to stave off mandatory cuts later in the growing season. Farmers with the some of the oldest water rights will have the option of voluntarily reducing their water usage by 25 percent, or leaving a quarter of their land unplanted. In exchange, the state has promised not to seek further reductions throughout this year’s growing season. Water rights holders who choose not to participate in voluntary curtailments may still face mandatory cuts later in the growing season if the drought — which is now stretching into its fourth year — doesn’t improve. “This proposal helps Delta growers manage the risk of potentially deeper curtailment, while ensuring significant water conservation efforts in this fourth year of drought,” State Water Board Chair Felicia Marcus said in a press statement. “It allows participating growers to share in the sacrifice that people throughout the state are facing because of the severe drought, while protecting their economic well-being by giving them some certainty regarding exercise of the State Water Board’s enforcement discretion at the beginning of the planting season.” The voluntary agreement only applies to riparian rights holders, or those whose property includes access to a river or stream that is then diverted for water use on that property. Riparian rights have never before been subject to restrictions.
In Unprecedented Move, California Farmers With Guaranteed Rights Cut Water Use By 25% - In an attempt to frontrun even more draconian measures resulting from California's record drought, farmers in the state's Sacramento-San Joaquin River Delta who have California's oldest water rights proposed to voluntarily cut their water use by 25% to avoid the risk of even harsher restrictions by the state later this summer should the water situation deteriorate further. State officials promptly accepted the offer, even if it is ultimately moot since there is no way to enforce it. California had not restricted water use for growers with the oldest, most established water rights since the 1970s, and the first in memory for the San Joaquin, which runs from the Sierra Nevada to San Francisco Bay. For many farmers, a fear that the worst is yet to come convinced them that they would be better off giving up water before they began planting for the season. The proposal was made by the so-called riparian water rights holders, who have the oldest and most secure access to California rivers. They proposed the unprecedented voluntary curtailment for one simple reason: "There is a threat that the state might try the unthinkable and tell us that we cannot use any of the water,” said Dennis Gardemeyer, a delta farmer who helped spur the deal. "I and almost everyone in the delta think that will result in all manner of lawsuits and they will not prevail, but there’s always that threat."
Drought turns Californians against water bottling companies - As California residents are forced to cut back their water use, some are outraged that companies bottling water there aren't asked to do the same. They've made a scapegoat of big names like Nestle, which operates five water bottling plants in California. Dozens of activists protested outside two of the plants last week and online petitions have garnered thousands of signatures demanding Nestle (NSRGF) halt its bottling operations. In fact, there are 110 water bottling plants in the state. In addition to Nestle, others big bottlers include Pepsi (PEP), which bottles Aquafina; Coca-Cola (CCE), which bottles Dasani; and Crystal Geyser. But the thing is, the amount of water bottled in California is a tiny fraction of what the entire state uses. "It's a pretty small amount," said Tim Moran, a spokesman for the state's Water Resources Control Board. The state doesn't actually track how much water is bottled there. The International Bottled Water Association says that about 3.1 billion gallons of water are bottled in California annually. Nestle, for example, uses 725 million gallons of water annually at its California bottling plants. But that volume is dwarfed by the 4 trillion, (with a "t,") gallons used by residents every year.
Taxing organic products could solve California water problem, experts say - California is currently experiencing its fourth year of extreme drought, and in response Governor Jerry Brown has mandated a reduction of the state’s water use by 25%, proposing reductions in lawn acreages, rebates for replacing old toilets, and forbidding homeowners from using potable water for irrigation. However, environmental experts Terry L. Anderson, and Henry I. Miller, both fellows at Stanford University, claim to have a better idea. In their proposal “How Taxing Organic Products Could Solve California’s Water Shortage,” published last week on National Review Online, Anderson and Miller state the need for a revenue–neutral tax on all organic products (which would diminish their demand), while outlining how organic agriculture is less efficient and more wasteful than conventional and genetically engineered agriculture. According to studies cited in the proposal, organic agriculture uses more labor, land, and water than conventional agriculture while producing much lower yields and wasting H2O. One of the studies cited was a 2008 Organic Production Survey of all 14,450 organic U.S. farms by the United States Department of Agriculture, which reported that organic corn, rice, spring wheat, and lettuce yields were, respectively 30 percent, 41 percent, 53 percent, and 70 percent lower than conventional yields. A study by Alex Avery at the Hudson Institute’s Center for Global Food Issues also found that conventional agriculture beat organic in “total system yields,” nitrogen efficiency, and labor by 30 percent, 60 percent, and 35 percent respectively. Avery’s analysis was based on research performed by none other than the Rodale Institute, whose slogan reads “organic pioneers since 1947.” Even better than conventional agriculture are genetically engineered crops, which not only offer higher yields, but– according to Henry Miller– are, on average, safer as well. “The high precision and predictability of the newer molecular techniques make plant breeding surer and safer; in fact, they are actually being used to remove common and dangerous allergens from foods such as peanuts,” he told FoxNews.com. “In addition, the use of the newer techniques reduces dramatically the likelihood of mishaps, such as the ill-fated Lenape potato, seen with older methods of plant breeding.”
This Country Just Banned Grocery Stores From Throwing Out Food - Grocery stores in France will soon be banned from throwing away or destroying unsold food, under a bill passed unanimously by the French parliament last week. Food waste costs countries around the world billions of dollars each year and is a significant contributor to greenhouse gas emissions, but France’s action was spurred by another type of crisis. Mired in an economic slump, France has seen an growing number of people living off food scavenged from waste bins outside grocery stores, which has prompted an outcry from aid workers and activists. “There’s an absolute urgency — charities are desperate for food. The most moving part of this law is that it opens us up to others who are suffering,” Assemblymember Yves Jégo told parliament. Under the law, which will go into effect in July of next year, French supermarkets will have to give unsold food away to charities or donate it for use in animal feed or compost. But while the law might help get food into the bellies of those who need it, in terms of overall waste, the step may be more symbolic than effective. In France, 7.1 million metric tons of food is wasted each year, but only 11 percent is thrown out by food retailers. The bulk of it, 67 percent, is thrown away by consumers, and 15 percent is tossed by restaurants, the Guardian reports.
WTO Orders U.S. to Gut U.S. Consumer Country-of-Origin Meat Labeling Policy, Further Complicating Obama Fast Track Push - Today’s final ruling by the World Trade Organization (WTO) Appellate Body against popular U.S. country-of-origin meat labeling (COOL) policy spotlights how trade agreements can undermine domestic public interest policies, Public Citizen said today. The WTO decision is likely to further fuel opposition to Fast Track authority for controversial “trade” pacts that would expose U.S. consumer and environmental protections to more such challenges. (A list of some of the past public interest policies undermined by trade pacts is below.) COOL requires labeling of pork and beef sold in the United States to inform consumers the country in which the animals were born, raised and slaughtered. “The president says ‘we’re making stuff up,’ about trade deals undermining our consumer and environmental policies but today, we have the latest WTO ruling against a popular U.S. consumer policy. Last week, Canadian officials announced that our financial regulations violate trade rules, and earlier this year, the Obama administration, in response to another trade agreement ruling, opened all U.S. roads to Mexico-domiciled trucks that threaten highway safety and the environment," said Lori Wallach, director of Public Citizen’s Global Trade Watch. In his recent speech at Nike, President Barack Obama said, “Critics warn that parts of this deal would undermine American regulation – food safety, worker safety, even financial regulations. They’re making this stuff up. This is just not true. No trade agreement is going to force us to change our laws.” “Today’s WTO ruling, which effectively orders the U.S. government to stop providing consumers basic information about where their food comes from, offers a clear example of why so many Americans and members of Congress oppose the Fast Tracking of more so-called ‘trade’ pacts that threaten commonsense consumer safeguards,” said Wallach. “The corporations lobbying to Fast Track the TPP must be groaning right now, as this ruling against a popular consumer protection in the name of ‘free trade’ spotlights exactly why there is unprecedented opposition to more of these deals.”
EU dropped pesticide laws due to US pressure over TTIP, documents reveal -- EU moves to regulate hormone-damaging chemicals linked to cancer and male infertility were shelved following pressure from US trade officials over the Transatlantic Trade and Investment Partnership (TTIP) free trade deal, newly released documents show. Draft EU criteria could have banned 31 pesticides containing endocrine disrupting chemicals (EDCs). But these were dumped amid fears of a trade backlash stoked by an aggressive US lobby push, access to information documents obtained by Pesticides Action Network (PAN) Europe show. On 26 June 2013, a high-level delegation from the American Chambers of Commerce (AmCham) visited EU trade officials to insist that the bloc drop its planned criteria for identifying EDCs in favour of a new impact study.Minutes of the meeting show commission officials pleading that “although they want the TTIP to be successful, they would not like to be seen as lowering the EU standards”. The TTIP is a trade deal being agreed by the EU and US to remove barriers to commerce and promote free trade.
EU dropped plans for safer pesticides because of TTIP and pressure from US -- EU plans to regulate hormone-damaging chemicals found in pesticides have been dropped because of threats from the US that this would adversely affect negotiations for the Transatlantic Trade and Investment Partnership (TTIP), according to a report in The Guardian. Draft EU regulations would have banned 31 pesticides containing endocrine disrupting chemicals (EDCs) that have been linked to testicular cancer and male infertility. Just after the official launch of the TTIP negotiations on 13 June 2013, a US business delegation visited EU officials to demand that the proposed regulations governing EDCs should be thrown out in favour of a further "impact study." Minutes of the meeting on June 26 show Commission officials saying that "although they want the TTIP to be successful, they would not like to be seen as lowering the EU standards." Nonetheless, the European Commission capitulated shortly afterwards. That climbdown was despite repeated promises from the European Commission that TTIP would not jeopardise EU health and safety standards. For example, a Commission factsheet on Pesticides in TTIP from February 2015 states: "TTIP will not lower the food safety standards for pesticides." The Guardian report demonstrates that plans to strengthen regulations governing EDCs were blocked, which is equivalent to a lowering of future standards that would have been introduced had it not been for TTIP.
Biotech Giant Found Guilty of Pesticide Contamination - A handful of residents of Kauai’s Waimea community prevailed in court over biotech giant DuPont-Pioneer earlier this month. Citing extensive, harmful dust generated by DuPont’s seed operations, a jury awarded 15 residents $500,000 in damages. This is just the latest in an impressive string of victories against pesticide and genetically engineered (GE) seed corporations in Kauai, the global epicenter for GE seed testing. Why the lawsuit? Picture red (pesticide-contaminated) dust blanketing your house and yard, regularly blowing over from neighboring fields, leaving you unable to open your windows or leave your home. That’s what residents of this lower-income community of color have faced for years, and that’s what ended up spurring litigation. While the judge directed attorneys to focus only on impacts to physical property, it’s hard to ignore the health effects of pesticides drifting through the air or contained in dust blanketing homes. According to court documents, the pesticides sprayed by DuPont in Kauai have been linked to cancer, reproductive toxicity, birth defects, disruption of the endocrine, immune and nervous systems, liver damage and more.
Protests against GMO crops and pesticides target Monsanto, international agribusiness giant - From Paris to Ouagadougou, thousands of people have taken to the streets to protest against the American biotechnology giant Monsanto and its genetically modified crops and pesticides. The third annual March Against Monsanto was held in upwards of 400 cities in more than 40 countries. About 2,500 people staged anti-Monsanto protests in the Swiss cities of Basel and Morgues, where the company has its headquarters for Europe, Africa and the Middle East. Up to 3,000 protesters rallied by environmental organisations including Greenpeace and anti-capitalist group Stop Tafta gathered in Paris, with Monsanto's market-leading herbicide Roundup the main targets of protesters' anger. The controversial product's main ingredient was recently classified as "probably carcinogenic to humans" by the World Health Organisation. Organisers said ahead of the marches the multinational biotech giant had claimed that genetically modified crops would actually lead to a decrease in Roundup use. But they pointed to US Geological Survey data that revealed the use of Roundup's key component glyphosate had increased 16-fold since the mid-1990s when genetically modified organisms (GMOs) were first introduced.
The Case For Nationalizing Monsanto - Ridding the world of Monsanto via a state buy-out would be a boon to humanity. Capitalism fails in two situations: monopoly and state-capital cronyism. Monopoly extinguishes competition and that effectively extinguishes capitalism. When the elites of the state and private capital collude, i.e. crony capitalism, the few gain power and wealth at the expense of the many. Monsanto is the epitome of monopoly and crony-state collusion. But Monsanto's grip is not only on the throat of the nation-- through its monopoly on seeds that it enforces globally, its grip is strangling the entire world. Monopolies on food, energy and water (what I term the FEW resources) are not like monopolies on discretionary goods and services. People have to pay whatever the monopoly charges, as substitutes are either unavailable, very expensive or under the control of the same cartel/quasi-monopoly. Before Monsanto extended its grip as the state-enforced seed monopoly, state universities and extension services developed seed strains and provided the seeds for a nominal cost.Over time, this publicly owned and managed system of providing low-cost seeds has eroded under pressure from for-profit private firms such as Monsanto and the benign neglect of a government that has been captured by private interests and self-serving elites. If the American people wanted to bestow a gift to the world that would be valued by billions of people yet would cost the American citizenry a ridiculously modest sum, it would be to nationalize Monsanto and provide its seed products for free.
Suicide By Pesticide - Chris Martenson -- As you are aware, honey bees have been suffering from something called Colony Collapse Disorder. In practice, what this means is that the bees simply vanish from their hives, leaving behind their most precious worldly possessions: honey and larvae. What causes these mysterious vanishing acts has been something of a mystery. But because the phenomenon began really ramping up in 2006, we can focus in on some suspects. While it’s always possible that the bees are suffering ‘death from a thousand cuts’ -- where it’s no one specific thing but rather a wide range of minor insults, ranging from loss of forage to herbicides to fungicides to pesticides -- there’s actually quite strong evidence pointing to a specific class of pesticides called neonicotinoids. This class of pesticides is massively and indiscriminately toxic. More specific to our investigation here, it was only introduced into widespread use shortly before the massive bee die-offs began. Actually, it’s not really proper to call neonicotinoids ‘pesticides’ because they don't solely target pests. They should more accurately be called ‘biocides’ because they kill all insects equally and indiscriminately. How toxic are they? The neonics are so toxic that it's sufficient to simply lightly coat a seed with it before planting. When the seed grows to maturity, the plant will still have enough absorbed toxin circulating within its system to kill any insect that munches on it or sucks on its sap.Think about that for a minute. Coat a kernel of corn with a neonic, sow it, and the mature plant will still be lethal to a corn borer when the corn ears develop several months later. But not just to insects: "A single corn kernel coated with a neonicotinoid can kill a song bird." Shaking my head in dismay, I read on, "Even a tiny grain of wheat or canola treated with the ...neonicotinoid... can fatally poison a bird." Killing off organisms in an ecosystem using indiscriminate biocides is quite literally a slow form of suicide for us humans. As within, so without. You cannot poison and kill of the world around you without poisoning and killing yourself. Simply put: We are killing ourselves. And the data is literally horrifying.
Texas governor signs bill to speed up permits for industrial projects by limiting public scrutiny - Gov. Greg Abbott has signed legislation aiming to quicken regulators’ pace of cranking out permits for major industrial projects by limiting public scrutiny — another victory for a wide range of industries and a blow to consumer and environmental advocates. Senate Bill 709, which will now become law Sept. 1, is intended to scale back contested-case hearings, a process that allows the public to challenge industrial applications for permits at the Texas Commission on Environmental Quality (TCEQ), such as those allowing wastewater discharges or air pollution emissions. Led by state Sen. Troy Fraser, R-Horseshoe Bay, and state Rep. Geanie Morrison, R-Victoria, supporters argued that Texas’ current slow-moving bureaucracy was driving would-be employers into Louisiana and other neighboring states, and that the legislation – signed on Saturday – would give them more certainty here. But critics are worried that limiting the process would stifle what little voice everyday Texans have when manufacturers, chemical plants, landfills and other high-polluting businesses set up shop in their communities. “The polluter lobbyists said they want Texas to have regulations weaker than Louisiana’s, and we’ll end up with Louisiana’s problems: cancer, birth defects, developmental disorders in children, and the collapse of agriculture and commercial fishing,”
Clean Water Act proposal would protect more water sources in West - The Obama administration proposed a long-awaited rule on Tuesday to clarify that the Clean Water Act protects wetlands near rivers and waterways fed by seasonal thaws and rains — a decision that could particularly shield water sources in the West. Proposed by the Environmental Protection Agency and the Army Corps of Engineers, the draft Waters of the U.S. rule is aimed at defining the scope of the Clean Water Act after two Supreme Court decisions in the last 15 years led to confusion about which waterways were under federal protection, said EPA Administrator Gina McCarthy. At issue is the status of waterways that do not flow year-round or are not permanent lakes, but streams that flow intermittently or after heavy rains, and riparian wetlands. Many small, intermittent waterways feed into drinking-water sources, especially in the West. Under the draft rule, most intermittent and rain-dependent streams, as well as wetlands near rivers and streams, would be protected by the Clean Water Act. Building, dumping or discharging in those waterways would require a permit from the EPA or the Army Corps of Engineers. For bodies of water farther away from perennial waterways, the need for permits would be examined on a case-by-case basis. A third category, including man-made ponds and many kinds of ditches, would be exempt from regulation. The effort to draft a rule to clearly define the scope of the Clean Water Act has been vigorously opposed by agricultural interests and industry, especially construction companies. They argue that the Obama administration's definitions would expand the reach of the law and create onerous conditions for business. The National Assn. of Home Builders contends that the new rule would drive up the price of newly constructed houses.
The EPA Just Protected Drinking Water For Millions Of Americans - The Environmental Protection Agency (EPA) will have an easier time regulating water pollution under a new rule released Wednesday. The Waters of the United States rule, developed by the EPA and the Army Corps of Engineers, offers protection to two million miles of streams and 20 million acres of wetlands that, until now, were not clearly designated under the Clean Water Act. The rule clarifies what tributaries and wetlands are part of the overall water system and will decrease confusion and expense, the EPA and Army Corps said Wednesday. The confusion about what waters can be regulated stems from 2001, when the Supreme Court found that the EPA did not have jurisdiction to regulate isolated wetlands. That decision created confusion about how and where pollution can enter the water system — and what regulators can do about it. “We’ve had to operate under a lot of confusion,” Assistant Secretary for the Army (Civil Works) Jo-Ellen Darcy said on a call Wednesday. “Our rule will make it clear which waters are covered and which waters aren’t.” One out of every three Americans gets drinking water from sources connected to water that, until now, did not have clear protection. In addition, determining which waters were covered has been costly and time-consuming. The new rule ultimately seeks to protect downstream water sources, using current scientific practices to determine what bodies of water are interconnected.
New federal rules on stream protection hailed, criticized: New federal rules designed to better protect small streams, tributaries and wetlands — and the drinking water of 117 million Americans — are being criticized by Republicans and farm groups as going too far. The White House says the rules, issued Wednesday, will provide much-needed clarity for landowners about which waterways must be protected against pollution and development. But House Speaker John Boehner declared they will send "landowners, small businesses, farmers, and manufacturers on the road to a regulatory and economic hell." The rules, issued by the Environmental Protection Agency and the U.S. Army Corps of Engineers, aim to clarify which smaller waterways fall under federal protection after two Supreme Court rulings left the reach of the Clean Water Act uncertain. EPA Administrator Gina McCarthy said the waters affected would be only those with a "direct and significant" connection to larger bodies of water downstream that are already protected. The Supreme Court decisions in 2001 and 2006 left 60 percent of the nation's streams and millions of acres of wetlands without clear federal protection, according to EPA, causing confusion for landowners and government officials. The new rules would kick in and force a permitting process only if a business or landowner took steps to pollute or destroy covered waters.
Vandals destroy dam, release 49 million gallons of water into San Francisco Bay – ‘It is an utterly senseless, destructive, and wasteful thing to do’ – Fremont police say vandals attacked an inflatable dam on Alameda Creek that resulted in the loss of nearly 50 million gallons of water. Police believe that those responsible entered a restricted area sometime on Thursday morning and intentionally damaged the dam. “The dam, which is instrumental to the Alameda County Water District’s water supply operations, suffered irreversible damage,” police said. According to police, more than 150 acre-feet of water – or 49 million gallons – washed past the destroyed dam and into the San Francisco Bay. The water was to have been percolated into the Niles Cone Groundwater Basin for use by residents and businesses in Fremont, Newark, and Union City as a critical water supply. “This amount of water is enough to supply the needs of approximately 500 homes for one year,” police said. District staff was able to quickly open upstream diversions, allowing water which would have been impounded behind the dam to flow into nearby groundwater recharge facilities, thus eliminating further water loss. “This is a very significant loss of water under any circumstances, and more so in the drought conditions we are experiencing,” said ACWD General Manager Robert Shaver. “It is an utterly senseless, destructive, and wasteful thing to do.”
California’s Largest Lake Is Drying Up Amid Epic Drought -- The Salton Sea, a huge, shallow manmade lake located in the Sonoran Desert in California’s Imperial and Coachella valleys, has had problems for years. Its increasing saltiness has killed off most of its once-abundant fish species. Its shrinking water level has caused a reduction in water available for agricultural use, along with many dramatic photos of exposed lakebed and abandoned towns that were once seaside resorts. While the sea is no longer a resort destination for Hollywood celebrities as it was in the ’50s and ’60s, it’s still a playground for birds, with more than 400 species living along its shores or migrating through the area. But those populations could also be in jeopardy if its waters continue to recede. And that exposed lake bed is expected to grow, thanks to California’s prolonged drought, now in its fourth year, and reductions in apportionment of water from the Colorado River which feeds the 360-square-mile sea. For many years, farmers in the agriculturally rich Imperial Valley would take more than their allocation of Colorado River water, viewing water as an infinite resource. But with growing demand from other southwestern states, with their growing populations and their own stresses due to drought, they became less able to do do. And now the drought and state-mandated water reductions have increased competition for whatever water is available, putting the Salton Sea at risk. As the sea shrinks, it could cause significant health problems many miles away. The shrinkage exposes its particular type of soil, which is lighter than ordinary soil and more easily carried away by wind. The area is prone to high winds and dust storms. And because the lake also captures farm runoff, the dust is loaded with toxins such as arsenic, selenium, lead, zinc, chromium and even traces of the pesticide DDT, which was banned in 1972.
Group Claims Immigrants Are Causing California Drought - The state of California is still in one of the worst drought’s in the state’s history, and one organization thinks that they have finally figured out who to blame for the situation. It isn’t the corporations that are using water for fracking or bottling what’s left to sell to the rest of the world—nope, the real culprit is immigration. This claim comes from the group California for Population Stabilization, a noted anti-immigration group in the state. They believe that population growth through both legal and illegal immigration is to blame for the lack of water in California, because, according to them, immigrants are taking away the state’s very limited resources. First of all, yes, more people does mean that resources need to be spread out to more people. But, to say that this is the cause—and removing them is the solution—to the California drought is a total lie. The state experiences record low snow melts from mountains this year, and for the past several years. That snow melt is what helps feed rivers, streams and aquifers throughout the state. At the same time, rainfall has been at record lows for many years. But if you really want to blame someone for using up what’s left of California’s water, look at the corporations that are acting as if the drought doesn’t exist.
Holy Crop: How Federal Dollars Are Financing the Water Crisis in the West - Route 87, the thin band of pavement that approaches the mostly shuttered town of Coolidge, Ariz., cuts through some of the least hospitable land in the country. The valley of red and brown sand is interrupted occasionally by rock and saguaro cactus. And there is almost no water; this part of Arizona receives less than nine inches of rainfall each year. Then Route 87 tacks left and the dead landscape springs to life. Barren roadside is replaced by thousands of acres of cotton fields, their bright, leafy green stalks and white, puffy bolls in neat rows that unravel for miles. It’s a vision of bounty where it would be least expected. Step into the hip-high cotton shrubs, with the soft, water-soaked dirt giving way beneath your boot soles, the bees buzzing in your ears, the pungent odor of the plants in your nostrils, and you might as well be in Georgia.Getting plants to grow in the Sonoran Desert is made possible by importing billions of gallons of water each year. Cotton is one of the thirstiest crops in existence, and each acre cultivated here demands six times as much water as lettuce, 60 percent more than wheat. That precious liquid is pulled from a nearby federal reservoir, siphoned from beleaguered underground aquifers and pumped in from the Colorado River hundreds of miles away. Greg Wuertz has been farming cotton on these fields since 1981, and before him, his father and grandfather did the same. His family is part of Arizona’s agricultural royalty.
Lake Mead Water Level Mysteriously Plunges After Nevada Quake --A 4.8 magnitude earthquake (originally reported 5.4) shook Las Vegas and surrounding areas Friday morning causing roads and bridges to be closed. The quake went little-reported outside of local news (since there was at first glance minimum damage caused) but, since the quake's occurrence, something considerably more worrisome has occurred. In the 36 hours since the quake's occurrence, water levels at Lake Mead have plunged precipitously. While we know correlation is not causation, the 'coincidence' of an extreme loss in water levels occurring in the aftermath of one of the largest quakes in recent Vegas history does raise a suspicious eyebrow - especially when there has been no official word on the precipitous decline. The earthquake hit mid-morning on Friday: A 4.8 magnitude earthquake shook Las Vegas and surrounding areas Friday morning, forcing loose a rubber casing on a bridge and leading state officials to close Spaghetti Bowl interchanges for several hours. “The joint damage was pre-existing. The tremblor simply dislodged the protective rubber encasing the bridge seam making it look much worse than it was in reality” and prompting an immediate shutdown of the ramps, Since then, official water level data shows an incredible 8 foot plunge in water levels since the earthquake. considering the (average drop in the last 10 years is 1 inch, this is a troubling outlier. There is , of course, a possibility that the drop is the result of broken sensors and we will be following up during the week to see if levels normalize. This is crucial since, as we noted previously, If the water level drops below 1,075 feet elevation by January 1, 2016, it will trigger a federal water emergency. And water rationing.
What Exactly Is Going On At Lake Mead? -- Following our exposure of the plunge in Lake Mead water levels post Friday's earthquake, officials were quick to point out that the drop was "due to erroneous meter readings" - which in itself is odd given we have not seen such an aberration before in the measurements. The data today shows a super surge in the Lake Mead water level - which, even more mysteriously, indicates from pre-earthquake to now, the Lake has risen by the most in a 3-day-period in years (as long as we have found history). How was this level 'manufactured' you ask? Simple - discharge flows from the Hoover Dam were curtailed dramatically.We are sure there is a simple explanation for all this... Officials said - do not worry, the readings are faulty... Lake Mead's elevation has NOT dropped to 1,068 feet. Some inaccurate data was posted online. We are at 1,077 feet. http://t.co/a0YUo9iD0P Which resulted in this miracle...The biggest 3-day net surge in water levels (0.7 feet from Thursday to Sunday) on recent record... How was this miracle achieved (given the total lack of precipitation)? Simple, discharge levels were curtailed drastically...
Tall Trees Sucked Dry by Global Warming - A well-known scientific principle describing how water moves through plants can help explain why trees may struggle to survive as the planet warms, scientists say in a new study. Using an equation called Darcy’s law, the research also helps explain why iconic giant trees like the California redwood could be especially vulnerable to rising temperatures. The concept was outlined in a paper published this month in the journal Nature Climate Change. Plants’ vascular systems can be likened to bunches of straws, explained lead author Nathan McDowell, a researcher at Los Alamos National Laboratory’s Earth and Environmental Sciences Division, meaning water moves from the roots to the branches through tension. Bigger trees, of course, have longer “straws” moving water through their systems than shorter trees, meaning they have to close their stomata even more, resulting in greater stress to the plant, McDowell explained. For this reason, the study states, Darcy’s law shows that “shrubby, low-statured plants are most likely to survive, whereas tall, old-growth forests are particularly vulnerable to warming climate.” The paper comes as forest surveyors are reporting widespread tree deaths in drought-stricken regions of California. Scientists have said for years that hotter, drier conditions will take a toll on the U.S. West’s forests.
May Climate Briefing: El Niño Heating Up (video) El Niño, a state of warmer-than-average sea surface temperatures in the tropical Pacific, has recently intensified, though scientists aren’t sure how strong the event will become. The El Niño phenomenon is part of a natural cycle of climate (and ocean) variability in the equatorial Pacific, known as El Niño Southern Oscillation (ENSO). The amount of energy absorbed and distributed by this area of ocean and atmosphere is so great that sustained sea surface temperatures even just a degree above average have cascading effects throughout the world. These effects lead to tendencies for certain areas to receive more or less rainfall than normal, and/or see warmer or cooler temperatures than is typical. Although for some areas this can mean floods, drought or other extreme weather, the predictability associated with El Niño can afford decision makers the chance to be better prepared for such events. In some areas, the odds for changed weather patterns may have benefits, such as drought relief. Read on for details about the latest forecast, and see our ENSO Essentials and ENSO Impacts pages for more background on this climate variability pattern.
