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

Saturday, March 5, 2011

week ending March 5

Federal Reserve Balance Sheet Rises To $2.549 Trillion - The U.S. Federal Reserve's balance sheet continued to expand last week as the central bank bought more government debt in an effort to spur economic growth.  The Fed's asset holdings in the week ended March 2 climbed to $2.549 trillion, from $2.537 trillion a week earlier, it said in a weekly report released Thursday. It was the fourth consecutive week at which assets were above $2.5 trillion.  The Fed's holdings of U.S. Treasury securities rose to $1.236 trillion on Wednesday from $1.213 trillion the previous week. Meanwhile, Thursday's report showed total borrowing from the Fed's discount window edged down to $20.38 billion Wednesday from $21.03 billion a week earlier. Borrowing by commercial banks dropped to $7 million Wednesday from $24 million a week earlier.  Thursday's report showed U.S. government securities held in custody on behalf of foreign official accounts increased slightly to $3.392 trillion, from $3.391 trillion in the previous week. U.S. Treasurys held in custody on behalf of foreign official accounts increased to $2.631 trillion from $2.629 trillion in the previous week.  Holdings of agency securities, meanwhile, edged down to $761.06 billion from the prior week's $761.38 billion.

Fed Assets Rise to Record $2.55 Trillion on Bond Purchases - The Federal Reserve’s total assets rose by $11.9 billion to a record $2.55 trillion, the fifth record in as many weeks, as the central bank bought Treasury securities in the second round of its quantitative easing strategy.  Treasuries held by the Fed rose by $22.8 billion to $1.24 trillion as of yesterday. The Fed’s holdings of mortgage-backed securities fell by $9.27 billion to $948.9 billion and federal agency debt fell by $870 million to $143.2 billion, according to a weekly release by the central bank today.  The central bank has purchased $396.1 billion in Treasuries since Nov. 12 under plans to purchase $600 billion of government debt through June and reinvest proceeds from maturing mortgage debt. The unconventional monetary easing is aimed at spurring economic growth and preventing inflation from falling too low.  M2 money supply rose by $10.6 billion in the week ended Feb. 21, the Fed said. That left M2 growing at an annual rate of 3.9 percent for the past 52 weeks, below the target of 5 percent the Fed once set for maximum growth. .

Fed Balance Sheet Hits New Record At $2.55 Trillion As Bank Reserves Hit $1.3 Trillion All Time High - The Fed's insatiable desire to redo all the debt monetization mistakes of the Weimar republic continues. This week, the Fed's balance sheet hit a fresh all time high of $2.55 trillion, primarily as a function of increasing Treasury holdings. Not adding today's $7.2 billion POMO to the total holdings, the Fed's total Treasury holdings increased by $22.8 billion W/W, even as MBS posted their first decline in two weeks now that repurchases have materially slowed down as mortgage rates are substantially higher than at the start of QE Lite. This means that net of today's monetization, the Fed owns 7.2% more Treasurys than even the adjusted Chinese holdings of $1.16 trillion. Another key observation: excess reserves which have surged in recent weeks due to the unwind of the SFP program and due to the delay in liability catch up with Fed assets, increased by another $6 billion to a record $1,296 billion. And, naturally, only a hedge fund as big as the Fed would list $116.1 billion in other assets.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--March 3, 2011

Dudley Says `Considerably Brighter' Outlook No Reason to Withdraw Stimulus - Federal Reserve Bank of New York President William Dudley said the “considerably brighter” economic outlook isn’t yet reason for the central bank to withdraw its record monetary stimulus. “We provided additional monetary policy stimulus via the asset purchase program in order to help ensure the recovery did regain momentum,” Dudley said today in a speech in New York. “A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.”  Dudley, who is also the vice chairman of the policy-setting Federal Open Market Committee, said the economy is “finally showing more signs of life” because household and financial- company balance sheets are improving, monetary and fiscal policy have “provided support” and growth overseas has led to increased demand for U.S. goods and services.

Dudley and Bullard Complicate QE2 Outlook - Two Federal Reserve officials on Monday made separate comments complicating the outlook for the central bank’s bond-buying program. Federal Reserve Bank of New York President William Dudley spoke at New York University and Federal Reserve Bank of St. Louis President James Bullard made an appearance on the CNBC television channel. The two took somewhat different positions on the most important issue facing the Fed: Will it go all the way with its current plan to buy $600 billion in longer-dated Treasurys by the summer? For Dudley, a permanent member of the monetary policy-setting Federal Open Market Committee and a close ally of central bank Chairman Ben Bernanke, the answer is yes. While he’s growing more optimistic about the recovery, Dudley continues to believe high levels of unemployment mean an inflation surge is very unlikely, which gives the Fed considerable latitude to continue with the effort widely known as QE2. Even big upward surprises on growth are unlikely to change that.

Bernanke Signals No Rush to Tighten When Asset-Buying Ends - Federal Reserve Chairman Ben S. Bernanke signaled he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth.  A surge in the prices of oil and other commodities probably won’t generate a lasting rise in inflation, Bernanke told lawmakers yesterday in semiannual testimony on monetary policy. A “sustained period of stronger job creation” is needed to ensure a solid recovery, and the Fed’s benchmark rate will stay low for an “extended period,” he said. The comments suggest Bernanke will keep the Fed on course to complete $600 billion of Treasury purchases through June under the second round of so-called quantitative easing. He pledged to act if higher commodity prices persist, spurring inflation and increasing inflation expectations.

Fed and ECB - A World Apart - The U.S. Federal Reserve (Fed) and the European Central Bank (ECB) are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. Let's spell this out: the Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; naturally, a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light. In contrast, in Thursday's press conference, the ECB President Trichet said "risks to the outlook for price developments are on the upside;" and that it "is paramount that the rise in [..] inflation does not lead to second-round effects." He then clarified that the ECB is "in a posture of strong vigilance," and that based on past experience, this suggests an increase in interest rates at the next meeting is possible. Indeed, in ECB parlance, "strong vigilance" has all but once been a codeword for an upcoming rate hike.Given the most recent developments, the jump in the euro versus the U.S. dollar should not be a surprise, and may be exactly what Bernanke is trying to achieve. Bernanke, unlike his predecessor, embraces the discussion surrounding the dollar. Indeed, we believe Bernanke considers the U.S. dollar a monetary policy tool. Our assessment is based on both words and action by the Fed Chair

FRB: Beige Book--Summary--March 2, 2011 - Reports from the twelve Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in January and early February....Retail sales increased in all Districts, except Richmond and Atlanta, although Boston, New York, Philadelphia, Atlanta, and Kansas City noted that severe snowstorms had a negative impact on merchant activity....All Districts, except St. Louis, experienced solid growth in manufacturing production, and new orders improved for Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco....Manufacturing and retail contacts across Districts reported rising input costs. Manufacturers in many Districts conveyed that they were passing through higher input costs to customers or planned to do so in the near future. ... There is little evidence of wage pressures across Districts.

The Event Horizon - When is an event ?  Yesterday Janet Yellen said Event studies can therefore be helpful in gauging the financial market effects of such communications. [skip]  Last August, the FOMC announced that it would begin reinvesting principal payments on agency MBS and agency debt into longer-term Treasury securities, and over the subsequent couple of months or so, the public remarks of Federal Reserve officials made note of the possibility of a further expansion of the portfolio. Consequently, when the Committee announced in early November that it intended to purchase an additional $600 billion in longer-term Treasury securities, that decision was largely anticipated by financial market participants, and it occasioned only minimal market response. So it seems that the event took place over months from August through November. If Yellen is using the words "Event" and "communications" consistently, she must be asserting that the FOMC just kept talking about it for four months and the message gradually sunk in.

Yellin' at Yellen II - First I would like to stress again that I have great respect of Janet Yellen. I try to only critize people whom I respect (my posts show just how respectful I am in general). So this comment on her use of event studies is really a comment on event studies and not on Yellen in particular. I mainly objected to "Event studies can therefore be helpful." That is not a strong claim and I don't really disagree, but I would add "but not very helpful, because announcements can be declared non events on the grounds that they were anticipated, so conclusions based on event studies depend on judgment -- something which they have in common with conclusions which aren't based on data at all." More highly respectful verbal abuse after the jump.

Yellen Places Blame for Crisis on Developing Countries, U.S. — Not Fed - Federal Reserve

Vice Chairman Janet Yellen apportions blame for the financial crisis between the U.S. and those parts of the developing world that run large trade surpluses (i.e. China). The developing world created an excess of cash, and the developed world misspent it, she says in comments at a Banque of France symposium in Paris.Here’s her take on why the developing world is to blame:“Strong capital outflows from countries with chronic current account surpluses–in part reflecting heavily managed exchange rates, reserve accumulation, and other shortcomings in the operation of the international monetary system–put downward pressure on real interest rates, in turn boosting asset prices (particularly for housing) and enhancing the availability of credit. These developments contributed significantly to the buildup of financial imbalances.” And here’s what the U.S. did wrong:“Had the additional domestic credit associated with these capital inflows been used effectively, the imbalances need not have led to financial ruin. In the United States and other countries with current account deficits, however, borrowing too often supported excessive spending on housing and consumption, rather than financing productive investment. Most important, declines in underwriting standards, breakdowns in lending oversight by investors and rating agencies, increased use of opaque financial products, and more-general inadequacies in risk management by private financial institutions helped foster a dangerous and unsustainable credit boom.

The Debate That’s Muting the Fed’s Response, by Christina Romer - Monetary policy makers are all hawks now. Even those who most emphasize the Fed’s role in fighting unemployment oppose policies that would raise inflation noticeably above the Fed’s implicit target of about 2 percent.  The real division is not about the acceptable level of inflation, but about its causes, and the dispute is limiting the Fed’s aid to the economic recovery. The debate is between what I would describe as empiricists and theorists.  Empiricists, as the name suggests, put most weight on the evidence. Empirical analysis shows that the main determinants of inflation are past inflation and unemployment. Inflation rises when unemployment is below normal and falls when it is above normal. Though there is much debate about what level of unemployment is now normal, virtually no one doubts that at 9 percent, unemployment is well above it. With core inflation running at less than 1 percent, empiricists are therefore relatively unconcerned about inflation in the current environment.  Theorists, on the other hand, emphasize economic models that assume people are highly rational in forming expectations of future inflation. In these models, Fed actions that call its commitment to low inflation into question can cause inflation expectations to spike, leading to actual increases in prices and wages.

The Fed's Hawkish Stance - President Obama’s former economic advisor, Christina Romer, implored the Fed to do more to stimulate the economy. In her argument for this policy she abandoned the usual hawk versus dove characterization of the Fed’s Open Market Committee members and placed the members into two new groups, the empiricists and the theorists: Empiricists, as the name suggests, put most weight on the evidence. Empirical analysis shows that the main determinants of inflation are past inflation and unemployment. With inflation low and unemployment high, empiricists see little inflationary threat from further monetary easing. Theorists see much more to worry about: Theorists, on the other hand, emphasize economic models that assume people are highly rational in forming expectations of future inflation. They fear that general inflation could re-emerge quickly, despite high unemployment.She sides with empiricists and calls for more easing, a position I agree with. However, as she notes, even the empiricists are relatively hawkish, and if there is any evidence that inflation is becoming a threat, they will join with the theorists and raise interest rates to ensure inflation remains under control.

Yes, Monetary Policy Does Matter - Christina Romer has an Op-Ed on U.S. monetary policy that raises several important points.  First, she does a good job explaining that monetary policy can still pack a punch even when short-term interest rates are close to zero.  She reminds us that unconventional monetary policy during the Great Depression--the original QE program--did wonders for the economy in a far worse economic environment than today. If it did such an incredible job back then, why couldn't it do the same today?   This is a point I made late last year to Paul Krugman.  It should encourage folks like him and Mark Thoma to be more optimistic about what monetary policy can do to shore up the  recovery.   Second, Romer explains why U.S. monetary policy is not doing more given its untapped potential.  She attributes this failure to to a polarizing division among  two types of policymakers: empiricist and theorist.  Here is how she describes them:

Inflation Theorists - Krugman - Christy Romer has a piece framing the inflation debate in terms of “empiricists” versus “theorists”. I’d say she’s being too nice. I mean, yes, there are theoretical models in which monetary expansion translates immediately into sudden inflation. But these same models also say, essentially, that what we’re experiencing now — a prolonged period of high unemployment in which wage growth has slowed, but wages haven’t plunged — couldn’t happen. So to believe the inflation scare stories you have to be not just a theorist but a theorist who believes his theories, not his own lying eyes And really, I don’t think the inflation hawks are relying on models. They’re going with their gut: eek! inflation! money printing! eeevil! This is not a rational discussion.

The Fed doves have not caved in - The combination of a rapidly growing economy, and a surge in oil prices, has raised questions about the strength of the doves’ hand at the Fed. Previously in firm control, the doves had until yesterday been silent about the recent mixture of strong GDP growth and rising headline inflation. Was the case for exceptionally easy monetary policy beginning to fray at the edges? Not in the mind of New York Fed President Bill Dudley, who is among the most eloquent spokespersons for the dovish standpoint. In an important speech, Bill Dudley confirmed that the US economy is now growing at an accelerating rate, but said that this reflected the success of Fed policy, rather than providing any case for changing it. He conceded that the structural unemployment rate may have risen to between 6 and 7 per cent, but argued that much of this increase may be temporary. And, in any event, he suggested that employment could rise by 300,000 per month for two years before the economy would run out of spare capacity. On the commodity price surge, he said that this would not be a sufficient reason for tightening monetary policy, unless it started to increase inflation expectations.

Semiannual Monetary Policy Report to the Congress - Ben Bernanke (transcript)

When Will the Fed Tighten? Bernanke Elaborates a Little - In his semiannual testimony to Congress, Federal Reserve Chairman Ben Bernanke elaborated a little bit on what would provoke the Fed to start tightening monetary policy. In short, it won’t happen until he’s more confident that the recovery can stand on its own, that employment is clearly rising in a sustainable way and that inflation is on its way to stabilizing around 2%. “Once we see the economy is in a self-sustaining recovery and employment is beginning to improve and labor markets are improving and inflation is stable and approaching 2% or so … at that point we’ll begin withdrawing,” the Fed chairman said. He added that will be long before the unemployment rate has fallen back toward its longer run trend of 5% or 6%. He also said he’s well aware of the risk that the Fed will act too slowly and allow inflation to get out of control, something he intends to avoid.

Rapid Jobless Drop May Accelerate Tighter Monetary Policy -The startlingly quick pace with which the unemployment rate has fallen is raising questions whether the labor market could soon reach levels that may start to generate inflation and alter the monetary policy outlook. Over the last few months, the unemployment rate has plunged at a rate hard to reconcile with the level of monthly payroll growth. This rapid descent comes at a time where some in the Federal Reserve have also revised up their estimation of the unemployment rate which, once crossed, starts to generate price pressures.The 8.9% unemployment rate reported by the government Friday moves the economy ever closer to the so-called natural unemployment rate. While many economists don’t expect this rate of decline to continue, they also didn’t expect what’s happened thus far, so for whatever reason, the economy may be facing a development that could change the monetary policy outlook in big ways.

Lessons Learned from Ben Bernanke's Policy Rule Discussion at the Senate - John Taylor - At yesterday's hearing before the Senate Banking Committee, Fed Chairman Ben Bernanke talked about monetary policy rules in response to a series of questions by Senator Pat Toomey. First, the Chairman stated that the Taylor Rule calls for interest rates “way below zero” and that this justifies methods such as quantitative easing. This is puzzling because I have reported for months that the Taylor Rule (see 1993 paper) does not call for an interest rate below zero. Second, when Senator Toomey then asked if Taylor believed the Taylor Rule called for rates below zero, Chairman Bernanke didn’t answer directly, but instead claimed that in 1999 I preferred a different rule to the one I published in 1993; he then said that the 1999 rule gives a much different rate. Senator Toomey then pressed on and specifically said the Taylor Rule called for rates higher than we have now, at which point Chairman Bernanke changed tack and argued that there were other policy rules that call for below-zero interest rates. Here is the relevant part of the transcript.

War of Words: Taylor Disputes Bernanke’s Description of Interest-Rate Rule -Stanford University professor John Taylor, an outspoken critic of the Federal Reserve in recent years, has a new complaint: He says Fed Chairman Ben Bernanke is misrepresenting Mr. Taylor’s eponymous rule on interest rates. Mr. Bernanke said Tuesday that the Taylor Rule suggested that short-term interest rates, if they could be, should be pushed way below zero. That, in turn, helped to justify the Fed’s $600 billion bond-buying program, he said. The Taylor Rule offers a simple formula that economists often use as a guide for the appropriate level of the federal funds rate. The formula provides changes in interest rates depending on the level of inflation and the output gap, which is the difference between actual gross domestic product and the economy’s potential output. Depending on how you define the rule (for instance if you give the output gap a lot of weight in the formula or just a little, or if you use a projected inflation rate or actual inflation) you can come up with different interpretations of whether interest rates should be high, low or even negative in a theoretical world.

Is QE2 Working? -Arnold Kling does not think so: In the current setting, it appears that economic activity is expanding and inflation is higher than it had been. One may choose to interpret this as resulting from the Fed's quantitative easing. However, I am not signing onto that one. I recall reading recently that QE 2 was basically canceled out by offsetting changes in Treasury funding operations. That is, as the Fed bought more long-term bonds, the Treasury issued more long-term bonds relative to short-term securities.It is true the Treasury appears to be undermining QE2 by preventing the average duration of treasury securities from decreasing. The point of shorting the average duration is to cause a portfolio readjustment that will ultimately lead to more nominal spending. Arnold is skeptical this portofolio balancing channel is working because of the Treasury's actions.  He may be right.  Treasury's actions are probably preventing some of the portfolio rebalancing that would otherwise be occurring because of QE2.   But Treasury is not completely thwarting QE2.  QE2 appears to be raising nominal expectations that in turn are causing the investors to rebalance their portofolios.

Long and Variable Lags in Monetary Policy – Thoma - I don't have time to say much about Scott Sumner's latest misrepresentation of what I've said (I tried to clear it up here, e.g. for just one example, he turns the statement "it would be very unusual for monetary policy to work that fast" into my saying it couldn't possible have happened -- that's not what I said). However, on one point -- the lags in monetary policy -- since Scott claims (based upon his own work on the Great Depression) that "I don’t see any long and variable lags there," and uses this to try to refute my claim about policy lags, and since he makes it sound like I am relying solely on "modern macro" to draw this conclusion, let me quote Milton Friedman as an authority on monetary policy in the Great Depression (and outside of it for that matter). Here's what Friedman said to me on policy lags in a letter on one of my papers:

Christina Romer and John Taylor Agree on Something - This may surprise you, but Christina Romer and John Taylor both agree on an important issue.  They both see the need for an explicit monetary policy rule that would provide more transparency and  predictability of the Fed's actions.  Here is Christina Romer in a recent article: [The Fed] could set a price-level target, which, unlike an inflation target, calls for Fed policy to take past years’ price changes into account. That would lead the Fed to counteract some of the extremely low inflation during the recession with a more expansionary policy and lower real rates for a while. All of these alternatives would be helpful and would retain the Fed’s credibility as a defender of price stability.So Romer wants a price level rule that would keep the price level growing according to some target  rate.  This would not only commit the Fed to long-term price stability, but it would also create more certainty for the markets.  John Taylor makes the same point in his critique of Bernanke's recent testimony before congress:

Fed Testimony: Surpluses Forever! - It is probably a good time to revisit then Fed Chairman Alan Greenspan's testimony to the same committee 10 years ago today. Here is his testimony on March 2, 2001:  Both the Bush Administration and the Congressional Budget Office project growing on-budget surpluses under current policy over the next decade.  The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs. These most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach and, indeed, would occur well before the end of the decade under baseline assumptions.

John C. Williams Named to Lead San Francisco Fed - Dr. John C. Williams has been appointed president and chief executive officer of the Federal Reserve Bank of San Francisco, according to an announcement by Douglas W. Shorenstein, chairman of the San Francisco bank’s board of directors. Dr. Williams, whose appointment is effective today, has been executive vice president and director of research at the San Francisco Federal Reserve Bank since 2009. He succeeds Dr. Janet L. Yellen, who resigned on October 4, 2010, when she was sworn in as vice chair of the Federal Reserve Board of Governors in Washington, D.C. In his new role, he will serve on the Federal Open Market Committee, bringing his district’s perspective to monetary policy discussions in Washington. He is the twelfth president named to head the Twelfth District of the Federal Reserve.