NOAA predicts STRONG 'El Nino' -- Even as experts declared an El Niño earlier this year, 2014 had already topped the list of hottest years (without El Niño's help), and 2015 was already setting global heat records. So far, with only the weak El Niño Modoki declared as of March:
- Dec 2014 to Feb 2015 has come in as the warmest winter on record,
- January, February and March 2015 were all the warmest of their respective months on record,
- The period of Jan-March 2015 took the top spot as the warmest first quarter on record,
- April 2014-March 2015 ranked as the warmest 12-month periods on record, and
- The latest reports show that May 2014-April 2015 has followed up by tying that record.
Now, with the El Niño strengthening into a more classic pattern - with warmer sea surface temperatures in the eastern Pacific, near Peru and Ecuador - and with projections showing that it could be a fairly significant event this year, the risk of 2015 far surpassing 2014 on the list of hottest years on record is rising. Why? In general, as NOAA states in their latest Global Analysis, "El Niño conditions tend to enhance global temperatures, with stronger events having generally larger impacts."
El Niño could bring drought and famine in west Africa, scientists warn --A global weather phenomenon could cause a famine in the Sahel this year by combining with already dry conditions to create a “double whammy” for the region, scientists and aid groups have warned. Professor Adam Scaife, a long term forecaster at the UK Met Office Hadley Centre, said models now agreed an El Niño event was likely and the first impacts may be felt as early as June. El Niño is caused by a reversal of trade winds in the Pacific that allow warm water to spread east, across the ocean. The two to seven year cycle plays havoc with weather across the world. “[A] place that’s really important to stress is west Africa, where there is increased risk of drought during El Niño. That is exacerbated this year by some conditions [including] cooling of the North Atlantic,” he said.In west Africa, Scaife said conditions were aligning in a similar way to the massive 1972 drought that devastated the Sahel with famine. During this event, drying from El Niño tipped the region into full blown drought. Scaife said the current parched conditions combined with further warming and drying from El Niño would be a “double whammy”. Oxfam’s west Africa regional director Aboubacry Tall said the partial failure of the 2014 rainy season had left between 300,000 and 400,000 people in the Sahel without access to a secure food supply.
Heat wave continues to lash India; death toll rises to 368 -- At least 145 people died due to intense heat wave in Andhra Pradesh and Telangana since Saturday, raising to 368 the death toll in the blistering weather conditions which continued in many parts of the country on Sunday, including national capital Delhi. In Delhi, the day temperature was recorded at 44.5 degree celsius, the same as on Saturday, which is five notches above normal. In Andhra Pradesh, 87 deaths were reported since Saturday, taking the toll to 182. The death toll in the state yesterday stood at 95. Prakasam district has recorded the maximum deaths of 57, state disaster management officials said. Reports from some districts are still being compiled. Telangana reported death of 58 more people since yesterday, as a result of which the toll went up to 186 in 10 districts of the state, a senior official of State Disaster Management Department told PTI.The death toll Saturday stood at 128. Nalgonda district recorded the maximum number 55 of deaths, followed by Khammam district at 43 and Mahabubnagar district at 23, she said. In Hyderabad, two persons have died to heatwave.
More than 430 dead in India heatwave - More than 430 people have died in two Indian states during a heatwave that has seen temperatures nudge 50 degrees Celsius and force Kolkata's iconic yellow taxis off the road, officials said Monday. Officials warned the toll was almost certain to rise, with figures still being collected in some parts of the hard-hit Telangana state in the country's south, and with no end in sight to the searing conditions. Large parts of India, including national capital New Delhi, have endured days of sweltering heat, prompting fears of power cuts. But the highest temperatures have been recorded in Telangana and neighbouring Andhra Pradesh state. Andhra Pradesh authorities are urging labourers and others not to work long hours in the heat of the day after 246 people died from the high temperatures there in the last week. "The majority of the victims are people who have been exposed to the sun directly, usually aged 50 and above and from the working classes," P. Tulsi Rani, special commissioner of Andhra Pradesh's disaster management department, told AFP. Rani said although the deaths started occurring on Monday last week, the number increased rapidly towards the end of the week after days of scorching heat.
At least 800 have died in a heat wave that has melted roads in India -- At least 800 people have died in a major heatwave that has swept across India, melting roads in New Delhi as temperatures neared 50 degrees Celsius (122 Fahrenheit). Large parts of India, including the capital New Delhi, have endured days of sweltering heat, prompting fears of power cuts as energy-guzzling air conditioners work overtime. The Hindustan Times daily said the maximum temperature in the capital hit a two-year high of 45.5 degrees Celsius (113.9F) on Monday -- five degrees higher than the seasonal average. [that's 9 degrees Fahrenheit higher.] The paper carried a front-page photo of a main road in the city melting in the heat, its zebra pedestrian crossing stripes curling and spreading into the asphalt.
India Heatwave Kills 800+ and Literally Melts the Roads --India is in the midst of a major heatwave, which has killed at least 800 people and melted roads in New Delhi as temperatures neared 122 degrees Fahrenheit (50 degrees Celsius). India’s Meteorological Department issued heat warnings to several states where temperatures are projected to reach beyond 113 degrees Fahrenheit (45 degrees Celsius) over the next few days, according to AFP. Heat wave in India is literally melting the roads with temps up to 48 °C / 118 °F. http://t.co/TNMvePI5Dj pic.twitter.com/j8gx5DYOz7 —The worst-hit state Andhra Pradesh in southern India has recorded 551 deaths in the last week alone. Every summer, across the country, hundreds of Indians, especially the poorest members of society, die from extreme heat, while tens of thousands deal with power outages from an overstrained electric grid as air conditioning use soars, reports AFP. But this summer season is particularly bad, the most severe since 2010 when an estimated 250 people died from heat-related causes, which was said to be the worst since record-keeping began in the 1800s. The maximum temperature in the capital hit a two-year high of 45.5 degrees Celsius on Monday, which is five degrees higher than the seasonal average, reports the Hindustan Times. And, the death toll from heat mortality could be much higher than estimated because, according to Scroll.in, “the government counts only death by heat stroke and heat exhaustion as heat wave deaths. The narrow definition does not account for the way ‘heat exposure stresses underlying physiological systems,’ a study on heat mortality in Ahmedabad said.”
Extreme Heat Wave In India Is Killing People And Melting Roads -- A blistering heat wave in India has killed more than 1,100 people in the country in less than one week. Eight hundred and fifty two people have died in a heat wave in Andhra Pradesh in southeastern India, while 266 have died in the adjacent state of Telangana, CNN reports. In northeastern West Bengal and Orissa, at least 24 people have died. Most of the deaths, according to officials, have been among construction workers, the elderly, and the homeless — people who are typically most exposed to high heat and who don’t have access to air conditioning. “Almost all the victims are old,” said B.R. Meena, principle secretary for revenue for Telangana. “Inquiries reveal that most of them were working and were exposed to the heat. Dehydration and heat stroke caused the deaths.” In some regions, temperatures have reached a scorching 122°F — heat that’s melted sections of roads in some cities and that’s close, according to the Guardian, to the country’s all-time high of 123°F. Parts of the country had slightly lower temperatures, but the heat was exacerbated by high humidity: in Lucknow, the capital city of Uttar Pradesh, temperatures reached 110.3°F, with relative humidity of 70 percent. Delhi announced Monday that it had reached its hottest temperature of the season of 113°F.
Hospitals overwhelmed as India heatwave deaths near 1,500 - Hospitals in India were struggling Thursday to cope with an influx of victims of a blistering heatwave that has claimed nearly 1,500 lives in just over a week. Hundreds of people — mainly from the poorest sections of society — die at the height of summer every year in India, but this year’s figures are unusually high. In southern Andhra Pradesh — by far the worst-hit state — 1,020 people have died since May 18, more than double the number of heat-related deaths for the whole of last year. In neighbouring Telangana, where temperatures hit 48 degrees Celsius over the weekend, 340 people have died from the heat recently compared to 31 in the whole of last year. “Heatwave conditions in 2015 so far have been of a shorter duration, yet with a higher death toll,” Hospitals in New Delhi, where top temperatures have soared to 45 degrees Celsius, were struggling to cope with the fall-out. “Hospitals are overflowing with heatstroke victims,” said Ajay Lekhi, president of the Delhi Medical Association. “Patients are complaining of severe headache and dizziness. They are also showing symptoms of delirium,” he added, describing a common symptom of severe dehydration. The surge in demand for electricity from air conditioners led to power cuts in parts of Delhi, exacerbating the misery for residents of the capital.
Mounting Heat Deaths: India Among Most Vulnerable to Climate Change -- Over 1,800 people have so far died as a result of a severe heatwave sweeping across India, according to government officials and media reports. The highest death toll is in southern India with 1,700 heat-related deaths in the worst-hit states of Telangana and Andhra Pradesh, where temperatures rose above 45C (113F). Other parts of the country have been hit by high temperatures ranging between 44 degrees Celsius (111 degrees Fahrenheit) and 46 degrees Celsius (115 degrees Fahrenheit) with 43 heat deaths reported in the eastern state of Orissa, 12 in West Bengal and 7 in the Ahmedabad city in the western state of Gujarat, according to state officials. Most of the deaths were caused by heat stroke and dehydration. Pakistan and Afghanistan are also hot with temperatures exceeding 100 degrees Fahrenheit, but India is suffering far worse, due in part to its many densely populated areas, according to a CNN report. As expected, India has blamed Pakistan for heat-related deaths. “In Pakistan’s Sindh, temperatures have shot up to 49, even 50 degrees. Westerly winds are bringing with them this extreme, dry heat through a process called advection (transport),” said BP Yadav, director India Meteorological Department (IMD). As longer, more severe heat waves become increasingly frequent globally, India appears to be the most affected. Thousands of people died across India during heat waves in 2002 and 2003. In 2010 around 300 people were killed by intense temperatures, according to media reports of the period.
Climate change could shrink Mount Everest’s glaciers by 70 percent, study finds - The iconic Mount Everest could see a major loss of its glaciers over the course of this century, according to a new scientific study that its chief author calls the “the first detailed modelling study of all glaciers in the Dudh Koshi basin in the Everest region of Nepal.” The paper, published Wednesday in the journal The Cryosphere, was authored by glacier researcher Joseph Shea of the International Centre for Integrated Mountain Development in Kathmandu, Nepal, and several colleagues from France and the Netherlands. “The biggest result here is that the glaciers in the basin, we find them to be more sensitive to temperature than anyone expected before,” says Shea. The glaciers of the Dudh Koshi basin cover more than 150 square miles in area. To study them, the researchers used a glacier model and fired it with different climate change scenarios based on emissions pathways used by the Intergovernmental Panel on Climate Change. And they found that in one extreme model run, glacial loss by the year 2100 could be 99 percent. However, there were a range of estimates, and the low end number for glacial losses was 70 percent – still quite a large decrease.
Most Of Mount Everest’s Glaciers Could Be Nearly Gone By The End Of The Century - Most of Mount Everest’s glaciers will markedly shrink over the course of this century, as climate change continues to warm the Himalayan region, according to a new study. The study, published Wednesday in the journal Cryosphere, found that the thousands of glaciers in the Hindu Kush-Himalayan region — where Everest is located — could shrink by 70 to 99 percent by the end of this century. The researchers used a model that took into account eight future temperature and precipitation scenarios as well as historical data on temperature, precipitation, and glacial melt. Since the scenarios varied in terms of warming, the researchers found that total scale of loss will depend on how much emissions rise and how much those emissions affect the climate in the Himalayan region. “The signal of future glacier change in the region is clear: continued and possibly accelerated mass loss from glaciers is likely given the projected increase in temperatures,” Joseph Shea, lead author of the study and a glacier hydrologist at the International Center for Integrated Mountain Development, said in a statement. That glacier melt could have major impacts for the people who live in the region and depend heavily on meltwater from the glaciers. More than one billion people in the region depend on water from the glaciers, the Guardian reports, and as the glaciers continue to retreat, the meltwater will become less reliable.
Climate impacts leave rainforests on edge of destruction – Rising temperatures will not themselves spell disaster for the world’s rainforests. It is the droughts and unpredictable rainfall patterns, which climate change is already worsening, that will settle the forests’ fate before the century ends, according to a new book. Claude Martin, who has worked in tropical rainforest conservation since the 1970s, is author of On the Edge, commissioned by the Club of Rome, which published the seminal Limits to Growth report in 1972. Since then, nearly 50% of the world’s forest cover has disappeared. Martin, a former director-general of WWF International, recognises that there are many drivers of forest damage and destruction − including the pressures of the global economy for animal feed and food for humans, and the worldwide demand for biofuels. Evaluating the impact of climate change on rainforests means focusing on the length of dry seasons and water stress, rather than temperature, Martin writes. The likeliest cause of forest collapse and severe risks of reaching a tipping point is not temperature rise, but the change from the dependable rainfall patterns of the past, and the probability of increasing droughts and forest fires. He sees a likelihood of drought and fires increasing − not least in the Amazon − because of the way in which climate change is fuelling El Niño and La Niña, the twin periodic temperature disruptions that occur every few years in the eastern Pacific Ocean. Known together as the El Niño-Southern Oscillation (ENSO), their impacts spread for thousands of miles.
Is Antarctica Ice Melting or Growing? Watch This NASA Video and See for Yourself --You might have seen the news from NASA last week: Antarctica’s Larsen B Ice Shelf could disappear before the end of the decade. But even while the Antarctic land ice disintegrates down south, and Arctic ice contracts further up North, climate change deniers are touting the record extent of Antarctic ice and using that to claim that climate change isn’t even happening. What’s really going on with the polar ice caps? In short, there’s a difference between sea ice and land ice. Antarctica’s land ice has indeed been melting at an alarming rate. Land ice—also called “glaciers” or “ice sheets”—is ice that has accumulated over time on land. Sea ice is frozen, floating seawater. Overall, the Antarctic sea ice has been stable—but that fact doesn’t contradict the evidence that our climate is warming. The ice sheet—land ice—that covers most of Antarctica is melting at the rate of about 159 billion tons every year in recent years. When land ice melts, it flows as water into the ocean, contributing to sea-level rise. Antarctica’s melting land ice poses a direct threat to the hundreds of millions of people living on islands and near coasts.
Bad News Keeps Flowing From Antarctica -- The massive shelves of ice that ring Antarctica have been shrinking over the past couple of decades, and that could have grave implications for sea level rise. It’s not the ice shelves themselves that pose a problem: they’re mostly afloat, so when they melt or dump massive icebergs, it doesn’t affect water levels any more than melting ice cubes make your drink rise and overflow. But the ice shelves serve as massive barriers that slow the flow of glaciers out to sea. As the shelves shrink, the barrier weakens, allowing glaciers to start moving faster. And since that ice is land-based, it adds to sea level rise. This faster glacial flow has already been documented in several parts of the frozen continent. Now, a new report in Science has identified one more. Using satellite data from NASA and the European Space Agency (ESA), scientists have shown that glaciers flowing into the sea from the Southern Antarctic Peninsula have sped up markedly since 2009. Collectively, write the authors, these glaciers, most of them unnamed, are now adding enough ice to put an extra 56 billion metric tons of water into the oceans every year. That won’t add more than the tiniest fraction to the current annual sea level rise of about 3 mm per year (about a tenth of an inch) caused by melting ice worldwide along with sea water that is expanding as it warms. But if glaciers in Antarctica and Greenland keep moving faster as the century progresses, estimates of sea level rise by 2100, which now stand at between 10 and 32 inches at a minimum, may have to be revised upward.
Sea level is rising fast – and it seems to be speeding up - Many observations have shown that sea level rose steadily over the 20th century – and at a faster rate than over the previous centuries. It is also clear from both satellite and coastal observations that seas have risen faster over the past two decades than they did for the bulk of the 20th century. More recently, several studies have shown that the flow of ice and water into the oceans from Greenland and West Antarctica has increased since 1993. This raises an interesting question: has the rate of sea-level rise changed since 1993, when satellite observations began to give us a more complete picture of the global oceans? Our new research tackles this question by comparing satellite observations of sea level with those measured at the coast by tide gauges. We use this comparison to determine small biases in the satellite data that have changed over time. Understanding how the land supporting the tide gauges is moving becomes an important part of these comparisons. We found three important results. First, the seas really have risen faster since 1993, relative to the slower rate over previous decades as evident in the tide gauge data. Second, comparison of the coastal and satellite measurements reveal small differences in the early part of the satellite record from 1993 to 1999. After allowing for land motion at the tide gauges, the first six years of the satellite record marginally overestimates the sea-level trend. Our revised estimate of global mean sea-level rise for the satellite era (1993 to mid-2014) is about 2.6-2.9 mm per year (the exact value depends on how we estimate land motion) – slightly less than the previous estimate of 3.2 mm per year.
Nature faces off against politics in North Carolina - — During the early morning hours of May 2, part of the northbound lane of North Carolina Highway 12 in Kitty Hawk broke off and washed into the Atlantic Ocean. While the loss of 200 feet of roadway and about 500 feet of a protective sand berm will be temporary, it was more than just another hit to the road from a big spring storm at high tide under a full moon. In a state that has been engaged in a highly charged, highly politicized debate about climate change for more than five years, it was a reminder that the Atlantic isn’t waiting to see who wins the argument. It was also a reminder that North Carolina, with its rapidly developing coastline and intricate ecological network of sounds and estuaries, has a lot at stake as sea levels rise. The state has more than 300 miles of direct coastline and thousands of miles of tidal areas. Like much of the Southeastern U.S. coast, commercial and residential development is growing more concentrated on barrier islands that move over time, rolling over themselves and drifting toward and away from the mainland with the rise and fall of the sea. In 2010 the state’s Coastal Resources Commission asked a panel of coastal scientists to study the rate of sea level rise and predict what the coast might look like at the end of the century. But the panel’s report, which said that North Carolina’s coast could see waters rise by as much as a meter by 2100, caused an intense backlash — and not just among climate change denialists but also from coastal developers, landowners and the state’s politically powerful real estate lobby. The next year, the legislature abruptly ended the terms of nearly all members of the state’s environmental policy boards, including the Coastal Resources Commission, which was charged with overseeing the issue of sea level rise.
Shell boss warns that unchecked fossil fuel burning will cause global warming -- The world's fossil fuel reserves cannot be burned unless some way is found to capture their carbon emissions, Royal Dutch Shell Chief Executive Officer Ben van Beurden said on Friday. In an interview published in the Guardian newspaper, Van Beurden forecast that global energy use would produce "zero carbon" by the end of the century, and that his group would get a "very large segment" of its earnings from renewable power. The interview came a day after Van Beurden slammed as a "red herring" calls to divest from energy companies as part of the fight against climate change, in particular the "Keep it in the Ground" campaign led by the Guardian. "We cannot burn all the hydrocarbon resources we have on the planet in an unmitigated way and not expect to have a CO2 loading in the atmosphere that is often being linked to the 2C scenario," Van Beurden said. He was referring to studies that the climate could warm by 2 degrees centigrade or more by the end of the century if fossil fuels continue to be burned. "I am absolutely convinced that without a policy that will really enable and realise CCS [carbon capture and storage] on a large scale, we are not going to be able to stay within that CO2 emission budget," he added.
Stern: Shell is asking us to bet against the world on climate change - Shell is asking investors to bet against the world taking action on climate change or in renewables displacing fossil fuels, says influential economist Nick Stern. Speaking at a Guardian debate on divestment last night, Lord Stern said Shell and other hydrocarbon companies were getting it wrong on the potential of renewables technology and that people will insist on policies to hold global warming to 2C. “They do not believe the world will be wise enough to follow policies that can hold the world to 2C and are asking us to bet against the world ... telling us that we won’t do what we’ve set out to do and that it is a safe bet to bet that we won’t.
“We have to try to show them that they are wrong and that we can get the world’s people to insist that we must follow those policies. We must try to build pressure to try to make that 2C assumption correct and the forecast of the energy companies wrong.” Stern’s intervention comes after Shell CEO Ben van Beurden told the Guardian that his company would continue to look for new reserves of oil and did not believe its assets were overvalued or unusable as a result of current or reasonably foreseeable future legislation concerning carbon. He also said renewables did not produce enough financial return to justify more investment.
Exxon CEO on renewable energy: 'We choose not to lose money on purpose' - Exxon Mobil Corp. is unlikely to adopt a climate change resolution initiative, the Houston Business Journal reports. CEO Rex Tillerson and shareholders collectively rejected environmental activists’ proposals for climate-conscious additions, including a global warming expert on the board of directors. Activists in the company’s home base of Irving ultimately hope the company shift their focus away from oil and gas and elect to produce renewable energy—a proposal Tillerson said would generate suitable profit. “We choose not to lose money on purpose,” he said. Shareholders seemed to share Tillerson’s reluctance to address environmentalists’ concerns. Only 21 percent voted to appoint a global warming expert, less than 10 percent voted for a greenhouse gas resolution and a request for a report on fracking’s environmental impact was rejected. “Mankind has this enormous capacity to deal with adversity,” Tillerson told the Associated Press. “I know that is an unsatisfactory answer to a lot of people.”
Cutting Warming to 1.5°C Could Endanger Food Supply - —As world leaders try to agree how to prevent global warming from heating the planet by more than 2°C above pre-industrial levels, scientists have tackled an altogether thornier question: can we keep the rise below 1.5°C? The lower target—demanded by more than 100 countries as a safer goal—is attainable, they say. But there will be little room for error, and getting there will mean not only cutting greenhouse gas emissions, but actually removing carbon dioxide from the atmosphere. That is not possible with the technology now available. And even if it could one day be done, it would probably have forbiddingly harmful consequences for world food supplies. However, limiting temperature rise by 2100 to less than 1.5°C is still feasible, say the researchers from the International Institute for Applied Systems Analysis (IIASA) in Austria, the Potsdam Institute for Climate Impact Research (PIK), Germany, and colleagues. They report their findings in the journal Nature Climate Change. But the study finds that staying below 1.5°C would require a radical step change: some time this century, carbon emissions would have to become negative at a global scale. That is the scientists’ way of saying that significant amounts of CO2 will have to be actively removed from the atmosphere. In theory, it is possible—for example, through bio-energy use, combined with carbon capture and storage. But that is a technology that so far remains untested on a large scale. It would also increase hunger, as the crops needed to produce enough biofuel would compete for land with food plants. Another idea is to grow more forests, which would sequester carbon in their trees, but this would be open to the same objection—that it would reduce cropland.
Climate Change: Vital Signs of the Planet: Global is the new local: Pollution changes clouds, climate downstream - NASA - This video shows aerosol emission and transport from September 1, 2006, to April 10, 2007. Also included are locations, indicated by red and yellow dots, of wildfires and human-initiated burning as detected by the MODIS instrument on NASA's Terra and Aqua satellites. Download the animation here. The residents of Beijing and Delhi are not the only ones feeling the effects of Asian air pollution — an unwanted byproduct of coal-fired economic development. The continent's tainted air is known to cross the Pacific Ocean, adding to homegrown air-quality problems on the U.S. West Coast. But unfortunately, pollution doesn't just pollute. Researchers at NASA's Jet Propulsion Laboratory and the California Institute of Technology, both in Pasadena, California, are looking at how Asian pollution is changing weather and climate around the globe. Scientists call airborne particles of any sort — human-produced or natural — aerosols. The simplest effect of increasing aerosols is to increase clouds. To form clouds, airborne water vapor needs particles on which to condense. With more aerosols, there can be more or thicker clouds. In a warming world, that's good. Sunlight bounces off cloud tops into space without ever reaching Earth's surface, so we stay cooler under cloud cover. But that simplest effect doesn't always happen. If there's no water vapor in the air — the air is dry — aerosols can't make clouds. Different types of aerosols have different effects, and the same aerosol can have different effects depending on how much is in the air and how high it is. Soot particles at certain altitudes can cause cloud droplets to evaporate, leaving nothing but haze. At other altitudes, soot can cause clouds to be deeper and taller, producing heavy thunderstorms or hailstorms. With so many possibilities, aerosols are one of the largest sources of uncertainty in predicting the extent of future climate change.
World has no choice but to decarbonize: U.N. climate chief - - Responding to climate change in the next 15 years is the world's "mega development project", given the need to invest trillions of dollars in infrastructure, creating jobs and economic stability, the United Nations' top climate change official said on Tuesday. "It makes fundamental economic sense" for countries to push forward on tackling climate change because of the benefits it will bring in terms of food, water and energy, as well as employment," Christiana Figueres told a carbon market conference in Barcelona. This, together with the speed at which businesses are acting on climate change and efforts to put a price on carbon, mean "a decarbonized world is now irreversible, irrefutable," the head of the U.N. climate change secretariat told the conference. "We are going to do it, because frankly we don't have any other option," she said. Decarbonization refers to shifting from fossil fuels to renewable energy sources, and improving energy efficiency, in order to cut planet-warming emissions to a net zero. Rachel Kyte, the World Bank's special envoy for climate change, said to decarbonize economies, "we will need to begin with extraordinary ambition at the end of this year" in Paris where countries are due to agree a new global deal to tackle climate change. Experts say the national plans countries are now compiling for that deal are unlikely to add up to the reductions in greenhouse gas emissions needed to keep global warming to an internationally agreed limit of 2 degrees Celsius.
China warned over 'insane' plans for new nuclear power plants --China’s plans for a rapid expansion of nuclear power plants are “insane” because the country is not investing enough in safety controls, a leading Chinese scientist has warned. Proposals to build plants inland, as China ends a moratorium on new generators imposed after the Fukushima disaster in March 2011, are particularly risky, the physicist He Zuoxiu said, because if there was an accident it could contaminate rivers that hundreds of millions of people rely on for water and taint groundwater supplies to vast swathes of important farmlands. China halted the approval of new reactors in 2011 in order to review its safety standards, but gave the go-ahead in March for two units, part of an attempt to surpass Japan’s nuclear-generating capacity by 2020 and become the world’s biggest user of nuclear power a decade later. Barack Obama recently announced plans to renew a nuclear cooperation deal with Beijing that would allow it to buy more US-designed reactors, and potentially pursue the technology to reprocess plutonium from spent fuel. The government is keen to expand nuclear generation as part of a wider effort to reduce air pollution and greenhouse gas emissions, and cut dependence on imported oil and gas.
The Marshall Islands and the NPT -- Bulletin of the Atomic Scientists -- Tony DeBrum, Minister of Foreign Affairs for the Republic of the Marshall Islands (RMI) provided a dose of reality to the Nuclear Non-Proliferation Treaty (NPT) Review Conference recently by asking: “How many in this room have personally witnessed nuclear weapon detonations?” On March 1, 1954, a 9-year-old DeBrum was fishing with his grandfather near the Likiep atoll, one of the islands in the Marshalls group. As his grandfather cast his net, there was a sudden intense flash that lit up the pre-dawn sky, followed by a terrifying shock wave. “Everything turned red—the ocean, the fish, the sky, and my grandfather’s net. And we were 200 miles away from ground zero. A memory that can never be erased.” The 1954 Bravo hydrogen bomb test witnessed by DeBrum and his grandfather sparked worldwide protest against atmospheric nuclear weapons testing. Now the tiny nation of the Republic of the Marshall Islands is once again at the center of international activism, filing two lawsuits, one in US federal court against the United States, and one in the International Court of Justice (ICJ) against all nine countries that possess nuclear weapons. In the ICJ action, the United States, the United Kingdom, France, Russia, China have been sued for failure to eliminate their nuclear arsenals, as called for by the NPT. The ICJ lawsuit also names India, Pakistan, North Korea, and Israel as defendants, even though they are not NPT signatories, contending they also must disarm under customary international law. The lawsuits aim to enforce the NPT, arguing that the nuclear states are violating the Article VI of the Treaty, which calls for negotiations toward timely nuclear disarmament.