Who is John Williams? - In selecting economist John Williams as president of the Federal Reserve Bank of San Francisco, the Fed has elevated a respected economist from within who isn’t afraid to step out on a limb with controversial positions among his colleagues or with the public. In just the past few years, Mr. Williams, who had been head of research at the San Francisco Fed, has teamed up with a conservative critic of the central bank to raise questions about the effectiveness of one of its programs, and also raised the unfashionable idea among most economists that the Fed, under some circumstances, might be better off if it sought higher inflation. Another line of research in 2009 suggested the economy might not be burdened by as much inflation-killing slack as many Fed officials thought. Mr. Williams’s actions as president of the bank might not be as provocative as were some of his ideas as a research director trying to spark internal and external debate..

Ron Paul's Money Illusion - I can appreciate Ron Paul's libertarian philosophy. And because this is so, it pains me all the more to say what I am about to say. The guy can be a real pinhead at times. And this is never so evident as in his persistent "attacks" against the Fed. There are legitimate arguments one could make against the Fed as an institution and/or about the conduct of Fed policy. And then there are the stupid arguments, for example, the one contained on pg. 25 of his book End the Fed:One only needs to reflect on the dramatic decline in the value of the dollar that has taken place since the Fed was established in 1913. The goods and services you could buy for $1.00 in 1913 now cost nearly $21.00. Another way to look at this is from the perspective of the purchasing power of the dollar itself. It has fallen to less than $0.05 of its 1913 value. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.  One might indeed say that, Mr. Congressman. But if one did, one would behaving like an opportunistic politician, which I know you are not.  Now, let us examine what is wrong or misleading in the statement above.

Fed Watch: Commodity Shock - How quickly the world can change. Just a few weeks ago, incoming data suggested room for optimism. And, in large measure, continue to do so. Regional manufacturing reports have been largely solid, while initial unemployment claims declined during the month, ending last week just a hair above the 400k mark. Even consumers appeared a bit brighter, with confidence rising to its highest level in three years (still low, but the right direction). To be sure, there were some setbacks as well. The revisions to 4Q10 GDP were disappointing, although I would still focus on the final demand figure rather than the headline. Non-defense, non-air capital goods declined sharply, almost erasing the previous month’s surge. But an up-and-down pattern has been a persistent feature of that data series in recent months, suggesting little to worry about in the context of other generally positive manufacturing indicators.  The rapidly evolving situation in the Middle East, however, threatens to unsettle this positive momentum as oil prices surge. Unfortunately, the suddenly choppy economic waters catch US monetary policymakers off guard, and it shows in recent Fedspeak. It appears that the Fed is stuck between two narratives, one in which the energy price shock turns inflationary given signs of economic improvement in recent months, and another in which oil undermines a still-nascent recovery. It is an unfortunate debate to have during this period of uncertainty and this early in the recovery.

Fed’s Beige Book points to inflation: "There are early signs that businesses can pass cost increases on to their customers, according to the Federal Reserve’s latest survey of its business contacts. “Manufacturers in a number of Districts reported having greater ability to pass through higher input costs to customers,” the Fed said in its Beige Book survey, published on Wednesday. If businesses can pass on higher costs it will increase the chance that the surge in oil prices turns into broader inflation. The Beige Book reports are another sign that inflation may have passed its trough. However, the Federal Reserve does not rely on anecdotal reports, and will want to see hard data showing that companies are able to raise prices. The core consumer price index rose by only 1 per cent in January. In the Philadelphia district, “output price increases are becoming more widespread throughout the manufacturing sectors”. In Richmond, “while most sellers were not passing through cost increases yet, many expected to begin raising prices later this year”

On the Problem Rising Oil Prices Pose for Central Banks - Yves Smith - Ambrose Evans-Pritchard of the Telegraph voices his concern that central banks are going to misread the impact of rising oil prices and therefore make the wrong interest rate decision. Bear in mind that Evans-Pritchard called the 2008 oil spike correctly, deeming it to be a bubble, and was also in the minority then in arguing that deflation was a bigger risk to the economy than inflation. One leg of his argument is that oil price increases slow economic growth. That’s hardly startling; indeed, this concern has been echoed widely in the last few days. For instance, as David Rosenberg notes, courtesy Pragmatic Capitalism: It is also interesting to see how government bond markets are reacting to the oil price surge — by rallying, not selling off. In other words, bond market investors are treating this latest series of events overseas as a deflationary shock. Evans-Pritchard highlights several issues: no one seems to have a good measure of the impact, but there is reason to think it is larger than most central bankers allow for. And it also appears to be subject to inflection point effects, where increases beyond certain thresholds have disproportionate effects:The classic theory by Rotemberg and Woodford (1996) is that a 1pc rise in crude prices cuts 0.25pc off US output over six quarters or so. If they are anywhere near correct – and the “energy intensity” of the US economy has diminished over time – the sort of 40pc rise since last summer rise will indeed have a severe effect. Subsequent scholarship suggests this is too extreme, unless central banks behave like idiots.

The Chasm Between Consumers and the Fed - INFLATION in the United States is low, and seems to be going down if it is moving at all. The Federal Reserve1 thinks it will be years before there is any significant inflation.  But that is not the way many Americans see it. Gasoline prices are on the rise as the Libyan fighting intensifies, and some food items have risen. The high price of gold — more than $1,400 an ounce — is viewed by many, including some in Congress, as proof that rampant inflation is near.  Testifying in Congress this week, Ben S. Bernanke2, the Fed chairman, tried to be reassuring. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” he said3.  Yet inflation anxiety is rising.  “Are the Fed and the public on different planets?” Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, asked in a speech4 last month. “There seems to be a disconnect between what the Fed is saying and what people are experiencing when they fill up their gas tanks or read about rising food prices5 around the world.”

Fed’s Hoenig: Policy Plays Role in Commodity Price Surge - The Federal Reserve needs to raise interest rates and stop pursuing a policy that may create inflation and financial market problems, a veteran central bank official said Wednesday, adding the current stance on monetary policy is helping fuel part of the recent surge in commodity prices. Some of the jump in commodity prices reflects rising world growth and supply disruptions, but Federal Reserve Bank of Kansas City President Thomas Hoenig said “if you engage in a highly accommodative policy and you are the world’s reserve currency .. that does facilitate the demand side.” “Any economic event is more than one thing,” Hoenig said, but “we know both have a role to play.” He added “we have to be sensitive to our monetary policy actions” and their impact in the U.S. and elsewhere, as “the rest of the world does have an impact back on us.”Hoenig again advocated that the Fed should move interest rates higher from their current near-zero% mark, given that the economy is recovering and no longer needs a policy that was formulated to deal with an economic emergency.

Commodity-Price Gains Dog Bernanke’s Inflation - The divergent ways economists and the rest of the world gauge inflation got a pointed airing Tuesday during Federal Reserve Chairman Ben Bernanke‘s appearance before a Senate committee. The central-bank chief was on the Hill to deliver the Fed’s twice-annual report to legislators about the state of the economy and give some guidance about the outlook and future direction of monetary policy. The fate of the Fed’s continuing plan to buy $600 billion in Treasury debt by the summer is of particular interest given the economy’s recovery and what many see as the seeds of a future inflation problem. Many stripes of commodity prices are surging higher: food costs, the materials factories must buy to make finished goods, gasoline — what some central bankers have referred to as “highly visible” prices. Central bankers have countered those fears by arguing the underlying rates of inflation they watch are still well under the levels they consider price stability. What’s more, central bankers would like a little more inflation than they have been getting.

Policy Makers Pledge to Halt Any Inflation From Oil Price Surge - Federal Reserve Vice Chairman Janet Yellen and European Central Bank Vice President Vitor Constancio said they’ll act to prevent any surge in inflation sparked by rising oil prices.  The Fed won’t “sit by” if higher oil prices are passed through to other costs, Yellen said yesterday in New York. Constancio said the ECB “must be willing to be preemptive” to combat a greater spread of inflation “if need be.” The officials appeared together on a panel discussion at a conference on monetary policy yesterday.  Yellen and Constancio didn’t say whether they’ll act soon to control prices as Muammar Qaddafi struggles to retain power in Libya, Africa’s third-biggest oil producer. The Fed and ECB diverged in their response to a rise in oil prices in 2008, with European policy makers raising their benchmark interest rate and the Americans holding off.

 Inflation from oil spike to be modest, brief, Bernanke says  — Federal Reserve Board Chairman Ben Bernanke stuck his neck out on Tuesday and said the increase in inflation from the spike in oil prices will be modest and temporary. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke said in prepared remarks to the Senate Banking Committee

Q&A: Fed’s Lacker Sees Inflation ‘Trending Up’ - The Wall Street Journal’s Jon Hilsenrath checked in this week with Jeffrey Lacker, who has been president of the Federal Reserve Bank of Richmond, Va., since 2004. Along with the presidents of the other regional Fed bank, Lacker participates in meetings of the Federal Open Market Committee, but isn’t currently one of the five regional Fed bank presidents with a vote this year. Here’s an excerpt from their conversation.

Fed’s Dudley: Unwise to Overreact to Commodity Inflation - The economy is unlikely to mount strong enough growth to change the path of monetary policy over coming months, although rising commodity prices argue for increased inflation vigilance, a top Federal Reserve official said Monday. “The economic outlook has improved considerably,” and “a wide range of indicators show a broadening and strengthening of demand and production,” Federal Reserve Bank of New York President William Dudley said. That said, “we are still very far away from achieving our dual mandate of maximum sustainable employment and price stability,” the official noted, adding that “faster progress toward these objectives would be very welcome and need not require an early change in the stance of monetary policy.”

Prospects for the Economy and Monetary Policy - William Dudley - NY Fed - We need to keep a close watch on how households and businesses respond to commodity price pressures. The key issue here is whether the rise in commodity prices will unduly push up inflation expectations. Although there have been commodity price cycles in the past, commodity prices have not consistently increased relative to other prices, and indeed have declined in relative terms over the very long term. Historically, if commodity prices rose sharply in a given year, it has been reasonable to expect that these prices would stabilize or fall within a year or two. This property has been important because it has meant that measures of current “core” inflation, rather than current headline inflation, have been more reliable in predicting future headline inflation rates. Nevertheless, there are important mitigating factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures.

Macro US: Commodity bubble? Well, US inflation is at an all-time low! - While personal spending and income may seem like the two biggies in today's spending report, we encourage you to study the price data - particularly in light of the recent rise in inflation as measured by the consumer price index. Of today's price series the PCE Core Price Index is of particular interest given the attention it gets from members of the Federal Reserve. Unlike the CPI, the core PCE price index does not yet show many signs of inflation. Indeed, the year-on-year rate is 0.7 - the lowest rate ever in its five decade history. To be fair the three month annualised measure has increased... but only to 0.4 percent from an all-time low of 0.3 percent. Keep this index in mind when worrying about U.S. inflation and Fed actions.

The things we teach that aren't true - To the extent that oil shocks have any effect on NGDP, it is probably contractionary.  That’s why NGDP growth slowed in 1974 and 1980.  Thus the energy price shocks contributed almost nothing to the Great Inflation, although they help explain why inflation was higher in some years than others, as oil shocks tend to temporarily depress RGDP growth. Marcus Nunes sent me a quotation from a 1997 paper by Bernanke, Gertler and Watson Macroeconomic shocks such as oil price increases induce a systematic (endogenous) response of monetary policy. We develop a VAR-based technique for decomposing the total economic effects of a given exogenous shock into the portion attributable directly to the shock and the part arising from the policy response to the shock. Although the standard errors are large, in our application, we find that a substantial part of the recessionary impact of an oil price shock results from the endogenous tightening of monetary policy rather than from the increase in oil prices per se. Bernanke got to put this theory in action in late 2008, when the Fed tightened monetary policy in response to the high oil prices of mid-2008.  In this case monetary policy was much tighter than in 1974 or 1980.

Inflation Targeting Gets a Black Eye, But It Had It Coming - Inflation targeting has been taking a beating across the Atlantic.  In the United Kingdom, where there is an explicit inflation target, it appears the Bank of England is getting ready to tighten monetary policy despite ongoing economic weakness.   The reason for the expected tightening is rising inflation, even though the recent  increases may be a one-off event.  Nonetheless, because of its inflation target the Bank of England seems set to reign in  aggregate demand regardless of  the consequences for the economy. This makes little sense.  Nick Rowe notes that this experience raises tough questions for those who believe  that monetary policy that stabilizes inflation will also tend to stabilize economic activity.  Scott Sumner goes  says this experience shows the failure of  inflation targeting.  I say it definitely gives inflation targeting a black eye, but it had it coming.   Inflation targeting is an imperfect approach to monetary policy that only works when certain conditions hold.  It was inevitable that at some point those conditions would not hold.  That seems to be the case in United Kingdom.     So why is inflation targeting an imperfect approach to monetary policy?

Inflation Targeting Gets Another Black Eye - Inflation targeting just got a black eye in the United Kingdom.  Now its about to get another one as the European Central Bank (ECB) President Jean-Claude Trichet signaled interest rates will probably be increased in April.  As was the case in the United Kingdom, the motivation for this move is concerns about maintaining the central bank's  inflation target.  And like the United Kingdom too, the inflation concerns are not warranted given that core inflation is low and inflation expectations remained well anchored according to the ECB.*  Morever,  aggregate spending is still well below any reasonable trend.  For example, the figure below shows Eurozone nominal GDP is below its 1995-2004 trend.  (This time period is chosen to show that nominal GDP is still below trend even after accounting for the housing boom run-up in spending.) 

U.S. Inflation and Inflation Expectations -   Here are a couple of slides, courtesy of my colleague Kevin Kleisen. The first depicts recent U.S. inflation, both core and headline.  So, following a rather sharp decline in the headline CPI rate, we see an even sharper increase more recently. The core measure, however, remains relatively low and stable.  This next graph depicts a variety of market-based measures of inflation expectations. You may recall that the Fed was recently concerned that inflation expectations were drifting too low (relative to the implicitly desired target or around 2%). Inflation expectations now appear to have converged to pre-crisis levels. One could make a legitimate case that to the extent this was a part of the goal for QE2, the policy was a success. Of course, the fear that many people have is that inflation may somehow get out of control. It is a legitimate concern and one that ranks high on the list of FOMC members. And then there are a host of other concerns, like the ones outlined here by Pimco Managing Director Bill Gross: Economy May Reverse Course When Fed Buying Ends. I especially like this quote: "Who will buy Treasuries when the Fed doesn't?" he asked. "I don't know."

The conflicting claims theory of inflation, and unemployment - The conflicting claims theory of inflation goes like this. Suppose we start in equilibrium with 10 people in an economy each earning 10% of total income. Then all of a sudden each decides he deserves 11% of total income, and raises his price accordingly. The total claims add up to 110% of total income. In the new equilibrium, each still ends up earning the original 10% of total income, but there's 10% inflation to reconcile the conflicting claims. IIRC, it used to be a popular theory of inflation back in the early 1970's, before Milton Friedman won his war. I never hear it spoken nowadays. But a quick Google tells me the theory lives on in the Post Keynesian underworld.

Deflation, debt, and economic stimulus -The US, Japan, and Ireland are suffering from deficient private demand, rising debt, and a tendency to deflation. This column is asks what can be done about it. We begin by assuming that relevant authorities have decided that new money creation is necessary to work against deflationary tendencies and to stimulate the economy. The central issue explored here then is how should such new money creation best be deployed to create the required economic stimulus?  This column questions current monetary policy directions, i.e. quantitative easing, and argues that printing money to directly finance fiscal stimulus may be a better option.

Behind the Numbers: PCE Inflation Update - Dallas Fed  - For a second consecutive month, the headline PCE price index posted an annualized rate of increase in excess of 3.0 percent, coming in at 3.5 percent for January, following an annualized gain of 3.3 percent in December. Energy prices—particularly prices for gasoline and other motor fuel—accounted for much of the month-to-month increase in the index. In contrast to prior months, food prices also made a noticeable contribution to the headline rate in January.The 12-month headline rate held steady at 1.2 percent. Over the past six months, the headline index has averaged an annualized inflation rate of 2.2 percent, up from an average rate of just 0.4 percent over the first half of last year. The acceleration can be traced primarily to energy prices, which fell at an average annualized rate of 10 percent over the first half of 2010 and have since increased at an average annualized rate of nearly 30 percent. Core PCE posted a 1.5 percent annualized gain in January, up from a 0.4 percent rate in December. January’s 1.5 percent is the fastest one-month rate of increase in the core since March of last year, when the monthly core readings were, by and large, drifting downward. The 12-month core rate remained at 0.8 percent, while the six-month core rate ticked up from 0.5 percent in December to 0.7 percent in January.A hefty increase in core goods prices—following an unusually large decline the previous month—helped boost January’s core rate. The trimmed mean PCE inflation rate, which abstracts from outsized movements in component prices, suggested that December’s underlying rate of inflation was not quite as low as indicated by the core and—naturally—suggests January’s rate is not quite as high as indicated by the core. January’s trimmed mean rate was an annualized 1.0 percent, similar to December’s 1.1 percent. The six- and 12-month trimmed mean rates held steady at 1.1 percent and 0.9 percent, respectively.

Core Uptick (Wonkish) - Krugman - Via Mark Thoma, the Dallas Fed notes some acceleration even in its core inflation measures, although these remain below target. What should we make of this?  You see, this is the second uptick we’ve seen in a general downward trend. Here’s core inflation, using quarterly changes:  And here’s wage changes, also on a quarterly basis: Both measures plunged during the oh-God-we’re-all-gonna-die period, then perked up before resuming their decline. What this suggests to me, anyway, is that there’s a rate-of-change effect as well as a level effect: when the economy is growing, even from a low base, some firms gain pricing power, and some firms raise their wage offers a bit. So the acceleration of US growth and the fall in unemployment since last summer has produced an inflation uptick; if past experience is a good guide, however, this will be only temporary unless the economy continues to accelerate.

US Inflation for February will be big  -- Here's a screencap of my spreadsheet. Monthly M0 grew in February by 8.1%, which means an annualised increase of 97.24%. There are only three other monthly results since 1954 (where my M0 figures begin) when M0 increased faster than this, and that was October 2008, November 2008 and December 2008 during the market panic of that period. Those three months were also beset with some very severe deflation. It was this huge increase in liquidity by the Fed which helped prevent a deflationary collapse. Put simply, the inflationary pressure caused by the increase in M0 was able to balance out the deflationary effect of the crisis. Since we're not in a similar situation (ie not in an imminent credit crisis), February's sizable M0 increase (the fourth largest in history) would have a large inflationary effect. On the surface, annual inflation is still benign:  Yet the annual figures hide the monthly results which, annualised, are:

  • November 1.5%
  • December 5.2%
  • January 4.8%

Merrill's Harley Bassman On Why This Is The "Big One" And Its Implications - Maybe I am showing my age, but I can assure you that as World Political events go, what is happening in the Middle East is actually the BIG ONE. Respectfully ignoring the moral aspects of what is occurring and only focusing upon the cold numbers of dollars and the economy, we have tossed some serious uncertainty into the mix.Without stepping over the line and opining as to all the various outcomes that do not bode well, let's just say that the 20bps rally in the T10yr since the "pot started to boil" is microscopic relative to the scope of events. The reason there is no "Flight to Quality" bid for USTreasuries is that USTs are no longer the "Quality" asset.  Since the FED has turned on the printing presses, the "value" of the dollar has steadily declined. This is why the "Flight to Quality" is happening in Gold, Oil, Copper, Cotton, etc

Bernanke’s Unstoppable, Self Reinforcing, Negative-Feedback-Loop - Our economic death spiral into the Second Great Depression Wracked up by both parties over many decades our debt has evolved into a yearly deficit that can no longer be serviced with tax revenue and borrowing.To avoid default Ben Bernanke chose to monetize the un-payable portion of our deficit. Each month about 100 billion dollars are created out of thin air to cover our government’s bills.This has set forth an unstoppable, self reinforcing, negative-feedback-loop whereby:

  1. Debt monetization (printing money out of thin air to cover the portion of governments spending not satisfied by tax revenue and borrowing) reduces the value of the dollar.
  2. The debt monetization triggers dollars to flow out of bonds and into commodities.
  3. This increases demand, commodity prices rise.
  4. As commodities make their way into the supply chains businesses and consumers realize higher prices.
  5. Since globalization has caused wages to stagnate at 1970 levels, and with 23% unemployment, businesses try to eat increases, this in turn reduces hiring, causes layoffs and kills expansion.
  6. Consumers reduce their purchases, case in point: Wal-Mart is losing market share to the Dollar Store - that right there spells retail health (read: it’s terminal).

Why is the GOP Overhyping Inflation Fears? - It’s no mystery why Republicans should be more acutely sensitive to inflation than Democrats.
1) Republicans are the preferred party of people who have money. People who have money naturally dread anything that might impair money’s value.
2) Republicans are the party of older people. Older people naturally dread inflation, which corrodes fixed incomes and retirement savings.

Data Diving and the Federal Reserve: The Politics of Food and Energy Inflation - The Federal Reserve has come under strong attack recently for the outbreak in global food and energy price inflation. The ensuing discussion has drawn commentary from Paul Krugman, who favors climate-change and crop failure to explain recent food commodity prices, to various commentary such as today’s WSJ Op-Ed, The Federal Reserve Is Causing Turmoil Abroad. Krugman is a consistent defender of FED policy, and remains sanguine on inflation. The financial community more generally, despite its enthusiasm for the effects of reflationary policy on the stock market, suffers from normalcy bias with regard to commodity prices and is more persuaded by monetary policy’s role in prices. The unwavering position here at however is that while global monetary policy can amplify price moves in many commodities, when it comes to oil—the master commodity—flat to declining global oil production over the past five years is the most important factor in price. Moreover, because oil is such a key component of food and because the overall energy-intensity of food is also an emergent issue in the developing world, I cannot blame the FED for what’s happened to oil prices. Or food prices.

Monetary Policy, Commodity Prices and Inflation - Empirical Evidence from the US - Furthermore, a more restrictive monetary policy in face of rising commodity prices could depress economic activity. This is problematic especially for the Fed as she has to focus on price stability and the support of the economic performance of the American economy. Regarding the actual financial crisis, putting more weight on stimulating the economic activity might be superior to eliminate inflationary pressure. Additionally, higher inflation rates as a consequence of the fairly expansionary monetary policy would come along with a (to some minds) nice side effect of devaluating the governmental debt. Therefore, keeping interest rates low might lead to a reduction of the deficit relative to GDP for two reasons: higher growth rates decrease debt relative to GDP and inflation erodes the real value of the debt. Nevertheless, central banks should monitor if commodity prices will influence inflation expectations. .

Bernanke: Gas Prices Not Yet Significant Risk to Recovery - Rising gasoline prices aren’t yet a significant risk to the U.S. economic recovery, Federal Reserve Chairman Ben Bernanke told a Senate committee Tuesday. While higher fuel prices do help to push up prices on a range of products, at the same time, they cut the amount of cash that consumers can spend on items and so reduce demand. “The increases that we have seen so far, while obviously a problem for a lot of people, do not yet pose a significant risk either to the recovery or to the maintenance of overall stable inflation,” he told the Senate Banking Committee. He said the Fed would continue to monitor the situation.

Wacky Wednesday: $100 Oil Equals No Inflation, Says Bernanke…Have you no shame? That’s what senators should have said to Ben Bernanke as he hemmed and hawed his way through his ridiculous testimony yesterday. What was it that Joseph Welch said to Joe McCarthy when he tried to lie to the Senate? "You’ve done enough! Have you no sense of decency, sir, at long last? Have you no sense of decency?" As Mr. Welch said about McCarthy, the same can be said about Bernanke: "I think I never really gauged your cruelty, or your recklessness ..."Maybe it was the atmosphere of the Senate hearings that made me think of it but I was so sickened by the farce going on at the Senate yesterday, punctuated by the joke of oil rising to $100, even as The Bernanke told us inflation was under control, that there was little left to do but dream of an America long past – when people of moral conscience stood up – not because it was profitable – but because it was right. In Bernanke’s official testimony to the Senate, the Fed Chairman justifies his action with B.S. – there is no other word for it – it’s total B.S.:

US Inflation for February will be big  -- Here's a screencap of my spreadsheet. Monthly M0 grew in February by 8.1%, which means an annualised increase of 97.24%. There are only three other monthly results since 1954 (where my M0 figures begin) when M0 increased faster than this, and that was October 2008, November 2008 and December 2008 during the market panic of that period. Those three months were also beset with some very severe deflation. It was this huge increase in liquidity by the Fed which helped prevent a deflationary collapse. Put simply, the inflationary pressure caused by the increase in M0 was able to balance out the deflationary effect of the crisis. Since we're not in a similar situation (ie not in an imminent credit crisis), February's sizable M0 increase (the fourth largest in history) would have a large inflationary effect. On the surface, annual inflation is still benign:  Yet the annual figures hide the monthly results which, annualised, are:

  • November 1.5%
  • December 5.2%
  • January 4.8%

Economists Expected Growth to Pick Up Though Rising Commodity Prices Pose Risk - U.S. economic growth should pick up this year as consumer and businesses spend more and government stimulus continues, a panel of forecasters said in a survey conducted when oil prices started to move higher. The 47 economists surveyed in the National Association for Business Economics report between Jan. 25 and Feb. 9 predicted U.S. gross domestic product would expand by an annual 3.6% in the final quarter of 2011. That is up from a 3.0% growth rate NABE predicted in November and compares with a 2.8% GDP rise at the end of 2010. “Factors supporting growth going forward include pent-up consumer and business demand, strong growth in foreign economies, especially those in Asia, and accommodative monetary policy,” NABE panelists cite rising commodity prices among the main reasons that could hold back growth. The NABE survey was carried out as popular protests swept through Egypt and other Arab countries, leading to higher oil prices amid concerns turmoil in the oil-rich area could hit production. But the poll ended before the unrest intensified last week, following violent clashes in Libya, which helped send the price of Brent crude rising close to $110 a barrel.

Fed Watch: The Rearview Mirror - The rearview mirror is looking pretty good this week. The ISM manufacturing index extended January’s impressive gains, again with improving internals. Note declines in the inventory measures, which suggests manufacturing momentum is set to continue. One can wring their hands over the Personal Income and Outlays report, which revealed a very small 0.1 percent decrease in real spending. This should be taken in context of likely weather-related issues rather than some impending consumer slowdown. Bolstering that view is the 0.4 percentage point gain in the saving rate; bank accounts swelled a bit as weather restrained shopping activity. Moreover, the February spending report will get a boost from autos, with car dealers reporting well-above-expectations sales of 13.44 million units, SAAR. No wonder consumer confidence was up in February. Buying new cars makes people happy. All told, incoming data continues to be on the bright side. To be sure, it is reasonable to complain about the depth of the hole we are in – the “real” recovery remains nascent, beginning just in the final quarter of 2010. A handful of solid data should not be reason to abandon monetary and fiscal stimulus and threaten building momentum. But the data is solid, so much so that it is surprising to see the comments of Harvard’s Martin Feldstein. Via Bloomberg:

Fed Watch : Game Changers - The strong data flow continues. Following up on its manufacturing counterpart, the ISM’s service sector report extended January’s improvement. Retail sales appeared to bounce higher in February, supporting the contention that January’s weakness in retail sales was weather related. When the roads cleared, consumers realized they had a few extra dollars burning a hole in their pockets. And, most importantly, initial unemployment claims sank, bringing the 4-week average below the 400k mark. We are at levels that typically foreshadow solid labor market improvement, which is undeniably good news. All in all, incoming data reinforce my sense that the upside and downside risks to the forecast are intensifying, which could make for a very interesting few months. I sense there is a tendency to downplay the upside risk because of the depth of the US employment and output holes. To be sure, there remains significant slack in the economy, enough so that a steady stream of good data should not induce monetary or fiscal authorities to withdraw stimulus anytime soon. This, of course, is the mistake the ECB looks likely to make:

ShadowStats' John Williams Explains Why It's All Been Downhill Since 1973 - "If you look at the government’s latest statistics - the poverty survey of 2009, which is the most recent release, with average and median household income adjusted for inflation (and they use a really gimmick low inflation rate with that one) - it shows that not only has household income been falling the last year or two, but it’s below its near-term peak before the 2001 recession. Household income has not recovered above that, and if you use the CPI-U (the usual inflation rate to deflate that by instead of the gimmick one) it shows that household income today is below where it was in 1973. Again, the average household has not been able to keep up here. If income growth is not keeping ahead of inflation, very simply you can’t have consumption growing faster than inflation on a sustainable basis."Government statistics guru John Williams believes the most important economic indicators used by our political leaders in their decison-making - the Consumer Price Index, the unemployment rate, the Gross Domestic Product - are deeply flawed in how they're calculated. Whether these flaws result from letting theory trump reality or by machinating politicians, the result is the same: we are fooling ourselves at our peril. We have been understating the risks we face - which is why we are working harder for less today than the previous generation, and why our economy is not only not in "recovery" - but on the precipice of crisis. Click the play button below to listen to Part 1 of Chris' interview with John Williams (runtime 37m:40s):

FT Alphaville » The global economy is critically ill - It’s a SocGen double header on FT Alphaville this Friday morning. You’ve had the apprentice (Dylan Grice) and now it’s time for the Dark Sith Lord (Albert Edwards). The global economy is critically ill. The fact that it has just risen from its sick-bed to perform a frenetic Irish jig is more a function of the financial morphine and steroids that have been pumped into its emaciated body than any miracle cure. You don’t have to be Dr Doom to expect the patient to collapse back into a deep coma after the stimulus has worn off.One reason, says Edwards, is that the $111bn rise in US wage income over the past six months has been almost entirely eaten up in higher food and energy outlays. (This contrasts with last year, when real wages grew robustly). Over the longer term, he’s worried about the off balance sheet liabilities of the US and UK governments.

Are America's Best Days Behind Us? - I love this country and think it is exceptional. But when I look at the world today and the strong winds of technological change and global competition, it makes me nervous. Perhaps most unsettling is the fact that while these forces gather strength, Americans seem unable to grasp the magnitude of the challenges that face us. Despite the hyped talk of China's rise, most Americans operate on the assumption that the U.S. is still No. 1.  But is it? Yes, the U.S. remains the world's largest economy, and we have the largest military by far, the most dynamic technology companies and a highly entrepreneurial climate. But these are snapshots of where we are right now. The decisions that created today's growth — decisions about education, infrastructure and the like — were made decades ago. What we see today is an American economy that has boomed because of policies and developments of the 1950s and '60s: the interstate-highway system, massive funding for science and technology, a public-education system that was the envy of the world and generous immigration policies. Look at some underlying measures today, and you will wonder about the future.

U.S. will be the world's third largest economy, Citi says…The world is going to become richer and richer as developing economies play catch up over the coming years, according to Willem Buiter, chief economist at Citigroup1. "We expect strong growth in the world economy until 2050, with average real GDP growth rates of 4.6% per annum until 2030 and 3.8% per annum between 2030 and 2050," Buiter wrote in a market research."As a result, world GDP should rise in real PPP-adjusted terms from $72 trillion in 2010 to $380 trillion dollars in 2050," he wrote.As the world watches oil prices rise sharply amid unrest in the Middle East2, Buiter's analysis of the world's long-term prospects offer some hope that better times are ahead but if he is right power will shift from the West to the East very quickly."China3 should overtake the U.S. to become the largest economy in the world by 2020, then be overtaken by India4 by 2050," he predicted.

Will ‘Chindia’ rule the world in 2050, or America after all? -With a small tweak in assumptions and the inexorable force of compound arithmetic, Citigroup and HSBC have come up with radically different pictures of what the world will look like in 2050.  Which of the two is closer to the mark will determine whether the West hangs on, or disappears as a relevant voice in global affairs.  For neo-Spenglerites - who believe the West is finished - Citigroup’s Willem Buiter offers some astonishing projections. The Muslim powerhouse of Indonesia will alone match the combined GDP of Germany, France, Italy, and Britain by mid-century.  The economies of China and India will together be four times as large as the United States, restoring the historic order of Asian dominance before Europe’s navies burst on the scene in the 16th Century. Panta Rei, says Dr Buiter: all is in flux; nothing will remain the same.  Africa will at last emerge from its long string of disappointments to take the baton as the fastest growing region, clocking 7.5pc a year over the next two decades.

China's U.S. Treasuries holdings revised to $1.16 trillion - The U.S. government owes nearly a third more money to China than previously thought, the Treasury Department said on Monday as it revised Beijing's December holdings of U.S. Treasury debt sharply higher to $1.160 trillion. The $268.4 billion increase over figures reported on February 15 was contained in a survey of foreign portfolio holdings of U.S. securities that provided fresh evidence that China has been buying Treasuries through broker-dealers in Britain. The report's benchmark revisions attributed Treasuries holdings to China that were previously counted in other countries where the transactions were made, cementing Beijing's status as the largest U.S. creditor. The Treasury report showed that UK December Treasuries holdings were revised downward to $272.1 billion from a previously reported $541.3 billion -- a nearly corresponding drop of $269.2 billion.

China Owns a Lot More U.S. Debt Than Previously Thought - A major upward revision of the U.S. Treasury Department‘s assessment of China’s holdings of U.S. securities last year shows the U.S. is far more indebted to the emerging power than originally thought.Treasury’s preliminary report of foreign holdings of securities is based on better data than its first estimate posted last year, helping to paint a more accurate picture of foreign purchases or sales of U.S. assets. The data are likely to prove fodder for many analysts who have suspected that China has been routing a significant portion of its purchases of U.S. Treasury securities through other major financial centers such as London to play down its debt profile in the U.S., a politically sensitive subject in Washington.China’s holdings in the month of June 2010 were revised up 32%, around $268 billion, from the previous estimate to $1.112 trillion. The U.K., however, saw a downward revision of almost the exact amount, to $94.5 billion from a previous estimate of $363.7 billion.

China's holdings of US debt jump 30 percent - China, the biggest buyer of U.S. Treasury securities, owns a lot more than previously estimated. In an annual revision of the figures, the Treasury Department said Monday that China's holdings totaled $1.16 trillion at the end of December. That was an increase of 30 percent from an estimate the government made two weeks ago. China was firmly in the top spot as the largest foreign holder of U.S. Treasury debt even before the revisions. But the big increase in Chinese holdings could ease fears that Chinese investors might begin dumping their U.S. holdings. Such a development could send U.S. interest rates rising. That would slow America's economic recovery and increase Washington's costs for financing the $14.3 trillion national debt. China and Britain were the countries with the biggest revisions in the new report. The reason for the change is that Chinese investors who purchase their Treasury securities in London are often counted as British investors. The more detailed annual report does a better job of tracking the countries in which investors reside as opposed to the location where investors make their purchases.

China Holdings of US Treasuries Revised Up 30%; An Unsustainable Model - Annual revisions released Monday show that China's holding of US treasuries is 30% greater than reported just weeks ago. I am not surprised given that persistent rumors of China dumping treasuries made little mathematical sense from a balance of trade standpoint. Instead, I suggested China was accumulating treasuries via trading desks in the UK. We now see that is precisely the case. Please consider China's holdings of US debt jump 30 percent. Please note the comment in the article: "The big increase in Chinese holdings could ease fears that Chinese investors might begin dumping their U.S. holdings. Such a development could send U.S. interest rates rising. That would slow America's economic recovery and increase Washington's costs for financing the $14.3 trillion national debt." The odds of China dumping US treasuries are tiny. The last thing China wants to do is put massive upward pressure on the Yuan, and dumping treasuries would likely do just that. Moreover, please consider the basic math. The US runs a trade deficit, so other countries accumulate dollars. For more on the essential math, please see US Dollar About to Lose Reserve Currency Status - Fact or Fantasy?

China To Allow All Trades To Settle In Yuan, Encourages Use As Reserve Currency - China aims to allow all exporters and importers to settle cross-border trades in the yuan by 2011, according to the Chinese central bank, reported Reuters.   Moreover, China will “respond to overseas demand for the yuan to be used as a reserve currency” and allow the yuan to flow back into China more easily. This is all part of China’s plan for the internationalization of its currency, which may, in the decades to come, threaten the global ‘market share’ of other currencies like the US dollar. Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively. Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan. Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency. China is already the leading trade partner with Australia and Japan. It’s also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for China’s trade partners, espeically as the government continues to relax restrictions.

China "Attacks The Dollar" - Moves To Further Cement Renminbi Reserve Currency Status In a surprising turn of events, today's biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People's Bank of China.  The statement, google translated as "Pragmatic and pioneering spirit to promote cross-border renminbi business cum on monitoring and analysis to a new level" is presented below: Reuters provides a simple translation and summary of the announcement: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily." To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.

Ben Bernanke, Ron Paul Debate Dollar’s Definition - Long-time Fed basher Rep. Ron Paul (R., Texas), who wrote a book titled “End The Fed”, squared off Wednesday with Fed Chairman Ben Bernanke at a hearing on Capitol Hill and wasted little time going after the central bank.“The real cause of price inflation, which is a deadly threat to us right now, is the Federal Reserve system and our monetary policy,” Paul said.“There’s a moral hazard involved here,” Paul said. “The Fed really facilitates this spending and until we realize this .. I think the Fed is involved with our deficit and encourages it.”Despite his various criticisms, however, Paul had one simple question for Bernanke: “What is your definition of the dollar?” Bernanke, who has spent significant time on the receiving end of congressional scorn over the last few years, didn’t blink, framing his answer in terms of everyday consumers. “It’s the buying power of the dollar which is what is important,” Bernanke said, noting that “consumers don’t want to buy gold; they want to buy food and clothes and gasoline.”

Are the Days of Dollar Dominance Done? - Time to start loading up on Renminbi. At least that is the growing conclusion of a number of economists. The value of the buck is down. Electronics make it easier to convert currency so you don't need to have one global standard. And let's face it the US ain't what it used to be. China and Brazil and India are where it's at. The Sterling fell as the world's currency along with the English empire. So why should the dollar be any different. At least that's the basic argument being made by economist and political science professor Barry Eichengreen of Berkeley in his new book Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar.

Disasters Rocking U.S. Dollar? - From earthquakes in New Zealand to revolutions in the Middle East, natural and man-made disasters are rocking the world. We are all too often made to believe that in times of crisis there’s a flight to the U.S. dollar. However, the U.S. dollar has instead had a rocky ride of its own thus allowing the crisis-ridden Eurozone to shine. What’s going on? Is there no crisis, or has the U.S. dollar lost its appeal as a safe haven? Over longer periods there is little correlation between the U.S. dollar and other assets. In the past two years, however, a mentality has arisen that whenever there is a crisis the U.S. dollar benefits; as the crisis abates money flows out of the U.S. dollar and once again into currencies and markets overseas that may be deemed riskier. That may well be a skewed pendulum, however, as the U.S. dollar may have a more difficult time attracting money at each subsequent crisis. Firstly, the U.S. is simply better at spending and printing money than the rest of the world; causing the balance sheet of the U.S. to deteriorate at a faster pace than that of the rest of the world. And secondly, policy makers around the world are addressing whatever the cause of the crisis may have been i.e., the “trillion-dollar” backstop provided in the Eurozone to support weaker countries.

Why the Dollar's Reign Is Near an End - The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days. Instead, it's the extent to which the market remains dollar-centric. Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S. Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars.  The greenback, in other words, is not just America's currency. It's the world's. But as astonishing as that is, what may be even more astonishing is this: The dollar's reign is coming to an end.

Will The Death Of The Dollar Lead To The Birth Of A New World Economic Order? - There is no getting around it.  The U.S. dollar is dying.  U.S. government debt continues to grow at a very frightening pace and the Federal Reserve is now buying up most of the new debt that is being issued.  At this point there is simply not enough money in the rest of the world to continue to feed the U.S. government's endless thirst for more debt so the Federal Reserve has had to directly intervene in order to keep the Ponzi scheme going.  Other nations are rapidly losing faith in the U.S. dollar as they realize that there is simply no way that the U.S. government will be able to service this soaring debt for much longer.  Even now we are watching the U.S. dollar rapidly fall against a vast array of hard assets.  Virtually all major agricultural commodities have exploded in price over the past year, the price of gold is over $1400 an ounce again and last week U.S. crude oil prices topped $100 a barrel for the first time since 2008.  Meanwhile, the Federal Reserve continues to print dollars as if there is no tomorrow and the U.S. government continues to spend dollars as if the party is never going to end.  Yes, we are most definitely witnessing the death of the dollar.

US Dollar About to Lose Reserve Currency Status - Fact or Fantasy? - A number of sites are commenting on a Bloomberg video in which El-Erian, PIMCO Co-CEO says "Dollar could lose its reserve currency status". Bloomberg: "Mohammad what does a weak dollar signal to you, a dollar that can't jump up here on a day like we've seen today?" El-Erian: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S. They are starting to worry about the level of debt. They are starting to worry about what they hear about states and municipalities. So, I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past."Before we can debate whether or not the US will lose reserve currency standing, we must first define what it means.