Fukushima May Be At Risk Of Imminent "Hydrogen Explosion" -- Containers holding contaminated water at the crippled Fukushima nuclear power plant are at risk of hydrogen explosions, The Telegraph reports, with 10% of them found to be leaking. The discovery was reported to the Nuclear Regulation Authority (NRA), which raised concerns surrounding the potential hazards of accumulated hydrogen building up in the containers warning that "a spark caused by static electricity could cause a container to explode." TEPCO officials reassuringly note that they "think the possibility of an occurrence of hydrogen explosion from these storage facilities is extremely low, since there is no fire origin, or anything that generates static electricity nearby," but this is the same company that a recent IAEA report blasted for "failing to implement adequate safeguards at Fukushima – despite being aware of the tsunami risk." Leaking containers at Japan’s embattled Fukushima nuclear power plant are at risk of possible hydrogen explosions, experts have claimed. As The Telegraph reports, Almost 10 per cent of recently inspected containers holding contaminated water at the nuclear plant in northeast Japan were found to be leaking radioactive water. The leakages, discovered during inspections by Tokyo Electric Power Co (Tepco), the operators of the plant, were thought to be caused by a build-up of hydrogen and other gases due to radiation contamination.
China's CO2 emissions have been plummeting lately. What's going on? - Vox: Arguably the most important climate story in the world right now is the question of what's happening in China. A recent analysis by Greenpeace International found that China's carbon dioxide emissions have plunged nearly 5 percent, year over year, in the first four months of 2015: That's ... unexpected. Ever since 2000, China's CO2 emissions have been rising at a relentless pace, as the country rocketed itself out of poverty by burning billions of tons of coal for electricity, heat, and industry. China is now the world's biggest CO2 emitter, getting two-thirds of its energy from coal, and officials have long assumed emissions would keep rising until 2030 or so. It's a big reason global warming forecasts look so dire.But suddenly, China's emissions are falling, spurred by a sharp decline in coal use. As Greenpeace's Lauri Myllyvirta explains, China's coal consumption dropped in 2014 for the first time this century. Then, in the first four months of 2015, coal use fell another 8 percent, year on year — which translates to a roughly 5 percent decline in CO2 emissions. To put that drop in perspective, that's the equivalent of a whole year's worth of CO2 emissions from the United Kingdom, gone. Because China is so incomprehensibly massive, even its hiccups have outsized effects on international coal markets and global-warming outlooks. So why is this happening? Is this just a temporary blip? Or is it part of a real and lasting shift in China's energy use? I asked a number of experts, who pointed out a couple key things to keep in mind:
- 1) Be very, very wary of China's energy statistics.
- 2) The 2014 coal drop was likely due to a surge of hydropower and dip in industrial activity
- 3) China is trying to shift away from heavy industry — but it's not yet clear what that means for coal
China’s Coal Use May Have Peaked Years Ahead Of Schedule -- China’s coal use fell by nearly 8 percent in the first four months of 2015 versus the same period in 2014, according to analysis by Greenpeace’s Energydesk team. Given China’s aggressive commitments to slash urban air pollution levels and reverse carbon pollution trends, we may have witnessed the peak in Chinese coal consumption years ahead of schedule. That would be another climate and clean energy game changer. As we reported last year, the Chinese government said in November it would cap coal use by 2020. That announcement came quickly after the breakthrough CO2 deal Chinese President Xi Jinping announced with Obama in November that “China intends to achieve the peaking of CO2 emissions around 2030 and to make best efforts to peak early.” The italicized “language was critical and we should assume it was not issued lightly,” as Melanie Hart, director for China policy at the Center for American Progress, told me in February. “It suggests that Chinese leaders are open to making even more ambitious climate moves if the economics allow, and this new data suggests that the economics are looking very good indeed.” China has known for a while it could peak in CO2 before 2030, but officials apparently weren’t quite ready to make public a specific earlier date like, say, 2025. Hart points out that “most models indicate that China’s carbon dioxide emissions will peak about ten years after coal” (see discussion here). It will be interesting to see whether China drops any hints about a CO2 peak in 2025 in the negotiations leading up to the Paris climate summit.
Fossil industry faces a perfect political and technological storm - The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero. The International Monetary Fund has let off the first thunder-clap. An astonishing report - blandly titled "How Large Are Global Energy Subsidies" - alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP. This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation - also on cue - has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants. The killer point is that this architecture of subsidy is a "drag on economic growth" as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer - and more dynamic - if the burning of fossils was priced properly. This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison. The British electricity group SSE (ex Scottish and Southern Energy) is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal "has a limited role in the future".
More coal layoffs announced at Murray, Alpha --- Hundreds more West Virginia miners were told Friday that they were being laid off, in the latest blow to the already deeply troubled Appalachian coal industry. Alpha Natural Resources issued a statement announcing the “expected idling” of subsidiary Rockspring Development’s Camp Creek underground mine and processing plant in Wayne County and had given layoff notices to 439 employees at that operation. Alpha cited its “current assessment of market conditions.” Meanwhile, Murray Energy was expected to issue a statement late this afternoon regarding layoffs at operations in West Virginia and Ohio. Some media reports indicated as many as 1,800 workers could be affected. The announcements come a little more than a week after Patriot Coal announced that it was filing for Chapter 11 bankruptcy for the second time, as regional coal producers face stiff competition from cheap natural gas, the depletion of the best coal seams in Southern West Virginia, growth of renewable energy sources, and new environmental rules aimed at curtailing air pollution from coal-fired power plants.
Why We Need to End Mountaintop Removal Now -- A short video released this week has stunningly detailed drone footage providing a rare view of mountaintop removal coal mining and the increasing proximity of this destructive form of mining to people living in Appalachia. The video includes interviews with local citizens who want to end mountaintop removal mining and transition their communities in a more just and sustainable way. Trip Jennings, an award-winning videographer who has worked with National Geographic, produced the video in partnership with Appalachian Voices and with support from Patagonia. Using camera drones and time-lapse photography, Jennings weaves images of the region’s natural wonders, the destruction from mountaintop removal, and the resiliency of the Appalachian people into an unforgettable tableau. You’ll hear from Norman, a former coal miner who would like to see more rooftop solar and other forms of clean energy in the region … Kathy, a coal-miner’s daughter-turned activist who is witnessing it moving ever-closer to communities … and Carmen, a young person determined to stay and create positive change in her hometown. Appalachian Voices, a nonprofit regional organization, released the video as part of its “Communities At Risk” project, a data-based, online mapping tool showing the increasing encroachment of mountaintop removal mining on communities even as coal is in decline in Appalachia. The group’s aim is to educate Americans about what’s at stake in Appalachia and urge President Obama to end mountaintop removal mining.
Inside the war on coal - The war on coal is not just political rhetoric, or a paranoid fantasy concocted by rapacious polluters. It’s real and it’s relentless. Over the past five years, it has killed a coal-fired power plant every 10 days. It has quietly transformed the U.S. electric grid and the global climate debate. The industry and its supporters use “war on coal” as shorthand for a ferocious assault by a hostile White House, but the real war on coal is not primarily an Obama war, or even a Washington war. It’s a guerrilla war. The front lines are not at the Environmental Protection Agency or the Supreme Court. If you want to see how the fossil fuel that once powered most of the country is being battered by enemy forces, you have to watch state and local hearings where utility commissions and other obscure governing bodies debate individual coal plants. You probably won’t find much drama. You’ll definitely find lawyers from the Sierra Club’s Beyond Coal campaign, the boots on the ground in the war on coal. Beyond Coal is the most extensive, expensive and effective campaign in the Club’s 123-year history, and maybe the history of the environmental movement. It’s gone largely unnoticed amid the furor over the Keystone pipeline and President Barack Obama’s efforts to regulate carbon, but it’s helped retire more than one third of America’s coal plants since its launch in 2010, one dull hearing at a time. With a vast war chest donated by Michael Bloomberg, unlikely allies from the business world, and a strategy that relies more on economics than ecology, its team of nearly 200 litigators and organizers has won battles in the Midwestern and Appalachian coal belts, in the reddest of red states, in almost every state that burns coal.
Editorial: Gov. John Hickenlooper right to push back on Sen. Mitch McConnell's call to ignore new coal rules - The Environmental Protection Agency’s proposed rules have become a target for McConnell and other Republicans now that the GOP controls the U.S. Senate as well as the House. The rules, which aren’t yet final, would reduce carbon dioxide emissions by 30 percent from 2005 levels, and each state is charged with developing a plan to meet the goal. In a letter to governors in March, McConnell urged them to ignore the rules. The problem is, if McConnell’s reading of the tea leaves is wrong, and the courts allow the rules to move forward, states that had followed his plea and ignored the EPA’s charge to craft a plan would find themselves without a voice in the process. Colorado mined nearly 23 million tons of coal, worth about $900 million, last year, the Colorado Mining Association said. More than 2,000 people work in coal mines or support industries, according to the state Department of Labor and Employment. And, of course, as all of us in northern Colorado know, this state has lots of experience when it comes to balancing the needs of energy production with the demands of a safe and clean environment.“In Colorado, we have a longstanding history of investing in our natural environment, with the engagement of local business and civic leaders,” Hickenlooper wrote in a letter to McConnell this month. There are lots of questions about the EPA’s new rules. And the rules may not survive a court challenge. Even if that happens, though, it’s in all our interests to have a cleaner environment. And questions about the role coal-burning power plants play in polluting the air will persist. Colorado must retain its voice in these questions. Simply ignoring the EPA, no matter how much some may want to, won’t accomplish that.
Stranded assets and climate stimulus - Izabella Kaminska -- It was Climate Finance Day in Paris last week, a conference convened under the auspices of UNEP and the UNPRI to address the specific challenges and issues of redirecting capital towards a resilient low-carbon global economy ahead of the United Nations Climate Change Conference also to be held in Paris, in December. The big takeaway was consensus is shifting, especially among asset managers and real money investors who no longer view environmental sustainability as a fringe theme. Climate is a bona fide risk for beneficiaries which professional investors must guard against to fulfill their fiduciary duties. To do nothing, essentially, is to encourage a disorderly capital transition and, potentially, a financial panic. As example, Axa’s chief executive pledged the insurer would divest €500m of coal assets between now and the end of the year. The idea of treating climate change as a financial market risk has gained a lot of traction the last few years in no small part to the efforts of Anthony Hobley and colleagues at the Carbon Tracker Initiative, who understood the issue had to be framed in the language of finance to make progress. That language is now blunt. Trillions of dollars worth of financial assets could be grossly mispriced due to the incorrect valuation of fossil fuel assets — many of which probably can’t ever be burned if the world is to limit global warming to 2 degrees.
Crude Oil Prices, Climate Change, and Global Welfare - Robert Stavins - A few weeks ago, I participated in a panel session titled, “The Remarkable Transformation of the Energy Sector: Does it Also Transform Our World.” The motivating question was: “Is the dramatic decline in oil prices a complete gift to the West because of the enormous funds being saved, or is it an unintended Trojan horse because development of renewable energy as well as new fossil-fuel sources will decline in the West, posing longer new challenges?” The other members of the panel – from private industry – had vastly more expertise (and relevant insights) on fossil-fuel markets, but here’s what I had to say. This is hardly at the sweet spot of my professional competence, so I welcome your comments and corrections! In general, how would you answer that question?
Audi is ready to change the game with synthetic gasoline - German automobile manufacturer Audi has accomplished some big breakthroughs with petroleum-free fuel. First, the company managed to create a carbon neutral diesel fuel out of just water and carbon dioxide. Now, just a few months later, the company has stated that they have created a new gasoline free of fossil fuels. Audi, in partnership with Global Bioenergies, produced the first batch of a plant-based gasoline, labeled “e-benzin,” which contains only hydrocarbons. According to an IFLScience report, after extracting and processing glucose from corn, or maize, the researchers ended up with a final, clean-burning product of isobutane gas. Global Bioenergies stated that this first batch paves the way to a large scale deployment of a new fuel industry, more sustainable and more environmentally friendly. Unlike ethanol blends, the whole manufacturing process bypasses the use of any petroleum. However, Audi has ambitions to make the technique even less wasteful by eventually getting rid of the need for corn. The end-goal is to create a sustainable fuel using only water, hydrogen, carbon dioxide and sunlight without adding to the crop demand-related social problem of ethanol. As if a renewable fuel that could cleanly power vehicles and help curve the global food crisis isn’t enough, the synthetic gasoline could also increase the speed of your vehicle. Audi’s synthetic petrol comes with an octane rating of RON 100 while premium gas usually reaches up to the 90s. In addition, Audi has claimed that the final, refined synthetic gasoline burns clean due to its lack of sulfur and benzene. Also, its high grade enables it to power engines using high compression ratios for more efficiency.
Don't frack public land - Toledo Blade -- Ohio House members took up a bill this year that would have opened public parks to oil and gas drilling, effectively circumventing Gov. John Kasich’s moratorium on hydraulic fracturing on public land. Lawmakers amended the bill to exclude state parks and nature preserves from drilling, but did not exempt other public lands — state forests, Metropark systems, and other local parks. House lawmakers passed the measure, unanimously. If the Senate does not protect all public land from drilling, the governor must be ready to veto the bill. The bill deals with Ohio’s “unitization” system — the process that allows landowners to aggregate their properties for resource extraction. Current law allows oil and natural-gas pools to be opened up for drilling if the owners of 65 percent of the land lying over them agree. Some property owners complain that the Ohio Department of Natural Resources often moves too slowly, or not at all, on unitization requests. The House-passed bill would require ODNR to hold a hearing on a request within 45 days, and to make a decision within 30 days of the hearing.Lawmakers’ failure to include exceptions in the bill for regional parks and other public lands appears to have been more a matter of neglect than deliberate sabotage. No one spoke up for local parks in committee hearings before the measure was passed, and some lawmakers say they weren’t aware of the b ill’s deficiencies before they voted for it.These claims invite skepticism. Environmental groups had criticized the measure’s threats to public land, even after lawmakers added the language to protect state parks and nature preserves. In any case, the Senate can, and should, broaden the bill to protect all public land from drilling.
Southeast Ohio businesses still fighting oil and gas tax hike - In Marietta, Ohio, business owners still have hanging over their heads an oil and gas tax hike Gov. John Kasich has fought for since 2012.Marietta Area Chamber of Commerce president and CEO Charlotte Keim told Ohio Watchdog the energy production Kasich wants to penalize has benefited the region’s whole economy. Lawmakers, Keim said in an email, should “encourage this industry to grow; not burden it in its infancy with increased taxes.”“Oil and gas activity in southeastern Ohio has brought an economic boom to our region, as evident in the increases in sales tax, employment, bed tax revenues, new construction projects, individual wealth increases and so on,” Keim said. Today over 600 employers belong to the Marietta Area Chamber of Commerce.Many of the benefits Ohio has seen from horizontal hydraulic fracturing of underground shale, or “fracking,” have been localized to the shale-rich southeastern part of the state. Kasich wants to use an increased severance tax on crude oil and natural gas to pay for a statewide income tax cut.
Ohio company sentenced for dumping wastewater from drilling - A northeast Ohio company has pleaded guilty to a federal charge related to the illegal dumping of wastewater from gas and oil drilling into a storm sewer 33 times between October 2012 and January 2013. A judge on Thursday fined the company $75,000 and ordered it to pay $25,000 to be split between Friends of the Mahoning River and Midwest Environmental Enforcement Association. Company owner Ben Lupo of Poland, Ohio, pleaded guilty in March 2014 to a federal dumping charge and was sentenced to 28 months in prison in August. Lupo was accused of ordering workers to pour toxic sludge and brine containing diesel oil, benzene, toluene, barium and chlorides into a storm sewer that reached a Mahoning River tributary. A company attorney did not return telephone messages Thursday.
JobsOhio offered huge incentives for ethane cracker plant - According to PTT Global Chemical Public Company Ltd., Ohio offered the Thai company an incentive package that was too good to say “no” to when it came to deciding the location for its ethane cracker plant. The $5.7 billion plant will be located in Belmont County, Ohio, thanks to JobsOhio’s “aggressive incentive package.” The state’s private job-creation entity offered job-creation tax credits, work-force training grants, local tax credits and infrastructure improvement grants. PTT Global Chemical, along with its partner Marubeni Corp. of Japan, announced the location of the cracker plant last month. The other options for a location included West Virginia and Pennsylvania. As reported by the Columbus Business First, “JobsOhio is the private corporation created by Gov. John Kasich in charge of promoting Ohio economic development. In a presentation this month, PTT cited JobsOhio’s ability to “deliver the required work force” and what it says are 90,000 skilled workers as key advantages for Ohio.” For years Ohio has tried for a major ethane cracker to be built in the state, but always “lost” to its neighboring states. However, its hard work has finally paid off. According to JobsOhio’s spokesperson, the incentives for the plant will be disclosed after the final agreement is completed. If PTT Global Chemical goes through with the ethane cracker plant, it will take natural gas components from the Marcellus and Utica Shale formations and convert it into several chemical products. Lucky for Ohio and PTT Global Chemical, Belmont County is the center of state’s oil and gas operations in the Utica.
Fracking byproduct factories to bring Ohio risks, rewards – Columbus Dispatch - Ohio is poised to gain a new industry, one that will process a byproduct of oil and gas drilling and is raising new concerns about possible pollution and other safety hazards. It’s called condensate, and it’s about as flammable as gasoline. It also contains benzene, a chemical known to cause cancer, and toluene, which can affect the human nervous system. The Ohio Environmental Protection Agency has issued permits for three factories in eastern Ohio to process the byproduct of fracking for oil and gas. Some residents worry that it could be a safety hazard because it is trucked over Ohio roadways. And some worry that it could add to existing health, safety and environmental concerns connected with hydraulic fracturing, the process of using water, chemicals and sand at high pressure to release oil and gas from shale thousands of feet underground. Those concerns aren’t unfounded: An explosion at a condensate pump in Noble County, in eastern Ohio, in November killed an electrician. The man, 48-year-old Norman Butler of Virginia, was testing and calibrating electrical components on the pump when it ignited. In October, two weeks before Butler was killed, a pipeline carrying condensate from eastern Ohio to a natural-gas processing plant in West Virginia caught fire, burning several acres of woods and forcing families from nearby houses. The EPA issued the permits over the past year for facilities in Clarington, in Monroe County; in Cadiz, in Harrison County; and, most recently, in Belpre, in Washington County, along the Ohio River. Processing condensate, industry leaders say, allows oil and gas companies to make the most of what they extract from the ground.
Utica and Marcellus well activity in Ohio -- Activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to last week’s well activity update, and so has one company’s plans in the Utica Shale formation. Magnum Hunter Resources Corp. has decide to sell 5,210 acres of undeveloped land in the Utica Shale formation. The land, which is worth about $41 million, is located in Tyler County, West Virginia, and is part of the company’s plan to improve its liquidity. CEO Gary Evans explained that the acreage is not part of the company’s long-term drilling plan and that several of the leases are close to their expiration dates. Evans also said that because of these reasons it made sense for Magnum to sell the land to a competitor that already has adjacent leases. The following information is provided by the Ohio Department of Natural Resources and is through the week of May 23rd. Activity in the Utica Shale formation in Ohio has had a few slight changes when compared to last week’s update. According to this week’s report, 423 wells were permitted, 382 drilled, 897 producing, 13 inactive, 24 in final restoration and 3 abandoned. This brings the total number of wells in the Utica to 1,917. The Marcellus Shale in Ohio has zero change reported when compared to last week’s well report. The area is still sitting at 15 wells permitted, 13 drilled, 14 producing and one well inactive. There are a total of 43 wells in the Ohio Marcellus Shale.
Magnum Hunter selling $41M of Utica shale land - -- Magnum Hunter Resources Corp. is selling almost $41 million in undeveloped Utica shale acreage. The oil and gas company, which has 210,000 acres of land under lease in eastern Ohio and West Virginia, said Tuesday it’s selling its interests in 5,210 acres in Tyler County, West Virginia, which borders the Ohio River. Houston-based Magnum Hunter (NYSE:MHR) said the land was not in its long-term drilling plans. Many of the leases in the acreage are set to expire soon, CEO Gary Evans said in a statement. “It made sense to sell these properties now to an industry competitor that already owns adjacent leases,” he said. Magnum Hunter said earlier this month that it’s looking to sell $450 million worth of its Ohio acreage as part of efforts to improve its liquidity.
Aubrey McClendon: Fracking's Cowboy Rides Again - America’s wildest wildcatter, Aubrey McClendon, found new life — and new billions — after his spectacular plunge from the top of the oil game. Trouble has already come calling. In early 2013, during his last days as CEO of Chesapeake Energy Chesapeake Energy, Aubrey McClendon was one busy guy. Chesapeake’s board gave him the boot following a litany of accusations about his rampant conflicts of interest, lavish perks, reckless bets and failure to disclose that he had personally borrowed around $1 billion, some from Chesapeake’s own lenders. But before leaving the building, McClendon allegedly gave himself a parting gift. According to a lawsuit filed by Chesapeake in February, he had his assistant print out highly sensitive maps of oil and gas prospects in Ohio’s natural-gas-rich Utica shale formations, and he e-mailed more proprietary and valuable information to his private account. McClendon set up a new operation–American Energy Partners–in offices up the street from Chesapeake’s Oklahoma City campus. He found a deep-pocketed partner in John Raymond, CEO of $15.5 billion Houston private equity outfit Energy & Minerals Group (and son of legendary Exxon CEO Lee Raymond). McClendon quickly got to work: By the time Chesapeake filed its lawsuit alleging theft of secrets, American Energy’s Utica affiliate had already bought up more than $1.5 billion of acreage. As for those allegations of theft? “I am entitled to possess and use the 20 terabytes of information I own,” McClendon said in a press release. “It is a sad day to see Chesapeake stoop so low as to sue its cofounder for having information that was earned, paid for and provided through my contracts with Chesapeake.” Through a spokesman, McClendon tells FORBES he expects to be vindicated in arbitration.
Is Fracking The New Religion? Natural Gas Industry Moves from the Absurd to the Profane -- God opposes farming, supports fracking, says gas industry executive at FERC meeting. Executive Director Corky DeMarco of the West Virginia Oil and Natural Gas Association (WVONGA) said here last evening that it is not God’s will that West Virginians be farmers. Instead, he said, it is God’s will that the natural gas industry extract all it can out of the Marcellus shale. He said this at the last of several public scoping meetings being held by the Federal Energy Regulatory Commission (FERC) to consider the environmental impact of the proposed Atlantic Coast Pipeline (ACP). Those who find it hard to believe that he would make such a statement need only wait for the transcript of the meeting to be published by FERC. Or, you can ask any one of the number of audience members – many of them farmers. The meeting was held at Bridgeport High School. Citizens have until April 28th to send FERC comments regarding the environmental impact of the proposed ACP. With his remarks, DeMarco has managed to move the natural gas industry’s position on fracking and related pipeline development from the absurd to the profane. Indeed, Webster’s Universal College Dictionary defines profane as “showing irreverence towards God or sacred things.”
The mighty Marcellus is unstoppable or not? - How easy it is to forget there are limits to growth, especially when what you observe is designed to make us forget. The great Marcellus is famous for having increased its production 12-fold in four years to become the US' largest producing natural gas field, but things have not looked that great lately. The average daily production estimate reported by EIA in January was 16319, in February was 16550 a gain of 1.4%, in March was 16600, a gain of 0.3% in April has been 16706, a gain of0.9% and is projected to be 16716 MMcf/d in May, a gain of 0.06%. Not a stellar performance.: a gain of 2.4% in 4 months, most of that at the beginning. Any bets that it will be going down by July? Where is the mighty Marcellus? There are recent projections of Marcellus growth that show production or slow fall-off in coming decades, such as that of David Hughes, "Drilling Deeper," http://www.postcarbon.org/wp-content/up and the EIA analysis discussed by Hughes, that predict that far more gas will be produced there in coming years and decades than the USGS says are technically available. Compare http://www.usgs.gov/newsroom/article.asp?ID=2893/ They make no attempt to reconcile their conclusions with those of USGS They are in effect making rosy projections based upon the ability of Marcellus to keep on growing and producing through technology that doesn't presently exist and of which they do not tell us the nature. Addtionally, what is ecoomically avilable is is generaly substantially less than what is technically available. You cannot produce gas you don't know how to produce, and you cannot produce gas you cannot afford to produce. Those who say Marcellus will go one being "mighty" ignore, as we shall see, these basics.
Marcellus permit activity in Pennsylvania -- Permit activity in the Marcellus Shale formation in Pennsylvania saw a lot of action over the last week, along with the shale’s healthy registry, which is seeing even more push from health advocates. The process of finding a way to better monitor health complaints related to natural gas development is still ongoing, but health advocates are starting to push the state’s Department of Health and Department of Environmental Protection (DEP) even harder for answers. When figuring out the state’s budget plan, Governor Tom Wolf proposed $100,000 to be allocated towards the health department specifically for the health registry. However, health advocates are claiming that $100,000 is not even close to enough money to fund a registry. The other drawback of Wolf’s proposal is that it is not a guarantee the Legislation will pass it, which is a major issue. The following information is provided by the Pennsylvania Department of Environmental Protection and covers May 18th through May 24th. New: 48 Renewed: 13
Big U.S. shale field Marcellus faces output drop due to low gas prices - Natural gas production in the Marcellus shale, which has grown over the past decade from next to nothing to the source of about a fifth of U.S. output, may decline for the first time if prices in the basin remain low for much longer, according to federal government data. Such a reduction may be worrisome since the United States is counting on the Marcellus to continue producing vast amounts of cheap gas needed to meet growing demand from industrial customers and power generators, and to enable the country to transition into a net gas exporter by 2017. The U.S. Energy Information Administration says production in the fast-growing field in Pennsylvania and West Virginia is set to remain flat for the next few years before beginning a very slow decline primarily because of depressed gas prices. Recent data supports signs of a slowdown. The number of rigs in the area has dwindled in recent months to its lowest since 2011, and drillers including Chesapeake Energy Corp and Cabot Oil & Gas Corp have temporarily shut in some production due to weak regional prices. Those low prices are threatening the basin with its first annual decline in output since producers started using hydraulic fracturing and horizontal drilling to develop the formation. But many private analysts say output from the Marcellus will continue to grow over the next several years as demand for gas increases and pipeline companies complete more projects to transport the fuel out of the region, boosting local prices that have fallen to their lowest in at least 14 years. “We see some slow growth in the Marcellus each year out to 2020″ because of new pipelines
Shale gas industry brings gas tax debate to TV screens - marcellus.com: The great debate between the shale gas industry and Governor Tom Wolf regarding Wolf’s proposed gas tax is still going strong, but the industry has taken things to a new level and is reaching people through their television screens. As reported by State Impact Pennsylvania, “The Pennsylvania Chamber of Business and Industry, which leads a coalition of groups opposing the shale gas tax, has begun running an ad against Governor Wolf’s proposal in the Pittsburgh, Harrisburg and Wilkes Barre/Scranton media markets. The TV spot, launched Monday, is part of the Chamber’s ‘Stop New Energy Taxes’ campaign, an effort to beat back Wolf’s plan to tax Marcellus Shale production at five percent, with an additional 4.7 cents per thousand cubic feet.”According to Wolf, the gas tax would bring in $1 billion, and most of it will be put towards education, but that’s not even close to what the TV ad focuses on. The ad emphasizes how the tax will cost “tens of thousands of jobs,” how it will be the highest tax throughout the U.S. The money brought in from it, will go to Harrisburg rather than urgent local projects. The final point the ad places focus on is the states’ current impact fee. The money brought it by the fee is directed back towards local towns that are located in areas that have gas drilling operations. During 2013, the impact fee yielded $224 million for rural communities, and according to Wolf the money will not disappear because the severance tax would replace the impact fee. The following is the industry’s TV ad, and to read State Impact Pennsylvania’s full story on the great severance tax debate, click here.
Organic Farmer Turned Fracking Protester: 'I Never Figured to be Engaged in Protest Activities’ Maggie Henry, an elderly organic farmer from Western Pennsylvania, never expected to become a protester. Her 100-acre farm in Bessemer, near the Ohio border, produced eggs, meat and vegetables for top restaurants in Pittsburgh, “I had a thriving business going! It was all I could handle,” she said. But after a shale gas operation began drilling in a neighboring farm more than a year ago, she says, her life changed. Her farm, which has been in her family for almost a century, is located above an historic oil field. Plugged wells can serve as pathways for methane and other pollutants, allowing them to seep to the surface and into aquifers.“The toxicity of the air and the contamination of the water is absolutely unbelievable,” she said. “People are covered with rashes and blisters. They experienced all sorts of neurotoxic symptoms. Their children suffer nose bleeds and asthmatic reactions.” She blames drilling for a series of earthquakes in March 2014 that she says cracked her basement foundation, drywall and chimney pipe. In February, two pigs and a cow died unexpectedly.A year ago, her story was recounted in a documentary. And on May 14, she traveled to D.C. to attend the Federal Energy Regulatory Commission’s open meeting, becoming one of three protesters to evade a security dragnet and enter the meeting. She stood up at the end of the session, shouting “In the shale plays of Pennsylvania, you are killing people!”She mentioned Terry Greenwood, a farmer who she said “made a chilling prediction years ago. He said, ‘First it is the animals, then it will be the people.’ We buried him in June of last year, the victim of a rare form of brain cancer,” she said.