U.S. in for 'twenty years of rising interest rates': Loomis Sayles - Yields on debt securities are rising for a fourth month as prices fall, the longest stretch since June 2008, according to Bank of America Merrill Lynch's Global Broad Market Index, which tracks the performance of more than 19,000 securities valued at about $39 trillion. While the highest-rated debt, from U.S. Treasuries toMicrosoft Corp. debentures, are falling, the riskiest company notes are returning the most in eight years. “We've just experienced the first several months of a bear market in bonds,” said Michael Hyman, head of investment-grade credit in Atlanta at ING Investment Management, which oversees about $518 billion.In coming years, the record amount borrowed by the U.S. Treasury may cause yields to rise, said Dan Fuss, who helps oversee $152 billion of assets as vice chairman of Boston-based Loomis Sayles & Co. U.S. debt rose to $14.03 trillion as of Dec. 31 from $5.77 trillion a decade ago, according to data compiled by Bloomberg. “We're in for 20 years of rising interest rates,” Fuss said in an interview. Yields will climb amid “larger and larger claims on savings by the U.S. Treasury,” he said.

USA Incorporated - a Look at the Grim Financial Situation of the USA - Inquiring minds are digging deep into a 266 page PDF called USA Inc. a basic summary of America's financial statements. It is loaded with stunning graphs and charts on Social Security, Medicare, Medicaid, TARP Bailouts, Fannie Mae and Freddie Mac, military spending, tax revenues, and various projections. Here are a few images, but please give the document a closer look when you have a few moments. Click on any chart to see a sharper image.

USA Inc. (pdf) George P. Shultz, Paul Volcker, Michael Bloomberg, Richard Ravitch and John Doerr -  Our country is in deep financial trouble. Federal, state and local governments are deep in debt yet continue to spend beyond their means, seemingly unable to stop. Our current path is simply unsustainable. What to do? A lot of people have offered suggestions and proposed solutions. Few follow the four key guideposts to success that we see for setting our country back on the right path:

  • 1) create a deep and widely held perception of the reality of the problem and the stakes involved;
  • 2) reassure citizens that there are practical solutions;
  • 3) develop support in key constituencies; and
  • 4) determine the right timing to deliver the solutions.

FinancialArmageddon: American FAIL - Here are six charts from USA Inc., a comprehensive (and absorbing) new report by former Morgan Stanley analyst and current Kleiner Perkins Caufield & Byers partner Mary Meeker that looks at the U.S. federal government (and its financials) as if it were a business, which seem to say one thing: FAIL.

Economic Report of the President - White House  - 324 pp pdf

The Budget Fight Continues - editorial NYTimes - In defense of their bill to slash federal spending by $61 billion over the next seven months, House Republicans claim they are trying to make the economy grow and create jobs. In truth, such deep and sudden cuts could derail the recovery, without ever addressing the real sources of budget deficits — mainly explosive health care costs and incessant high-end tax cuts.  The question is whether the Obama administration and the Senate can prevail against the false rhetoric. Facts, analysis and the moral high ground all favor opponents of the measure. The aim is not to avoid difficult budget decisions, but to block the Republicans’ heedless effort while starting a reasoned budget debate.  In a recent report, economists at Goldman Sachs estimated that the House cuts would reduce economic growth by 1.5 percentage points to 2 percentage points in the second and third quarters of 2011. That would devastate employment. As a rule of thumb, each percentage point drop in growth means a loss of 1.2 million jobs.

What the President’s Economic Report Leaves Out - Today I got a note from Bruce Bartlett pointing out that in the new Economic Report of the President there is no mention of the terms “tax reform” or “entitlements.” (Bruce did a search of the entire pdf document.) But that doesn’t surprise me because even if the report had actually discussed better ways to raise revenue or to trim the costs of the Social Security and Medicare programs, it would have judiciously avoided using the dirty words “taxes” or “entitlements.” More disappointing is the fact that it wasn’t just semantics.  The President’s Council of Economic Advisers really did avoid the substance of the “tough choices” on tax and spending policy–you know, all that “fiscal responsibility” and “living within our means” that the President loves to mention only as an abstract virtue and never as a specific proposal.

Who Will Buy Treasuries When the Fed Doesn’t? - Today’s chart comes to us via PIMCO’s Bill Gross: Chart via PIMCO Gross describes the issue thusly:“What an unbiased observer must admit is that most of the publically issued $9 trillion of Treasury notes and bonds are now in the hands of foreign sovereigns and the Fed (60%) while private market investors such as bond funds, insurance companies and banks are in the (40%) minority. More striking, however, is the evidence in Chart 2 which points out that nearly 70% of the annualized issuance since the beginning of QE II has been purchased by the Fed, with the balance absorbed by those old standbys – the Chinese, Japanese and other reserve surplus sovereigns. Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t. Because like at the end of a typical chain letter, the legitimate corollary question is – Who will buy Treasuries when the Fed doesn’t?

U.S. Getting Closer to $14.29 Trillion Debt Ceiling - As the debate over a bill to continue funding the federal government draws most of the attention on Capitol Hill, the U.S. federal debt continues to near the ceiling allowed by current law. As of Monday, the U.S. had $14.14 trillion in debt subject to the $14.294 trillion debt ceiling, according to the government’s Bureau of Public Debt. This is up from $14.0 trillion Jan. 28. The Treasury Department has said the government could hit the ceiling as soon as early April, and it has urged Congress to raise the ceiling so the U.S. doesn’t default on its obligations. U.S. Federal Reserve Chairman Ben Bernanke today warned Congress could create financial and economic “chaos” if lawmakers bind together raising the short-term debt limit to fund the federal government with fundamental fiscal restructuring.

Huckabee: Government shutdown might be needed - Mike Huckabee said a government shutdown may prove necessary because of the nation's dire fiscal situation, and warned it wouldn't be as "draconian" as it was during the budget battles of the 1990s — but that there must be a "reckoning with reality." Asked about the potential of a government shutdown on CBS's "The Early Show" as he promoted his new book, Huckabee said, "It could happen. And maybe it has to. Sometime, either now or later, the government will shut down, either from bankruptcy in the future or from a targeted effort to try get someone's attention that we're overspending and not managing at all."  He said this is not the same as 1995, when Newt Gingrich's fight as then-House Speaker with Bill Clinton and the Democrats forced a shutdown."First of all, a lot of the things that were shut down are now automated, like Social Security checks and veterans' checks," Huckabee said. "So it's not going to be as draconian if it does happen. But there has to be a reckoning with reality, and a message, I hope, that people will really start thinking about.

Bernanke talks fiscal policy with Congress - In Ben Bernanke’s testimony before the Senate banking committee today, there was plenty of talk about US fiscal and budgetary policy. It’s the hot topic on Capitol Hill, with Congress moving this week towards a deal to cut spending by $4bn and avert a government shutdown – at least for two weeks. Needless to say, in the question-and-answer session, lawmakers from both parties were desperately trying to get the Federal Reserve chairman’s approval for their positions. Like the teacher in a room full of squabbling children, Mr Bernanke felt the need, once again, to remind everyone to grow up, behave, and put a plan in place that would steady America’s long-term fiscal trajectory. He is growing increasingly less shy about the laying out the consequences of this: after a question from Richard Shelby, the top Republican on the panel, Mr Bernanke said: “You asked whether the fiscal policy was a problem. I think the long-term unsustainability of our debt is a significant problem, because it threatens higher interest rates, less confidence, and it could have an impact on the current recovery.”

Changing the terms of economic debate - Dean Baker - There is a new economists' sign-on letter being circulated that warns bad things will happen if there are big cuts to the public investment portion of the federal budget, as Republicans in Congress are now advocating. The argument in the letter is correct, but it is nonetheless painful to see this sort of thing being circulated right now.The politicians in Washington may have missed it, but we are still in the middle of the worst economic downturn since the Great Depression. The unemployment rate is still 9.0% and virtually no forecaster, including those in the administration, expects it to return to normal levels any time soon. In addition to the unemployed, we have more than 8 million people underemployed, and millions more who have given up looking for work altogether. In such times, we might expect that there would be discussion of a big new stimulus programme. After all, we do know how to generate growth and create jobs. As a large and growing body of research shows (pdf), we just have to spend money. This means that tens of millions of people are suffering as a result of unemployment or underemployment simply as a result of bad economic policy.

A Federal Shutdown Could Derail the Recovery - Mark Zandi, Moody's - While the government spending cuts proposed by House Republicans for this fiscal year mean only modest fiscal restraint, this restraint is meaningful. If fully adopted, the cuts would shave almost 0.5% from real GDP growth in 2011 and another 0.2% in 2012. This wouldn’t be true if the current budget deficits were crowding out private investment, but they aren’t. Business demand for credit has recovered modestly, and households continue to lower their debt obligations. Interest rates also remain extraordinarily low. Some of this is due to the Fed’s credit easing, but global investors also remain willing buyers of U.S. debt even at low interest rates.

GOP spending plan would cost 700,000 jobs, new report says - A Republican plan to sharply cut federal spending this year would destroy 700,000 jobs through 2012, according to an independent economic analysis set for release Monday. The report, by Moody's Analytics chief economist Mark Zandi, offers fresh ammunition to Democrats seeking block the Republican plan, which would terminate dozens of programs and slash federal appropriations by $61 billion over the next seven months.Zandi, an architect of the 2009 stimulus package who has advised both political parties, predicts that the GOP package would reduce economic growth by 0.5 percentage points this year, and by 0.2 percentage points in 2012, resulting in 700,000 fewer jobs by the end of next year.His report comes on the heels of a similar analysis last week by the investment bank Goldman Sachs, which predicted that the Republican spending cuts would cause even greater damage to the economy, slowing growth by as much as 2 percentage points in the second and third quarters of this year

Moodys: GOP Spending Cut Plan Could Cost 700,000 Jobs - Moodys Analytics is warning that the GOP’s proposed spending cut plan could hinder the economic recovery. While the government spending cuts proposed by House Republicans for this fiscal year mean only modest fiscal restraint, this restraint is meaningful. If fully adopted, the cuts would shave almost 0.5% from real GDP growth in 2011 and another 0.2% in 2012. There would be almost 400,000 fewer U.S. jobs by the end of 2011 than without the cuts and some 700,000 fewer jobs by the end of 2012. The fallout will extend into next year because it takes time for budget cuts to filter through the economy. In all likelihood, the proposed House cuts would not undermine the current recovery; still, it is not necessary to take the chance.

Will the GOP's Budget Cuts Drive the Economy Into the Ditch? - For some reason, over the last few days, the claims about the effects of GOP budget cuts keep getting more theatrical.  First I saw Mark Zandi was saying that the cuts would cost 700,000 jobs over the next two years, and shave a half a percentage point off of GDP this year. Then I saw that Goldman Sachs thought that the cuts would knock up to two percentage points off this year's growth rate.  Chuck Schumer weighed in with the opinion that the cuts would not just lower growth, but were actually "a recipe for a double-dip recession."  And now I see that Scott Lilly of the Center for American Progress is telling Dana Milbank that the budget cuts "would lead to the loss of 650,000 government jobs, and the indirect loss of 325,000 more jobs as fewer government workers travel and buy things. That's nearly 1 million jobs - possibly enough to tip the economy back into recession."  

Ben Bernanke: GOP Spending Cuts Will Not Harm Economic Growth - Responding to reports, including a Moody’s analysis that Alex Knapp wrote about the other day, Fed Chairman Ben Bernanke testified yesterday that the GOP’s proposed package of $61 billion in spending cuts would not have a significant impact on economic growth:Federal Reserve Chairman Ben Bernanke says a plan from House Republicans to cut $61 billion in spending this year would not harm economic growth.The GOP’s proposed spending cuts, passed as part of a continuing resolution, would probably reduce “growth on the margins” and lower gross domestic product by only one- or two-tenths of a percent, Bernanke told the Senate Banking Committee.(…)“Two percent [reduction in growth] is enormous and would be based on $300 billion in cuts,” Bernanke told the panel in his semiannual report to Congress.

More on Units and the Economic Cost of Spending Cuts - There is a new estimate of the effect of $ 60 billion spending cut on GDP and employment. Since this estimate was made by brilliant economist* Ben Bernanke aided by the staff of the Federal Reserve Board, it will get a lot of attention. Bernanke said that a $60 billion cut along the lines being pursued by Republicans in the House of Representatives would likely trim growth by around two-tenths of a percentage point in the first year and one-tenth in the next year."That would translate into a couple of hundred thousand jobs. So it's not trivial," he said in response to questions from members of the House Financial Services Committee. This sure seems to be completely different from Mark Zandi's estimate of 700,000 jobs. I think there is some confusion about units of measure and, in particular about the unit the "job." How can that be ? Well the effect of a policy shock changes over time and so one can discuss the effect on person-years of unemployment. One can also discuss the maximum effect on unemployment, which, in practice means the effect measured in the month with the largest effect.

Goldman's Model Evokes Blood-Sucking Leeches: Caroline Baum - Macroeconomics really is stuck in the Dark Ages. Take “fiscal stimulus,” for example, the idea that the government can step in to fill the void when the private sector isn’t spending and boost economic growth in the process.Economists have been debating the pros and cons of fiscal stimulus since the 1930s, when John Maynard Keynes diagnosed the problem as one of inadequate private investment and prescribed public spending, financed by borrowing, as the cure.The discussion hasn’t advanced very much in eight decades. They haven’t really proven anything.The debate over fiscal stimulus went viral last week (at least in the geek world) with an economic forecast from Goldman Sachs Group Inc. (GS), a counter from Stanford University economist John Taylor (he of the Taylor rule), and an addenda from Goldman yesterday. The Goldman gang projected an economic drag (that would be the opposite of stimulus) on GDP growth of 1.5 to 2 percentage points in the second and third quarters if House-passed budget cuts of $61 billion for the remainder of fiscal 2011 become the law of the land. Federal Reserve Chairman Ben Bernanke demurred.“Our analysis doesn’t get a number quite like that,” he said. “Two percent is an enormous effect.”

Dueling Reports: Will GOP Spending Cuts Help or Hurt? - Democrats and Republicans are fighting over whether the GOP plan to cut $61 billion in federal spending in the current fiscal year will badly damage the economy or give it a huge boost. And both sides cite distinguished economists to back up their completely contradictory positions. Goldman Sachs Group Inc. released an analysis several days ago predicting that the Republican cuts would slow GDP growth by 1.5% to 2% in this year’s second and third quarters. Democrats have pounced on that to argue that the country can’t afford the GOP cuts with the economy so fragile. “That’s a million jobs,” . “Does that make sense to you, when one in every six Americans is unemployed or underemployed? I don’t think so.” Mark Zandi, who was a top economic adviser to Sen. John McCain (R., Ariz.) during his presidential run, came out with an analysis Monday saying the GOP plan would cut GDP growth by .5% this year and by .2% next year, meaning 700,000 fewer jobs overall. Mr. Zandi is chief economist of Moody’s Analytics, which produces economic research and data.

Scientists vs Engineers? - The House Republicans' plan to cut federal spending by $61 billion for the remainder of the fiscal year (i.e., the period between now and the end of October) will be a drag on the economy and reduce employment, according to both Goldman Sachs and Moody's Mark Zandi. This shouldn't come to a surprise to macroeconomics students, who know that a decrease in government purchases reduces aggregate demand and - outside of the special "classical" case of vertical aggregate supply - output. John Taylor disagrees, however.  Ezra Klein explains:A similar disagreement is playing out over monetary policy.  In a recent NY Times column, Christina Romer wrote: The debate is between what I would describe as empiricists and theorists. She sides with the "empiricists" and argues that the influence of the "theorists" has held the Fed back from taking bolder, more effective action.  Stephen Williamson begs to differ...The divides between Goldman/Zandi and Taylor over fiscal policy and between Romer and Williamson over monetary policy both reminded me of Greg Mankiw's distinction between "scientific" and "engineering" macroeconomics.

The GDP Effects of a (Brief) Government Shutdown (-0.2 in Q1) Non-essential functions of the federal government might be shut down temporarily when the current stop-gap funding measure expires on March 4. This would reduce GDP during the first quarter, although by less than has been reported elsewhere. Furthermore, the decline in output would be partially recouped in subsequent quarters.

  • We estimate the direct effect on reported first-quarter real GDP growth of a week-long shutdown starting on March 5 to be roughly 0.2 percentage point.
  • Given the temporary nature of a shutdown, induced or indirect effects on GDP would be negligible.
  • We have seen estimates that a shutdown of one week would reduce real GDP growth by up to 0.8 percentage point during the quarter.<1>  This seems high. <2>
  • There is little risk to Social Security or Medicare benefits.
  • A protracted shutdown would be increasingly disruptive. The larger issue, however, is how much fiscal drag might arise from the budget confrontation

CenterForAmericanProgress: Dear President Obama and Members of Congress: As economists, we believe it is short-sighted to make budget cuts that take away necessary investments in our human capital, our infrastructure, and the next generation of scientific and technological advances. These cuts threaten our economy’s long term economic competitiveness and the strength of our current economic recovery.  Investment is the cornerstone of economic growth and the key to our long-run national prosperity. It creates jobs now and lays the foundation for long-term economic growth and a strong middle class. As the Congress begins to debate the federal budget, they must be careful to sustain critical investments in the productive capacity of the United States.

Bernanke Warns on Debt-Limit ‘Chaos’ - Federal Reserve Chairman Ben Bernanke warned Congress could create financial and economic “chaos” if lawmakers bind together raising the short-term debt limit to fund the federal government with fundamental fiscal restructuring. Testifying before the Senate Banking Committee, Bernanke said that he strongly supports Congress making the budget changes necessary to reduce the mountain of debt and rising deficit facing the U.S. in the years ahead. He said the fiscal challenges facing the U.S. is the top long-term priority the government needs to tackle.But the Fed chief said he’s worried about lawmakers using the need to raise the debt ceiling as a legislative vehicle to enact budget restructuring, as many Republicans are have urged. A handful of Republican senators, knowing the Fed chief’s concern about debt and deficit levels, tried to leverage that worry into support for a GOP proposal to tie the issues together. But Bernanke returned with a salvo of warnings against linking the two issues.

Obama Urges Budget Consensus To Prevent 'Gridlock' - US President Barack Obama has urged Congress to find "common ground" over the budget to prevent a government shutdown. In his weekly radio address, Mr Obama said economic recovery would stall if lawmakers could not agree on spending cuts before a 4 March deadline. Republicans and Democrats are trying to work out a compromise short-term budget as an interim measure.The 2012 budget proposes a $1.1tn (£690bn) deficit cut over a decade. Although Mr Obama is empowered to propose a budget, it is up to the US Congress to pass it into law and then to distribute the funds.

Obama invites congressional leaders to meet with Biden - President Obama1 on Wednesday intervened in a partisan brawl that threatens to shut down the government2, inviting congressional leaders of both parties to sit down with Vice President Biden3 and work out a compromise to fund federal programs through the end of the fiscal year.  The president reached out to lawmakers after the Senate approved a stopgap measure4 to keep the government open through March 18. The resolution, which passed 91 to 9, will give legislators extra time to negotiate the longer-term deal. Obama signed the measure Wednesday afternoon. The stopgap bill eliminates $4 billion in spending by cutting programs Obama had already targeted - a far less ambitious measure than House Republicans wanted. But with the clock ticking toward a Friday deadline and polls showing the public strongly opposed to a shutdown5, GOP leaders were willing to make concessions.

House GOP unveils new funding bill - — House Republican leaders unveiled a short-term spending bill late Friday aimed at avoiding a government shutdown, including about $4 billion in budget cuts they say should bring Democrats on board. The two-week stopgap funding measure released late Friday terminates funding for items including broadband loans, election assistance grants, and four U.S. Department of Education programs — all targeted for the chopping block in President Barack Obama’s latest budget request. House Republican Majority Leader Eric Cantor of Virginia called on Senate Majority Leader Harry Reid of Nevada and Democrats to “work with us to pass this important measure that will keep the government running in a fiscally responsible way.” Read more about the House GOP's bill.

White House: Two-Week Spending Bill Is ‘Progress’ - A two-week government spending bill proposed by House Republicans, which includes roughly $4 billion in cuts, appears to be getting the tentative green light from the White House. White House Press Secretary Jay Carney on Monday said the White House was “pleased that there seems to be some progress and we think we’re moving in the right direction.” He said “one thing that is paramount in our mind is that whatever actions we take do not in any way harm the economy.” Republicans, Democrats, and the White House have to agree on a temporary deal by March 4 to avoid a government shutdown. The two-week plan advanced Friday by Republicans, known as a continuing resolution, has won tentative support from both sides.

U.S. House to Vote on Stopgap Budget Bill to Prevent Government Shutdown - The U.S. House plans to vote today on a budget measure aimed at preventing a government shutdown while lawmakers debate spending levels for the rest of this fiscal year.  The Republican proposal, designed as a compromise with Senate Democrats, would cut $4 billion by targeting a handful of programs while keeping almost all agencies at current spending levels until March 18. Failure to enact a measure by March 4, when current spending authority ends, would force the government to close.  “It’s not our intention to see the government shut down,” House Majority Leader Eric Cantor, a Virginia Republican, said yesterday. “It’s up to the Senate, it’s up to Harry Reid to step up and indicate that he is not willing or desirous to shut this government down.”

Two-Week CR Extension Could be In Trouble - The common wisdom in Washington over the weekend was that the offer made by the House GOP leadership late Friday to extend the continuing resolution for two weeks in exchange for $4 billion in spending cuts was a done deal. The common wisdom became even more commonly accepted when Senate Democrats indicated they were willing to go along with the plan.But the presumed done deal may not be all that done after all.   The tea party wing of the GOP in the House is not happy that the two-week extension doesn't unfund health care reform and is considering voting against the bill when it's debated later today or tomorrow.That would put House Democrats in an interesting position because, by joining with with the non tea party GOP members, they would be in a position to deliver the votes the Republican leadership would need to pass the bill.

GOP Should Push for a Budget Summit Instead of a Government Shutdown - Enough threatening body language, vocal recriminations and political posturing over a possible government shutdown at the end of this week or later in March. They are nothing more than sideshows to the budget debate that really needs to be taking place. Yes, the possibility of a shutdown in 2011 is a spectacle that is way too interesting to ignore, especially given the sometimes-eerie parallels to the two that occurred in 1995 and 1996. But the real federal budget problems have little to do with the fight over appropriations that could lead to a shutdown. The debate should be about the mismatch between revenues and spending, as well as the projected spending increases in some benefit programs. That leads to three questions. First, why does anyone think that making a stand on appropriations is worth the current effort? Second, by focusing on the part of the budget that has been shrinking the most, are some people really just trying to get credit for doing something big while avoiding the real issues? Third, aren’t the time, energy and political capital needed to deal with a shutdown going to make it less likely for the real debate to occur?

No upside to approving two-week extension of federal funding - Congress appears to be on the verge of approving a two-week continuing resolution (CR) that would cut $4 billion from funding for the rest of the fiscal year. Although it is set to expire on Friday March 4, the government is currently operating on a CR that is funding the government at FY 2010 levels. A new short-term CR would extend funding of government operations for two weeks, but only in exchange for additional funding cuts. These cuts would target earmarks as well as programs that President Obama supports reducing. Roughly two-thirds of these cuts would come from earmarks, while one-third would come from spending reductions to eight programs, including Even Start, the Striving Readers program, election assistance grants, and highway funding.Though this measure is certainly more bipartisan and less harmful than H.R. 1, which included $61 billion in cuts relative to current funding levels, it fails to accomplish what should be Congress’ main priority right now: creating jobs and boosting our labor market. Rather, it represents a move in the wrong direction—at a time when the economy remains fragile and state and local governments continue to cut spending and raise taxes by over $10 billion a month, it is clear that the economy needs more demand from the federal government, not less. Both Goldman Sachs and independent analyst Mark Zandi have recently confirmed our initial assessment that cuts of this magnitude would destroy hundreds of thousands of jobs, while also reducing  real gross domestic product growth.

House approves stopgap spending bill - With a halt in many federal operations looming, House lawmakers passed a bill Tuesday that would keep the government running for two weeks.  The vote was 335-91 in the Republican-controlled House. The bill, which Republicans say will cut $4 billion from the federal budget, now goes to the Senate. Senate Majority Leader Harry Reid said he expects a vote on the bill in the next two days. The House bill funds operations through March 18. Without a stopgap bill, many operations would grind to a halt on Saturday, leading to the first government shutdown since the mid-1990s. Reid said the Senate will approve the plan and turn to longer-term funding of the government.

House passes bill to avert government shutdown. What's in it, exactly? - The Republican-controlled House on Tuesday passed a temporary spending bill that cuts $4 billion out of US appropriations while keeping the government running for another two weeks.  This “continuing resolution” legislation is almost certain to pass the Senate: Senate Democratic leader Harry Reid says he expects his chamber to vote on it within 48 hours. President Obama is likely to sign it, too, even though the White House really would prefer that the kicking-the-can-down-the-road period be lengthened from two weeks to a month. Hurray! Washington has managed to avoid a government shutdown3. For the moment4. But what’s in this bill, HJ Res 44, exactly? Good question. You can read the text of it here5, in case you’re interested. In general, it keeps government spending for most discretionary programs at last year’s level, until March 18, when it turns into a pumpkin.

The Long Term Gets Shorter and Shorter - How long is the long term? When discussing the U.S. budget, it’s usually something between 5 years and 75 years. At least it used to be. But the ongoing battle over this year’s funding has begun to warp the language. See, for example, this quote from a recent UPI story about efforts to strike a deal to fund the government for the rest of the fiscal year — U.S. Vice President Joe Biden vowed Thursday the “conversation will continue” after meeting with congressional leaders on a long-term budget deal. President Barack Obama sent Biden, Office of Management and Budget Director Jacob Lew and White House Chief of Staff William Daley to Capitol Hill Thursday to work out a deal for a long-term budget plan, 154 days after the government began operating without one, CNN reported. Things are now so bad that funding the government through the end of September counts as long-term budgeting. Egads.

The GOP Plan to Cut Social Security ... Starting Right Now - Call it a "general strike" ... from above. Republicans in Congress are trying to paralyze the government with their new budget bill, using a "disrupt and defeat" strategy to prevent it from delivering services promised to the the nation's citizens and required under current law. It's fiscal sabotage, plain and simple. Will people fight back? The GOP'S first attack is on Social Security, slashing its budget in order to deprive people of vitally needed services. While the "austerity economics" crowd talks disingenously about future Social Security cuts in the coming decades, they're actually trying to cripple its activities starting right now. House Republicans passed a budget which cuts $1.7 billion from the operating budget for the Social Security Administration (SSA) for the rest of 2011.  These same Republicans just held the government hostage in order to win a tax break for the wealthiest of Americans -- a deal that will cost the public treasury hundreds of billions of dollars. Now they're turning on the elderly, the disabled, and people who have lost a loved one.

Social Security offices across U.S. to protest cuts - Social Security workers around the country will take the path of their counterparts in state governments, picketing Wednesday to protest budget cuts.  While tensions continue in Wisconsin and at statehouses elsewhere over Republican efforts to restrict union rights and reduce state workers' pay, demonstrations are planned at 75 Social Security offices from Rhode Island to Montana over a House Republican plan to cut $1.7 billion from the Social Security Administration's $11.4 billion budget. The cut would be among hundreds of hits to federal agencies under a GOP-controlled House proposal to eliminate $61 billion in federal spending for the remainder of the current fiscal year. With the House and Democratic-controlled Senate on course to break an impasse over spending and avert, for two weeks, a government shutdown, such steep cuts across government appear unlikely.

Blame for possible government shutdown is divided -Americans are divided over who would be to blame for a potential government shutdown, with large numbers saying Republicans and President Obama1 are playing politics with the issue, according to a new Washington Post poll. Thirty-six percent say Republicans would be at fault if the two sides cannot reach a budget deal in time to avert a temporary stoppage of government services2, and just about as many, 35 percent, say primary responsibility would rest with the Obama administration. Nearly one in five say the two camps would be equally culpable.  Obama and congressional leaders are on the verge of passing an interim spending bill to keep federal agencies open through March 18, giving themselves an extra two weeks to try to craft a longer-term bill that would fund the government for the remainder of fiscal 2011. The poll results suggest that neither side would likely have much to gain politically in the near term from allowing the government to close.

More Americans Would Blame Congress, Not Obama, For Gov't Shutdown - Congress passed a stopgap measure on Wednesday morning that prevents a government shutdown for another two weeks. But legislators would do themselves a favor by passing a long-term solution before that extended deadline, because polls indicate that if they fail to do so, Congress -- rather than President Obama -- would suffer the brunt of voters' ire. Without a completed budget bill, the government would effectively shut down until one is passed, as happened in 1994. Americans are overwhelmingly opposed to that prospect; about 60% of respondents to surveys conducted by Gallup and PPP said they didn't want to see the government temporarily shuttered. But if a shutdown does occur, polls have shown more Americans would pin the blame Congressional Republicans than on Obama. However, when surveys pit Obama and Congressional Democrats against Republicans in Congress, the blame gets spread more evenly.

Why the GOP won't get blamed for a govt. shutdown - An interesting nugget is buried near the end of today's New York Times article focusing, yet again, on the influence of the House Republican freshman class: "In Shadow of 1995, G.O.P. Freshmen Stand Firm."What is more, in the view of Mr. Rokita and some other freshmen, their attitudes are getting a far broader and sympathetic airing than those of their Republican brethren of 1995."Quite honestly, the major newspapers had a stranglehold on political news in 1995," Mr. Rokita said. "Now you have cable on both sides. People can much more easily choose the news they watch, and I am able to get my messaging out, or I can at least make a case." Rokita is correct on the basic facts. Fox News didn't start operations until October, 1996 and the Internet was barely getting started as a medium for news distribution. But what about Rokita's subtext? The received wisdom passed down to the political class from the storied events of the 1995-96 government shutdown holds that Republicans got the bulk of the blame for the stalemate. Rokita is implying that the condemnation was unfair, a product of biased media that only told one side of the story.

How Democrats Can Become Relevant Again - Robert Reich - Republicans offered Democrats two more weeks before the doomsday shut-down. Democrats countered with four. Republicans held their ground. Democrats agreed to two.This is what passes for compromise in our nation’s capital.Democrats have become irrelevant. If they want to be relevant again they have to connect the dots: The explosion of income and wealth among America’s super-rich, the dramatic drop in their tax rates, the consequential devastating budget squeezes in Washington and in state capitals, and the slashing of public services for the middle class and the poor. It is not a complicated story. Begin with what’s happened to the typical American, whose wages have been stagnant for thirty years. Today’s typical 30-year-old male (if he has a job) is earning the same as a 30-year-old male earned three decades ago, adjusted for for inflation. But wait. The American economy is more than twice as large now as it was thirty years ago. So where did the money go? To the top. The richest 1 percent’s share of national has doubled – from around 9 percent in 1977 to over 20 percent now. The richest one-tenth of 1 percent’s share has tripled. The 150,000 households that comprise the top one-tenth of one percent now earn as much as the bottom 120 million put together

The only way to achieve true fiscal discipline: Learn arithmetic - Let’s do some arithmetic now. Attention is currently focused on threats of a government shut-down, either on March 4, when a continuing resolution is required from Congress in order to keep the government operating, or a few months later, when an increase in the national debt ceiling is required.  The common description of this showdown as a high-stakes game of chicken has it right.   But at least some of the Tea Partiers say that their goal is literally to avoid an increase in the debt ceiling - not just as a bargaining ploy nor as an abstract goal, but in the sense that they want to cut spending so sharply that there is no need to borrow any more after this spring.   Similarly, Senators Mike Lee (Utah) and John Kyl (Ariz.) have revived the proposal for a constitutional amendment requiring a balanced budget.  And of course they all want to do it without raising taxes, and in most cases without cutting defense, Social Security or Medicare.   Oh, and don’t cut farm subsidies either. Not many people want to spend the time learning about the specific options or making the choices that would be necessary in order genuinely to solve the budget situation, even though a couple of useful websites make it relatively easy to think through the alternatives (NYT or PPC). 

Boehner Aims to Tame Benefits Programs - In an interview with The Wall Street Journal, Mr. Boehner said House Republicans would offer a budget for the next fiscal year that sets goals for bringing the programs' costs under control. But he acknowledged that Americans aren't yet ready to embrace far-reaching changes to Social Security and Medicare because they aren't aware of the magnitude of the financial problems. "People in Washington assume that Americans understand how big the problem is, but most Americans don't have a clue," Mr. Boehner said, speaking in his Capitol office. "I think it's incumbent on us, if we are serious about dealing with the big challenges, that we go out and help Americans understand how big the problem is that faces us." He added, "Once they understand how big the problem is, I think people will be more receptive to what the possible solutions may be."

The Politics of Entitlement: David Brooks Will Decide When It's Time for You to Die - "We're going to be doing a lot of deficit cutting over the next several years," David Brooks announced, plurally, in their column in today's New York Times. Little-known fact: the byline "David Brooks" is produced by five guys named "David Brook." They all get together and agree on stuff! David Brooks are very concerned about the budget lately. It is an ongoing theme. Last week, they wrote about why Indiana's governor, Mitch Daniels, should run for president—meaning just go ahead and be president, since Brooks don't care for the whole untidy business of winning votes in elections.  David Brooks support thoughtful, constructive public policy. "The country could use a serious, competent manager," they wrote, in praise of Daniels. (Ergo, people who disagree with Brooks are in favor of unserious and incompetent country-management.) When Daniels spoke to the Conservative Political Action Conference, Brooks wrote:  He spoke for those who believe the country’s runaway debt is the central moral challenge of our time.Not merely a central moral challenge of our time, but the central moral challenge of our time.

In Defense of the Simpson-Bowles Social Security Plan: Part 1 - In previous articles I have sought primarily to explain the Simpson-Bowles fiscal commission Social Security proposal rather than to promote it. I took a favorable position in one public debate about the plan and was comfortable asserting that it is a well-considered, reasonable compromise approach. My own subjective policy views are to the right of Simpson-Bowles. As my policy ideal, I would prefer a plan that does more to contain cost growth and less to increase revenues. I am nevertheless concerned enough by other recent critical descriptions of the plan – based in part on a recent paper by the Center on Budget and Policy Priorities (CBPP) – that I feel compelled to write again about Simpson-Bowles to offer a competing – more positive – perspective.

In Defense of the Simpson-Bowles Social Security Plan: Part 2 - This is the second of two pieces explaining why I have a more favorable view of the Simpson-Bowles Social Security plan than that expressed in a recent paper from the Center on Budget and Policy Priorities (CBPP). In the first installment, I listed instances where I mostly agreed with their analysis – sometimes agreeing with the policy criticism, sometimes not. In this piece, I give instances where I have disagreements with both the critical analysis and the policy conclusions. To see the first part of this analysis, click here. Criticism #4: The Plan “Relies Excessively on Benefit Cuts....

FactCheck Gets It Wrong on Social Security and the Deficit - Dean Baker -, a project of the Annenburg Public Policy Center, wrongly attacked a number of prominent Democrats for correctly pointing out that Social Security does not contribute to the deficit. The people attacked, included New York Senator Charles Schumer, Senate Majority Whip Richard Durbin, and President Obama’s Budget Director Jacob Lew, who had all correctly pointed out that Social Security does not contribute to the budget deficit. This point should be pretty straightforward. Under the law, Social Security is financed by a designated tax, the 12.4 percent payroll that workers pay on their first $107,000 of income each year. The money raised through this tax is used to pay benefits. Any surplus is used to buy U.S. government bonds. All funding for the program comes either from this tax or from the bonds held by the program’s trust fund. (It also is credited with a portion of the income tax paid on Social Security benefits.) Social Security is prohibited from spending any money beyond what it has in its trust fund. This means that it cannot lawfully contribute to the federal budget deficit, since every penny that it pays out must have come from taxes raised through the program or the interest garnered from the bonds held by the trust fund.

Social Security's Three Challenges (not Crises) and Why the Right is in a Box - The challenge is stated pretty simply: under current law and current intermediate economic and demographic projections Social Security's income from all sources is projected to fall short of costs under the scheduled benefit in the late 2030s. But that is the last point of agreement in this debate and even that overstates the confidence in those projections. But 'Intermediate Cost' is at least a common point of departure.The basic challenge as stated assumes that the assets in the Trust Fund both as to principal and interest will be available as income and will serve to backfill tax revenue until assets are depleted, after which current law mandates that benefits be cut to match then current revenue. Which under current projections means a 22% cut compared to the baseline. But this is where views of the challenge diverge dramatically, and so suggestions of what to do about it. Wonkery below the fold. Supporters see the challenge as the cut in benefits itself and so frame solutions in the of better outcomes after 2038. That is one challenge. One the other hand one group of critics see the problem as being in the benefit schedule itself which they see as overgenerous and so frame solutions in terms of keeping future retirees from demanding a 100% of schedule result, even as they may not openly advocate the 78% result current projections give us. Which puts the two solution sets in dynamic opposition, with supporters wanting to drag 78% up and critics wanting to drag 100% down.

Even Tea Party Members Do Not Support Cutting Social Security -  Yves Smith - It seems that the efforts of the austerians to cow the public into cutting Social Security and Medicare are not getting traction. And Tea Party adherents are breaking with the Republican party line on this issue.From the Wall Street Journal: Less than a quarter of Americans support trimming Social Security or Medicare to tackle the country’s budget deficit, according to a new Wall Street Journal/NBC News poll that illustrates the challenge facing lawmakers seeking voter support for altering entitlement programs. The poll, conducted between Feb. 24 and 28, found strong opposition for cuts to these entitlement programs across all age groups and ideologies. Even tea party supporters, by a nearly 2-to-1 margin, declared cuts to Social Security “unacceptable.”…. Hhm….Obama is moving to the right as the country is moving to the left. But, as Tom Ferguson first described in his book Golden Rule and has since become blindingly obvious, powerful investors dominate party politics. Thus unless the trend towards a positive view of government promoting social aims progresses, it won’t affect the state of play in the Beltway.

NBC-WSJ poll: 60% of poll respondents supported reducing Social Security and Medicare payments to wealthier Americans - Less than a quarter of Americans support making significant cuts to Social Security or Medicare to tackle the country's mounting deficit, according to a new Wall Street Journal/NBC News poll, illustrating the challenge facing lawmakers who want voter buy-in to alter entitlement programs. In the poll, Americans across all age groups and ideologies said by large margins that it was "unacceptable'' to make significant cuts in entitlement programs in order to reduce the federal deficit. Even tea party supporters, by a nearly 2-to-1 margin, declared significant cuts to Social Security "unacceptable."At the same time, a majority supported two specific measures that lawmakers might employ to shore up the shaky finances of the main entitlement programs.

How Americans want — and don’t want — to balance the budget -- The quick version of the NBC News/Wall Street Journal poll everyone is talking about: Voters don't like deficits or most of the things that have to be done to reduce deficits. They disapprove of cutting most government programs but sometimes approve of them if they're not phrased as program cuts. If something does have to be done to reduce the deficit, they'd prefer to see it done to rich people, rich corporations or the military.  But who wants words when you can have graphs? In one question, the pollsters listed 14 government programs and asked respondents if cuts would be acceptable or unacceptable. In all but four cases, a majority called cuts unacceptable: As you'll note, the largest majorities were aligned against cuts in Medicare, Medicaid, K-12 education and Social Security -- the major social welfare functions of the government, and where much of the money is. The next question listed 12 actions that could be taken to reduce deficits and asked voters whether they were acceptable. When phrased this way, most options were acceptable -- including options that meant large cuts to programs:

Goldman Sachs Wrong About Impact of House Budget Proposal - John B. Taylor - Some claim that House budget proposal H.R. 1 to reduce the growth of federal government spending will cause a slowdown in the economy and even increase unemployment. Consider, for example, a recent report by Alec Phillips of Goldman Sachs which claims that the House proposal would reduce economic growth in the second and third quarters of this year by 1.5 to 2 percent if enacted into law next month. Nothing could be more contrary to basic economics, experience and facts. Unfortunately, the report has been widely cited by those wanting to hold back on this first step to restore sound fiscal policy. And the Washington Post reports this morning that Mark Zandi of Moody’s is starting to make similar claims, which should be questioned for the same reasons.

The GOP's Economist Du Jour, A History - The debate over whether, and how much, the House GOP budget would reduce employment is a battle of economists: The budget debate in Washington isn't just President Obama's vision against that of House Speaker John A. Boehner (R-Ohio), but Mark Zandi versus John B. Taylor. ... Republicans responded later in the day by sending out a blog post by Taylor, a professor of economics at Stanford whose views they frequently invoke. John Taylor is the man Republicans use to back up their unconventional fiscal program. It's worth keeping in mind that Taylor's basic role is to support Republican fiscal policy in any and all circumstances. He supported it when he worked for George H.W. Bush and proposed deficit-reducing policies. He supported it when the party abandoned those policies. He supported it when it was making highly unpersuasive attacks on the Clinton budget program. He supported it during George W. Bush's presidency, and he continues to support it when Republicans have since decided that Bush was a failed big spender. Here, via Nexis, is Taylor throughout history:

In Search of the Confidence Fairy - In the debate over the budget, Republicans seem to be leaning on the claim that austerity will actually increase employment, because it will raise business confidence; at least that’s what John Taylor seems to be saying. But how’s that going in Britain, where the Cameron austerity program was supposed to lead the way?Most of the discussion of Britain I’ve seen focuses on GDP numbers, with the debate then centering on how much of the decline in the 4th quarter was weather-related. But a lot of things affect GDP. Why not look directly at confidence? The BDO has a convenient survey of business optimism (pdf); numbers for December and January here. Here’s what it looks like: Austerity seems to have hurt, not helped, business confidence; as the BDO says, “Private sector unprepared to fill the hole left by public sector cuts.”