Universities Study Effects of Fracking - - Penn State University professors and other researchers analyzed water wells in northeastern Pennsylvania allegedly contaminated with methane and chemicals associated with fracking. Among the materials identified in the water wells was 2-n-Butoxyethanol, which can be used as part of the fracking process. Researchers also reportedly found methane - the most common substance in natural gas streams that is often known simply as "natural gas" when burned for energy - in some rural Pennsylvania drinking water wells. "Part of the problem may have been wastewaters from a pit leak reported at the nearest gas well pad-the only nearby pad where wells were hydraulically fractured before the contamination incident," the study's abstract states. However, Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, said fracking near the water wells does not mean the procedure caused the contamination. He said some Mountain State water wells have historically had methane in them. "There are formations that have methane in them that are close to the surface that can communicate with a water well," he said. "Gas doesn't stay still - gas migrates." "The fact is that it is a historical phenomenon." As these researchers studied water quality, engineers at Drexel University evaluated air pollution from fracking sites and processing infrastructure in the same region of Pennsylvania. They compared levels of carbon monoxide, methane, ethane, nitrogen oxides and other volatile organic compounds to those found in other shale formations across the country from which natural gas is drawn."In looking at a cross-section of sites, we identified compressor stations as one of the larger long-term emission sources,"
Oil’s secret transit –- When crude oil arrives at a refinery in South Philadelphia or Marcus Hook or Paulsboro, the refinery must have a public plan outlining the hazards, a detailed response to possible accidents, and worst-case scenarios for disasters that could endanger hundreds of thousands of people. Not so the trains carrying oil to the refineries. As they travel past the Children's Hospital of Philadelphia, the Philadelphia Museum of Art, Philadelphia International Airport, along the Schuylkill Expressway, and past thousands of homes, schools and businesses, the oil trains need no public accounting of what they are carrying, or when or where, or what could happen if something goes wrong. As Philadelphia becomes a major hub in the nation's new oil boom, with about 150 million gallons of highly flammable crude arriving by train each week, a shroud of secrecy covers the trains, their cargoes and the safety of their infrastructure. Because of explosive oil-train derailments such as the 2013 accident in Lac-Mégantic, Quebec, that killed 47 people, neighbors of railroads want to know more about the hazards that may be rolling through their communities.“In Philadelphia, the tracks go right up against neighborhoods, homes, schools … those who would be most affected are kept in the dark,” More than 700,000 people in the region - including 400,000 in Philadelphia - live within a half-mile of rail lines that carry crude oil, according to an Inquirer analysis. Federal emergency-response guidelines recommend a half-mile evacuation zone if an oil tank car catches fire. The hazards were brought into sharp focus by the deadly derailment of an Amtrak train on May 12 in Port Richmond. The derailed Amtrak cars came to rest a short distance from tank cars of the type used to carry crude oil, ethanol, and other explosive liquids.
Editorial: No secrets in rail safety - Philadelphia Inquirer - With Philadelphia trying to become a major energy hub, the wall of secrecy surrounding the condition of tracks and bridges used by trains carrying highly flammable crude oil through neighborhoods, behind schools, and past commerce centers, must come down. Every week, about 150 million gallons of crude move through the region, but the people who would be most affected by an accident have no way of knowing whether the tracks or bridges used by oil freight cars are safe. More than 700,000 people in the region live within a half-mile of rail lines, The Inquirer’s Paul Nussbaum reported Sunday. Federal emergency guidelines call for nearby residents to be evacuated if a train catches fire, so clearly they have a vested interest in knowing the condition of tracks and bridges. However, the railroads aren’t subject to the Emergency Planning and Community Right to Know Act, which means what the railroads find after inspecting bridges and tracks isn’t open to public scrutiny. The Federal Railroad Administration doesn’t even keep a list of how many rail bridges there are. New rules have voided a federal requirement that railroads share information about large oil shipments with state emergency response commissions. And in those cases where railroads and emergency responders collaborate, the information they share is exempt from public disclosure laws. That’s just wrong. The public must know the condition of tracks and bridges to urge government intervention when necessary. Otherwise, railroads more concerned with their bottom lines may put profits ahead of public safety.
U.S. Military Concerned As Oil "Bomb Trains" Roll Dangerously Close to Nuclear Bomb Silos -- The latest oil train derailment and explosion in Heimdal, North Dakota is another frightening reminder of the danger this industry poses to communities across the country. Thankfully evacuating Heimdal wasn’t that big an operation because there are only 27 residents in the town. Which is a significantly smaller number than the 150 nuclear missiles buried in the ground under North Dakota. A recent report by Rachel Maddow reveals that the U.S. military is concerned about the proximity of the oil train tracks to those missile silos. Images like this one are why they are concerned. So while in the U.S. we mostly hear examples about oil and nukes mixing in a bad way in the Middle East — like the Saudis recently saying they may join the nuclear arms race — it appears we have an oil and nuclear issue of our own right here in the United States. Not that we are dealing with it. In North Dakota, state politicians recently voted to strip funding out of the state budget for safety programs and rail inspectors. The influence of the oil industry over North Dakota politics has been well documented by The Center for Public Integrity and others. A quote from one resident opposed to the sprawling oil development in North Dakota summed it up well for the New York Times stating, “we’re outgunned, outnumbered and out-suited.” And, of course it isn’t just the North Dakota politicians. If it has to do with oil, the American Petroleum Institute is involved. So, despite the new oil-by-rail regulations which are widely considered a gift to the oil and rail industries, the American Petroleum Institute has filed a lawsuit challenging the regulations.
Task force to plot ways of alleviating gas glut in Pennsylvania via pipelines -- Gov. Tom Wolf has formed a task force to help gas drillers navigate the challenges they experience building thousands of miles of pipelines to carry shale gas to markets and alleviate a glut that has contributed to depressed prices. The task force, which will be led by Department of Environmental Protection acting Secretary John Quigley, will recommend best practices for planning and routing pipelines through Pennsylvania, the governor's office said Wednesday. The goal is to promote collaboration among the stakeholders — drillers, regulators, environmentalists and the public — and find ways to minimize environmental impact while addressing the industry's infrastructure needs . “We need to work with the industry to make sure that the positive economic benefits of Pennsylvania's rich natural resources can more quickly be realized in a responsible way,” Wolf said in a statement. “This task force is part of our commitment to seeing the natural gas industry succeed.” The task force will have about 32 members, Quigley said. Industry and government officials along with environmental and conservation groups will be eligible for membership. Quigley first mentioned the formation of the group during legislative budget hearings this year. “This is not a regulatory conversation,” he said. “This is a collaborative conversation among all stakeholders to try to find the win-win opportunities.”
Columbia Pipeline Group plans expansion, upgrades in Marcellus and Utica natural gas shale plays: Columbia Pipeline Group plans to spend billions in building and upgrading infrastructure in the Marcellus and Utica shale plays to connect natural gas supply to demand. The company, a spinoff from its Indiana parent company NiSource (NI), which is one of the largest utility companies in the country, will handle natural gas infrastructure for soaring production from the Northeast. The separation, announced last September, will create two companies: NiSource, a fully regulated natural gas and electric utilities company with 3.4 million customers under the Columbia Gas and NIPSCO brands, and Columbia Pipeline Group Inc. (CPG), a stand-alone, publicly traded natural gas pipeline, midstream and storage company. The separation is on track to be completed July 1, executives said in a recent conference call. CPG expects net investment in pipeline, storage and midstream assets to grow from about $4.6 billion in 2015 to about $13.5 billion by 2020. It has about 15 projects in various stages of development expected to go into service over the next five years. CPG will include several subsidiaries, including Columbia Transmission, which sits atop the Marcellus and Utica plays, and another dubbed Columbia Gulf, which links those shale plays to the Gulf Coast and future exports of liquefied natural gas from that area.
Is New Jersey Becoming the Pipeline Capital of the Northeast? - New Jersey is awash in plans to build new natural gas pipelines, many of them going through areas set aside with taxpayer funds to preserve open space or farmland. At least a dozen proposals have been either put on the table or approved -- most of which are aimed at taking advantage of cheap natural gas supplies discovered in neighboring Pennsylvania’s Marcellus Shale formations. Two of the pipelines bring crude oil to refineries in the state. Inexpensive natural gas from Pennsylvania has been a boon to both customers who heat their homes with the fuel and to businesses that rely on it as a basic building block of their manufacturing processes. It has lowered bills since 2009 significantly for residents -- up to 44 percent for customers of Public Service Electric & Gas, the state’s largest utility. But critics say the pipelines, which cross environmentally sensitive areas and waterways such as the Delaware River, could pose risks to the public and drinking water. The latter concern mostly involves the controversial practice of extracting natural gas from the shale formations with a process called hydraulic fracturing or “fracking.” The technology involves pumping huge volumes of water and a smaller amount of chemicals into the formation to capture the natural gas. Environmentalists say it can lead to contamination of groundwater and the nearby Delaware River, the source of drinking water for 15 million people in the region. “The environmental impacts are very wide-ranging,’’ said Maya von Rossum, Delaware Riverkeeper, who has been one of the biggest critics of fracking and expansion of the pipelines. Among them are leaks from the pipeline of methane, a potent gas that contributes to global climate change, she said.
NY fracking ban poised to take effect, critics say state giving up thousands of jobs -- New York state's controversial fracking ban is poised to take effect in the coming days, amid criticism from pro-drilling advocates that the state is giving up tens of thousands of jobs. The push to ban fracking – the process of injecting a combination of water, sand and chemicals into rock deposits underground to release natural gas -- is the culmination of nearly seven years of advocacy spanning two governors and three environmental conservation commissioners. Though New York has had a fracking moratorium for years, current Gov. Andrew Cuomo rejected efforts to lift it and, instead, changed it to an all-out ban in December. But critics charge Cuomo’s decision risks up to 54,000 fracking-related New York jobs -- jobs that don't exist now since fracking is not allowed, but could have been generated with the approval of various projects in the future. "Right now I'm watching an amazing contradiction between what New York state has done in regards to banning natural gas development in New York state and the state's own admission that it will lose 54,000 jobs in relation to the ban,” Rep. Tom Reed, R-N.Y., told The Evening Tribune. “When you have a federal policy that says you can do it safely and responsibly, I think we should be able to do it at the state level at the same time.” He appeared to be referring to a state report released earlier this month citing estimates that drilling in the Marcellus and Utica Shales could generate between roughly 14,000 and 54,000 "direct and indirect jobs."
State to require full environmental review of crude-heating facility —After 18 months of pressure from environmental and community groups, state officials have reversed an earlier position, and will now require a full environmental review of a crude-heating facility that would allow tar sands oil to be shipped down the Hudson River. On Thursday, the state Department of Environmental Conservation announced that it will conduct a full review of a proposal by Global Partners to install a crude-heating facility at the Port of Albany. “Our review of Global’s application has focused on protecting the health of people living around the facility and the environment,” D.E.C. commissioner Joe Martens said in a statement. “This community has voiced its concerns and raised some serious issues. Through the environmental review process, DEC will continue to evaluate the project’s impacts.” State officials had previously determined that the facility would not need an extensive environmental review, before declaring that the state would conduct an “interim” review that led to today’s decision for a more comprehensive study.The project has drawn the attention of environmental groups around the country. The decision is a major blow to the energy industry as its looks for new routes to ship heavy crude from Western Canada.
Victory for Groups Fighting Proposed Tar Sands Facility as Full Environmental Review Now Required In what came as a welcome surprise to activists in Albany, New York, the New York State Department of Environmental Conservation (DEC) reversed an earlier decision and now will require a full environmental review for a proposed tar sands oil heating facility at the Port of Albany. “It is good for New York State that the DEC came to a proper decision in one of the most important environmental matters facing the state,” said Riverkeeper president Paul Gallay. “We look forward to participating with the state on a full public safety and environmental review that is robust and protective of our communities and our waterways.”Riverkeeper is one of many groups fighting the plan by Global Partners to add tar sands oil to the Bakken oil it is already moving down and along the Hudson River in large amounts, efforts highlighted in this recent New York Times Op-Doc. Albany has become the largest distribution hub for crude oil on the East Coast due to its rail access and its port on the Hudson River and this transformation happened with so little fanfare that the local community was initially unaware of what the DEC had permitted. And then the first oil tanker that was filled with 12 million gallons of Bakken oil loaded from rail cars and sent off down the Hudson promptly ran around. Luckily no oil was spilled and, as a result, local people began to ask questions just as Bakken trains began to derail and explode with alarming frequency, as noted in this short documentary about the risks posed by oil trains to Albany and the Hudson.
Fracking off to slow start in NC as wildcatters stumble - Wildcatters are having a hard time making a go of energy exploration in North Carolina. Since the state began accepting permit applications for fracking in mid-March, none have been filed, and there is little visible sign of any hydraulic fracturing activity in the state. A judge’s decision this month to temporarily halt all drilling permits for fracking in North Carolina adds another setback for energy exploration. Legislators pushed through an energy bill last year expecting the state to see its first shale gas wells in 2015 and join Pennsylvania and Ohio in attracting the jobs that come with fracking. Instead, depressed energy prices worldwide and uncertainty over the amount of shale gas here have made the state unappealing to all but small, independent operators. So far, of the two groups that have expressed interest in drilling here, one ceased operations last year before conducting any testing. And the second unraveled this year, leaving unpaid fees and estranged business associates, according to draft business plans and private emails provided by one of those involved in the effort, Mark Rabin, a Fayetteville energy broker and the son of state Sen. Ronald Rabin. The Republican senator represents part of Johnston and all of Harnett and Lee counties; Lee is considered to be the epicenter of future fracking activity. The emails chronicle an initial wave of giddy excitement, ending in mutual recriminations. They also highlight the problems in raising funding for such risky ventures and underscore the concern of fracking opponents who worry about the lack of technical proficiency and safety records of smaller operators.
Haw River Assembly Wins Injunction on Fracking Permits by North Carolina Mining and Energy Commission - Wake County Superior Court today stayed a constitutional challenge to the state’s Mining and Energy Commission by the Haw River Assembly and a Lee County landowner pending a decision in the appeal of McCrory v. Berger or until further order of the court. During the stay, the MEC is enjoined from accepting or processing permit applications for drilling units and from creating any drilling units. This effectively reinstates the moratorium on fracking in North Carolina. Read the full PRESS RELEASE about the injunction. Read the full Haw River v. MEC court order. The lawsuit against the MEC charges that the commission violates the separation of powers provision of the North Carolina Constitution because a majority of the commission’s members are political appointees by the legislature, and that the fracking rules, created by an unconstitutional commission, are therefore null and void. (Read the press releaseconcerning the lawsuit and the full legal complaint) “Today’s decision stopped any immediate harm to North Carolina residents from a commission formed by the state legislature in violation of the separation of powers firmly established in our state constitution pending further court deliberations,” said John Suttles, the senior attorney at the Southern Environmental Law Center who represented the Haw River Assembly and Lee County property owner Keely Wood Puricz before the court.
Mary Landrieu has a new job in Washington DC - After tireless focus on energy and environmental issues during her time as Louisiana senator, Mary Landrieu has taken up the flag once again, this time as a senior policy advisor at Van Ness Feldman LLP in Washington, DC.According to the firm’s website, Van Ness Feldman “is a leading, highly responsive law and policy firm providing legal counsel, thought leadership and policy strategy to help clients navigate the complex intersection between business and government.” Landrieu will be bringing her knowledge of public policy, strategic and regulatory issues to the table, particularly in reference to energy, natural resources and infrastructure matters, according to a press release from the firm. “I am proud to join Van Ness Feldman. I have always respected the firm and worked closely with them during my 18 years in the Senate,” Landrieu said in the press release. “Their substantive and sophisticated approach to important public policy issues in the areas of energy, the environment and natural resources was a major factor in my decision making process.”
Ex-Senator Joins Firm That Lobbies For The Industries Destroying Her State - Just a few months after losing her seat in the U.S. Senate, Louisiana Democrat Mary Landrieu announced she’s joining the powerhouse lobbying firm Van Ness Feldman as a “senior policy adviser,” focusing specifically on energy policy issues. That title will allow Landrieu to get around the law that bars former members of Congress from lobbying their old colleagues for two years. Landrieu, the former chair of the Senate’s powerful Energy and Natural Resources Committee, will now be advising for a firm that represents powerful oil, gas, coal and other energy corporations, including some of the same ones that her state is currently trying to hold accountable for destroying the wetlands that used to protect the coastline from storms. As The Intercept notes, one of Van Ness Feldman’s clients is TransCanada, the company that has been fighting for the Obama Administration’s approval of the controversial Keystone XL pipeline. Landrieu has long been a supporter of the pipeline, and even tried, unsuccessfully, to force congressional approval of the project before the State Department completed its review. While in the Senate, she also aided fossil fuel companies by repeatedly fighting federal attempts to address air pollution and climate change. In her new position, Landrieu may also have an opportunity to for building more ports for the US to export fracked natural gas to other countries. Van Ness Feldman represents several corporations who would benefit from this policy shift, including Maryland’s Dominion Cove — a planned export facility that has drawn strong opposition from the local community. Another client, Kinder Morgan, is attempting to build a network of pipelines across the northeast U.S. against the wishes of landowners who would be impacted.
Another Domino Falls for Anti-Fossil Fuel Crusaders - - Throughout the United States, especially in communities with existing or potential oil-and-gas development, outside groups have moved in with a vengeance and agitated the population—resulting in bans against all exploration for hydrocarbons and/or the use of hydraulic fracturing. Expensive lawsuits have been filed and courts have repeatedly declared such bans as “unconstitutional.” The newest domino to fall is in Texas where Governor Greg Abbott, on May 18, signed House Bill 40 (HB40)—also known as the Denton Fracking Bill—which clarifies that an “oil and gas operation is subject to the exclusive jurisdiction of the state. Breitbart Texas reported on the bill’s passage. As was the case in Mora County, New Mexico, the Pennsylvania-based Community Environmental Legal Defense Fund participated in pushing Denton, Texas’ fracking ban—passed in November by 59 percent of the voters. In Mora County, a federal judge declared its drilling ban “unconstitutional.” Courts have handed down similar decisions against attempts to ban fracking in Colorado and Ohio. But the Texas legislature didn’t wait for the courts to decide in the challenges to the Denton ban. Lawmakers introduced a total of 11 bills aimed at confirming that regulating oil-and-gas activity is the province of the Texas Commission of Environmental Quality and the Texas Railroad Commission. HB40 emerged as the final word—making Texas the first state to pass specific legislation limiting, not eliminating, local control. The Oklahoma legislature has passed a similar bill and Governor Mary Fallin is expected to sign it. In New Mexico, the House passed a pre-emption bill, but it was never brought up for a vote in the Senate.
Meet The Man Behind Oklahoma's Earthquake Epidemic -- When it comes to Oklahoma's "induced seismicity" there is nobody more responsible for either Oklahoma's "shale miracle" or the resultant earthquake epidemic than David Chernicky, CEO of Tulsa-based New Dominion. This is his story, as recounted by Bloomberg: By the late 1960s the Oklahoma City oil field was largely spent. The pockets of oil and gas that remained in the reservoir were trapped deep inside rocks. The only way to get at them was to “dewater” the field—which meant pumping out hundreds of millions of barrels of salty, often toxic wastewater, then disposing of it. David Chernicky saw an opportunity. A trained geologist turned wildcatter, he’s devoted most of his 35 years in the oilpatch to perfecting the business of reviving oil fields instead of exploring for new ones. ... In 2003 New Dominion, began work on a new breed of injection well, a type that could take down tens of millions of barrels a year and bury it deep underground. Chernicky, who has a bawdy streak, named the first one Deep Throat. Behold: Deep Throat. According to Bloomberg, few companies have more at stake than New Dominion. "A July 2014 study published in Science found that four high-volume disposal wells owned by New Dominion on the outskirts of Oklahoma City may have accounted for 20 percent of all seismic activity in the central U.S. from 2008 to 2013. Two victims of the 5.7 quake from 2011 have sued New Dominion for damages; the state Supreme Court has agreed to hear the case of Sandra Ladra, a 64-year-old resident of Prague, who sued after her stone chimney crumbled during the quake, sending rocks crashing down on her legs. Should the court establish a precedent where New Dominion and companies like it can be held liable for earthquake damage, the fallout could be severe.
Oil, gas spill report for May 25 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Foundation Energy Management LLC., reported on May 19 that a stuffing box developed a leak, releasing approximately 4-5 barrels of oil and produced water outside of Keenesburg. A vacuum truck was dispatched to the location to pick-up free standing liquid and return it to the tank. The well was shut-in so the stuffing box could be repaired. Noble Energy Inc., reported on May 18 that a flowline leak was detected outside of Kersey. It has been determined that the cause of the leak is equipment failure. It is approximated that less than 5 barrels of condensate and less than 5 barrels of produced water spilled. The well has been shut-in. After the site assessment is completed, remediation procedures will be evaluated. Noble Energy Inc., reported on May 15 that impacted soil was discovered, during a water vault removal, outside of LaSalle. It is approximated that less than 5 barrels of produced water spilled. An assessment of the site has been scheduled and the facility has been shut in. Noble Energy Inc., reported on May 15 that impacts to the soil and groundwater were discovered beneath the produced water vault outside of Gill. The impacts were discovered during plugging and abandonment procedures. It is approximated that less than 5 barrels of produced water spilled. Site assessment activities and an excavation have been scheduled.
Environmental groups monitor new Wyoming fracking rules - As Wyoming challenges new federal fracking rules on public lands, state regulators are quietly implementing a state requirement that petroleum companies justify keeping secret the ingredients in the chemical products they pump underground during hydraulic fracturing. The state has approved six applications from companies seeking to keep their ingredients confidential under the terms of a settlement with environmental groups announced in January. The state’s top oil and gas regulator says he has rejected three to four applications due to a lack of information. The environmental groups that challenged Wyoming’s disclosure policies say it is too early to tell if the state is effectively implementing the agreement, but note the groups are monitoring its progress closely. “We are collecting a critical mass of implementations to evaluate how the settlement is working in a more comprehensive way,” Katherine O’Brien, an attorney for Earthjustice, told the Casper Star-Tribune. The settlement prescribes a review process for any company seeking trade secret protections from the state. A trade secret is a legal designation that bars public disclosure of the ingredients or parts used to make a product.
Federal data: As oil production soars, so do pipeline leaks - The oil pipeline leak that fouled a stretch of California coastline this week reflects a troubling trend in the nation’s infrastructure: As U.S. oil production has soared, so has the number of pipeline accidents. Since 2009, the annual number of significant accidents on oil and petroleum pipelines has shot up by almost 60 percent, roughly matching the rise in U.S. crude oil production, according to an analysis of federal data by The Associated Press. Nearly two-thirds of the leaks during that time have been linked to corrosion or material, welding and equipment failures, problems often associated with older pipelines, although they also can occur in newer ones, too. Other leaks were blamed on natural disasters or human error, such as a backhoe striking a pipeline. Industry officials and federal regulators say they have adequate means of gauging the safety of pipelines, but the aging infrastructure is a source of lingering concern for outside experts. “Things get older. They don’t get stronger.” Since 1995, there have been more than 2,000 significant accidents involving pipelines carrying crude oil and refined petroleum products that have caused about $3 billion in property damage, according to data from the federal office that oversees pipeline safety, the Pipeline and Hazardous Materials Safety Administration. That’s an average of a little over 100 per year. But after dipping to 77 in 2009, that figure has spiked to at least 121 in each of the past two years.
The Constant Cost of Carbon — Another California Oil Spill --Gaius Publius - As reported by the LA Times and the Santa Barbara Independent, there’s a pretty serious oil spill off the Santa Barbara coast in an area called Refugio State Beach. The source of the spill is a shoreline pipeline whose leak detection mechanism apparently failed to work. The leak poured what was first reported as 21,000 gallons of oil into the ocean … During the several-hours-long leak, about 21,000 gallons of oil escaped the pipeline, Coast Guard officials estimated. Coast Guard crews stopped the leak by 3 p.m., said Petty Officer Andrea Anderson. … but those estimates were apparently provided by the pipeline company itself, Plains All American Pipeline, to the Coast Guard (my emphasis throughout):The accident has been classified by federal responders as a “medium-sized” spill and was traced to an underground pipeline a few hundred yards inland above Highway 101. The 24-inch pipe is owned and operated by Houston-based Plains All American Pipeline, which stopped the leak at approximately 3 p.m. It’s unclear how long the pipe was leaking, what caused it to break, or exactly how much crude escaped. Plains initially reported that 21,000 gallons of oil made its way into the ocean, but that number is expected to rise after county, Coast Guard, and state Fish and Wildlife personnel tally the true damage.Nice of the Coast Guard to take the company’s word and make it their own. An update at the Independent offered this correction:Lt. Jonathan McCormick with the U.S. Coast Guard said an estimated 21,000 gallons of oil spilled into the ocean. That estimate comes from Plains All American Pipeline. An independent assessment has not yet been completed, he said, and it’s unknown how many gallons of crude remain on land and along the shoreline.The latest news from the AP puts the number of gallons much higher: Up to 105,000 gallons of oil might have spilled from California line.
Déjà Goo All Over Again - The world lusts for oil, and Santa Barbara has to take the consequences — again. Ironically, the new spill probably wouldn’t have been anywhere near as serious if the oil company that built it, All American Pipeline, had installed an automatic shutoff system. But All American fought county oversight in court and won a settlement in its favor. It never installed the automatic shutoff. Nor did the company that bought the line and now operates it, Plains All American Pipeline. It is the only oil pipeline in Santa Barbara County without such a safety measure.I helped cover the 1969 Santa Barbara Channel oil blowout, and after all the promises and pledges I heard then, I never thought I’d ever have to see more greasy gunk covering and smothering our beaches. Governor Reagan and president Nixon came, stood on our polluted sand, clucked their tongues in dismay, and went away. Nixon was pictured in the Santa Barbara News-Press walking on gunky Leadbetter Beach with mayor Gerald Firestone and representative Robert Lagomarsino. The headline: “Nixon Promises to Consider Permanent Ban on Drilling.” Never happened.Say what you want about Richard Nixon and his promises; to his credit, he proposed the Environmental Protection Agency — so hated by oil-state politicians — and it went into effect the year after the 1969 spill.A long line of politicians share a measure of the blame for lax enforcement of oil regulations, but as Walt Kelly’s Pogo famously put it, “We have met the enemy, and he is us.” Us being, well, you and me and the world.
Tar Balls Wash Ashore Popular LA Beaches: Officials Consider Link to Santa Barbara Oil Spill -- Mysterious clumps of tar washed ashore in California’s South Bay Wednesday, forcing the area’s beaches to close for swimming. The U.S. Coast Guard as well as state officials are now trying to pinpoint where the substance originated, and have not ruled out the devastating oil spill in Santa Barbara last week. Seven miles of Southern California’s most popular beaches, from El Segundo to the Torrance-Redondo Beach, were left sticky with the globs of oil that ranged from the size of baseballs to footballs, according to the Los Angeles Times. Investigators told the publication that the tar has moderate hazardous characteristics and is slightly flammable, and has tested positive for low amounts of volatile organic compounds. Workers have since cleaned the area and officials said Thursday that clean-up efforts were successful. “There appears to be no new tar balls or anything additional to the amount that we have recovered thus far,” U.S. Coast Guard Capt. Charlene Downey said.
Robert F. Kennedy, Jr. Joins Farmers and Ranchers to Call on Gov. Brown to Reject LNG Exports - At Noon at the capitol steps in Salem, Oregon, a coalition of groups will rally to oppose LNG exports. The rally will include speeches from tribal leaders, impacted landowners and a keynote speech from Robert F. Kennedy Jr., president of Waterkeeper Alliance. “Oregon is viewed as a leader in combating climate change, yet the fossil fuel industry is pushing to make Oregon a trafficker of fracked gas to the entire world through these LNG export proposals,” said Kennedy. “Oregon should stand firm in protecting iconic salmon-bearing rivers like the Rogue and Columbia and in the process reaffirm its goal of reducing climate pollution by rejecting LNG export terminals and pipelines.” Oregon faces two LNG export proposals—one in Coos Bay and the other on the Columbia River—coupled with associated proposals to construct hundreds of miles of new natural gas pipelines throughout Oregon and Washington. Opposition to the LNG projects has created unusual alliances, inspiring rural landowners near proposed pipelines to join forces with conservationists and climate activists. “As a proud conservative Oregonian, I oppose the pipelines for LNG exports because it would destroy valuable farmland and forestland,” said rancher Bill Gow of Douglas County, Oregon. “There’s no way these companies are going to put a big scar through the middle of my ranch.” Like Gow, hundreds of Oregon and Washington families may have their land condemned to install a pipeline to export gas to overseas markets.