The Hollow Cry of ‘Broke’  - NYTimes Editorial - We’re broke! We’re broke!” Speaker John Boehner said on Sunday. “We’re broke in this state,” Gov. Scott Walker of Wisconsin said a few days ago. “New Jersey’s broke,” Gov. Chris Christie has said repeatedly. The United States faces a “looming bankruptcy,” Charles Koch, the billionaire industrialist, wrote in The Wall Street Journal1 on Tuesday.  It’s all obfuscating nonsense, of course, a scare tactic employed for political ends. A country with a deficit is not necessarily any more “broke” than a family with a mortgage or a college loan. And states have to balance their budgets. Though it may disappoint many conservatives, there will be no federal or state bankruptcies.  The federal deficit is too large for comfort, and most states are struggling to balance their books. Some of that is because of excessive spending, and much is because the recession has driven down tax revenues. But a substantial part was caused by deliberate decisions by state and federal lawmakers to drain government of resources by handing out huge tax cuts, mostly to the rich. As governments begin to stagger from the self-induced hemorrhaging, Republican politicians like Mr. Boehner and Mr. Walker cry poverty and use it as an excuse to break unions and kill programs they never liked in flush years.

Economist Argues The Deficit Isn't Issue No. 1 - Dean Baker - The reason why we should be concerned about a deficit is it's crowding out private-sector spending, private-sector investment. You're really hard-pressed to tell that story right now. We still have extraordinarily low interest rates. We have excess capacity in just about every sector of the economy. You'd be very hard-pressed to say how let's say the government were to spend another three or $400 billion this year. How would that crowd any substantial amount of private-sector investment? You'd be very hard-pressed to say that.

Spend or cut: US economists split on best medicine - Washington politicians seeking support in their bitter budget battle aren't getting much help from economists, who are divided over whether spending is the best medicine for the struggling economy. Democrats have recruited a phalanx of economic stars to support their fight against some $61 billion in cuts Republicans are trying to force on the White House. Democrats say such cuts will cost hundreds of thousands of potential jobs this year, at a time when the unemployment rate languishes at nine percent. But Republicans are answering with their own heavyweights, who insist that more government spending -- and the mounting deficits that come with it -- hurts job creation and endangers the economy over the long run...The White House's opponents largely reject the Keynesian model embraced by many economists, which holds that government spending can jump-start an economy in a depressed, low-inflation situation.

Is A Government Shutdown Still Possible? Yes -- Very - House Republicans and Senate Democrats have arrived at detente on spending, which should prevent a government shutdown through the Ides of March. But it's a brief and fragile detente, and for now only masks a greater divide between the parties -- one that's less about spending levels and more about the right of the Obama administration to undertake routine functions in an era of divided government. After a weeks-long stare-down over spending, both sides blinked last week, when they came to terms on a two week measure to keep the federal lights on after funding runs out March 4. But Democrats blinked fastest. They wanted to keep the government funded for a month at current levels, while House and Senate leaders worked out a long-term fix. Republicans said no. They offered two weeks, at reduced spending levels, with their scalpels scraping at seams in the culture war. In the end, Democrats swallowed the timeframe, and the spending levels, but redirected those levels to friendlier priorities. Even still, the White House is asking publicly for a wider window, to avoid a shutdown.

Why Wouldn’t the Tea Party Shut It Down? - NO one remembers anything in America, especially in Washington, so the history of the Great Government Shutdown of 1995 is being rewritten with impunity by Republicans flirting with a Great Government Shutdown of 2011. The bottom line of the revisionist spin is this: that 2011 is no 1995. Should the unthinkable occur on some coming budget D-Day — or perhaps when the deadline to raise the federal debt ceiling arrives this spring — the G.O.P. is cocksure that it can pin the debacle on the Democrats.  In the right’s echo chamber, voters are seen as so fed up with deficits that they’ll put principle over temporary inconveniences1 — like, say, a halt in processing new Social Security applicants or veterans’ benefit checks. Who needs coddled government workers to deal with those minutiae anyway? As Mike Huckabee has cheerfully pointed out2, many more federal services are automated now than in the olden days of the late 20th century. Phone trees don’t demand pensions.

Making Sense of Current Policy-Making - Dear Brad, I understand your frustration about the current state of macroeconomic policy-making. You write: "Today, we face a nominal demand shortfall of 8% relative to the pre-recession trend, no signs of gathering inflation, and unemployment rates in the North Atlantic region that are at least three percentage points higher than any credible estimate of the sustainable rate. And yet... leaders in Europe and the US are clamoring to enact policies that would reduce output and employment. Am I missing something here?” Allow me to attempt to ease your distress and self-doubts about what you call your “understanding of the world”. I think that you have fallen into a simple and very common trap for economists: you are imputing the wrong objective function to politicians.  Policy-makers may care to some degree about national economic welfare... but they often care as much or more about being reelected. And voters do not always (or even often) correctly assign plaudits or blame for the condition of the economy. Once you embrace these assumptions, all becomes clear and the world makes sense again.

The Minimal Impact of the Stimulus - Last week’s final report on gross domestic product for 2010 provides a fresh opportunity to evaluate the stimulus law passed two years ago. The data and economic reasoning suggest that the effect of government spending on G.D.P. was minimal at best. As planned, almost all of the tax cuts and public spending increases from the American Recovery and Reinvestment Act of 2009 are finished. The Obama administration and its supporters promised that the fiscal stimulus law would create or save more than three million jobs by now. Their stated intention was to provide government spending while the economy was weak, then end the extra spending as the economy recovered. But instead of adding jobs, employment is now about two million below what it was when the law was passed in February 2009. Some of us think that the fiscal stimulus made a bad situation worse, and that employment would have grown, or fallen less, if the stimulus law had not been passed. The Obama administration contends that, apart from the stimulus law, the economy was in worse shape than anyone expected, and that the law kept the employment drop to two million, rather than a potential drop of more than five million.

$1.2 Trillion for National Security - The Real US National Security Budget - -So the big week is here as the federal budget heads for the Washington operating table.  The question in the media will be: to shut or not to shut the government down -- and whether that shutdown is likely to happen now, two weeks from now, or in the spring when raising the debt ceiling comes up for debate.  In the meantime, the new Republican majority in the House of Representatives is intent on taking out fuel subsidies for the poor, federal funding for Planned Parenthood, money for National Public Radio and the Public Broadcasting System, and the Maternal and Child Health Block Grant that “supports state-based prenatal care programs and services for children with special needs,” among many other programs, but not (as New York Times columnist Gail Collins pointed out recently) the millions of dollars the U.S. Army sinks into its “relationship” with NASCAR.  The House voted down a proposal to eliminate that program a week ago by a wide margin.

DoD Major Weapons Acquisition - According to GAO 11-394T 17 Feb 2011 , DoD Major Weapons Acquisition continues to be a high risk item watched by GAO. In the testimony the GAO is concerned about waste and mismanagement in the 102 largest DoD acquisition programs. The testimony states that in the five years starting in 2011 that $300B are spent by the programs GAO reviews annually, while the rest of the Trillion plus dollars in the budget for those years is to develop and acquire things in DoD and are smaller programs which are far less well managed, whose decisions are made less formally and whose engineering has much less experience and authority to do the job well. From 2011 through 2015 the DoD will spend appropriations totaling $1.1 Trillion dollars for R&D and Buying new war making stuff. If recent reviews hold, none of it will be spent well. I have followed the GAO annual reports over the past several years. Refer to GAO 10-388sp, 30 Mar 2010: Assessment of Selected Weapon System Programs.

War, debt and democracy - Aljazeera Opinion - US wars in Afghanistan and Iraq are being financed through foreign debt, rather than tax increases.  As the United States takes up the decision to lift its self-imposed debt ceiling, we would do well to remember why America's public debt is as large as it is, and how it matters. With the rise of the Tea Party, Republicans may rail against raising the debt ceiling, but they are likely to back down in the end, because, among other things, debt-funded wars – say, in Afghanistan and Iraq – are easier to defend than pay-as-you-go wars that voters must finance up front with taxes. Indeed, the looming US debate underscores a more general point: since time immemorial, war has been a double-edged sword. Human societies have slaughtered and oppressed one another on the scale of Mother Nature's worst scourges. But wars have also brought beneficial change, because mobilising people for fighting also mobilizes them for politics. History is replete with examples of war expanding the voice of those who provided the resources to fight....

Fire Sale America, Way to Fix US Budget Woes?  Here's a fun Newsweek article I missed by none other than LSE IDEAS' own Niall Ferguson. Yes, the same Newsweek sold for $1--a once-great American institution fallen under hard times like so many others. While I suspect that I may be writing more about shutting down American government for a prolonged period of time in the next few days--something I want to do, mind you--here's some food for thought in the meantime.  There are a number of things obvious about the modern-day United States. It's mind-bogglingly broke at the federal level. Many states and cities there are no better off, either. At the same time, though, Americans are reluctant to given in to the natural solution of selling off valuable assets. Say, corporations at the sharp end of the innovation league tables due to "security" concerns. If you thought that solution was pretty severe, Professor Ferguson has come up with something that should raise a true patriot's hackles even more. For, he says that the US should get real and sell off its vast holdings to help raise revenue. In America? Getouttahere! Given characteristic US inability to balance the books (what's that?), it's certainly something they should consider, though:

Levees Not War - Public Works in a Time of Job-Killing Scrooges: "Last week we went to a panel discussion on public works and infrastructure at the Museum of the City of New York: “Roads to Nowhere: Public Works in a Time of Crisis,” part of the museum’s ongoing Urban Forum series on infrastructure in New York. The discussion focused on NYC and environs, but has implications for public works—infrastructure and transportation—around the nation, including levees and flood control projects in coastal Louisiana, this blog’s primary concern. The same pressures affecting public works funding (or slashed funding) in New York hold for the U.S. The panelists’ collective expertise was most impressive, almost formidable, and quite to the liking of the near-roomful of about 150 transportation and public works geeks. What the experts did not discuss to our satisfaction was the political dimension to the “Time of Crisis”: Why are there budget shortfalls? Which political party is doing most of the canceling of projects, and why? What wouldn’t be possible if the rich and corporations paid their fair share of taxes? And why, we keep wondering, aren’t the president or congressional Democrats pushing anything like the WPA & CCC programs that rebuilt America and employed millions in the last big depression? More about these questions below.

Leaving Children Behind, by Paul Krugman - Will 2011 be the year of fiscal austerity? At the federal level, it’s still not clear: Republicans are demanding draconian spending cuts, but we don’t yet know how far they’re willing to go in a showdown with President Obama. At the state and local level, however, there’s no doubt about it: big spending cuts are coming.And who will bear the brunt of these cuts? America’s children. Now, politicians — and especially, in my experience, conservative politicians — always claim to be deeply concerned about the nation’s children. Back during the 2000 campaign, then-candidate George W. Bush, touting the “Texas miracle” of dramatically lower dropout rates, declared that he wanted to be the “education president.” Today, advocates of big spending cuts often claim that their greatest concern is the burden of debt our children will face. In practice, however, when advocates of lower spending get a chance to put their ideas into practice, the burden always seems to fall disproportionately on those very children they claim to hold so dear.

Pain without Purpose - Today, we face a nominal demand shortfall of 8% relative to the pre-recession trend, no signs of gathering inflation, and unemployment rates at least three percentage points higher than any credible estimate of the sustainable rate. And yet cures are now off the table. There is no likelihood of reforms of Wall Street and Canary Wharf aimed at diminishing the likelihood and severity of any future financial panic, and no likelihood of government intervention to restore the normal flow of risky finance through the banking system. Nor is there any political pressure to expand or even extend the anemic government stimulus measures that have been undertaken. Meanwhile, the European Central Bank is actively looking for ways to shrink the supply of financial assets that it provides to the private sector, and the US Federal Reserve is under pressure to do the same.  Yet no likelihood of inflation can be seen when tracking price indexes or financial-market readings of forecast expectations. And no approaching government debt crisis in the core economies can be seen when tracking government interest rates. Nevertheless, you hear presidents and prime ministers say things like: “Just as families and companies have had to be cautious about spending, government must tighten its belt as well.”

Five Ways Conservative Slashonomics Harms Us All - When Congress goes back into session next week, the Senate will be under pressure to compromise with the House on a sweeping set of cuts to the 2011 budget. But there is little room for compromise with a budget plan that in so many ways does serious harm to people and to the economy. For one thing, it would increase the unemployment rate to as high as 10 percent, The Wonk Room reports, citing a Goldman Sachs prediction that the House budget cuts would cause a drop in economic growth of as much as 2 percentage points this year. And that is not all. All this week, millions of people are now grasping just how harmful the budget proposal conservatives pushed through the House will be to our most basic priorities: our health, our education, our housing, our ability to support our families, our ability to rebuild communities devastated by the financial crisis. There are literally dozens of ways H.R. 1, the House continuing resolution bill for 2011, does violence to our values as well as to our economy and to millions of people. I've singled out five:

Jobs must be Job 1 - Our country has an unemployment crisis. More than 15 million people are out of a job, some 9 percent of the work force. Across all occupations, industries, ages, education levels and locations, the unemployment level has doubled since the financial crisis. A record percentage of the work force is working part time instead of working more hours, higher than at any time since the Great Depression. This is also the first recession in which the unemployed are more likely to drop out of the labor force instead of finding a job. That’s the real reason jobless claims have fallen, as the Bureau of Labor Statistics announced this week — it’s not because people are finding jobs again. What’s scarier, though, is the lack of concern among our leaders in Washington. During his State of the Union address, President Obama looked toward a vision of the economy 10, 20 or 30 years down the road. He proposed a vision of liberal government that would be appropriate for a country not suffering a once-in-a-generation economic crisis. What we need is for the president and Democratic Party leaders to get behind a program of full employment.

How to Kill a Recovery, by Paul Krugman -  So we’ve gone through years of high unemployment and inadequate growth. Despite the pain, however, American families have gradually improved their financial position. And in the past few months there have been signs of an emerging virtuous circle. As families have repaired their finances, they have increased their spending; as consumer demand has started to revive, businesses have become more willing to invest; and all this has led to an expanding economy, which further improves families’ financial situation. But it’s still a fragile process, especially given the effects of rising oil and food prices. These price rises have little to do with U.S. policy; they’re mainly because of growing demand from China and other emerging markets, on one side, and disruption of supply from political turmoil and terrible weather on the other. But they’re a hit to purchasing power at an especially awkward time. And things will be much worse if the Federal Reserve and other central banks mistakenly respond to higher headline inflation by raising interest rates.  The clear and present danger to recovery, however, comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs — and this could short-circuit the virtuous circle of rising incomes and improving finances.

The Size of Government Is a Non-Issue: A Late Night, Caffeinated Manifesto - In the comments to James post on the middle class, I made a note to one commenter that:93% of the total wealth of a nation being concentrated into the hands of 20% of its population is prima facie indicia that government policies lean towards the enabling of rent-seeking and unearned wealth. And money tends to buy both power and influence, meaning that without signficant counterweights, the trend of the wealthy having more money and hence, more power will continue, and will increasingly rig the game so that it stays that way.To which regular commenter Drew replied:Alex – The first sentence is the quinessential argument for smaller, less intrusive government. Yet I almost never see anything but left/Democratic (read: more goverment) essays from you, especially on the subject of taxation. What up with that? I started to reply in the comments but realized that I needed a lot more space to reply. So here’s my thoughts on the matter.

Breaking News: Tax Revenues Plummeted, by David Cay Johnston: We take you now to the official data for important news. Lowered tax rates did not result in increased tax revenues as promised by politician after pundit after professional economist. And even though this harsh truth has been obvious from the official data for some time, the same politicians and pundits keep prevaricating.No matter how many times advocates of lower tax rates said it, tax rate cuts did not pay for themselves, did not spur economic growth, did not increase jobs, and did not make America better off. Now that the news has been broken, let's see how many political leaders start speaking facts instead of fairy tales. And let's also watch to see how many Washington reporters, news anchors, talk show guests, and syndicated columnists use the actual figures. It's called holding politicians accountable, and it used to be a mainstay of journalism, where the first rule is to check it out and the second is to cross-check until you know what is going on and can give context. So how soon will we see Washington journalists holding politicians accountable for what they say about taxes, tax rates, revenues, economic growth, and jobs? Here's some advice: Don't hold your breath.

Deficit: Taxing the 'Rich' Won't Work - The little pie chart on the left represents Federal revenues. The big one on the right represents spending. Just looking at these two images suggests a problem, doesn’t it? No way the big pie chart is ever going to fit in the little one. Some folks believe we can solve this deficit by raising revenues, which as you can see is patently impossible. To cover the deficit with higher revenues would require that Federal receipts go up by roughly $1.3 trillion, which would be a greater than 50% increase given that all Federal revenues only totaled $2.2 trillion. Given that we had a deficit of $1.3 trillion even after taking in $899 billion in total income tax revenues, does anyone in his or her right mind think raising income taxes on everyone or 'raising taxes on the rich’ would solve the problem? We would have to see income tax revenues from everyone go up by more than a double. That is, with a $1.3 trillion deficit for 2010, we would need an extra $1.3 trillion in income tax revenues on top of the $899 billion we got in 2010. That is not going to happen. And, instead of getting a reduction in spending, we are actually ramping it up for fiscal year 2011. Now that’s crazy.

What Would Happen if Congress Rewrote the Mortgage Interest Deduction? - The deduction for interest on home mortgages may be the most beloved of all tax subsidies. A politician needs only to muse about repealing or restructuring the deduction to be set upon by suburban mobs (led, perhaps, by real estate agents and mortgage lenders). But a new analysis by my Tax Policy Center colleagues Ridathi Chakravarti and Dan Baneman finds that most taxpayers would barely notice the change in their tax bill even if Congress dramatically restructured the subsidy. And with some changes, many of us would end up paying lower taxes than we do today. In the unlikely event Congress simply repeals the mortgage deduction, the average tax bill would increase by $710. But those who earn between $30,000 and $40,000 would pay an average of about $70 more while those making more than $1 million would pay an additional $4,000.  

Corporate Tax Revenues Nearing Historic Lows As A Percentage Of GDP, Report Says - Even as the federal deficit has ballooned, U.S. corporations are paying lower tax bills than ever before, according to one measure. That's the takeaway from a new report by the Center on Budget and Policy Priorities dissecting the tax structures of corporations, which CBPP Director Chuck Marr says are now paying taxes at "historical lows as a share of the [total] economy."  Marr points to a basic discrepancy: While the U.S.'s top corporate tax rate of 35 percent is one of the highest in the world, the amount corporations actually end up forking over to the government is much lower, sometime as low as 4 percent. This is due to a dizzying number of deductions, write-offs, and other accounting tricks that allow corporations to legally reduce their tax burden.  In 2007, the report notes, the Treasury estimated federal government had missed an opportunity to collect $1.2 trillion due to various corporate tax expenditures over the previous decade.

What Should Corporate Tax Reform Look Like? - With Congress likely to consider corporate tax reform this year, we’ve issued a report outlining the tests that a well-designed reform proposal should meet:

  1. Contribute to long-term deficit reduction. Corporate tax revenues are now at historical lows as a share of the economy (see graph), at a time when the nation faces deficits and debt that are expected to grow to unsustainable levels.  Although the top statutory corporate tax rate is high, the average tax rate — that is, the share of profits that companies actually pay in taxes — is substantially lower
  2. Reduce the tax code’s bias towards debt financing. The current corporate tax code encourages corporations to finance their investments with debt (e.g., by issuing bonds) rather than equity (e.g., by selling stock).  This encourages corporations to rely excessively on debt, which, as the recent financial crisis demonstrated, poses risks for both the firms and the broader economy. 
  3. Reduce the tax code’s bias toward overseas investments. U.S. multinationals pay much lower taxes on profits from their overseas investments than on profits from their domestic investments. 
  4. Improve economic efficiency by reducing special preferences. The corporate tax code taxes different kinds of corporate investments at very different rates.  This “unlevel playing field” encourages businesses to choose among investments in substantial part based on their tax benefits, instead of making those decisions based entirely on investments’ real economic value. 
  5. Provide more neutral treatment of corporate and non-corporate businesses. Over time, various policy changes have made it easier for companies to enjoy the benefits of corporate status without being subject to the corporate income tax.  
  6. Take specific steps to discourage tax sheltering. If policymakers lower thes tatutory corporate tax rate to well below the top individual tax rate, they should also establish safeguards to prevent high-income individuals from sheltering their income in corporations in order to pay taxes at a lower rate.

Six Thoughts on Taxes and Small Business - This morning I appeared at hearing of the Select Revenue Measures Subcommittee of the House Ways and Means Committee on “Small Businesses and Tax Reform.” My full testimony, “Tax Policy and Small Business,” is available here.My opening statement: America’s tax system is needlessly complex, economically harmful, and often unfair. Because of a plethora of temporary tax cuts, it’s increasingly unpredictable. And it fails at its most basic task, raising enough money to pay our government’s bills. For these reasons, the time has come for fundamental tax reform. Such reform could have far-reaching effects on every participant in the economy, including small businesses. To provide a foundation for thinking about these effects, my testimony discusses basic facts about the relationship between tax policy and small business. I make six main points:

Most Businesses Won’t Benefit from Corporate Tax Reform - To the Obama Administration, tax reform means corporate tax restructuring. Both the president and Treasury Secretary Tim Geithner have argued that at least the first tranche of reform would scale back tax preferences, cut corporate rates, and, in all, raise the same money that the tax code does today.  In Obama’s vision, redesign of the individual tax system would wait for another day. But there is a problem with this scheme: It appears that while all businesses would lose some tax preferences, the rate cuts would apply only to corporations. Thus, non-corporate businesses would end up paying higher taxes.  In effect, firms such as partnerships, sole proprietorships, and LLCs—about 90 percent of U.S. businesses—would subsidize the rate cuts for a handful of corporations. The House Ways & Means Subcommittee on Select Revenue Measures held an interesting hearing on all this yesterday featuring, among others, Tax Policy Center director Donald Marron.As a matter of policy, treating corporate and non-corporate businesses more equally is an excellent idea. But Obama’s approach leaves much to be desired. And as politics, this arrangement will be exceedingly dicey. The inevitable headline will be “Small Businesses Pay for Multinationals’ Tax Cut.” This headline will be wrong, but effective.  

Oil: a case for tax cuts? - Raedwald ponders the impact of $200pb oil prices. My question is: if this were to happen, wouldn’t it be a case for loosening fiscal policy? The case for doing so is simple. Higher oil prices are, in effect, a tax upon oil users - which, directly or indirectly, is everyone. So, shouldn’t this be offset by a loosening in orthodox fiscal policy? I am NOT talking here about a fuel price stabilizer. The incidence of higher oil prices falls not just upon motorists, but upon workers who lose their jobs because of the lower demand caused by higher oil prices. The case, then, is for a general fiscal loosening - lower taxes or higher spending - so that aggregate economic activity is unaffected by the oil shock, whilst we encourage people to consume less of the devils' excrement.

How a Price-Smoothing Oil Tax Could Help Make This the Last Oil Price Shock. Events in Libya have pushed world oil prices over $100 a barrel yet again. Retail gasoline prices, usually low this time of year, are at an all-time seasonal high. Are we in for another round of the same-old, same-old? A replay of Jimmy Carter pledging, "Never Again!" and then doing nothing? Or is there some way we can make this the very last oil price shock? Producing countries have already figured out how to cope with the curse of oil price volatility. Over the years, producing countries, from Norway to Saudi Arabia to Russia, have established national wealth funds that build up when prices are high and run down when prices fall. Meanwhile, consuming countries have done next to nothing.The US Strategic Petroleum Reserve, designed to offer short-term protection against physical interruptions of supply, is not intended to serve the purpose of price stabilization, nor would it be capable of doing so. But there is a way. Now would be an ideal time to revive an old idea, a variable oil tax that would reduce price volatility and, at the same time, offset the national security and environmental harms of oil dependency.

Poll: Yes on Highway Spending, No on Higher Gas Tax to Fund It - Most Americans support more investment in highways, bridges and transit systems but are solidly opposed to raising the national gasoline tax as a funding option, according to a national survey released by the Rockefeller Foundation. Seven in 10 said they wanted elected leaders to seek compromise, rather than hold fast to their position, on legislation for transportation infrastructure. That’s a higher portion than those who urged compromise in addressing the federal budget deficit, tax cuts, entitlements and other issues. Two-thirds of respondents–including majorities of Democrats, Republicans and independents–said that improving transportation infrastructure is “important.” And 80% agreed that federal funding to improve and modernize transportation systems would boost local economies and create jobs. But only 27% said that raising the federal gasoline tax would be an “acceptable” way to provide more highway funding. The 18.4-cent federal tax on a gallon of gasoline provides most funding for transportation projects, and many groups, including the Chamber of Commerce, have called for raising the gas tax.

REPORT: How Koch Industries Makes Billions By Demanding Bailouts And Taxpayer Subsidies (Part 1) - Koch Industries, the international conglomerate owned by Charles and David Koch, is not only the second largest private company in America, it is the most politically active. As ThinkProgress has carefully documented over the last three years, Koch groups have spent tens of millions to influence government policy — from financing the Tea Parties, to funding junk academic studies, to undisclosed attack ads against Democrats, to groups promoting climate change denial, to a large network of state-based and national think tanks. In an opinion column for the Wall Street Journal today, Koch Industries CEO Charles Koch fired back at his critics, who have grown more vocal as it has become clear that Koch groups are providing the political muscle for Gov. Scott Walker’s (R-WI) union-busting power grab.

Just What Does It Mean to Be "Anti-Business"? - George Buckley, the CEO of 3M, made a few headlines earlier this week when he told the Financial Times that Barack Obama is "anti-business" and "Robin-Hood-esque." I've been thinking about Buckley's words — in large part because I'm supposed to go on Minnesota Public Radio today to talk about them (Minnesotans aren't used to hearing CEOs of St. Paul-based 3M say things like that, so it's really big news there). There's nothing particularly new about what Buckley said: there was lots of similar talk during the first two years of the Obama administration. It's just that recently there have been lots of signs of rapprochement between Obama and the business community — that lunch at the Chamber of Commerce, the President tapping GE's Jeff Immelt to head his Economic Advisory Council, Bill Daley going back to Washington, etc.

Why Obama is a pro-business president - President Barack Obama has always believed that America succeeds when business succeeds. He has a deep, abiding commitment to doing what is necessary to strengthen our economy and make America more competitive. That is why, having spent decades in government and business myself, I was amazed to see the critical comments George Buckley, chief executive and chairman of 3M, made in the Financial Times this week, when he dubbed the president as “anti-business”. As a government our responsibility is to lay the foundations for the private sector to thrive; indeed, that is at the heart of our strategy for growth. We are reforming America’s schools so that businesses can hire the world’s most skilled and talented workers – with solutions driven not from Washington, but from across the country. We are training 100,000 new maths and science teachers. And we are both making college more affordable and revitalising our community college system, so that America continues to not only have the best universities in the world, but also the highest college graduation rates. Our administration is also upgrading our transportation and communication networks so businesses can move goods and information more quickly and cheaply. And we are redoubling our commitment to the research and innovation that is central to our long-term prosperity, including a proposal to enhance and permanently extend the research and development tax credit for businesses.

Why Give A Damn?  - I have said on this blog that the assholes are in charge, and there's little we can do about it. I called these assholes sociopaths in an older post. In a Good Society, it is the task of every citizen to try to ensure that there are restraints on what the assholes can and can not get away with. Unfortunately for us, it appears that we've lost that fight. In fact, I believe that when American citizens started being called "consumers" and did not object, the good fight was already lost. But there are subtle forms of resistance, as I explained (in part) in my post Thinking Outside The Box. If living outside the destructive cultural trance is the only avenue available to you, that is the path you must pursue. Doing that work is certainly the Road Less Traveled, but if nobody goes down that road all will be lost. Ultimately, what is at stake here is the future of civilization. If you don't give a rat's ass, then I suppose another Dark Age similar to that which occurred after the fall of Rome is OK with you. That would be a world where learning has disappeared, where might makes right, where you're dirt poor, where you give most of what you make to your owners, and you have no property rights or human rights. But that outcome is not OK with me, and I hope it's not OK with you.

Bernie Madoff: ‘The whole government is a Ponzi scheme’ - If there's one person who knows a Ponzi scheme, it's Bernie Madoff, the perpetrator of the largest one in world history. And now, locked away in prison, he claims that it wasn't just him, or even just the financial sector. Madoff believes the entire US government is a Ponzi scheme. In an interview with New York Magazine's Steve Fishman, Madoff sought to "set the record straight," and unloaded on the state of financial regulation in the United States and the impropriety of the banks. He said Wall Street deserved a large share of guilt in bringing about the financial crisis, and that some bankers deserved to be indicted for crimes. "It's unbelievable, Goldman … no one has any criminal convictions," Madoff told Fishman. "The whole new regulatory reform is a joke. The whole government is a Ponzi scheme."

JPMorgan Chase Made Nearly A Billion Dollars From Madoff - A new study of Bernie Madoff's Ponzi scheme concludes that JPMorgan Chase made over $900 million in pretax profits from the Madoff scam. The academic paper by Dr. Linus Wilson, a finance professor at University of Louisiana at Lafayette, makes use of newly released data and different methods of calculation than previous studies. Wilson's paper looks at total Madoff- linked account balances at JPMorgan Chase from 1986 to 2008, a longer period than earlier studies, which may have underestimated JPMorgan's profits. The total figure Wilson arrives at is $907 million. That figure assumes JPMorgan's reinvestment of Madoff client money, and the generation of a similar rate to that of other funds invested by the bank during a similar time period. But even without any reinvestment at all, Wilson finds that JPMorgan's pre-tax profits from Madoff money would have amounted to an estimated $398 million. In addition to the magnitude of their alleged gains, Wilson reaches another conclusion that is likely to give JPMorgan agita. Namely, he concludes based on prior academic research, that enough 'red flags' existed to make a reasonable observer suspicious—which presumably includes JPMorgan Chase.

GOP: More Madoffs, Please - If you can’t stop the legislation, you can defund it.That is what our Chart of the Day shows, the net impact of defunding regulation. As we previously discussed 1 year ago (SEC: Defective by Design?), there has been a concerted effort at keeping regulators under-funded. The SEC has lacked sufficient staff, thus holding enforcement efforts to a minimum.This is not an accident. Imagine being allowed to have an army and guns, but no bullets are allowed. The banks and big Wall Street firms are very comfortable with this arrangement. And as Matt Taibbi made clear (Why Isn’t Wall Street in Jail?) , the revolving door between the SEC and Wall Street has prevented any criminal prosecutionsAnd its not a bi-partisan issue this go around, its the crazy wing of the Republican Party:

Mr Contagion, 1989-2009 - It’s a chart of evolving banking connections between ‘modules’ of the financial system from 1989 to 2009. You can find the chart in a new Bank of England research paper on banking exposures from the BIS. Here’s what they set out to do: The aim is to simplify the raw data on claims and liabilities into a map that succinctly summarises how financial contagion moves between international banking groups. We begin by specifying a network of financial linkages in which banks transmit stress to each other via two channels, a funding channel and a lending channel. Stress is transmitted through the funding channel when a bank refuses to rollover a loan and it is transmitted through the lending channel when a bank defaults on a loan. We then apply a network clustering technique developed by physicist Martin Rosvall and biologist Carl Bergstom to determine the most parsimonious yet accurate description of the network that can be used to map the movements of an imaginary traveller, whom we refer to as Mr Contagion

The 10 most systemically risky financial firms in the US…The Financial Stability Oversight Council is beginning to confront its various mandates under the Dodd-Frank Financial Reform Act. These include implementation of the Volcker Rule, the establishment of concentration limits for financial firms, and the procedures for designating systemically risky financial “utilities”.  As part of the US policy response to the global crisis, the Dodd-Frank Financial Reform Act calls for regulators to identify systemically risky financial firms – the sort that took the US financial crisis global. But how to identify these firms remains unclear. Some claim the task is impossible. This column begs to differ and names the 10 most systemically risky financial firms in the US.

A Test Where the Banks Had the Questions and the Answers - Later this month, the Federal Reserve is going to let banks know how they did on its most recent round of “stress tests.” Banks are eager to bring doctors’ notes to their meetings with investors, displaying their bills of health. They want regulators to allow them to start paying, or increasing, dividends to investors or to initiate stock buyback programs. This set of exams, announced in November, is Son of Stress Test 2009, a followup to tests the Fed conducted in the wake of the financial crisis.But something seems different this time around. It’s almost as if the banks knew their results, even before the testing was complete.Since the end of last year, banks have been bragging about their rude health. Bank of America’s chief executive, Brian T. Moynihan, suggested that the bank would raise its dividend above its current token amount. Jamie Dimon, JPMorgan Chase’s leader, did the same. Warren E. Buffett suggested in his shareholder letter that Wells Fargo was about to pass with flying colors. Of course, banks ought to have a good idea of the results. They came up with the questions — and the answers.

“A Healthy Financial System Cannot Be Built On The Expectation Of Bailouts” -  Simon Johnson - Testimony submitted to the Congressional Oversight Panel, “Hearing on the TARP’s Impact on Financial Stability,” Friday, March 4, 2011. Summary

  • 1)      The financial crisis is not over, in the sense that its impact persists and even continues to spread.  Employment remains more than 5 percent below its pre-crisis peak, millions of homeowners are still underwater on their mortgages, and the negative fiscal consequences – at national, state, and local level – remain profound. 
  • 2)      To the extent that a full evaluation is possible today, the financial crisis produced a pattern of rapid economic decline and slow employment recovery quite unlike any post-war recession – it looks much more like a mini-depression of the kind the US economy used to experience in the 19th century.  In addition, the fiscal costs of the disaster in our banking system so far amount to roughly a 40 percentage point increase in net federal government debt held by the private sector, i.e., roughly a doubling of outstanding debt.

Is The New York Fed Making A Serious Mistake On Bank Dividends? - Simon Johnson - An uncomfortable dissonance is beginning to develop within the Federal Reserve.  On the one hand, senior current and former officials now generally agree with the propositions put forward by Professor Anat Admati and her distinguished colleagues – our leading banks need more capital, i.e., more equity financing relative to what they borrow. The language these officials use is vaguer than would be ideal and they refuse to be drawn on the precise numbers they have in mind.  The Swiss National Bank, holding out for 19 percent capital, and the Bank of England, pushing for at least 20 percent capital, seem to be further ahead and much more confident intellectually on this issue. But an important split appears to be emerging within the Federal Reserve system, with the Board of Governors and most regional Feds tending to want higher capital levels from today’s levels, while the New York Fed is – incredibly – pushing hard to enable big banks actually to reduce their capital ratios (in the first instance by allowing them to pay increased dividends).

Disinformation About The Consumer Financial Protection Bureau -  Simon Johnson - In Washington, before lobbyists try hard to destroy something, they first spread a great deal of disinformation about it.  Thus the “End Users’ Coalition” (a front for the derivatives dealers) promotes its lobbying points as fake research.  And “fiscal conservatives” attempt to distract from the fact that our largest banks brought us to the brink of budget disaster – this is their preparation for demolishing all vestiges of financial reform. On a closely related front, there is now a concerted effort to undermine the newly formed Consumer Financial Protection Bureau (CFPB), mostly by spreading disinformation about its supposed lack of accountability. This disinformation approach contains the standard elements of exaggeration, misdirection, and distraction (all quotes are via Fred Barnes):

 Is Congress Crippling Consumer Finance Reform? - Has Congress found a way to exert its political will on the supposedly independent Federal Reserve Board? And, in the process, murder the infant Consumer Financial Protection Bureau? If so, say goodbye to future, broad actions to save consumers from credit card and other financial abuse, including the enforcement of current laws. Government action against deception could turn out to be even weaker than it was before the financial collapse. The Fed might be weakened, too. The latest budget proposed by the House Republicans whacks the new consumer bureau, by taking away nearly half of the money needed this year to get the office up and running. Instead of the $143 million the regulators were expecting, the House wants to limit the CFPB to no more than $80 million. (To give context to that number, JP Morgan Chase gave its CEO, Jamie Dimon, a $17 million stock bonus this year. That’s almost one-fifth of the amount of money the GOP would spend to protect Americans from mistreatment by banks in general.)

Top Republican: 'Senate May Approve' Elizabeth Warren For CFPB - A top Republican broke with what he called "conventional wisdom" Tuesday morning, saying that consumer watchdog Elizabeth Warren is "very persuasive" and may be confirmed by the Senate to head the new Consumer Financial Protection Bureau.In an interview with CNBC, House Financial Services Committee Chairman Spencer Bachus (R-Ala.) expressed skepticism about the new CFPB and consumer protection regulation in general. Early in the segment, he said he didn't think Warren, currently in charge of setting up the nascent CFPB, could win Senate confirmation as its director. Asked again, however, Bachus seemed to change his mind. "The odds-on conventional wisdom is she would not, but that's up for the Senate. And they would have hearings, and she would be in -- she's a very persuasive individual and she -- she may -- the Senate may approve her nomination," Bachus said.That wouldn't have mattered as much, however, if the House GOP had convinced the Senate to adopt its proposed short-term budget for the federal government, which would slash the agency's funding nearly in half.

Bank Of America Skirting Federal Laws By Applying $59 Membership Fee - In May, Bank of America will begin applying new $59 “membership fees” to about 5% of its credit card customers—a decision that skirts regulations set forth by the Credit CARD Act of 2009. As we all know, the CARD Act prohibits credit card companies from increasing interest rates on existing balances unless account holders are at least 60 days delinquent. “From a regulatory perspective, membership fees are considered finance charges,” Odysseas Papadimitriou, CEO of, said. “Therefore, increasing membership fees is equivalent to increasing interest rates and is yet another example of banks employing bait-and-switch tactics that place unfair financial burdens upon their customers.”

Too Big to Fail? Wall Street and Main Street: How Big Are They? -  People are forever talking about banks that are too big to fail. But you rarely hear about the larger issue: The financial industry is too big to fail. Click for larger graphic.)Note that "Main Street" here includes government expenditures -- 20% of the total. Remove those, and Wall Street money flow is 58 times the size of Main Street. I haven't pulled these numbers for past years,* but it's clear that this disparity has grown hugely since the 80s, driven by credit issued by the financial industry, to the financial industry, with the money circulating in the financial industry. From Dirk Bezemer:

Commodity Market Reform: Wall Street versus the Regulators - In contrast to the rapidity with which governments moved to use taxpayer funds to rescue the “too big to fail banks” in 2008, the pace of financial and commodity market reform since then has been agonizingly slow. One factor frustrating re-regulation is financial industry resistance to reform, aided in the United States by Republican Party efforts to reimburse the financiers of their November 2010 electoral victory with initiatives to defund the regulatory agencies responsible for implementing the “Dodd-Frank Wall Street Reform and Consumer Protection Act.”the House of Representatives voted to slash the budget of the Commodity Futures Trading Commission by a third. “There would essentially be no cop on the beat,” CFTC Commission Michael Dunn said. CFTC Chairman Gary Gensler had told a House finance committee hearing that such a cut would not only cripple the CFTC’s ability to implement Dodd-Frank reforms, but would prevent his agency from investigating Ponzi schemes and market manipulation. The U.S. Senate is unlikely to support the House Republican assault on regulation, but the Obama administration’s proposal to levy a transaction fee to finance CFTC implementation and enforcement is facing stiff opposition.

Not Enough Bureaucrats - Krugman - There’s a new article in the Washington Monthly making the point that we need federal bureaucrats to manage spending, including spending on private contractors, and that understaffing the government — which we’re doing already, and will do more of if the right gets its way — actually increases the deficit. I agree. And with perfect timing, we have a new report finding that tens of billions have been wasted on undersupervised contractors in Iraq and Afghanistan. What’s happened in American political discourse is that constant repetition has drilled in the message that government officials are always engaged in pointless activity, and that private is always better — even if you’re hiring private contractors to do government work, which means that there’s no market competition. None of this is true. Federal offices, in my experience, are quite thinly staffed and overstretched, despite having very real jobs to do. And the experience with outsourcing to contractors has been mixed to bad across the board.