600 Rally in Opposition to LNG Exports - On Tuesday at the capitol steps in Salem, Oregon, more than 600 people rallied to oppose LNG exports. The rally included speeches from Umatilla Tribal Leader Cathy Sampson Kruse, State Rep. Peter Buckley (D-Ashland), impacted landowners and Waterkeeper Alliance President Robert F. Kennedy Jr. There are currently two proposed LNG export terminals, one in Coos Bay and the other at the mouth of the Columbia River in Warrenton. Participants at the rally urged Oregon Gov. Brown to deny both proposed projects. According to the Coalition Against LNG Exports, exporting gas would cause families and businesses to compete on a world market for natural gas. Studies have shown this would raise natural gas prices by up to 54 percent threatening U.S. jobs where factories depend on natural gas. The coalition also says that nearly 700 private property owners face impacts by the proposed Jordan Cove Pacific Connector Gas Export Project and 85 percent of affected landowners object to having the federal government seize their land for multi-national corporate interests.
Revealed: Energy Transfer Partners’ 'Pipeline-for-Prostitute' Landman -- A DeSmog investigation has uncovered the identity of a land agent and the contract company he works with that allegedly offered to buy an Iowa farmer the services of two teenage sex workers in exchange for access to his land tobuild the controversial proposed Dakota Access pipeline, owned by Energy Transfer Partners. The land agent who allegedly made the offer is Stephen Titus, a Senior Right-of-Way Agent who works for the Texas company Contract Land Staff, which was contracted by Energy Transfer Partners. No news outlet has, until now, established the identity of the land agent on the tape, or the contracting company he works for. DeSmog is naming the land agent and the company after an investigation into the available evidence and publicly accessible information, as well as evidence from the farmer who first made the allegation and a second source who has heard an audio recording of the conversation when the sex offer was made. The Iowa Department of Criminal Investigation also has a copy of the conversation Tweedy recorded with Titus, and has opened an investigation, according to the Des Moines Register. Hughie Tweedy, the Iowa landowner who secretly recorded the exchange, told DeSmogBlog on May 19: “Steve Titus. I think the name of the company is Contract Land Staff.”
Not Prostitutes: Energy industry provides jobs and opportunity for women — Judging by its critics, the energy industry – and specifically the oil and gas industry in North Dakota – isn’t female-friendly. Yet women who live and work in the oil patch say the energy industry isn’t just a safe place for women, but that there are plenty of opportunities for everybody. In popular media North Dakota’s oil patch is often depicted as a rowdy place full of roughnecks and prostitutes. A new weekly drama from ABC called “Oil!” which is supposedly set in North Dakota – though that’s hard to tell with the snowcapped peaks of Utah, the actual setting, in the background of nearly every scene – looks to portray oil-patch communities as a sort of nouveau wild west. Stories about strippers striking it rich at oil-town topless bars and struggles with human trafficking dot national headlines.Even some of North Dakota’s political leaders have branded the state unsafe for women. In their 2013 party platform, North Dakota Democrats accused Republican majorities in the state of ignoring “the emergent danger women face by simply being women in this state.” Nationally, activists have declared hydraulic fracking a feminist issue. “Fracking as an industry serves men; 95 percent of the people employed in the gas fields are men,” ecologist and anti-fracking activist Sandra Steingraber said during a lecture at the University of Pittsburgh on April 6. “When we talk about jobs, we’re talking about jobs for men, and we need to say that. And the jobs for women are hotel maids and prostitutes.”Are women unsafe in the energy industry? Are jobs as sex workers and hotel maids really all they can find? Watchdog interviewed a cross section of women working in and around the energy industry. They say women are safe, even in the oil fields, and you don’t have to be a hooker to find opportunity.
Cleanup of oil spill at ND farm to take 2 more years — The state Health Department says cleanup of a pipeline rupture that caused more than 20,000 barrels of crude to ooze across a northwestern North Dakota wheat field will take twice as long as the company had expected. The massive spill from a Tesoro Corp. pipeline that was discovered by a Tioga farmer in September 2013. The spill has been called the worst in state history. Tesoro had said the spill would take two years to clean up. State environmental scientist Bill Suess says it’s now estimated to take at least four years. Tesoro says more than 6,000 barrels of oil have been recovered. Suess says the rest is being baked out of the soil. Tesoro blames a lightning strike for causing the rupture in the steel pipeline.
Small town's residents see remainder of oil train derailment - Residents of a small North Dakota community are seeing what’s left over from the derailment of an oil train carrying about 180,000 gallons of crude. The train derailed and caught fire May 6, with the mainline running through the 22 person town of Heimdal. Residents were evacuated from their homes for about a day. “You know I was born and raised here and I came back to this town because nobody knew where Heimdal, North Dakota was. Half of the people that live in North Dakota don’t know where Heimdal was and all of a sudden we’re all known at least nationwide,” said Heimdal resident Curt Benson. After the incident, Benson said there were far more people working on accident cleanup than people living in the town. But KXMB-TV reports the town has quieted down, with the mass of emergency crews and reporters gone. Construction workers and remains from the accident are what’s left. “You can hear the birds singing, you know. It’s almost like… It’s almost like things are already back to normal,” says Benson. The TV station says the National Transportation Safety Board is continuing to investigate the accident. Investigators say it can take 12-18 months to determine what caused a derailment.
North Dakota holdout landowner refusing to sell rights for Sandpiper oil pipeline - The calls often came around dinner time. James and Krista Botsford were typically sitting down to eat in their Wausau, Wis., home when someone representing the proposed Sandpiper oil pipeline would ring with offers to buy rights to a swath of the Botsfords’ farmland west of Grand Forks, N.D. The calls were usually followed by a written offer delivered to their door. North Dakota Pipeline Co., a joint venture between Enbridge Energy and a subsidiary of Marathon Petroleum Corp., wants to run the proposed $2.6 billion line through the Botsfords’ land to deliver oil from the Bakken to Superior, Wis., where it will be shipped to points east. With each phone call, the amount of money offered escalated, from about $25,000 to about $50,000, James Botsford said. But the Botsfords decided long ago that society should move away from oil dependency and toward renewable resources. It didn’t matter how much the company would offer; in their minds, no money was enough to compromise those values. “I said, ‘Look, we’re just not going to sign, so why don’t you just go around us?’ ” James Botsford recalled. Instead, the company sued, citing its rights to the land under North Dakota’s eminent domain law, giving them power to condemn land for a right of way. Of 799 landowners in the state, the Botsfords’ case is the only one the company expects to go to court, Enbridge spokeswoman Lorraine Little said. “Using eminent domain is always a last resort,” Little said. “We strive to reach amicable agreements with all of the landowners along our pipelines.”
Would you believe me if I said oil leasing volume is unchanged? --Don’t take my word for it. Project Manager Silas Martin from Drilling Info recently published an article in Forbes Magazine where he stated that the leaders in permit and completion mapping actually found a bearable leasing reality. In the crazy downward trend of the past 6 months, Drilling Info examined an array of market information, including things such as rig counts, permits and leasing. According to Martin, in the past six months, rigs have seen a 52.2 percent reduction. In the previous five months, monthly permits decreased by 40.7 percent. All of this would point to the logical assumption that leasing agreements have followed suit.. However, analysts from Drilling Info found that volume compared to this time last year is relatively unchanged and has even surpassed levels in some spots. According to the database company, the little to unchanged volume indicates that companies are looking to gain leaseholds while the market is still sluggish and unleased minerals are valued at today’s commodity prices. The sagacious tactic belief here is that by the time these new leases mature to producing wells, the market will have recovered to a profitable means. Drilling Info tested this hypothesis by focusing on leases taken in the most prominent American plays. The company used data from Q4 2014 to Q1 2015 for the Bakken, Eagle Ford, Permian and Niobrara plays.
• 18.6% Increase in Primary Term (43 mo. to 51 mo.)
• 21.1% Decrease in Royalty Interest (19% to 15%)
• 86.5% Increase in Primary Term (37 mo. to 69 mo.)
• 16% Decrease in Royalty Interest (25% to 21%)
• 17.9% Increase in Primary Term (39 mo. to 46 mo.)
• 13.1% Decrease in Royalty Interest (23% to 20%)
• 47.1% Increase in Primary Term (51 mo. to 75 mo.)
• 6.3% Decrease in Royalty Interest (17% to 15%)
‘Shale-ionaires' Suffering from Wave of Bankrupt Oil Drillers - At the height of the U.S. energy boom, Texas landowner John Baen received about $100,000 a month in royalty payments from companies producing oil and natural gas on his property. Now the checks are much smaller, and when he opens his mailbox each day, he’s afraid he’ll find yet another bankruptcy notice. So far, four of the producers sending him checks have caved in to rising debts as oil prices slumped, seeking court protection from their creditors. “I feel like crying because I know I’m going to get another 10 notices,” said Baen, 67, who owns 10,000 acres of land and mineral rights on other property. A rebound in oil prices that bottomed near $44 a barrel in March has provided some relief to stronger companies that have been able to compensate with cost cuts and more efficient operations. For many smaller, cash-strapped producers, current prices of almost $60 still aren’t enough to make ends meet compared to the $100-plus prices seen during the boom days. There have been at least a dozen bankruptcy filings in recent months, and more than a dozen have defaulted on bond payments or warned investors of challenging times ahead, according to data compiled by Bloomberg. That’s sending shock waves through the world of private land and mineral rights owners — sometimes called “shale-ionaires” — who were enriched by the explosion in U.S. shale drilling. Those resource owners basically rent out their oil and gas rights to producers in return for a share of the revenues. When the industry does well, the mineral rights owners do well. When business tanks, they share the pain with producers.
Scott Walker in Oklahoma: End US ban on crude oil exports : Wsj: — In one of the top oil-producing states in the country, Gov. Scott Walker on Thursday called to end the U.S. ban on crude oil exports. While addressing the Southern Republican Leadership Conference, Walker said the U.S. economy would improve if a 40-year-old ban on exporting crude oil were lifted. “We’ve got an abundance of supply,” he told the crowd. “Think about the impact we could have, not just economically, but from a security standpoint, if we lifted that crude oil ban that has been in place and allow to export in places like our allies in Europe, where instead of being dependent on (Vladimir) Putin and the Russians, they could be dependent on Americans.” Walker also spoke at a Thursday morning breakfast to kick off the event, Oklahoma Republican Party chairman Randy Brogdon said, and spoke to members of the Oklahoma Independent Petroleum Association at a private event. At that event, Walker said securing the U.S. border is crucial to keep out those who have motives other than finding jobs, according to video of the event posted online by the liberal political research group American Bridge. But the central issue at the conference titled “Energizing America” was fossil fuels. Domestic energy is a key issue for Oklahoma, which is one of the top five oil producing states. Walker’s comments fell in line with what conservative Oklahomans wanted to hear, according to Brogdon.
Alberta wildfires burn for 6th day, 10 pct of oil sands crude offline | bakken.com: Firefighters battled wildfires in northern Alberta, Canada’s biggest crude-producing region, for a sixth day on Thursday, with two blazes near oil sands facilities still out of control. The wildfires have forced producers in the Western Canadian province, the largest source of U.S. crude imports, to shut in 233,000 barrels per day of crude production, around 10 percent of total oil sands output. The biggest fire, on the Canadian military’s Cold Lake Air Weapons Range, had grown in size to 20,000 hectares (49,000 acres) from 17,000 hectares on Wednesday. That blaze has forced Cenovus Energy Inc and Canadian Natural Resources Ltd to shut down production and evacuate staff from their Foster Creek and Primrose oil sands projects. Janelle Lane, a wildfire information officer at the Alberta government, said the fire had advanced to roughly 15 kilometers (9.3 miles) away from Cenovus’s Foster Creek site. Although the two oil sands facilities are not threatened directly by the wildfire, it has closed the only access road to the projects. Both Cenovus and Canadian Natural said the status of their operations was unchanged on Thursday. Rich Kruger, chief executive of Imperial Oil Ltd, told reporters on Thursday the blaze was just six kilometers away from one of the company’s wells but there was as yet little risk to Imperial’s extensive operations in the region.
Exxon shareholders to vote on climate change, fracking - Shareholders are considering whether Exxon Mobil should put a climate-change expert on its board. That is one of several environmental and company-governance resolutions on the agenda at the oil giant’s annual meeting Wednesday in Dallas. CEO Rex Tillerson is expected to discuss the outlook of the company, which has seen profits decline recently with lower prices for crude oil. Still, the company earned $32 billion last year. An organization of Catholic priests in Milwaukee proposes to put a climate-change expert on the board, saying it would address a poor environmental image. The Exxon board opposes the resolution, saying several board members have engineering and scientific backgrounds and can handle climate issues.
Exxon Shareholders Vote on Climate Change, Fracking - The votes at meetings of Exxon Mobil Corp. and Chevron Corp. shareholders on Wednesday were expected. Some of the ideas had lost badly at previous annual meetings. Lower prices for crude have cut into the oil giants' profits. At the Exxon Mobil meeting in Dallas, CEO Rex Tillerson said the company is positioned to withstand ups and down in oil prices and give shareholders a good return on their money. Tillerson has said that said that oil prices will remain low over the next two years because of large global supplies and weak economic growth. The company is adjusting by cutting costs. Exxon has completed more than a dozen major projects in the past three years and expects an equal number to begin production through 2017. Exxon plans to cut capital spending as those projects are completed — from $38.5 billion last year to $34 billion this year and less in 2016 and 2017. Shareholders rejected a proposal by an organization of Catholic priests in Milwaukee to put a climate-change expert on the board. The Exxon board opposed the resolution, saying several board members have engineering and scientific backgrounds and can handle climate issues, and it gained only 21 percent support. The outcome was the same at the Chevron meeting. Michael Crosby, sponsor of the resolution at the Exxon meeting, said the company is fixated on oil and gas and isn't paying enough attention to renewable energy and climate change. "This company has to be making plans for the future," he said. "Let's get an expert on the board to deal with a critical question."
Oil down about 3 percent again on dollar, awaits supply data - Oil prices fell by up to 3 percent for a second straight day on Wednesday as a resurgent dollar weighed on the market amid concerns that U.S. crude supplies may have started rising again after three weeks of draws. Industry group American Petroleum Institute (API) said after the market's settlement that U.S. crude inventories rose by 1.3 million barrels last week. A Reuters poll of nine analysts estimated a crude stock drawdown of 900,000 barrels on average, which would mark a fourth consecutive week in inventory declines. Data from the U.S. Energy Information Administration (EIA) on Friday will show how accurate those estimates are. Gasoline RBc1 and heating oil HOc1 prices fell more than 2 percent, extending the slide across the fuels complex, on bets that U.S. refineries will be operating at full swing with the end of maintenance season. The dollar soared against major currencies on speculation about the first U.S. interest rate hike in years. A stronger greenback makes dollar-denominated commodities, including oil, less affordable in other currencies.
Oil Prices Drop To 7-Week Lows - Here's Why --WTI Crude hit new 7-week lows, dropping below $57 (front-month) for the first time since April 15th's 'inventory draw' rip. In addition to reports from Reuters of leaked details aboutOPEC not expectated to cut production (did anyone really expect that), a combination of renewed inventory builds (as reported by API last night) and reports that Iraq is increasing its supply to new record highs is forcing futures prices to catch down to physical markets. Weakness driven by...Iraq supply concerns...(as RT reports) Iraq is ready to increase its crude exports to a record 3.75 million barrels per day in June, continuing OPEC’s strategy of ousting US shale producers from the market. The extra oil from Iraq comes to about 800,000 barrels per day, more than from another OPEC member, Qatar, said Bloomberg, referring to Iraq's oil shipments schedule. Iraq is increasing oil exports in two directions. The first is in the Shiite south, where companies such as BP and Royal Dutch Shell work. The second is Nothern Iraqi Kurdistan, whose government last year received Baghdad's consent to independent oil deliveries. And Iran remains a worry... Forget #OPEC as a whole, the two countries to watch are #Iraq and #Iran as #oiloutput rises pic.twitter.com/ZphwyVMJqb And inventory builds reappear...
Crude Prices Bounce On Inventory Draw Despite Biggest Production Spike In 19 Months --Following last night's surprise inventory build (as reported by API), as one trader noted, "inventory declines are expected this time of yr and more or less expected, we need to see inventory draws accelerating," and DOE didn't disappoint reporting a 2.8 million barrel draw (against expectations of a 2 million barrel draw). Inventories remains massively high though and Crude Production soared 3.28% - the biggest rise since Oct 2013. Crude prices initially ripped on the inventory news but are fading. 4th week in a row of inventory draws For some context as to what this inventory change means... But production exploded by the most in 19 months... Lower 48 States increased production at an average of 209,000 barrels per day Crude prices ramped into the data after legging down all morning... spiked on the news but perhaps the machines have not seen the production data yet. Charts: Bloomberg
Drilling Efficiency To Keep Oil Prices Low - Economics 101 tells us that prices in a free market are set by the interaction of supply and demand. The world oil markets have gotten a graphic lesson in that truth over the last year, as the dramatic surge in US oil production has met stagnant demand. This, in turn, has pushed down spot prices by nearly half. The recent uptick in oil prices, however, has buoyed hopes among market watchers that a strong oil price rally is in order. Unfortunately economics is working against these investors. Gasoline demand is starting to rise as prices have reached multiyear lows. As it continues to rise, motorists around the world will begin to suck up extra all of that extra supply. That would normally lead to a strong rebound in prices. But unlike the 2008 fall in oil prices, which was driven by a collapse in demand across the industry, the current price quandary is supply based. And the massive expansion in supply is overwhelming the newfound demand. That may make it more difficult for prices to bounce back. More impressive is the fact that even at today’s low prices, there is likely to be some small production increase in 2015. That is because many firms are looking at new efficiency improvements that should increase oil production while lowering production costs. Statoil, for example, says it has lowered its per well drilling cost by $1 million or roughly 22%, and it can now drill wells faster than ever before. The rise in efficient oil production has led to more than half of the country’s rig fleet being idled with many firms now drilling multiple wells at a time rather than single ad hoc wells. These innovations have led to a 20% fall in the per barrel cost of production according to some industry executives, and more improvements are still to come.
Saudis’ Drive To Kill U.S. Shale Has Backfired --For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over. The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production (see chart above), they are claiming a brilliant triumph. But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more. U.S. shale producers will survive and grow. American consumers, paying less for gasoline and heating oil, will be the big winners. The Saudis and their friends in OPEC, so dependent on oil-export revenue, will be the clear losers. The U.S. shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology. Shale efficiency and innovation have created a new ceiling for the price of oil. This certainly was not the Saudis’ aim. It’s been tempting to think the shale boom is over, that a fall in the rig count and a small dip in U.S. crude production signify that the high-water mark of U.S. shale oil has come and gone (see chart above). But, as the Saudis are finding out, we are just in the early innings of a new revolution — “Shale 2.0″ as Manhattan Institute fellow Mark Mills calls it. A strong, increasingly efficient and productive U.S. shale industry — powered by American ingenuity and “Made in the USA” drilling and extraction technologies — is here to stay.
Saudi Arabia may unleash vast oil, gas reserves via fracking - The Middle East, in particular Saudi Arabia, soon could have its own fracking boom to unleash vast reserves of oil and gas trapped in carbonite formations, writes Andrew Zaleski at CNBC.com. CNBC.com: "The key to an energy boom is simple: Build a technology to get at the oil and gas that geologists already know is trapped in various subterranean, or subsea, formations. "The fracking boom in the U.S. is the obvious example. Extracting seabed methane hydrate is another huge bet—energy-starved Japan has made that. "Saudi Arabia could be next to use new technology to get at currently trapped gigantic reserves of oil and gas. A small pilot project about to get under way is the energy market equivalent of a moonshot, but it could allow a Saudi fracking boom to move one step closer to reality. " ... no region has as much oil and gas trapped in carbonate formations as the Middle East. Carbonates are areas of sedimentary rock—limestone, for instance—that contain many natural cracks inside them.
The Tanker Market Is Sending a Big Warning to Oil Bulls -- Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat. A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate. The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is pumping about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc. “Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp, Belgium-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19. Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $65,784, they’re still the highest for this time of year since at least 2008.
Jim Chanos Warns Of Devastating ‘Disaster Waiting To Happen’ In Oil And Gas Industries: Hedge fund manager Jim Chanos wants us to know that the gas and oil industries are on the verge of a major disaster. The famed businessman warns that companies are working more inefficiently than ever to produce an ever increase demand for their products. “[W]e’re just seeing that … these guys like Exxon and Chevron and Royal Dutch Shell are simply replacing $20 [per barrel] oil with $80 oil,” Chanos said May 24 on the PBS television program “Wall Street Week.” “So high return-on-capital businesses are becoming more mundane return-on-capital businesses.” His warning arrives after oil plummeted from $110 per barrel 11 months ago, to the mid-$60 range. Chanos, the president and founder of the New York investment adviser Kynikos Associates, said the reason that operating expenses are racking up is because oil majors have to “deal with Mr. Putin” – while “having to do things like drill in the Arctic.” The hedge fund manager also notes that energy companies are now being forced to “construct these enormously expensive LNG – liquefied natural gas – plants and increasingly add … risk to the portfolio where it just used to be much simpler. You know, drill somewhere and pull the oil out.” Jim Chanos says he and fellow hedge fund managers are now feeling “really negative” about integrated oil companies. Kynikos is already short-selling some of its most prominent energy giant holdings. Chanos says the surplus of oil and gas is a “disaster waiting to happen” in the energy industry.
Sour is the new sweet: OPEC's view of oil quality dilemma – The U.S. shale oil boom is turning global crude pricing on its head with the historical notion that light grades shall be priced at a premium to heavy ones quickly disappearing, according to predictions from producer group OPEC. The trend will have big implications for global oil flows, reducing revenues of light-oil-producing nations such as Nigeria and refiners geared toward heavy crude processing, OPEC said in a draft long-term report, a copy of which was seen by Reuters. Global oil prices have plunged in the past year due to a global glut, which arose from a steep increase in predominantly light U.S. oil production and a subsequent decision by OPEC to defend market share by not cutting its output. OPEC produces a third of global crude, which is a mixture of light and heavy. “This supply glut, primarily of light sweet crudes, needs to ease sizably before the oil market steadies. Low oil prices are expected to force some of the costly light sweet crude oil to idle, but the displaced African light sweet crude is also forced to find an alternative market,” OPEC said. This could be a challenge if oil demand growth in Asia and Europe were to stay fragile, the cartel said.
Stakes getting dangerously high for Saudi Arabia and its young prince | Brookings Institution: As the war in Yemen resumes after a short humanitarian truce, the stakes are getting higher for Saudi Arabia's princes. The Royal Saudi Air Force and its allies resumed their bombing campaign this week after a five-day cease-fire to allow humanitarian supplies into Yemen. Saudi Arabia's 29-year-old Defense Minister Prince Mohammed bin Salman has staked his future and his country's on achieving some kind of victory in the kingdom's war in Yemen. A truce that leaves Sanaa under the control of what the Saudis claim is an Iranian protégé regime is clearly not a decisive victory for the royals. Instead — after weeks of air attacks on the Zaydi Shiite Houthi rebels and their allies — the prince's war looks like a stalemate. The immense damage done to Yemen's weak infrastructure has created considerable bad blood between Yemenis and their rich Gulf neighbors that will poison relations for years. Yemenis always resented their rich brothers, and now many will want revenge. Iran is scoring a victory on its Gulf rival without any cost to Tehran and with only limited Iranian assistance to the Zaydis.
Nigeria Fuel Shortages Ground Planes, Threaten MTN, Banks - A fuel crisis in Nigeria has grounded airplanes, shut banks and threatens businesses including MTN Group Ltd.’s local operation, as gasoline and diesel retailers halt distribution over a pay dispute with the government. MTN, Africa’s biggest mobile phone company with 61 million customers in Nigeria, said in a statement it’s running low on fuel reserves and its phone network will be “significantly degraded” if it doesn’t receive supplies before Tuesday. Guaranty Trust Bank Plc, Nigeria’s biggest lender, will close its offices at 1 p.m. local time from Monday because of the shortages, while Arik Air Ltd., the country’s biggest carrier, has cut two-thirds of its 120 daily flights. Bharti Airtel’s local unit told its customers Sunday to expect “some strain” on its services due to fuel difficulties, while Uber Technologies Inc. said its Lagos taxi services are facing longer wait times due to gasoline scarcities. Nigeria depends on fuel imports to meet more than 70 percent of its domestic needs and pays importers to guarantee cheaper local prices. Major fuel-marketing companies allege they’re still owed 200 billion ($1 billion) in outstanding payments by the outgoing government of President Goodluck Jonathan. ’Won’t Supply’ Though the country’s four state-owned refineries were built to refine 445,000 barrels per day of crude, enough to meet national demand of about 300,000, they’re ill-maintained and run at a fraction of their capacity.
"Strongly Dissatisfied" China Warns US "Accident" Is "Highly Likely" In South China Sea -- Things are escalating rapidly in the South China Sea where Beijing has figured out an innovative solution to the notion of “disputed waters.” China appears to have adopted the maritime boundary equivalent of the old “possession is nine tenths of the law” axiom because Chinese dredgers have been busy for some time now creating islands out of reefs in the Spratly archipelago. Once the islands are complete, China promptly colonizes them. Next comes the construction of cement plants, ports, and 10,000 ft airstrips. Not surprisingly, Washington isn’t fond of China’s “sandcastles” and everyone from President Obama to the Pentagon is now shouting from the rooftops about territorial sovereignty and Chinese “bullying.” The US took it up a notch this week when it flew a spy plane over Fiery Cross Reef, presumably just to see what would happen. A CNN camera crew went along for the ride. What Washington discovered is that when it comes to protecting its new islands, bashful China is not. “This is the Chinese Navy… YOU GO!” was the message that came over the radio. The rhetoric and sabre rattling haven’t let up a bit since then and in fact, there’s been a steady stream of quotables from both sides over the past 48 hours. Here’s the latest.
China raises prospect of South China Sea air defence zone - FT.com: China has mooted the possibility of controlling the airspace over the disputed South China Sea, as it ratchets up rhetoric in response to a US overflight of an island claimed by China earlier this month. A senior foreign ministry official spoke on Wednesday about the possibility of implementing an Air Defence Identification Zone over the sea, a move that would be widely regarded as an effort to stamp its sovereignty over a series of islands it claims. An ADIZ requires all aircraft flying through it to identify themselves to the controlling government. “China has the right to establish ADIZs,” said Ouyang Yujing, director of boundaries and oceanic affairs for the foreign ministry, in an interview published in a Chinese newspaper. “Whether or not China will establish a South China Sea ADIZ will depend on factors such as whether China’s air safety is under threat, and the seriousness of the threat,” he said. However, he added, the area remained stable for the time being. While not the first time a Chinese official had broached the topic of an ADIZ, experts say it was significant that it has come at a time of heightened tensions this month following an overflight of China-claimed islands by a US P-8 spy plane carrying a camera crew from CNN. The US is also considering flying surveillance missions even closer to the islands, as well as sailing warships within a few miles of them, as part of a new, more robust US military posture in the area.
China war with US ‘inevitable’ - A war between the United States and China is “inevitable” unless Washington stops demanding Beijing halt its construction projects in the South China Sea, a Chinese state-owned newspaper warns. Washington accuses Beijing of undergoing a massive “land reclamation” program in the Spratly archipelago of the South China Sea, and says China’s territorial claims of the man-made islands could further militarize the region. “If the United States’ bottom line is that China has to halt its activities, then a US-China war is inevitable in the South China Sea,” The Global Times, an influential newspaper owned by the ruling Communist Party’s official newspaper the People’s Daily, said in an editorial Monday. “The intensity of the conflict will be higher than what people usually think of as ‘friction’,” it warned. The paper also asserted that China was determined to finish its construction work in the South China Sea, calling it Beijing’s “most important bottom line.”
U.S. hopes Chinese island-building will spur Asian response - By releasing video of Beijing’s island reclamation work and considering more assertive maritime actions, the United States is signaling a tougher stance over the South China Sea and trying to spur Asian partners to more action. The release last week of the surveillance plane footage - showing dredgers and other ships busily turning remote outcrops into islands with runways and harbors - helps ensure the issue will dominate an Asian security forum starting on Friday attended by U.S. Defense Secretary Ash Carter as well as senior Chinese military officials. As it pushes ahead with a military “pivot” to Asia partly aimed at countering China, Washington wants Southeast Asian nations to take a more united stance against China's rapid acceleration this year of construction on disputed reefs. The meeting, the annual Shangri-La Dialogue in Singapore, will be overshadowed by the tensions in the South China Sea, where Beijing has added 1,500 acres to five outposts in the resource-rich Spratly islands since the start of this year. "These countries need to own it (the issue)," one U.S. defense official said on condition of anonymity, adding that it was counterproductive for the United States to take the lead in challenging China over the issue.
China bets on expanding its way out of debt - FT.com: China has embarked on an economic balancing act that is bound to appear counter-intuitive to many observers. Trying to trim the country’s ballooning debt burden without sacrificing rapid growth sounds akin to keeping a horse running fast while feeding it less hay. There is always a danger that the horse may stumble and fall, causing the earth to shake. Any sign of flagging economic dynamism in China will therefore be met with concern. Every year, the Chinese economy adds more to global output than any other. As a result, a flurry of less than vibrant economic statistics raises an insistent question: is China’s credit squeeze finally morphing into a credit crunch? Deflation, as measured by the producer price index (PPI), deepened to -4.6 per cent in April. Industrial profits fell 2.7 per cent in the first quarter and land sales, a key source of revenue for cash-strapped local governments, by almost a third year on year. The main concern is that falling industrial profits could render companies less able to service their huge debts, prompting them to call off or postpone investment plans and driving an upsurge in non-performing loans that would dissuade banks from lending. Indeed, fixed-asset investment growth is already declining significantly: falling to 12 per cent in the January to April period. Such strains are exacerbated by another factor. Although Beijing has loosened monetary policy three times over the past six months, real interest rates are rising sharply as deflation bites. They climbed to 10.8 per cent in March, their highest level since the financial crisis. Nominal average lending rates are lower, at 6.6 per cent, but still anomalously high in a world in which some $2tn in bonds trade at negative yields. The impact of such a tight credit environment becomes clear when the size of China’s total corporate debt service burden is calculated. Given that non-financial total corporate debt is estimated by McKinsey to amount to $12.5tn, Chinese companies are paying on a nominal basis some $812bn in interest payments each year. In real terms, this amounts to $1.35tn. This is not only significantly more than China’s projected total industrial profits this year; it is slightly bigger than the size of a large emerging economy such as Mexico.
The Surprising Reason Why China’s SUV Sales Are Up Almost 50% - The SUV, perhaps the most American of vehicles, is making a big splash in China, according to a new report.China’s total SUV registrations rose 48% in the first quarter, according to investment research firm Sanford C. Bernstein. SUV registrations represented 27% of all vehicles registered in China during the first quarter of this year, nearly doubling the rate from just three years ago.The interest in bigger trucks comes at least partially because Chinese drivers are suffering from some serious road rage, Bloomberg reports. With many drivers fearing for their safety while on the roads in China, they are opting for the bigger, more secure feeling of SUVs. The rise in road violence has grown along with a huge burst in vehicle ownership overall in the country, and the incidents have gotten so bad that the government has released a video urging drivers to calm down.
Time To Get Real About China - Ilargi - The present Chinese leadership appears to be trying to gain (regain?) more -if not full- control over the country’s economic system, while at the same time (re-)boosting the growth it has lost in recent years. President Xi Jinping, prime minister Li Keqiang and all of their subservient leaders – there are 1000′s of those in a 1.4 million citizens country- apparently think this can be done. Yours truly doubts it. As I’ve repeatedly said over the past years, I don’t think that they ever understood what would happen if they opened up the country to a more free-market, capitalist structure. That doing so would automatically reduce their political power, since a free market, in whatever shape and form, does not rhyme with the kind of control which the Communist Party has been used to for decades, and which the current leaders have grown up taking for granted. I don’t think they’re fools or anything, just that their -preconceived- ideas of power don’t rhyme with the kind of economy Beijing, starting with Deng Xiao Ping, has created. In particular, they have allowed other segments of society to accumulate great wealth, and with wealth comes power. And in fine Pandora’s Box fashion, it’s very hard, if not impossible, to reverse the process. This failure to grasp to what extent these ‘market liberation’ policies have had a Sorcerer’s Apprentice effect, may, if not must, lead to utter chaos and worse… A closely related failure is that the rulers have allowed the shadow banking system to grow to ginormous proportions. Likely, in their eyes this ‘merely’ helped the economy grow at double digit speed for years, and they could stop it at will. But something else was growing along with it: the power of the shadow banks -and the people behind them-, both economic and political. Which is not acceptable in a one party rules all system. And so there is a crackdown going on, presented as ‘reform’, and shadow bank loans have indeed diminished. But that is hurting the economy much more than it heals it. And so measures are reversed on the fly.
HSBC cuts China outlook for GDP, exports - Economists at HSBC Global Research again cut their outlook for growth in China's GDP and exports this year, writing in a note Wednesday that they foresee a softer rebound in the current quarter. HSBC now expects Chinese government data to show gross domestic product expanding by 7.1% in 2015, down from a previous projection for 7.3% growth. They also cut their export forecast sharply, expecting a 4.2% increase in outbound trade this year, down from 7.1% previously. The dimmer picture for exports was "a reflection of softer external demand and the [yuan's] strength in relation to its trade partners," they wrote. "Weaker exports will weigh on corporate spending and sentiment. Meanwhile, policy easing is behind the curve, further cutting into investment growth," the economists wrote.
"New Silk Road" Could Change Global Economics Forever, Part 1 - China is building the world’s greatest economic development and construction project ever undertaken: The New Silk Road. The project aims at no less than a revolutionary change in the economic map of the world. It is also seen by many as the first shot in a battle between east and west for dominance in Eurasia. The ambitious vision is to resurrect the ancient Silk Road as a modern transit, trade, and economic corridor that runs from Shanghai to Berlin. The 'Road' will traverse China, Mongolia, Russia, Belarus, Poland, and Germany, extending more than 8,000 miles, creating an economic zone that extends over one third the circumference of the earth. The plan envisions building high-speed railroads, roads and highways, energy transmission and distributions networks, and fiber optic networks. Cities and ports along the route will be targeted for economic development. An equally essential part of the plan is a sea-based “Maritime Silk Road” (MSR) component, as ambitious as its land-based project, linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and the Indian Ocean. When completed, like the ancient Silk Road, it will connect three continents: Asia, Europe, and Africa. The chain of infrastructure projects will create the world's largest economic corridor, covering a population of 4.4 billion and an economic output of $21 trillion.
No, China Isn’t Building a Game-Changing Canal in Thailand (Yet) -- Earlier this week, Chinese media reported that China and Thailand had signed an agreement to build a canal through the Kra Isthmus, creating a way for ships to bypass the Malacca Strait. The reports have since been denied by both the Chinese and the Thai governments. The initial report, published by the Hong Kong paper Oriental Daily (summarized in English here by WantChinaTimes) specifically said that “representatives” from China and Thailand (implying government participation) had signed a memorandum of cooperation on the project in Guangzhou. There were even details on the construction of the canal. Planned to be 102 kilometers long, 400 meters wide, and 25 meters deep, it would take ten years and cost $28 billion to build. Oriental Daily said the MoC marked the “formal beginning” of the long-discussed project. The Kra Canal would shorten travel from the Indian Ocean and the Pacific by 1,200 kilometers, saving vessels up to five days in travel time. Given the potential benefits, the idea has been under discussion since the 17th century, as my colleague Ankit noted in a 2013 analysis, though no concrete progress has even been made.But the Kra Canal has gained new life recently, as China continues to expand its vision for a Maritime Silk Road (MSR) connecting China’s coast line with the Indian Ocean and even the Mediterranean Sea. The Kra Canal would be a serious prestige project for the MSR – and would have the added strategic benefit of reducing China’s reliance on the Malacca Strait. Currently, around 80 percent of China’s oil imports must pass through the Malacca Strait, leaving China vulnerable to a blockade in the case of a contingency. Chinese analysts are upfront that the need to reduce reliance on the Malacca Strait is a driving force behind the MSR. By that logic, the Kra Canal is a very attractive project for Chinese leaders.
Mfg Costs: Leave PRC for Cambodia, Laos & Myanmar - The previous post on how China aspires to be Asia's Germany in producing high value-added manufactures jogged my memory about the this earlier article. Vietnam becoming the Republic of Samsung has already been discussed in an earlier post. However, there are also other low-cost destinations in Southeast Asia. Collectively, the latecomers to joining the Association of Southeast nations (ASEAN )are known as the CLMV countries with Cambodia joining in 1999, Laos and Myanmar in 1997, and Vietnam in 1995. Ever on the lookout for relatively skilled workers and dirt-cheap labor costs, CLMV are becoming attractive together with other Southeast Asian countries:The cheap, young labor and strategic location of Myanmar, Cambodia and Laos are set to draw increasing numbers of manufacturers to Southeast Asia, which will eventually displace China for the title of "world's factory.'' The transformation will be part of the rise of the Association of Southeast Asian Nations to become the "third pillar'' of regional growth after China and India, ANZ Bank economists led by Glenn Maguire reckon. By 2030, more than half of 650 million people in Southeast Asia will be under the age of 30, part of an emerging middle class with high rates of consumption. So ANZ actually believes that, collectively, Southeast Asia will surpass China as the "workshop to the world" given the advantages its various nations have aside from simply low cost:"We also believe Southeast Asia will take up China’s mantle of the ‘world’s factory’ over the next 10-15 years as companies move to take advantage of cheap and abundant labor in areas such as the Mekong,'' ANZ said. What will likely assist this shift is the connection between low-cost labor in places like Myanmar, Cambodia and Laos, cost-effective manufacturers in Thailand, Vietnam, Indonesia and the Philippines, and sophisticated producers in Singapore and Malaysia.
Japan Slides Back Into Trade Deficit - WSJ: —Japan slipped back into a trade deficit in April, a month after recording its first surplus in nearly three years, as the decline in the value of oil imports narrowed from a month earlier. Still, Japan’s trade deficit in April was the smallest in six years, as faster-than-expected export growth helped mitigate an increase in the nation’s import bill. The world’s third-largest economy logged a ¥53.4 billion ($439 million) trade deficit, data from the Ministry of Finance showed Monday. Economists polled by The Wall Street Journal and the Nikkei business daily had predicted a ¥325 billion deficit. The value of exports grew 8.0% on year, down from 8.5% growth in March, while imports fell 4.2%. A plunge in global oil prices since last summer has curbed the value of Japan’s overall import bill. “The result underscored [that] exports grew faster than anticipated. That’s a good thing for the economy,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. Exports to the U.S. in April were robust, rising 21.4% in value from a year earlier. Cars, power generating machines were among items pushing up its exports. Japanese car exports to China, on the other hand, tumbled 50% during the month. A ministry official cited a slowdown in the Chinese economy. The value of crude-oil imports fell 34.6% in April from a year earlier, narrower than the 51% on-year decline seen in March. Japan also saw a sharp increase in imports of drags, power generating machines and semiconductors last month.
Japan Inc backs ’17 sales tax hike to fix debt woes: Two-thirds of Japanese firms support the government’s plan to boost the national sales tax in 2017 and almost half believe big hikes in the future will be necessary to combat the country’s ballooning debt, a Reuters survey showed. Sales tax hikes are particularly contentious in Japan, which has seen stagnant growth for two decades. Consumers typically spend big in the months ahead of such tax increases but then tighten purse strings for a long time afterwards. A sales tax rise in 1997 has been blamed for helping to create a long-lasting deflationary mindset, while last year’s increase to 8% from 5% triggered a recession despite coming on the heels of bold stimulus measures. The fallout from the last hike prompted Prime Minister Shinzo Abe to delay the next increase to 10% by 18 months to April 2017. Japan’s public debt is, however, by far the highest in the developed world at more than twice the size of GDP, and sales tax hikes represent stable government income to pay for snowballing welfare costs as the population rapidly ages. The Reuters Corporate Survey, conducted on May 7-19, found 67% of companies think Japan should forge ahead with the planned hike, citing potential turmoil in financial markets and a negative impact on the economy if Abe forgoes it again. “We must not postpone over and over. That would raise the risk of a government bond sell-off,” wrote a manager at an electric machinery firm. Investors have been long concerned that failure to carry out fiscal reform could cause a rout in Japan’s government bond market, sending interest rates sharply higher.
1000s form human chain outside Japan parliament over US military base — Thousands of protesters took to the streets in Tokyo on Sunday, forming a human chain outside the parliament building to oppose the planned relocation of a US airbase on the island of Okinawa. The rally was the latest in a series of protests that have been happening across the country. According to Sunday's march organizers, cited by AFP, 15,000 people surrounded the National Diet Building in Tokyo.
China-led lender adds urgency to Japan's pursuit of pan-Pacific trade pact -- China's drive to create a Beijing-led Asian development bank seen as a threat to U.S. and Japanese regional clout is adding to a sense of urgency among Japanese officials keen to get a 12-nation pan-Pacific trade pact off the ground. Japan hopes the Trans-Pacific Partnership (TPP) will help anchor ally Washington in Asia and create a rule-based regime that would eventually draw in China. Beijing, for its part, is seeking to reshape Asia's economic architecture with institutions such as the new Asia Infrastructure Investment Bank (AIIB). "The strategic value is what we see in TPP - to be part of the team," said a Japanese government source familiar with the talks, noting Prime Minister Shinzo Abe took a political risk by putting the sensitive farm sector on the table to join. "If AIIB goes ahead and TPP fails .... perception-wise it will hurt in the leadership contest for the Asia-Pacific," the source told Reuters. "It will be a missed opportunity and countries that went along with the United States will pay the bill." The TPP, central to U.S. President Barack Obama's strategic "rebalance" to Asia, took a step forward on Friday when the U.S. Senate approved a Trade Promotion Authority (TPA) bill to speed up Washington's approval of trade deals.
TPP nations to give up on Guam ministerial meeting as TPA pends - The 12 countries engaged in the Trans-Pacific Partnership trade talks have given up on holding a ministerial meeting in Guam, informed sources said. They dropped the plan for the meeting on the broad free trade accord because it is uncertain whether the U.S. Congress will approve legislation on Trade Promotion Authority, which would give President Barack Obama fast-track authority to negotiate trade deals. The countries wanted to seal the broad TPP agreement by holding a ministerial meeting after their chief negotiators spoke in Guam on Saturday. But in the absence of TPA, most countries are refraining from political decisions, the sources said Wednesday. Chief negotiators were holding intensive talks Wednesday on the thornier issues of the deal, such as intellectual property rights. They were to narrow down the matters to be discussed by ministers by Monday, ahead of a potential ministerial meeting on Tuesday, the sources said. The chief negotiators’ talks may be extended because of stalled discussions on such matters as protection periods for patents on medicines, with some members aggrieved by the United States’ lack of compromise, the sources said. Since the nations intend to show their final cards at a concluding meeting, as TPP minister Akira Amari has said, they are likely to arrange a ministerial meeting for June or later after being assured of the passage of the TPA legislation.
Fast-track authority stalls the Trans-Pacific Partnership - It appears that the conclusion of the Trans-Pacific Partnership (TPP) "free trade" deal has been stalled over the issue of Trade Promotion Authority (TPA), also known as fast-track authority, in the United States. That in turn could also be delaying progress on the proposed Canada-Japan Economic Partnership Agreement (CJEPA). The Trans-Pacific Partnership is a proposed agreement among 12 countries, including Canada, the United States and Japan, that contains the usual provisions we oppose in "free trade' agreements. That includes the controversial investor-state dispute settlement (ISDS) provision that allows corporations to sue national governments for lost profits resulting from public interest legislation in a secretive tribunal process outside of the normal judicial system, as well as intellectual property provisions that extend the patent period and profits for transnational pharmaceutical corporations and delay the introduction of lower cost generic drugs. The TPP ministerial that was supposed to take place starting tomorrow (May 26) in Guam has been cancelled because the Trade Promotion Authority, which would give the U.S. president the ability to conclude trade agreements without facing amendments by the U.S. Congress, has not been secured. Chile's deputy trade minister says that "most of the countries" at the TPP negotiating table objected to ministerial-level discussions without the assurance of fast-track legislation in the United States. As of yesterday (May 24) no new date had been set for the next Trans Pacific Partnership ministerial.
Don’t judge TPPA until July, says Mustapa -- The Minister of International Trade and Industry, Mustapa Mohamed, today urged the Malaysian public to defer judgment on the controversial Trans-Pacific Trade Agreement until July, when a cost-benefit analysis (CBA) will be released. The public should be fair and objective until then, he told reporters in Parliament today. “I’ve been briefing the MPs,” he said. “I had a session with the caucus comprising Barisan Nasional and the opposition. There is a need for engagement, as there are a lot of misconceptions.” Mustapha acknowledged that not everything is rosy about the trade agreement, but he added that this was much like any government policy. He said his ministry was in the midst of preparing a complete CBA, which would be presented to Parliament upon completion. He added that the information would be made available in the public domain. He highlighted some of the benefits, mentioning increased market access, adaptation to environmental standards, better business governance with minimal corruption, and Malaysia’s entry into the “global value chain”.
Export-led growth and the false promise of TPP - FT.com: asting around for a good reason to pass the Trans-Pacific Partnership into which Barack Obama’s administration has put so much lobbying effort, some economists have alighted upon the potential development benefits to the pact’s poorer members and particularly Vietnam. The argument goes that Vietnam, which has largely been following a classic east Asian development model of export-led growth in manufacturing (and some agriculture such as rice and coffee), will benefit from the reductions in tariffs that will enable it to sell more garments into the vast US market. There are, though, problems with this thesis, which apply more generally to any attempt to draw a substantial causal link between specific preferential trade deals and export-led growth. One is that such deals tend to be qualified by restrictions that in practice largely diminish their usefulness. Another is that some of the most spectacular export success stories have taken place without much assistance from bilateral or regional trade agreements. Finally, in a more recent development, the changing patterns of world commerce mean the opportunity for trade-led growth may well have diminished. As Kim Elliott of the Center for Global Development points out, the benefits of the TPP to clothing exporters like Vietnam will be reduced by the US’s so-called “yarn forward” rules. The policy restricts the use of raw materials and textiles from countries outside the agreement — in this case largely China. The US textile industry is not the lobbying force it once was, but it is certainly strong enough to punch loopholes in the fabric of trade deals.
Horrors unearthed at 28 sites used by human traffickers - A decomposing corpse is on the ground, just bones and tattered skin. It used to be a human being, someone’s son or daughter, brother or sister, until about two weeks ago. Now it’s part of the horrors unearthed at the 28 camps near this border town that were used by people smugglers who likely abandoned them after Thai police found similar graves and started a hunt for the traffickers. In their rush to get away, the syndicate members appear to have left everything that could slow them down, including sick or dying migrants. Their cruelty has been reported by migrants who witnessed how some were thrown into the sea from their boats if they got too sick or too troublesome.At the camps, police personnel have counted 139 graves holding the remains of more than 150 people, believed to be Rohingya and Bangladeshi migrants. Located within three kilometres of each other, the camps are in hilly jungle terrain. Inspector-General of Police Tan Sri Khalid Abu Bakar, who visited the sites, said they were found during the Ops Wawasan Khas operation that took place from May 11 to 23. The hunt came in the wake of similar camps being discovered by Thai authorities on their side of the border and reports of there being such camps on Malaysian soil.
Bangladesh may punish illegal migrants repatriated from SE Asia -- Bangladesh Prime Minister Sheikh Hasina has called for strict punishment to migrants, who illegally leave Bangladesh and set out towards Southeast Asia by sea, and the human-traffickers who assist them, media reported on Monday. "They are tainting the image of our country on the international stage, and putting their own lives in danger," Hasina told a meeting with senior officials of the labour and employment ministry on Sunday, according to reports by national news agencies. "I think such an unlawful trend might be stopped if the fortune-seekers who are leaving the country illegally are punished side-by-side with the middlemen," she said. Hasina directed the ministry to conduct public information campaigns targeting potential illegal immigrants, "so they don't feel the need to give money to the middlemen to go abroad illegally seeking work, so they don't fall into this trap". The Bangladeshi prime minister claimed that her government has implemented several initiatives to improve the well-being of potential illegal immigrants and regretted that, despite this, some still opt for an "uncertain journey".
Australia dumbs down as government bets on baristas over brains: Australia is betting on plumbers and coffee-shop owners over scientists and researchers to drive the nation's next wave of economic growth. The country that brought you refrigerators, black-box flight recorders, bionic ears and Wi-Fi will cut its research budget by 7 per cent over the next 12 months, and another 10 per cent in the following three years. At the same time it's offering tax cuts and write-offs in its budget this month for small firms to buy equipment like espresso machines and lawnmowers as the centrepiece of a plan to build a "stronger and more prosperous Australia". The government is reducing spending in the face of budget shortfalls after a 30 per cent fall in commodity prices in 12 months and as its mining investment boom ends. The boost for small businesses in the latest budget lifted consumer confidence to its highest in 16 months and boosted shares of retailers such as Harvey Norman Holdings and JB Hi-Fi. "Having this reliance on the bottom end of the economy, like small businesses, is a short-term fix," said Andrew Hughes, a lecturer at the college of business and economics at Australian National University. "Cutting back on research is insanity."
Global Trade Dives Most since the Financial Crisis -- How great was the global economy in the first quarter?We know the US economy was crummy. The revised GDP estimate will likely sink into red mire. Hence the heated proposals these days, including at the Fed, to apply “a second round of seasonal adjustment” that would “correct” the first-quarter GDP estimate, no matter how bad, into positive territory. An elegant way of covering up an unsightly sore. So was it just a crummy quarter in the US, or was it a global thing, in which case we might have to apply a “second round of” whatever to adjust the global downturn out of the picture? Because here is the thing: in the first quarter, one of the crucial measures of the global economy – global trade – slumped the most since the Financial Crisis. But ironically, it wasn’t because of the USA. The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its latest Merchandise World Trade Monitor, which covers global import volumes as well as global export volumes. The index dropped 0.1% in March to 136.5, after having already dropped 0.7% in February, and 1.7% in January. The index, which was set at 100 in 2005, is now down 2.5% from the peak of 140.0 in December. That 3.5-point decline was the sharpest since the Financial Crisis. This chart, going back to January 2012, doesn’t exactly inspire confidence in the current state of the global economy:
Global Youth Unemployment Hits 35 Million As Recent Grads Lean On Parents -- We’ve documented the pitiable plight of America’s recent college graduates on a number of occasions over the last several months. The Class of 2015 is officially the most heavily-indebted graduating class in the history of US higher education, as each student will leave college with an average debt load of more than $35,000. These proud new graduates will enter a job market where they’ll quickly discover that the idea of a US economic ‘recovery’ is, as Steve Wynn recently put it, “a complete dream”. In fact, high unemployment rates among recent graduates was recently cited by Moody’s as a contributing factor to the ratings agency’s decision to place some $3 billion in student loan-backed ABS on review. This state of affairs is made all the more perilous by the fact that nearly half of college graduates only manage to land a low-wage job which, as the OECD has recently shown, likely won’t pay enough to allow one’s family to subsist above the poverty line.
The amazing, surprising, Africa-driven demographic future of the Earth, in 9 charts - The United Nations Population Division, which tracks demographic data from around the world, has dramatically revised its projections for what will happen in the next 90 years. The new statistics, based on in-depth survey data from sub-Saharan Africa, tell the story of a world poised to change drastically over the next several decades. Most rich countries will shrink and age (with a couple of important exceptions), poorer countries will expand rapidly and, maybe most significant of all, Africa will see a population explosion nearly unprecedented in human history. If these numbers turn out to be right – they're just projections and could change significantly under unforeseen circumstances – the world of 2100 will look very different than the world of today, with implications for everyone. It will be a place where today's dominant, developed economies are increasingly focused on supporting the elderly, where the least developed countries are transformed by population booms and where Africa, for better or worse, is more important than ever. Here is the story of the next 90 years as predicted by UN demographic data and explained in nine charts. The charts are interactive; move your cursor over them to track and compare the data.
HSBC fears world recession with no lifeboats left - - The world economy is disturbingly close to stall speed. The United Nations has cut its global growth forecast for this year to 2.8pc, the latest of the multinational bodies to retreat. We are not yet in the danger zone but this pace is only slightly above the 2.5pc rate that used to be regarded as a recession for the international system as a whole. It leaves a thin safety buffer against any economic shock - most potently if China abandons its crawling dollar peg and resorts to 'beggar-thy-neighbour' policies, transmitting a further deflationary shock across the global economy. The longer this soggy patch drags on, the greater the risk that the six-year old global recovery will sputter out. While expansions do not die of old age, they do become more vulnerable to all kinds of pathologies. A sweep of historic data by Warwick University found compelling evidence that economies are more likely to stall as they age, what is known as "positive duration dependence". The business cycle becomes stretched. Inventories build up and companies defer spending, tipping over at a certain point into a self-feeding downturn. Stephen King from HSBC warns that the global authorities have alarmingly few tools to combat the next crunch, given that interest rates are already zero across most of the developed world, debts levels are at or near record highs, and there is little scope for fiscal stimulus. "The world economy is sailing across the ocean without any lifeboats to use in case of emergency," he said.
Central Bankers Express Contrasting Views at ECB Conference - WSJ: —Top officials from the world’s two largest central banks on Saturday offered differing views regarding the role they should play in pushing for government economic overhauls, highlighting the diverging paths of major economies and the challenges of achieving inflation objectives. In a panel discussion concluding a European Central Bank conference in a resort town near Portugal’s western coast, ECB President Mario Draghi defended his stepped-up calls for economic reforms in Europe. . He said this was one of the biggest issues for the region’s economy, which has faced two recessions since 2009 and still has an unemployment rate of 11.3%—far above levels in the U.S. and Japan. “In a monetary union, you can’t afford having large and increasing structural divergences between countries,” Mr. Draghi said. “They tend to become explosive. Therefore, they are going to threaten the existence of the monetary union.” The eurozone comprises 19 countries, each of which sets its own fiscal and economic policies while sharing a single monetary policy. “We don’t want to be intrusive” in urging governments to act on labor-market and fiscal-policy changes, Mr. Draghi said. “It’s a policy appeal to action.”In contrast, Federal Reserve Vice Chairman Stanley Fischer urged a more cautious approach, though he noted the U.S. economy would benefit from greater infrastructure spending. “You can talk about [structural reforms] from time to time, but you can’t make this your main talking point every time you meet the press,” he said during the panel discussion. “The temptation [to speak about structural reforms] is there, but we don’t take it.”
In Search of Lost Inflation - With a few exceptions–Brazil and Russia included–central bankers around the world confront two pressing questions: why is inflation so low, and why is it proving so difficult for us to raise it? The most recent figures available show that the annual rate of inflation across 34 developed economies was just 0.6% in March, well below the 2.0% level targeted by many central banks. In less than half of those countries, consumer prices were lower than a year earlier. Lower oil prices have played their part, but don’t explain why the weakness in inflation has been so persistent and so pronounced. They also don’t explain why most central banks, and other institutions, have consistently forecast higher inflation than has come to pass over recent years. In a research note released last week, Barclays’ economist Marvin Barth tried to find the missing inflation, the inflation that should be there if you use output gaps and other, previously reliable gauges, but isn’t. Even after accounting for demographics, deleveraging in the wake of the financial crisis, technological change and globalization, Mr. Barth found that 35% of the undershoot in inflation was unexplained. So some of our inflation is missing, and we don’t know why. It’s possible that some of that inflation will reappear as mysteriously as it disappeared. It’s possible that it’s out there, somewhere, and central banks just need to be even more aggressive in their efforts to set it running.
Brazil economy to contract nearly one-quarter this year in dollar terms - FT.com: Brazil’s economy is expected to contract by nearly one-quarter this year in dollar terms due to a depreciating currency and a deepening recession, according to government figures. Brazil’s planning ministry revealed in a budget presentation that gross domestic product was expected to be $1,812bn this year, down 23 per cent from $2,353bn a year earlier, as President Dilma Rousseff tries to unwind a multiyear stimulus programme that has left government finances bleeding red. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email firstname.lastname@example.org to buy additional rights. http://www.ft.com/cms/s/0/702d7640-022c-11e5-92ce-00144feabdc0.html#ixzz3bFPaJ3i6 Brazil’s economy is facing a hangover with the end of the commodities supercycle and government efforts to prolong a consumption and credit-led boom. Much of the expected fall in Brazil’s economy in dollar terms this year is due to a projected depreciation of about 21 per cent in the real against the dollar from R$2.66 at the end of 2014 to an estimated R$3.22 by the end of 2015, according to the planning ministry. But the extent of the depreciation shows the challenges facing Brazil as it seeks to stabilise its contracting economy. Brazil`s real was the worst performing significant emerging market currency after Turkey’s lira against the dollar so far this year with a 10.7 per cent decline against the dollar, according to an index compiled by JPMorgan. The planning ministry estimated Brazil’s economy would contract 1.2 per cent this year in local currency terms compared with a year earlier, which would be its worst performance in 25 years. Brazil lost jobs in April for the first time for that month since records began in 1992, according to data from the labour ministry on Friday. The country shed almost 98,000 formal job posts last month, surprising analysts who had forecast the creation of close to 50,000 positions.
Cuban Life Expectancy Among the Highest in World at 78.45 Years - Cuban officials with the Center for the Study of Population and Development revealed Monday that life expectancy in Cuba, already one of the highest in the world, is now up to 78.45 years on average. Juan Carlos Alfonso Fraga, director of the center, known as CEPDE, said the figure represents an increase of nearly half a year over the previous study of life expectancy on the island. He added that the bump was seen throughout all the provinces of Cuba and not just confined to urban areas, where medical attention tends to be of better quality. Life expectancy for women was slightly higher at 80.45 years, with the life span for men at 76.50 years. Cuba is in the top 25 countries in the world for life expectancy, which is considered an important indicator of human development and quality of healthcare. Despite its status as a low-income country, Cuba's medical system is recognized as one of the best in the world. Cuba's world renown healthcare system places emphasis on prevention, with thousands of doctors providing front-line care to Cubans throughout the country. Cuba's doctors also serve throughout the world, providing primary care to impoverished communities and assisting in natural disasters and health crises, such as the Ebola outbreak in West Africa.
Exclusive: Russia masses heavy firepower on border with Ukraine - witness - Russia's army is massing troops and hundreds of pieces of weaponry including mobile rocket launchers, tanks and artillery at a makeshift base near the border with Ukraine, a Reuters reporter saw this week. Many of the vehicles have number plates and identifying marks removed while many of the servicemen had taken insignia off their fatigues. As such, they match the appearance of some of the forces spotted in eastern Ukraine, which Kiev and its Western allies allege are covert Russian detachments. The scene at the base on the Kuzminsky firing range, around 50 km (30 miles) from the border, offers some of the clearest evidence to date of what appeared to be a concerted Russian military build-up in the area. Earlier this month, NATO military commander General Philip Breedlove said he believed the separatists were taking advantage of a ceasefire that came into force in February to re-arm and prepare for a new offensive. However, he gave no specifics. Russia denies that its military is involved in the conflict in Ukraine's east, where Moscow-backed separatists have been fighting forces loyal to the pro-Western government in Kiev
TTIP faces critical EU test -- A key European Parliament vote Thursday on recommendations for EU-US trade negotiations seems likely to pass after the two major parties appeared to have reached a deal on a controversial element of the pact. It will be closely watched as a bellwether of whether the EU will eventually sign up to the Transatlantic Trade and Investment Partnership, or TTIP. A thumbs-down from the Parliament could undermine what would be Europe’s most ambitious trade agreement. The Parliament’s International Trade Committee is poised to adopt a non-binding set of recommendations to the European Commission in its negotiations on TTIP. Late on Wednesday, the two major parties, the Socialists and Democrats and the European People’s Party, appeared to have reached a compromise which would rule out the so-called investor state dispute settlement, or ISDS, and move toward Trade Commissioner Cecilia Malmström’s idea of a “permanent solution” for resolving disputes between investors and states. Under the new amendment obtained by POLITICO, a permanent solution to address investment disputes would “be subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured and the jurisdiction of courts of the EU and of the Member States is respected.” In addition, the text said that investment disputes could be addressed by a public International Investment Court in the medium term.
What does Duda’s win mean for Poland, Europe and the UK? -- Polish President Bronislaw Komorowski last night conceded defeat after an exit poll showed him trailing his challenger, Law and Justice MEP Andrzej Duda by 47% to 53% in the second round of the Presidential elections. The result is likely to have significant ramifications for Poland, Europe and David Cameron’s EU renegotiation.+ Duda’s victory has broken Civic Platform’s run of electoral victories stretching back to 2007, putting Law and Justice in a strong position ahead of the parliamentary elections in the autumn. Despite the strong performance of the Polish economy overall, a lot of Poles feel they themselves have not benefited, with many choosing to emigrate. In addition, as in much of Europe, there is anger and disillusionment at what is perceived to be an out-of-touch and self serving political elite. The Kopacz government will now have to find a way of living with Duda who will have the power to initiate and veto legislation. However, in recent times Poland has frequently had governments and Presidents from different political parties so the significance of Duda’s win should not be overstated. In addition, I would argue that this defeat could assist Civic Platform in the parliamentary elections, firstly by shaking it from its complacency and forcing it to consider bold economic and political reforms, and secondly by making fears of a Law and Justice take-over more real, especially with controversial party leader Jaroslaw Kaczynski (as opposed to the relatively moderate and baggage-free Duda) likely to play a central role in the campaign.+
Italy central bank warns growth held back by credit crunch - Banks crippled by bad debts, unable to find the cash to finance growth-hungry firms, are hampering Italy‘s tentative exit from its record recession, the country‘s central bank chief warned on Tuesday. Governor Ignazio Visco said that by the end of 2014, Italian banks were saddled with 350 billion euros‘ (381 billion dollars) worth of non-performing loans, equal to about 18 per cent of total credit, up from 6 per cent in 2008. "Against these exposures, banks ... are making write-downs which absorb most of their operating profit and crimp self-financing. The upshot is a constraint on new lending," Visco said in an annual keynote speech. The governor said a more efficient justice system that could speed up bankruptcy procedures, more generous tax breaks on debt write-downs, and the creation of a so-called "bad bank" could help address the problem. "For some time we have been proposing initiatives along those lines, with scope for public-sector participation," Visco said of the bad bank, which would acquire impaired loans from lenders at a discounted rate, helping them clean up their balance sheets. Several European Union countries have created bad banks, but the there are constraints on the amount of public money governments can earmark to support them. Italy is in talks with the European Commission over the issue.
Spanish elections: Podemos and Ciudadanos make gains - BBC News: Spain's new anti-corruption movements have made gains in local and regional elections, at the expense of traditional main parties. With the count almost completed, the governing People's Party (PP) has won the most votes with 27%. But it may have lost the Madrid city council for the first time in 20 years. The Spanish economy has been a key concern for voters, and many are enraged over public spending cuts and reports of political corruption. Prime Minister Mariano Rajoy's administration and the previous Socialist (PSOE) government are both seen as being to blame. Spain has now officially come out of recession. Six months before national elections, the ruling PP has gained the most votes, beating the Socialist party who came second with 25%. But the two traditional parties fell short of overall majorities in most areas. They both lost a significant number of votes to emerging groups Ciudadanos and Podemos.
Angry Voters Hand Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid - The Spanish economy will supposedly grow at three percent. The bad news is Spanish employment is well over 20 percent and is also expected to stay that way.Angry voters unhappy with that setup took it out big time on PP, the party of prime minister Mariano Rajoy. Please consider PP Suffers Heavy Regional Losses. Spain’s ruling Popular party suffered heavy losses in Sunday’s string of regional and local elections, as two upstart movements made dramatic gains at the expense of the country’s established parties. The PP still emerged as the biggest party in nine of the 13 regional contests, but its ability to head governments at both the regional and local level was severely curtailed. According to preliminary results, the party of Mariano Rajoy, Spain’s prime minister, failed to obtain an absolute majority even in its historical strongholds — meaning it can govern only with the support of at least one of its rivals. The PP suffered a particularly marked decline in Madrid. Esperanza Aguirre, its high-profile candidate for mayor, beat a coalition of leftwing groups only by the smallest of margins but has little prospect of forming an administration. A similar leftist alliance also scored an upset triumph in Barcelona, meaning Spain’s two principal cities are now likely to be led by a pair of charismatic, leftwing women from outside the political establishment: Manuela Carmena in Madrid and Ada Colau in Barcelona.The ruling party’s losses were mostly the gain of two political newcomers, the anti-austerity Podemos movement and the centrist Ciudadanos party. Both were on track to enter regional parliaments in force in several key regions, potentially handing them the role of kingmakers. Podemos was also the leading force behind the two municipal victories in Madrid and Barcelona. Like Syriza in Greece, Podemos had been running on an anti-austerity platform. Podemos went even further, threatening to exit the euro.
Spanish Local Election Results: Popular Party Wins But Loses 2.4 Million Votes Compared To 2011 -- Spaniards voted in 8,122 municipalities on Sunday. On a national level, with 88% of the vote counted, the local election results for the main parties are as following:
- Popular Party (PP): 5.2 million (26.6%) vs. 8.48 million (37.5%) in 2011;
- Spanish Socialist Workers Party (PSOE): 4.97 million (25.3%) vs. to 6.23 million (27.8%) in 2011;
- Ciudadanos: 1.27 million (6.5%) vs. to 0 (00%) in 2011;
- United Left (IU): 940,152 (4.8%) vs. to 1.44 million (6.36%) in 2011;
Podemos did not formally present candidates for the local elections, preferring instead to join “popular candidacies” in different towns and cities, such as Ahora Madrid, Barcelona en Comú or Zaragoza en Común. The PP has an overall majority in 2,596 local councils, the PSOE 1,830, Ciudadanos 43 and United Left 75. Whilst the Popular Party is set to win overall, it has lost more than three million votes since 2011. The PSOE has lost 1.26 million votes.
Spain: No country for absolute majorities -- The latest string of Spanish regional and local elections yielded a fragmented political landscape. The two big traditional parties suffered losses, while the two big newcomers - the anti-establishment Podemos and the centrist Ciudadanos - now hold the key to stable governments in most Spanish regions. Our Southern Europe expert Vincenzo Scarpetta takes a closer look at the results.If I were to pick a bottom line for Sunday’s Spanish regional and local elections, I would probably go for, ‘Absolute majorities are a thing of the past in Spain’. Voting took place in thirteen of the country’s seventeen regions. In none of them did one single party manage to win an absolute majority – an unprecedented outcome. The two main traditional parties, the centre-right Partido Popular (PP) of Spanish Prime Minister Mariano Rajoy and the opposition Socialist Party (PSOE), both suffered losses compared to the 2011 local elections. Four years ago, PP and PSOE together won over 65% of the nationwide vote. This has now shrunk to 52%. The two newcomer parties, the anti-establishment Podemos and the centrist Ciudadanos, hold the key to stable governments in most of the regions.+ Despite remaining the most voted party, Rajoy’s PP came out as the biggest loser of these elections. The party was always unlikely to retain the same level of control it had achieved in 2011 – since it was running ten of the thirteen regions up for grabs, in most cases with an absolute majority. However, in what was a particularly bad night, PP failed to secure an outright victory even in its traditional strongholds – notably including Castilla y León, the region where former centre-right Prime Minister José María Aznar started his political career. As a result, the party could potentially be ousted from power in up to six of those ten regions.+
A rebuke in Spain – Spain’s ruling People’s Party (PP) got shellacked in Sunday’s regional elections, highlighting the challenge for Prime Minister Mariano Rajoy in the national parliamentary vote in November. The center-left Ciudadanos and far left Podemos, newly created parties that only started to contest elections last year, made strong gains at the expense of the ruling PP as well as the main opposition Socialist Workers’ Party (PSOE) in votes for regional parliaments, municipal councils and mayors. With almost all the votes counted, the PP received 27 percent of the vote, down 10 percentage points from the last regional elections in 2011. The incumbent party got more votes than anyone else, but failed to win overall majorities in most areas. Of the 13 regions that held elections Sunday, the PP lost in seven it and might be able to save its rulership in three of them only if it forms a coalition with Ciudadanos, as the newspaper El País reports. The vote has shaken up Spain’s traditional two-party system that saw power alternate between PP and PSOE since democracy was re-established in Spain after the death of military strongman Francisco Franco in 1975. The rising popularity of Podemos has also fed concerns in Brussels and Berlin that Spain might follow Greece toward the hard left. The setback for the People’s Party reflects fatigue with years of economic austerity pushed by Rajoy, even as the Spanish economy has rebounded. A series of corruption scandals involving leading figures in the center-right PP also took an electoral toll.“I believe in this night our regional governments and town halls will start to change, and Spain will change as well,” said Pablo Iglesias, leader of Podemos. He has close ties with the ruling radical-left Greek Syriza party and attended Alexis Tsipras’s election victory rally in Athens this January.
Spain leader blames austerity, scandals for election result - (AP) - Spain's prime minister acknowledged Monday he was disappointed with his party's showing in local elections, which he attributed largely to austerity measures his government was compelled to take during Europe's recent debt crisis and a recent string of political scandals. The elections Sunday in many Spanish cities and regions dealt a serious blow to Mariano Rajoy's governing Popular Party. Two new parties carved out kingmaker roles by capitalizing on voter disaffection with established parties for their handling of the economy among other reasons. Though the conservative Popular Party won the most votes overall, capturing 27 percent of votes cast, it lost the absolute control it had in eight of the 13 regions, including in its traditional power bases of Madrid and Valencia. The party lost 2.5 million voters since the last local elections four years ago. Rajoy, who is also the Popular Party's leader, said economic recovery and job creation are priorities before Spain's general election this fall. A nearly eight-year economic crisis has left the country with a 24 percent unemployment rate. Rajoy also accepted that corruption scandals involving his party had eroded public support. "We have to get closer to the Spanish people and communicate better with them," Rajoy told a news conference after a meeting of his party's national executive committee. He said he had no plans to reshuffle his Cabinet.
Another plutocratic castle to fall in Europe: -- It is almost certain that the results in the recent regional elections in Spain activated another alarm and brought further anxiety to the European neoliberal economic empire. The governing Popular Party (PP) and the Socialists lost significant power, while Podemos and the anti-austerity parties in the Left of the political spectrum "have the prestige of holding power in Barcelona, and could form a coalition to rule in the Spanish capital." (podemos-are-coming) This was certainly a political earthquake that hit Spain's political establishment. It would be worth to remember that Greece has gone through a similar path. The Leftist party, SYRIZA, marked a clear victory in the euro-elections and a significant rise in the regional elections, held at the same period. Although SYRIZA lost in most of the 13 regions, the party managed to win the most populous (Attica) and prevail also in the Ionian Islands. (Greek_local_elections,_2014) Less than a year later, SYRIZA managed to win the national elections and form a coalition government. The German political elite and the Brussels bureaucrats have every reason to worry about the situation in Spain, as the country could follow the Greek path during the national elections in December. However, the plutocratic puppets have limited options to react against the next Leftist "threat" and prevent a potential domino (europe-get-ready-for-war) which could be proved disastrous for their plans.
Why Greece’s Negotiators Can’t Afford to Ignore Spain Now - WSJ - Time is running out for Greece. Its government needs to strike a deal with the country’s creditors some time in the coming few days if Greece isn’t to default on the next payment to the International Monetary Fund, due in early June. And as if this turn of events isn’t dramatic enough, the result of Spain’s municipal and regional elections held on Sunday ratchet the tension up that little bit further. There, the ruling People’s Party was battered by upstarts, not least the anti-austerity Podemos party, Spain’s version of Greece’s Syriza. If the Syriza government manages a favorable settlement with its creditors, pressure is bound to grow in Spain and other eurozone economies that suffered most heavily from the crisis and that have struggled for growth since for similar treatment. Which puts Greece’s eurozone creditors in a bind. Fail to give enough ground and Greece will default on its obligations–even the most willing Greek government would be stuck on how to raise the necessary funds to pay the debts falling due over the coming weeks in light of a weak economy and struggles with raising the necessary taxes. But give too much and extending terms to other member economies quickly becomes economically untenable. Its eurozone neighbors could absorb a big write down of Greek debt, but they wouldn’t be able to do the same for Spain or Italy. The irony here is that Spain’s anti-austerity party has gained strength even though the Spanish government has been running substantial deficits. Indeed, the European Commission forecast that once cyclical factors are excluded, the Spanish government’s shortfall will actually grow this year and next from where it was in 2014. And while the Commission’s most recent forecasts show Spain running a cyclically adjusted deficit of 2.5% of GDP this year, Greece was seen producing a 1.0% surplus (though this will undoubtedly be revised down).
A Finance Minister Fit for a Greek Tragedy? - Yanis Varoufakis knows when he will go. “I’m not going to humiliate myself, and I’m not going to become compromised in terms of principles and in terms of logic,” he told me in early May. The Greek finance minister had just returned to Athens from a hopscotch tour of European capitals, during which he warned his fellow European leaders that they faced a Continental crisis: If they didn’t lend money to his ailing country soon, Greece might end up forced to leave the eurozone. And yet Greece wouldn’t accept many of the conditions they were demanding in return. He sounded angry. “I’ll be damned if I will accept another package of economic policies that perpetuate this same crisis. This is not what I was elected for.” He would resign, he said, rather than push the Greek people deeper into economic despair: “It’s not good for Europe, and it’s not good for Greece.Varoufakis has been Greece’s finance minister for only four months, but the story of how he has thrown Europe into turmoil is one many years in the making. After Greece joined the European Union’s monetary union in 2001, the tiny country of 10 million was flooded with money from elsewhere on the Continent. Over the course of the next decade, Greek leaders, whose sclerotic and corrupt economy had long been rife with patronage and tax evasion, borrowed billions from imprudent European banks and then lied to E.U. officials about its mounting debts. When the financial crisis finally rolled into Greece in 2009 and 2010, the country was an estimated $430 billion in debt, a staggering figure that imperiled the economic health of its near and distant neighbors — indeed, all of Europe. The European Commission, International Monetary Fund and the European Central Bank (often referred to as the troika) agreed to bail out the sinking economy by loaning it $146 billion. In return, as Athenians rioted in the streets in protest, the government promised the troika it would reduce state spending by slashing pensions and wages, eliminating jobs and raising taxes, an approach to debt reduction known as “austerity.”
Tsipras faces down radicals within SYRIZA over terms of deal: After a busy week of talks with European leaders aimed at securing support for a deal for Greece, Prime Minister Alexis Tsipras faces challenges on the home front amid tensions with SYRIZA over the terms such an agreement would entail. In a speech to his party’s central committee on Saturday, Tsipras said Greece is “in the final stretch of negotiations” and is ready to accept a “viable agreement” with its creditors but not on “humiliating terms.” He ruled out submitting to irrational demands on value-added tax rates and further labor reform, and called on lenders to make “necessary concessions.” “We have made concessions but we also have red lines,” he said, claiming that some foreign officials were counting on the talks failing. Although Tsipras reiterated his commitment to the party’s so-called red lines in negotiations, pressure from within SYRIZA not to capitulate to creditors has grown amid rumors that a deal is in the works. In particular, members of the radical Left Platform led by Energy Minister Panayiotis Lafazanis have refused to approve any deal that departs from the party’s pre-election promises. The faction has been working on a counter-proposal for alternative sources of funding. Tsipras and other front-line cabinet members, meanwhile, remain focused on a deal by early June when the country’s next debt repayment to its creditors is due.
Tsipras Urges Euro-Area Creditors to Compromise for Greek Deal: Greek society can’t absorb more austerity, and the country’s creditors must compromise to break the impasse over the release of funds for its cash-strapped economy, Prime Minister Alexis Tsipras said. Tsipras sought to placate critics within his Syriza party after returning from an EU Summit in Riga, Latvia, where talks with German Chancellor Angela Merkel and French President Francois Hollande failed to yield a breakthrough on measures to unlock bailout funding. Some members of his party advocate defaulting on loans rather than backing down from the anti- austerity policies that swept it to power in January, even if that leads the country out of the euro. “We’ve shown willingness to compromise to get to a mutually beneficial solution,” Tsipras said in a speech at the start of a two-day meeting of Syriza’s central committee on Saturday. “But we ask from our partners the same respect and to also make concessions.” Merkel and Hollande last week gave Tsipras until the end of May to reach a deal on its aid program, including economic policy changes demanded by Greece’s creditors. As time runs short, his government has to pay monthly salaries and pensions by next Friday and repay about 300 million euros to the IMF a week later.
Interior minister warns Greece will default on June IMF repayment --Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega. He claimed the EU and IMF were pressuring Greece to make unacceptable concessions in the current bailout talks in return for unlocking €7.2bn of aid frozen since last year.Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.Given the repeated warnings from Greek officials that bankruptcy is imminent, some officials have begun to disregard such threats, believing Athens is now using them as a negotiating tactic.But a senior Greek official with knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June 5 and June 19, unless a deal is struck.“We won’t accept blackmail that says it’s either liquidity with a memorandum [the Greek term for a bailout programme] or bankruptcy”, Mr Voutsis said.
Greece Won’t Meet IMF Repayments in June, Interior Minister Says - Greece said Sunday that it won’t have the money it is due to repay to the International Monetary Fund next month unless it strikes a deal with international creditors over further rescue funding. Interior Minister Nikos Voutsis told privately owned television station Mega that Greece is scheduled to repay €1.6 billion ($1.76 billion) to the IMF between June 5-19, but the payments cannot be met. “This money will not be given,” he said. “It does not exist.”Despite months of negotiations between Greece’s leftist-led government and creditors—the European Union and the IMF—over the country’s bailout, little progress has been made. The ruling Syriza party, elected on an antiausterity ticket in January, opposes reforms to the labor market and pension system demanded by international creditors that argue that Greece must complete these economic overhauls to achieve sustainable growth and solvency.
Greece to Miss IMF payments Amid Fears of 'Catastrophic' Eurozone Rupture -- Finance minister [Yanis Varoufakis] said that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the ECB, IMF and EU “to do their bit” and “meet us one-quarter of the way”. One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself. “Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added. Mr Varoufakis' and Mr Voutsis' words followed a declaration from Alexis Tsipras, the Greek prime minister, that bargaining with Greece's creditors would soon come to a close."Rest assured that in this negotiation we will not accept humiliating terms," Mr Tsipras told Syriza's central committee. "The overwhelming majority of Greek people want a solution and not just an agreement ... it supports the government in this tough negotiation," he added. For Greece itself, using the common currency is now like using a “foreign currency”, and any exit from the eurozone would be “a disaster”, Mr Varoufakis said.He continued: “Trying to get out of it is tantamount to announcing a devaluation 10 months in advanced.” Economists warn that if Greece were to leave the euro area, it could trigger huge levels of capital flight. In turn, Greece would almost certainly have to resort to capital controls in order to stem the tide of money out of the domestic economy.
Default alone will not bring any deliverance for Greece -- Here we are on another bank holiday weekend in the midst of yet another Greek crisis – or rather the same Greek crisis reheated. In fact, I doubt whether this is a serious danger point, not least because it is not a bank holiday in Greece. (The next such holiday there is on June 1). Yet Greece and the eurozone are surely very close to an “event”. After all, further payments to the IMF, as well as pensions and public-sector salaries, are looming and the coffers are empty. I know; we have been here before. But I doubt very much that the government in Athens will be able to find another few hundred million euros down the back of the sofa. Meanwhile, the Greek economic situation remains dire. Having started to recover last year, the economy has slipped back into recession. And this is despite helpful influences from lower oil prices, a weaker euro, and recovery in most other eurozone members. The jungle drums are suggesting that a deal between Greece and its creditors is imminent. Those diplomats who specialise in the deployment of fudge and mudge must be working overtime. It seems likely that their concoction this time will involve some sort of default. Nevertheless, Greece could remain in the eurozone – at least temporarily. Mrs Merkel and other European leaders are coming under strong pressure from the United States to do whatever it takes to keep Greece in the eurozone. Not so long ago, the Americans’ chief worry seemed to be that a Grexit would destabilise the world’s financial system and threaten the world economy. Their chief worry now, however, seems to be strategic. They are concerned that if Greece is ejected from the euro, then it may come to seek financial and political solace from Russia. It might even decide to leave Nato, thereby weakening the alliance’s south-eastern flank at a particularly difficult time.
Greeks back government's red lines, but want to keep euro: Cash-strapped Greeks remain supportive of the leftist government's tough negotiating style, according to a new poll published Sunday, but hope for a deal with creditors that will keep the euro in their wallets. The poll conducted in May by Public Issue for the pro-government newspaper Avgi, shows 54 percent backing the SYRIZA-led government's handling of the negotiations despite the tension with Greece's international lenders. A total 59 percent believe Athens must not give in to demands by its creditors, with 89 percent against pension cuts and 81 percent against mass lay-offs. The SYRIZA-led government is locked in talks with the European Union, European Central Bank and the International Monetary Fund to release a blocked final 7.2-billion-euro ($7.9 billon) tranche of its 240-billion-euro bailout. In exchange for the aid, creditors are demanding Greece accept tough reforms and spending cuts that anti-austerity Syriza pledged to reject when it was elected in January. According to reports, creditors are demanding further budget cuts worth 5 billion euros including pension cuts and mass lay-offs. Prime Minister Alexis Tsipras made clear on Saturday however that his government "won't budge to irrational demands" that involve crossing Syriza's campaign "red lines".
The Heat Is on Greece’s Alexis Tsipras, From Inside and Out - NYTimes.com: With Greece in the final stretch of negotiations with its creditors, aimed at unlocking rescue loans the country needs to avert an imminent default, Prime Minister Alexis Tsipras faces growing pressure from the ranks of his own party.After weeks of simmering dissent among the more radical elements of his leftist Syriza party, Mr. Tsipras on Sunday faced his biggest challenge from within the party since taking office in January. A faction known as the Left Platform proposed that Greece stop paying its creditors if they continue with “blackmailing tactics” and instead seek “an alternative plan” for the debt-racked country.The proposal came as the interior minister, Nikos Voutsis, told Greek television that Athens would not be able to make debt repayments of 1.6 billion euros, or nearly $1.8 billion, that are due next month to the International Monetary Fund, one of Greece’s three international creditors.Continue reading the main story “The money won’t be given,” Mr. Voutsis said. “It isn’t there to be given.” The proposal by the Left Platform, which is led by Panagiotis Lafazanis, the energy minister, and represents around 30 of Syriza’s 149 representatives in the Greek Parliament, was rejected by the party’s central committee late Sunday by a vote of 95 to 75. That Mr. Tsipras’s more moderate stance prevailed represented a small victory for the prime minister. But the strong support for the Left Platform’s proposal indicates that Mr. Tsipras faces a difficult balancing act as he tries to seal a deal with creditors and bring it to Parliament. Syriza came to power on a promise to take a hard line with creditors in debt negotiations and resist the type of austerity measures that are blamed for driving up unemployment to 25 percent and slashing household incomes by a third. But Mr. Tsipras has had to soften his approach as he has worked for months to reach an agreement with the country’s three international creditors — the I.M.F., the European Commission and the European Central Bank — and unlock €7.2 billion in bailout funds that Greece needs to meet debt repayments over the summer and remain solvent. His challenge now is to keep the backing of a majority of Syriza’s party officials and legislators as he moves ahead.
Greece Could Bundle Its Next IMF Payments to Buy Even More Time. But at What Cost? - As Greece roots around for cash to cover upcoming bills amid stalled bailout talks, one option it could consider is bundling next month’s payments to the International Monetary Fund. The Greek leadership, at this point, doesn’t appear to be considering the option and doesn’t see it as advantageous given concerns about the signals it could send, according to people familiar with the government’s thinking. Obscure IMF rules allow Greece to clump its principal payments into one deposit that the government could ostensibly pay later in the month, without falling into arrears. Athens owes the IMF four principal payments totaling $1.7 billion in June. Should Greece seek to take advantage of the opportunity, bundling its IMF payments would buy Greece’s government more time for negotiations in the deadlocked bailout talks. An IMF spokeswoman declined to say whether Greece had made such a request or even inquired about the option. Bundling payments would remove the short-term funding threat Athens has tried to use to gain concessions from Europe, says Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. Mr. Kirkegaard says Greece would likely be able to pay most of the bills due to the IMF next month even though it would mean depleting any remaining cash reserves stashed around the country.“It would buy Athens more time,” But prolonging the period of economic uncertainty without a bailout deal also could very well aggravate Greece’s crisis and deepen the amount of bailout financing needed to fill the country’s funding gap and require more costly economic overhauls and budget belt-tightening.
Greek hospitals cannot afford painkillers, scissors or sheets as budget cuts bite - Greek hospitals have run out of supplies such as painkillers, scissors and sheets as swingeing budget cuts have left the health service unable to provide even basic provisions for operations and medical procedures. Huge cuts to the healthcare budget, amid the economic turmoil which made millions unemployed, have left than 2.5m Greeks uninsured, up from 500,000 in 2008, the Times reported. On coming to power the Syriza government scrapped the €5 fee for attending state hospitals and pledged to hire 4,500 more health workers, despite the need for austerity and criticism from creditors. Notwithstanding the government’s promises, healthcare spending has fallen by 25 per cent since 2009, creating shortages of the most basic surgical equipment and leaving too little money to pay nurses' salaries. Reports have surfaced of patients being turned away from hospital because there was no meter to measure their high blood pressure, while others have had to do without painkillers during medical procedures. One patient was even asked to bring their own sheets to hospital. A trainee surgeon at KAT, a respected state hospital in Athens, said the situation was at “breaking point”. “There is no money to repair medical equipment, no money for ambulances to use for petrol, no money to hire nurses and no money to buy modern surgical supplies,” he told the Times. The news comes as the Greek finance minister, Yanis Varoufakis, warned the country would run out of money in a matter of weeks. By 5 June Athens must repay the IMF €300m, but should Eurozone creditors not agree to release a €7.2bn loan it is likely Greece will default. A further €820m is due just days later.
A Parallel Currency for Greece: Part I - naked capitalism Yves here. We’re overdue for a proper update on Greece, but in many senses, not much has happened. Greece has again threatened to default on the IMF in June, but the body language of Greek officials is that this time it will happen if a deal is not reached. Greek officials continue to be optimistic, which is ringing hollow in light of developments of last week. Merkel is backing the IMF as the decider as to whether Greece gets bailout money, and the IMF (Lagarde herself) has made it clear that the IMF is not cutting corners as to its process. There is also no indication that the IMF is willing to budge on substance, most importantly on Syriza’s red lines of cutting pensions and taking measures to boost worker incomes (while the IMF wants labor market “reforms” which mean more pressure on wages). The hard left wing of Syriza has become more vocal about opposing concessions to the Troika and advocating a Grexit. Tsipras beat back their challenge in a party meeting, but is sticking what increasingly looks like incompatible objectives: not giving in on its red lines and staying in the Eurozone. Note that the hard left dissenters, even though they lost this battle, still have enough votes in Parliament to deny Tsipras a majority from current coalition. As this post argues, Greece can use parallel currencies to give it some more negotiating runway, but if the IMF is not going to relent, Greece will face near-term pressure that even the introduction of a parallel currency may not alleviate. We’ve put up the companion post, in which Bossone and Cattaneo argue that their proposal, the TCC, will have a positive impact on growth and debt sustainability under reasonable scenarios. But an IMF default will be a blow to confidence, will likely accelerate the ongoing bank run, and could lead to other measures being imposed (such as the ECB effectively limiting the ELA by imposing more stringent collateral requirements, and Greece losing access to trade financing as a result of the IMF default).
A Parallel Currency for Greece: Part II --naked capitalism Yves here. I’m quite interested in reader reactions to this scheme. My big reservation is that the amount of the scrip devised by the authors, the TCC, has to be limited to the an amount of discount of future tax payments that is deemed to be credible. Given that Bill Mitchell has estimated that Greece needs to run deficits on the order of 10% of GDP in order to bring the economy back to growth. The World Bank shows Greek tax revenues at 22.4% of GDP as of 2012. Perhaps I am missing something, but it is hard to see on an aggregate level how enough TCC can be issued to achieve the desired growth targets. And there are other challenges to Greece independent of the merits of this idea. The big ones are that the seemingly inevitable IMF default may lead the ECB to decide to increase the collateral haircuts for banks for use with the ELA. Most experts believe that the default alone will accelerate the bank run and force Greece to impose capital controls, since Greek banks will run out of eligible collateral irrespective of whether the ECB makes its standards tougher (it just happens faster in that event). Many experts believe that capital controls would dampen economic activity, both directly and indirectly (via hurting confidence). The ECB may also decide to use the threat of removing the ELA to force Greece into a Cyprus-style bail in. That would be a huge hit to an already weak economy. It’s hard to see, even if TCCs work as well as the authors believe they might, that they could offset downdrafts of this magnitude. Moreover, even normally sensible economic writers like Wolfgang Munchau have suggested that Greece should accept a fiscal surplus target of 2.5%, which is severely contractionary. If Greece winds up agreeing to terms like that, again it is hard to see even how a well designed parallel currency can undo the damage.
Grexit and the Morning After - Paul Krugman - We just had another electoral earthquake in the euro area: Podemos-backed candidates have won local elections in Madrid and Barcelona. And I hope that the IFKAT — the institutions formerly known as the troika — are paying attention. The essence of the Greek situation is that the actual parameters of a short-run deal are clear and unavoidable: Greece can’t run a primary budget deficit, because nobody will lend it new money, and it won’t (and basically can’t) run a large primary surplus, because you can’t squeeze even more blood from that stone. So you would think that an agreement for Greece to run a modest primary surplus over the next few years would be easy to reach — that is what will happen, so why not make it official? But now the IMF is playing bad cop, declaring that it cannot release funds until Syriza toes the line on pensions and labor market reform. The latter is dubious economics — the IMF’s own research doesn’t support enthusiasm about structural reforms, especially in the labor market. The former probably recognizes a real problem — Greece probably can’t deliver what it has promised pensioners — but why should this be an issue over and above the general question of the primary surplus. What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. It would surely be ugly in Greece, at least at first. Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.
Time running out for Greece, warns European rescue fund chief - The head of the European rescue fund has warned that there is “little time left” for Greece to agree a deal with its creditors. Klaus Regling, who is the managing director of the European Stability Mechanism, told Germany’s Bild newspaper on Tuesday that officials were “working day and night” to reach an agreement with the indebted nation. He said: “"There is little time left. "That's why we're working day and night for an agreement. Without an agreement with the creditors, Greece will not get any new loans. Then there's a threat of insolvency. There are a lot of risks contained in that.” He continued: "Even missing a payment to the IMF would be dangerous. That would have an effect on other lenders like us. “On the other hand, the rescue fund can only extend loans when reforms are implemented. That is also the case now and that's the only way Greece will be able to restore its economy's fiscal health.” Gabriel Sakellaridis, the spokesman for Greek Prime Minister Alexis Tsipras, on Monday said it was possible that a deal could be struck this week. However, he would not say whether the country had enough cash to meet the €1.6bn loan repayments to the International Monetary Fund that are due on June 5.
With Money Drying Up, Greece Is All but Bankrupt - Bulldozers lie abandoned on city streets. Exhausted surgeons operate through the night. And the wealthy bail out broke police departments.A nearly bankrupt Greece is taking desperate measures to preserve cash. Absent a last-minute deal with its creditors, the nation will run out of money early next month.Two weeks ago, Greece nearly defaulted on a debt payment of 750 million euros, or about $825 million, to the International Monetary Fund.For the rest of this month, Greece should be able to cover daily cash deficits of around 100 million euros, government ministers say. Starting June 5, however, these shortfalls will rise sharply, to around 400 million euros as another I.M.F. obligation comes due. They will then double in size on June 8 and 9.“At that point it is all over,” said a senior Greek finance official who spoke on the condition of anonymity. On Sunday, the interior minister, Nikos Voutsis, said that there would not be enough money to pay the I.M.F. if there was no deal by June 5. In a society that has lived off the generosity of the government for decades, the cash crisis has already had a shattering impact. Universities, hospitals and municipalities are struggling to provide basic services, and the country’s underfunded security apparatus is losing its battle against an influx of illegal immigrants. In effect, analysts say, Greece is already operating as a bankrupt state.
Greece Will Make its Next IMF Payment, Says Yanis Varoufakis - WSJ: —Greece will make its next payment to the International Monetary Fund on June 5 as the country will have reached an agreement with its creditors by then, Finance Minister Yanis Varoufakis said on Tuesday, as the country was running extremely low on cash. In the last few days there have been divergent comments from local officials on whether Athens will be able to pay its next tranche of €300 million ($329 million). Greece is scheduled to repay a total of €1.6 billion to the IMF over the period between June 5 and June 19. In another example of the escalating squeeze on the country’s cash supply, the government issued a decree ordering the transfer of funds in inactive bank accounts of public-sector bodies to the Bank of Greece. The decree will hit more than 1,000 accounts that have been inactive since the end of 2009 and have less than €100 remaining. The government believes it will raise around €1 million. The government has been locked in negotiations with its international creditors since coming to power and is hoping to unlock a slice of financial aid, but progress so far has been slow.
Greek and German officials play down looming Athens default - FT.com: Greek and German officials have tried to play down the possibility of a default by Athens on a looming €300m loan instalment owed to the International Monetary Fund despite mounting evidence that the country is running out of cash. Finance minister Yanis Varoufakis told reporters on Tuesday he expected a June 5 payment deadline to be met because “we will have an agreement (by then)” but gave no details of how bailout negotiations being held in Brussels were progressing. A senior German official also sought to calm the concerns triggered by the weekend threat by Nikos Voutsis, the hardline Greek interior minister, to default because “the money . . . isn’t there to be given”. Mr Varoufakis said new tax measures to plug a projected €3bn fiscal gap this year were being considered but ruled out imposing a levy on domestic bank deposits and transactions at cash machines. “Taxing bank transactions was proposed at the Brussels talks. The finance ministry disagreed and the proposal was withdrawn,” he said. The combative finance minister was removed as Greece’s chief negotiator by premier Alexis Tsipras following pressure from creditors, only to reappear this week with an upbeat message that a deal would be struck. In Berlin the German official said there was no reason to believe Greece would default on June 5. The debt is the first of four loans totalling €1.6bn Athens is due to repay to the IMF next month. If no deal is reached with the EU and IMF for new loans to be disbursed to Athens, Greece is likely to default on the IMF loan repayment.
Germany sees progress on Greece, EU officials to confer on Thursday: A senior German official said on Tuesday there was no reason to believe Greece would be in default after a 300 million euro payment to the IMF falls due on June 5. Separately, eurozone officials said deputy finance ministers would hold a teleconference on Thursday to follow up on days of negotiations between representatives of Greece and creditors the International Monetary Fund (IMF), the European Central Bank and the European Commission. Greece must repay four loans totalling 1.6 billion euros ($1.76 billion) to the IMF next month, starting with a 300 million euro payment on June 5. If no deal is reached within EU/IMF for new loans to be disbursed to Athens, Greece is likely to default on the IMF loan repayment. This would start a process that could lead Greece out of the eurozone. But in Berlin a senior German official, speaking on condition of not being named, said it was encouraging that Greece had signalled its desire to meet the looming debt obligations. "I find it encouraging, if it is true, that the Greeks signalled yesterday their desire to repay the 300 million euros to the IMF on June 5," the official said. "I think there is reason to believe that we will not be talking about a default situation around June 5, neither before or immediately thereafter."
Greece Didn’t Ask for Increase in ECB Emergency Liquidity - Greece’s central bank did not request an increase to the amount of money Greek banks can borrow under an emergency lending program by the European Central Bank, a person familiar with the matter said Wednesday, as tense negotiations between the Greek government and its creditors continue. “There hasn’t been any raise, since there is an unused liquidity buffer of 3 billion euros ($3.3 billion) and deposit outflows have stabilized at very low levels,” a Greek bank official said. Under the emergency-liquidity assistance program, or ELA, the Greek central bank lends money to its country’s financial institutions. The loans carry a higher interest rate than standard ECB loans, and the credit risk stays with Greece. Greek banks were forced into ELA in February after the ECB suspended an exemption that had allowed banks to use junk-rated Greek government bonds as collateral for regular ECB loans. Since then, the Greek central bank has lent some EUR80.2 billion to Greek lenders.
Greece Says has Begun Drawing Up Agreement with Creditors - Greece and its creditors are starting to draft a technical-level agreement, a government official said on Wednesday, signalling progress in long-running talks to unlock aid for the cash-strapped country. "At the Brussels Group (of credit negotiators) today procedures to draw up a staff-level agreement are beginning," the official said, adding that Prime Minister Alexis Tsipras would be in constant touch with other leaders to conclude a deal. The official said the deal would avoid wage and pension cuts, include reform of value-added taxes and include a lower target for a primary surplus in the first year. The Greek official also cited differences between the EU and IMF as holding up an overall deal and called on the creditors to do their part to ensure a deal was struck. "There remains a problem with the differing stance among the institutions. If an agreement by the IMF was not needed, the deal would have closed by now," the official said.
EU officials dismiss Greek statement on aid agreement being drafted - Greece's government on Wednesday said it is starting to draft an agreement with creditors that would pave the way for aid, but European officials quickly dismissed that as wishful thinking. Greece and its European and International Monetary Fund lenders have been locked in tortuous negotiations on a reforms agreement for four months without a breakthrough in sight. Without a deal, Athens risks default or bankruptcy in weeks. A new round of talks begin on Wednesday in Brussels, and a Greek government official said the two sides would start drafting a technical-level agreement there, along the lines of Athens' longtime demands for no wage or pension cuts and a lower target for a primary budget surplus. But European Commission Vice President Valdis Dombrovskis said the two sides still had some way to go before any agreement could be drawn up. "We are working very intensively to ensure a staff-level agreement," he said. "We are still not there yet." Other officials in the euro zone, speaking to Reuters on condition of anonymity, were more blunt. One called the Greek remarks "nonsense". Another said: "I wish it were true."
EU Officials Play Down Greek Talk of Bailout Deal on the Horizon - WSJ: —Officials in Athens suggested that talks with Greece’s creditors over fresh bailout funds had reached a final stage, though European Union officials said negotiators still had much work to do before sealing a deal. Teams from Greece and its international creditors resumed talks in Brussels on Wednesday in a bid to overcome an impasse in their negotiations as Athens runs dangerously low on cash. The latest round began as U.S. Treasury chief Jacob Lew urged both sides to “double down” in their efforts to reach a deal to solve the country’s debt crisis, saying it would be wrong to assume that a disorderly Greek exit would be painless. “No one should have a false sense of confidence that they know what the risk of a crisis in Greece would be,” Mr. Lew said in an address to students at the London School of Economics.The U.S. Treasury Department later said that Mr. Lew spoke Wednesday to the Greek Prime Minister Alexis Tsipras by phone. “Secretary Lew reiterated that failure to agree on a path forward would create immediate hardship for Greece and broad uncertainties for Europe and the global economy,” a Treasury spokeswoman said. Mr. Tsipras told reporters after a meeting at the Finance Ministry on Wednesday that the two sides were close to an agreement. A senior Greek government official, meanwhile, said Greece and its creditors would start drafting a final list of overhauls and budget cuts that Athens needs to implement to secure fresh bailout funds. But Valdis Dombrovskis, vice president of the European Commission, played down hopes of a resolution soon, saying Greece and its creditors were still some way from a deal.
Athens, creditors offer conflicting views on negotiations: Prime Minister Alexis Tsipras said Wednesday that a deal with creditors was “close” and government officials said an agreement was being drafted but representatives of the country’s creditors made it quite clear that they do not share such optimism. In comments after a meeting at the Finance Ministry, Tsipras said a deal with creditors was “close” and that “very soon we will be able to present more details.” He stressed the need for “calm and determination,” noting that Greece would come under additional pressure in the final stretch of negotiations. He also referred to “conflicting views between institutions” and to “countries with different approaches.” Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.” According to sources, Tsipras was advised to make the statement by aides fearing that jitters were creeping back into the markets and could prompt a new wave of deposit outflows. Tsipras chose to make the statement flanked by Finance Minister Yanis Varoufakis to underline the government’s backing for the latter, who has come under fire over his confusing statements about the content of a potential deal. Earlier in the day, the European Central Bank decided not to raise the ceiling on emergency liquidity to Greece. A Greek government official commented that the Bank of Greece had not requested an increase to emergency liquidity as the current ceiling of 80.2 billion euros is regarded as adequate “following a stabilization of deposit outflows.”
Nowotny Says ECB Can’t Give Greece Interim Funding - –The European Central Bank can’t provide interim funding to Greece under current rules, a member of the central bank’s governing council said. “I know that there have been some ideas floating around that we [the ECB] might give some interim financing just like that. I don’t see any legal possibility for that,” Ewald Nowotny, who is also Austria’s central bank governor, told CNBC television in an interview broadcast Thursday. Mr Nowotny’s comments follow those of other European officials who have played down Greece’s comments that a bailout deal is on the horizon. German Finance Minister Wolfgang Schaeuble said that no substantial progress had been made and Valdis Dombrovskis, the vice president of the European Commission, said the Greek government needed to present a comprehensive reform package to complete the review to receive additional funds. The ECB also can’t currently accept Greek assets and bonds. “For us it is quite clear that we have certain conditions to be met, the one condition is for instance whether we can accept … Greek assets, Greek bonds as collateral. The answer for the time being is no,” Mr Nowotny said. “There is always a lot of noise in such a situation. I think the important fact is to distinguish the noise from the facts,” Mr Nowotny said.
No change in Greek debt talks after another day of spin -- The euro leapt, Greek bond yields fell, global financial markets brightened, but nothing actually changed in another day of conflicting statements on Greece's long-running debt talks with international creditors. Traders latched on to an upbeat statement issued by a Greek government official on Wednesday afternoon asserting that negotiators were starting to draft a "staff level agreement" - a prerequisite for releasing any more bailout funds. The snag was that talks had not even resumed at that point due to a Belgian air traffic control breakdown that forced the Greek delegation's plane to land in Duesseldorf, Germany. When the meeting with representatives of the International Monetary Fund, European Central Bank and European Commission finally began several hours late, there was no start on drafting a deal because too much remains to be agreed, EU officials said. "We're not there yet," an official following the talks said.
ECB Report: 'Default Risk Has Increased Sharply in Greece' --Euro area systemic stress has remained low over the past six months, but the risk for a Greek default has increased sharply, according to the latest Financial Stability Review of the European Central Bank (ECB), which was released today. Althought prevailing financial market conditions clearly provide support for debt servicing capacity, at the same time, fiscal positions remain precarious in some countries. Sovereign risks emanating from Greece, in particular, have increased sharply owing to heightened political uncertainty over the past six months, while the banking sector in Greece has witnessed substantial deposit outflows, a loss of access to the wholesale funding market and deteriorating asset quality. Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialise. “Greek Sovereign stress conditions have remained relatively benign against the background of the expanded asset purchase programme, with the composite indicator of systemic stress in sovereign bond markets still considerably below the levels seen at the height of the euro area sovereign debt crisis in 2011-12. The aggregate indicator, however, conceals substantial divergence in sovereign stress across countries. In particular, default risk expectations have increased sharply in Greece amid heightened political uncertainty.”
Risk of Greece debt default rises as deadline looms - CBS News: Greece's embattled economy faces another crucial deadline. On June 5 the Greek government is scheduled to repay 300 million euros ($329 million) to the International Monetary Fund, the first of four payments totaling $1.76 billion. Greece is thought to have enough funds to make the first loan payment. But concerns are rising that, barring an agreement with creditors, it will default on its other obligations coming due next month. Over the weekend the Greek interior minister said funds for the four-installment IMF loan "will not be given and [are] not there to be given." How did it come to this for Greece? In an effort to dig its way out of years of crippling debt, a situation that began with the global economic downturn and the ensuing European debt crisis, Greece agreed to a $270 billion economic bailout package with the so-called troika of the European Union, the European Central Bank and the IMF. But Athens' new leftist government has chafed at the hardships many Greeks are having to endure due to the austerity cuts required by international lenders under the bailout, including wage and pension cuts. In recent months Athens has been calling for reforms to the debt's current structure, as well as a "mutually advantageous" deal. Amid this uncertainty, some of Greece's creditors are staying optimistic. On Tuesday a senior German official, speaking on condition of anonymity, told Reuters that it is "encouraging" that the Greeks are trying to repay the 300 million euros. "I think there is reason to believe that we will not be talking about a default situation around June 5, neither before or immediately thereafter," the official added.
Greece: An Endgame Finally in Sight? - Yves Smith -- The financial media has become so inured to the now almost ritual nature of Greece-Troika brinksmanship that a Bloomberg op-ed today called it Groundhog Day. But despite the deja vu of having Greece threaten default and somehow scrape together enough money to make its next payment date, or seeing Alex Tsipras say yet again that a deal is nigh while the creditors shake their heads, Greece looks unable to avoid crossing an event horizon by the end of June. However, the current situation is overly dynamic, so rather than go overly far into the weeds, let’s focus on the boundary conditions. Tsipras will not able to cross his “red lines” unless he forms a new coalition. Not only has the hard left of Syriza (about 1/3 of its representatives) made it clear that they won’t support Tsipras if he concedes to the Troika on issues like pension and labor market “reform,” but it also appears the hardliners are winning converts from party centrists. In a central committee vote over the weekend, Tsipras got 95 votes supporting his program, versus 75 for a plan from the so-called Left Platform that included leaving the Eurozone. Tsipras also said he would not accept “negative votes” from party members if he chinches a deal. That has a hollow sound if the Left Platform can argue that the particulars (like a compromise on pensions) is tantamount to crossing the famed red lines. And in the event that Tsipras were to come back with an agreement that the Left Plaform rejected, one can imagine that the Left Platform would seek a vote of no confidence. Since Tsipras’ continuing, not credible “a deal is nigh” talk is apparently meant to slow the ongoing bank run, one can imagine what a leadership crisis would do. The IMF offering to give Greece a teeny bit of breathing room isn’t all that generous and may be about the blame game. Most media outlets are focusing on the €300 million payment due June 5. Varoufakis has cheerfully said that payment will be made, since Greece will have a deal done by then. All the creditors have taken exception to the latest barrage of statements by Greek officials that an agreement is at hand. And Varoufakis’ remark sounds an awful lot like an admission that Greece will default if it does not have the dough.
Greek exit from euro is ‘a potential’, says Lagarde - FT.com: The head of the International Monetary Fund has acknowledged that Greece could leave the euro, while insisting that this would not mark the end of the single currency. “It’s a potential,” Christine Lagarde told the German newspaper Frankfurter Allgemeine Zeitung, adding that it would be “no stroll” but also that it would definitely not mean the end of the euro. Ms Lagarde’s admission came as the IMF offered Greece three more weeks to repay €1.6bn it owes to the fund next month, insisting that Athens still had a long way to go to persuade creditors to unlock desperately needed bailout money. Frustration is mounting over the slow progress in the talks between Greece and its three bailout monitors — the IMF, the European Central Bank and the European Commission — and exasperation at repeated Greek claims that an agreement is imminent. “It’s very unlikely that we will reach a comprehensive solution [between Greece and its creditors] in the next few days,” Ms Lagarde said in her interview with the newspaper.
ECB Says Long Greek Talks May Hurt Other Eurozone Borrowers - WSJ: The European Central Bank warned that the Greek debt crisis could spread to other at-risk eurozone countries if Athens fails to reach a financing deal with its international creditors quickly, underscoring the high stakes involved in the negotiations. Meanwhile, International Monetary Fund Director Christine Lagarde said in a German newspaper interview that a Greek exit from the euro is a possibility, contradicting comments earlier Thursday by ECB Vice President Vítor Constâncio that effectively ruled out such a scenario. His comments came amid mixed signals over the status of Greece’s debt talks, with Athens striking an optimistic tone that a deal is within reach, while Germany’s finance minister said the two sides are still far apart. A Greek default wouldn’t automatically mean that its banks are insolvent, Mr. Constâncio said at a briefing accompanying the release of a report on financial stability in Europe. But the ECB would have to include the implications of such an event in its analysis of the health of the country’s financial institutions that rely heavily on ECB loans for funding, he said.
Greece Owes $1.2 Billion To Drugmakers As Government Can No Longer Afford Basic Medical Supplies -- Talks between Greece and its creditors went full-retard on Wednesday when the following soundbite from Canada’s FinMin Joe Oliver hit the wires: “No Greek payment to IMF would be default to IMF” That seemed self-evident to us, but in a world governed by debt, we suppose everyone occasionally needs to remind themselves that failure to make good on one’s obligations constitutes default. In any event, Greece apparently owes quite a bit of money to the world’s drug suppliers because, as we reported earlier this week, Athens is now running short on bed sheets and painkillers in its hospitals as the consequences of being completely beholden to the ”institutions” which control the printing of a fiat currency become increasingly clear. Here’s what we get from Reuters: Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than 1.1 billion euros ($1.2 billion), a leading industry official said on Wednesday.The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines.
Why economists are questioning the UK's growth numbers - Telegraph: No economist thinks that gross domestic product, or GDP, is the be all and end all to measuring prosperity. But for politicians, the economic data can be career making, or breaking. That data had threatened to undermine the Conservatives’ chances of electoral victory. But now those figures are thought to have underestimated the UK’s economic strength, as analysts forecast they will be revised up in the coming week. For the parties of the last Government, which had attempted to build their re-election platform on the creation of a strong economy, these disappointing growth figures threatened to undo their messaging. Figures that showed the UK’s growth rate had halved in the first quarter of the year were covered prominently just nine days before voters went to the polls in an election considered too close to call. A day earlier, Cabinet and Treasury officials were given early access to the Office for National Statistics (ONS) numbers. It was vital that press teams could spin the bad news into something that would not threaten their chances. A single data point threatened to undo any economic success attributed to the Government.
BOE Official: Banks May Need to Maintain Extra Capital - A top Bank of England official said Tuesday the central bank may soon need to ask banks to maintain thicker cushions of capital. Martin Taylor, a former banker who sits on the BOE’s Financial Policy Committee, which safeguards financial stability, said the U.K. may be nearing that point in the economic cycle when capital requirements need to be nudged up. “The post-crisis narrative in Britain as elsewhere is that the recovery is in its very early stages. But it’s been a long time since 2009, and this economic cycle, restrained though the recovery was at first, may wel be closer, measured in time, to its peak than its trough,” Mr. Taylor said, according to the text of a speech he delivered on May 22 and published by the BOE Tuesday. Mr. Taylor said it is possible that “we’re reaching the point of the cycle where macroprudential policy should be tightened,” although he stressed it is hard to say where exactly in the cycle the U.K. is. He said also that the “open question” for BOE policymakers is whether banks are building enough capital already, or whether they need extra prodding from regulators. Mr. Taylor was referring specifically to what are called countercyclical capital buffers, a slug of capital banks must maintain that can be raised in a boom to restrain excess credit growth and relaxed in a downturn to enable banks to lend more. At the moment in the U.K., the countercyclical capital buffer is set at zero.
UK monetary policy is too complacent - Economists at the Bank of England and members of the Monetary Policy Committee spend a huge amount of time poring over the details of our current macroeconomic position. There is a danger in all this. The danger is a version of not ‘seeing the wood for the trees’. By focusing in great detail about what you see as the most likely scenario for the UK economy, you begin to think that something similar is the only possible future, and therefore give too little weight to the risks that this scenario is seriously wrong. That is the only way I can explain to myself why the MPC have not yet cut interest rates below 0.5% The Bank’s central projection is that current deflation is a temporary phenomenon. We all know about oil prices, but this projection also involves a view that core inflation will rise from its current level of 0.8%. Today’s low core inflation may have a lot to do with an appreciation of sterling, which should be temporary. In addition actual deflation means that real wages have begun to rise, which should provide a boost to consumption. This could be enough to offset the impact of any renewed austerity, the impact of sterling’s recent appreciation on the demand for UK produced goods, and any delays in investment caused by the possibility of the UK leaving the EU. I could be convinced that this is the most likely outcome, and that inflation will be back at 2% within two years. But good policy is not about just focusing on the most likely outcome. It is also about allowing for risks. So step back from the trees and just look at the wood. The most basic thing we know about the UK economy is that output is now something like 15% below where it should be if pre-recession trends had continued. For the UK that pre-recession trend had been remarkably stable. There may be reasons why the last recession should be so different from all other pre-war recessions, but we all know the dangers of convincing ourselves that this time is different. So it is possible that the scope for additional expansion is large. This is real uncertainty, but it is also one sided uncertainty. No one is seriously suggesting the economy is running at 5% above trend, let alone 15%!
The Secret Meeting in London to End Cash -- I find it extremely perplexing that I have been the only one to report that there is a secret meeting in London where Kenneth Rogoff of Harvard University and Willem Butler the chief economist at Citigroup will address the central banks and advocate the elimination of all cash to bring to fruition the day when you cannot buy or sell anythhing without government approval. When I Googled the issue to see who has picked it up yet, to my surprise Armstrong Economics comes up first. Others are quoting me, and I even find it spreading as the Central Bank of Nigeria, but I have yet to find reports on the meeting taking place in London when my sources are direct. Other newspapers who have covered my European tour have stated that the “crash” of which I speak is the typical stock market rather than in government. What is concerning me is the silence on this meeting where there are more and more reports about a cashless society would be better. If we look at the the turning points on the ECM, yes they have been to the day when there has been a concentration of capital in a particular market. However, it has also picked the turning points in political decisions such as the formation of the G5 with 1985.65, the very day Greece asked for help from the IMF in 2010, to the day of 911. What we better keep one eye open for here at night is this birth of a cashless society coming in much faster than expected. Why the secret meeting? Something does not smell right here.