Cutting Federal Workforce Costs Money? - In a piece titled “More Bureaucrats, Please,” Washington Monthly editor John Gravois proclaims, “Washington’s budget hawks want to decimate the federal workforce to shrink the deficit. It will have the opposite effect.” His argument is pretty straightforward:The problem is that, as employers go, the federal government is in fact pretty exceptional. A corporation can shed workers and then revise its overall business strategy accordingly. A strapped city government can lay off a few street sweepers and then elect to sweep the streets less often. But federal agencies are governed by statutory requirements. Unless Congress changes those statutes, federal agencies’ mandates—their work assignments—stay the same, regardless of how many people are on hand to carry them out. In practice, cutting civil servants often means either adding private contractors or—in areas where the government plays a regulatory function—resorting to the belief that industries have a deep capacity to police themselves. (This idea, of course, has taken some dings in recent years.) And though contractors can be enormously useful, they too have to be, well, governed. “You can cut and cut and cut and try to streamline the government workforce, but at some point you lose the ability to oversee the money that you’re spending, and that puts everything at greater risk,”

Chris Dodd shows how Washington works - Over the last two years -- particularly during the debate over the financial reform bill -- Sen. Chris Dodd served on multiple occasions as chief spokesman for, and defender of, the interests of Wall Street and corporate America.  That led to widespread speculation that the five-term Connecticut Senator, who announced that he would not seek re-election in 2010 in the wake of allegations of improper benefits from Countrywide Financial, was positioning himself for a lucrative post-Senate lobbying job -- i.e., peddling the influence and contacts he compiled over five decades in "public service."  Dodd responded to those suggestions by repeatedly and categorically insisting that he would not work as a lobbyist.  Here's what Chris Dodd's word and integrity are worth, from The Hill yesterday: Former Sen. Chris Dodd (D-Conn.) will be Hollywood’s leading man in Washington, taking the most prestigious job on K Street. Dodd's hiring, which had been rumored for weeks, ends months of media speculation regarding who would take one of the most glamorous jobs on K Street, whose perks include a $1.2 million-a-year salary and getting to attend the Academy Awards ceremony.

Charles Ferguson's Oscar Speech Rips Wall Street: 'Inside Job' Director Levels Criticism During Acceptance - "Inside Job" won the 2011 Academy Award for best documentary on Sunday night. The film's director used his acceptance speech to delivery pointed criticism of Wall Street and the financial industry.. "Inside Job" director Charles Ferguson subjected Wall Street players, economists and bureaucrats to a fierce cross-examination to depict the economic crisis as a colossal crime perpetrated on the working-class masses by a greedy few. His film examined the financial crisis of 2008. His speech lamented the lack of accountability three years later."Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that's wrong," Ferguson said.

Matt Stoller: A Very Political Oscars – “Not a single executive has gone to jail” - Obama had a brief appearance on the Oscars, and received no applause from an audience that surely would have treated him differently two years ago. The politics of the night belonged to Charles Ferguson, who won the Oscar for Best Documentary for Inside Job. He said at the end of his acceptance speech: Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail and that’s wrong.” Ferguson has a very mild manner, but he is utterly fearless. He wants prosecutions, and he used one of the biggest stages in the world to ask for them. Ferguson has gone after the Obama administration and spares no one, as when he called Eric Holder and Andrew Cuomo “partners in crime. Ouch. There were several shout-outs to unions tonight, including the one by “Inception” cinematographer Wally Pfister.

“The Financial Industry Has Become So Politically Powerful That It Is Able To Inhibit the Normal Process of Justice And Law Enforcement” - In his acceptance speech for winner for best documentary at the Oscars, director Craig Ferguson said:Three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that’s wrong.But none of the mainstream, corporate networks covered it. Not CBS, ABC, NBC or MSNBC. Ferguson told Reuters: “The biggest surprise to me personally and biggest disappointment was that nobody in the Obama administration would speak with me even off the record — including people that I’ve known for many, many years,” Ferguson said backstage.

Dylan Ratigan: Will Washington wake up to Wall Street greed? - video - Yves Smith - It’s good to see more MSM outlets taking up the “why the lack of cases against the big Wall Street firms” theme. Perhaps my cynicism is showing, but Phil Angelides seems to be talking a tougher line than he did when the Financial Crisis Inquiry Commission report was released. Is this simply his response to the focus of this interview, or perhaps a sign that the zeitgeist is starting to move?

Why aren't more meltdown moguls indicted? - Now, after a far larger economic meltdown, it looks increasingly likely that no big name will be criminally prosecuted. This month, according to theLos Angeles Times, the Justice Department decided not to charge Angelo Mozilo, the former CEO of the former company known as Countrywide Financial Corp., someone long thought of as a prime potential target. Should Americans be outraged that the meltdown moguls aren't headed for the slammer, as director Charles Ferguson suggested Sunday night when his documentary, Inside Job, won an Academy Award? Perhaps. But, nearly three years after the financial crisis hit, a better way to look at the lack of high-level indictments is as an indictment of the entire financial system — a system that was rife with avarice, ignorance and double-dealing. How do prosecutors find the bad apples in a putrid landfill

Democrats call for an investigation of law firm, 3 tech companies - A group of House Democrats is calling on Republican leaders to investigate a prominent Washington law firm and three federal technology contractors, who have been shown in hacked e-mails discussing a "disinformation campaign1" against foes of the U.S. Chamber of Commerce2.  In a letter to be released Tuesday, Rep. Hank Johnson3 (D-Ga.) and more than a dozen other lawmakers wrote that the e-mails appear "to reveal a conspiracy to use subversive techniques to target Chamber critics," including "possible illegal actions against citizens engaged in free speech."  The lawmakers say it is "deeply troubling" that "tactics developed for use against terrorists may have been unleashed against American citizens."

A Microcosm of the Market Manipulation in the US and the Repeated Failure of Ideology - I am seeing this same sort of 'gaming the markets' across many markets and stocks that the author notes below, especially in those markets amenable to leverage and electronic manipulation such as indices driven by futures, options markets, and ETFs which more closely resemble carney games than investment vehicles. There has always been some element of this, but it is starting to become predominant and is driving out the honest trade and investment which cannot compete, in the same manner that the mortgage frauds corrupted and distorted a major sector of the economy and drove out conventional investment, regulation, checks and balances, regulatory oversight, and finally common sense. It is getting to be a bit much, and is going to end badly. It will end badly because like the economy which has been crafted by the same makers it is hollow, a facade, set up for the benefit of a few who transfer wealth to themselves from the many.

A Straightforward Criminal Case Against Wall Street CEOs and Senior Executives - Yves Smith  - Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operations. I’ll call them “dealer banks” or “Wall Street firms” to distinguish them from very big but largely traditional commercial banks like US Bank.  Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years. The responsible officers must certify that, among other things, they:

(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

The Math is Different at the Top - In the past few weeks, dysfunctional societies have become a very popular theme. So what makes them dysfunctional? Is it just about physical and mental suppression, or are economic factors just as important? How about Mubabrak's rumored $40 billion stash outside of Egypt? Or the $170 billion the US estimates Kadaffi and his family control in funds invested in foreign nations? In a Wikileaks cable on Saudi Arabia, a prince is quoted as saying "the revenues from 'one million barrels of oil per day' go entirely to 'five or six princes". At $95+ per barrel, you do that math. And if we can agree that things like that are factors in destabilizing societies, how can we not also look at the fast increasing inequalites in western economies? How, exactly, then are Jamie Dimon and Lloyd Blankfein different from Mubarak and Ben Ali? Is it because what they do is legal? That would be too easy; they make the laws. What Mubarak did was perfectly legal in Egypt; he too made the laws. Is it because Lloyd and Jamie wear no crowns? Are we that easily fooled?

Ex-McKinsey ‘High Priest’ Gupta Linked to Rajaratnam by SEC Case - When the U.S. Securities and Exchange Commission sued Rajat K. Gupta for insider trading yesterday, it wasn’t simply accusing “a Westport, Conn.-based business consultant” of providing illegal tips to the billionaire hedge-fund manager Raj Rajaratnam.  Gupta, unlike the 26 people charged in the government’s multiyear criminal insider-trading investigation that went public with Rajaratnam’s arrest in October 2009, has served on the boards of some of the largest multinationals, including Goldman Sachs Group Inc. and Procter & Gamble Co. From 1994 to 2003, he ran McKinsey & Co., the global consulting firm that has plotted strategy for companies such as General Electric Co. and AT&T Inc. Gupta remained a senior McKinsey partner until 2007.  “McKinsey is the closest thing the business world has to a confessional, and he was the high priest,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco, and a former managing director at Salomon Brothers. “They have been an icon in the consulting business almost since they were founded.”

Ex-Goldman director in insider case - Rajat Gupta, who ran McKinsey for almost a decade, has been hit with civil insider trading charges for allegedly sharing secret information he learnt as a board member of Goldman Sachs and Procter & Gamble with Galleon Group founder Raj Rajaratnam. The Securities and Exchange Commission’s charges allege Mr Gupta shared information about Warren Buffett’s $5bn capital infusion into the bank in 2008 within one minute of the board’s approval of the deal.  The infusion, at the height of the financial crisis, was critical for assuring investors about Goldman’s sustainability after the Lehman Brothers collapse.The insider trading charges against Mr Gupta are a stunning setback for the one-time global managing director of McKinsey, the consulting firm. It also marks one of the highest profile insider trading charges brought against a bank director.

Goldman Sachs Estimates `Reasonably Possible' Legal Losses at $3.4 Billion - Bloomberg: "Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, said “reasonably possible” losses from legal claims against the company may amount to as much as $3.4 billion. Goldman Sachs hasn’t set aside a “significant” amount of money against the possible losses, the New York-based bank said today in a 10-K filing with the U.S. Securities and Exchange Commission. The estimate, the first of its kind disclosed by the firm, is the “upper end” of losses in matters where the risk is “more than remote but less than likely,” the firm said. Banks are releasing possible-loss estimates after the SEC said in an October letter to corporate finance chiefs that they should disclose such losses “when there is at least a reasonable possibility” that they may be incurred, even if the risk is too low to require reserves. “They’ve got the best lawyers, they’re going to drag these claims out as far as they possibly can,”

How Did Gaddafi Bypass US Anti-Money Laundering Rules To Bank With Goldman And JPMorgan? One of the most critical questions that has to be asked in light of yesterday's revelation that among the banks providing banking and asset amangement services for Libya were Goldman Sachs, JP Morgan and Citigroup, is just how did Libya get an exemption for anti-money laundering provisions both in Europe and the US. Oddly enough, this future mainstream debate arises not in the US, where any form of critical thinking appears to be immediately curbed by SEC Rule 201 (for all those calling for a hike in the SEC's budget, we suggest the following contrarian thought experiment: let's cut its budget to zero and see how long before anyone notices) , but out of the UK, where a reader writes in to the FT: (oddly enough, partially owned by the Libyan Investment Authority) with the following very simple question: "It seems to me entirely implausible that Col Gaddafi could have earned billions of dollars through legal means. And yet if the AML procedures, to which we are all subjected, have not been applied rigorously to the likes of Col Gaddafi and his family, one is forced to ask what purpose they really serve."

A Conspiracy With a Silver Lining - The Hunts may be gone from the market, but there are still plenty of people suspicious about the trading in silver, and now they have the Web to explore and to expand their conspiracy narratives. This time around — according to bloggers and commenters on sites with names like Silverseek, 321Gold and Seeking Alpha — silver shot up in price after a whistleblower exposed an alleged conspiracy to keep the price artificially low despite the inflationary pressure of the Fed’s cheap money policy. (Some even suspect that the Fed itself was behind the effort to keep silver prices low, as a way to keep the dollar’s value artificially high.) Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers, informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.  The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York.

For Boards, S.E.C. Keeps the Bar Low - When a vast accounting fraud is disclosed, or when a chief executive is caught looting a company, it is to be expected that the Securities and Exchange Commission1 will bring civil charges against the responsible executives. In egregious cases, criminal prosecution may follow. But what happens to the corporate directors who were supposed to be watching over management?  Usually, nothing. They are likely to be named in shareholder suits, but those suits are usually settled out of court, and the insurance company, or the company itself, pays the bill. If it cannot be proved that the directors actually took part in the fraud, they almost certainly will escape with no penalty beyond a tarnished reputation.  That reality made it all the more surprising this week when the S.E.C. filed civil charges2 against three former outside directors of a military contractor, DHB Industries, which sells body armor to the military and to law enforcement agencies.

Corporations Are Feudal Manifestations (1 of 2) - Contrary to propaganda, there’s nothing modernistic about corporations. On the contrary, they’re a carryover phenomenon from feudalism. This feudal vestige persisted through the early heyday of capitalism, soon becoming the preferred mode of organization to prevent the full textbook logic of capitalism from developing. The result was that the economy never evolved beyond a feudal-capitalist hybrid. And once capitalism reached its terminal stage starting in the 1970s, where the combination of Peak Oil and the terminally declining profit rate threatened to attenuate forms of economic domination completely, the corporation became the basic unit of class war, and the anti-social, anti-political, anti-sovereign form around which full feudalism is intended to be restored. The corporation originally arose out of medieval guilds and the monopoly charter. This charter was also called a “searching and sealing patent”. It had nothing to do with production. The charter-holder, generally some royal crony, didn’t produce or do anything but merely took a cut of some production process, nominally for “certifying the quality” of the product. We can compare today’s Food Control Bill, with its myriad FDA impositions, fees, and forced purchases of corporate electronic equipment for small and medium producers. On its face this isn’t to ensure better food quality (if it were, there would be rigorous enforcement of existing law against the big corporate producers, and a total ban on CAFOs), but to “certify” smaller producers and extract “searches and seals” from them. Or better yet, drive them out of business altogether.

The Counterfeit Economy - Counterfeit money exploits trust by presenting a facsimile of authenticity. A high-quality counterfeit bill (for example, the $100 bills exported by North Korea) are facsimiles of authentic paper notes which then gain the trust of users. A counterfeit gold bar is a piece of lead coated with a layer of authentic gold. The mechanism is the same: a veneer of integrity tricks the buyer into trusting the validity of the entire bar. The U.S. has a deeply counterfeit economy. The predatory mortgages of the subprime era were presented as legitimate mortgages similiar to time-honored 30-years fixed notes with a few "minor differences." These were in effect counterfeit mortgages designed to fool the borrowers and buyers. They were mere simulacra of "safe investments."Like the counterfeiter who plates the lead bar with a thin coating of gold, the ratings agencies coated the lead bar of toxic, high-risk mortgages with the gold veneer of a AAA rating.The buyers of the securitized mortgages were promised gold but they were actually buying lead--and the sellers knew it. The trust engendered by the AAA rating and the veneer of authenticity issued by Wall Street was exploited in a vast counterfeiting scheme of breathtaking depth and range.

We Found the Money—and It's on Wall Street - It must be glorious. You crash the economy, get a taxpayer bailout and hand out record bonuses. You poll less favorably than Congress and have every reason to be on defense, but instead you are consolidating economic power and expanding your already overwhelming political might. You then insert politicians of your choice in office, and they unleash a fierce attack on working families, going directly for the last barrier standing between you and total triumph--organized workers. And you have the pleasure of watching your masterpiece unfold from a yacht or country club, martini in hand. A Hollywood scriptwriter would have trouble dreaming up such an outlandish tale, but this is a true story, concocted in lower Manhattan.

Wall Street Bets on Debt That Doesn't Exist - Fresh from Wall Street's alchemy labs: Credit derivatives tied to General Motors Co. debt. The rub is, no such debt exists. Banks and hedge funds are trading credit-default swaps, which make payments to holders of General Motors bonds in the event of a default. But GM canceled $40 billion of debt in bankruptcy and has pledged to cut its remaining $4.6 billion bank loan to the bone this year. That is merely a technicality for the banks and hedge funds that have been actively trading the CDS.  Banks, some of which have made loans to the car maker, have been buying the CDS even though it is unclear whether the contracts would cover their debts, according to people familiar with the matter. Hedge funds have been happy to sell the protection, which allows them to make bullish, or "long," bets on the auto maker.

Insurance and Banking: Risk, Resiliency and Harmonisation - I attended an interesting discussion of risk management in the City this week, bringing together insurers with bankers. The two sectors manage risk quite differently, which is why there are rarely insurance crises and frequently banking crises. Insurance crises tend to occur when insurers act like banks (AIG Financial Products, MBIA and other monolines). Bank crises tend to occur when banks act like investment banks. Insurers must not underwrite risks that they will not be able to cover in the event, and must therefore have reserves sufficient to perform at all times. This makes the insurers much more cautious about taking on risk, about pricing risk accurately at the time of contracting, and about managing reserves to be liquid when claims require payment. Regulation is fundamentally about solvency and selling.

Will AIG Implosion 2.0 Lead To QE 3.0? - There was a time when everyone thought CDOs are perfectly safe. That ended up being a tad incorrect. It resulted in AIG blowing up, recording hundreds of billions in losses and almost taking the rest of the financial world with it, leading ultimately to the first iteration of quantitative easing. A few years thereafter, several blogs and fringe elements suggested that munis are the next major cataclysm and will likely require Fed bail outs (some time before Meredith Whitney came on the public scene with her apocalyptic call). It would be only fitting that the same AIG that blew up the world the first time around, end up being the same company that does so in 2011, and with an instrument that just like back then only an occasional voice warned is a weapon of mass destruction: municipal bonds. AIG dropped over 6% today following some very unpleasasnt disclosures about its muni outlook, and corporate liquidity implications arising therefrom: "American International Group Inc., the bailed-out insurer, said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company’s liquidity." So how long before we discover that Goldman has been lifting every AIG CDS for the past quarter?

Why the record amount of U.S. corporate cash isn't helping investors... Investors have been hearing for some time now about the hordes of cash being stashed on U.S. corporate balance sheets. In a recent column, The Wall Street Journal’s Jason Zweig explains a big part of why the cash stockpiles are so high — and why that cash might not be benefiting investors anytime soon. “U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries,” Zweig writes. “They get a credit for any taxes paid to foreign governments — but, since the corporate-tax rate in the U.S. is one of the world’s highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS. That can put firms in the peculiar position of having tons of cash offshore that they might need but can’t use at home without taking a tax hit.”

Unofficial Problem Bank list increases to 962 Institutions - Note: this is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for Mar 4, 2011. Changes and comments from surferdude808:  It almost was a safe & sound banking week as the FDIC did not close a single institution; however, the OTS did not stop issuing enforcement actions.  This week there were one removal and three additions to the Unofficial Problem Bank List. The List now stands at 962 institutions with assets of $417.9 billion, up from 960 institutions and assets of $413.8 billion last week.

Delinquency Rate for CMBS Hits a Record - The delinquency rate for commercial mortgage-backed securities reached record levels in February, as commercial real-estate deals made in the market's peak continue to struggle despite rising values in some parts of the country.According to research firm Trepp, 9.39% of all CMBS loans were delinquent in February, a modest increase from 9.34% in January. The bulk of troubled CMBS loans, mortgages bundled together and sold to investors as bonds, were made in 2006 and 2007. At least $22 billion of those loans are expected to mature in 2011, according to Fitch Ratings. Of property types, one of the larger jumps was in the office sector, with 7.1% of office loans delinquent, up from 6.88% in January. Multifamily apartments were the worst performing, with 16.61% of loans delinquent in February, although that rate was down from a peak of 16.85% in January.

Private Construction Spending decreases in January - Census Bureau reported this morning that overall construction spending decreased in January compared to December (seasonally adjusted).  [C]onstruction spending during January 2011 was estimated at a seasonally adjusted annual rate of $791.8 billion, 0.7 percent (±1.4%)* below the revised December estimate of $797.6 billion. Private construction spending also decreased in January:Spending on private construction was at a seasonally adjusted annual rate of $490.0 billion, 1.2 percent (±1.1%) below the revised December estimate of $495.9 billion. This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted. Residential spending is 64% below the peak in early 2006, and non-residential spending is 41% below the peak in January 2008.  This is the first time since December 2007 that private residential construction spending has been higher than non-residential spending.

Construction Drops For Second Month In a Row - Builders began work on fewer offices, shopping centers and other commercial projects in January, pushing construction spending down to near a decade low. A separate report Tuesday showed manufacturers expanded at the fastest pace in nearly 7 years last month. Builders trimmed their activity 0.7 percent in January following a revised 1.6 percent drop in December, the Commerce Department reported Tuesday. The consecutive declines pushed total spending down to a seasonally adjusted annual rate of $791.8 billion in January, close to the decade low of $791.5 billion hit in August. The current pace of construction activity is just about half of the $1.5 trillion level that economists believe would signal a healthy construction sector. They think it could be another four years before construction recovers to that level.

BofA Mortgage-Bond Investors Hold $84 Billion Connected to Buyback Dispute - A bondholder group seeking reimbursements from Bank of America Corp. over soured home-loan securities said the amount of debt it holds grew to $84 billion after more investors joined the dispute. The number climbed from about $46 billion in October, according to the group’s lawyer.  The investors have had “enough progress” in negotiations with Bank of America and Bank of New York Mellon Corp., which acts as trustee of the debt, to warrant continued talks, Kathy Patrick, a partner at Houston-based Gibbs & Bruns LLP, said today in a telephone interview. Bank of America said Feb. 25 there were 225 mortgage deals in dispute, up from 115 in October. It didn’t provide a dollar value for the securities. Investors challenging the bank include Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October.

Matt Stoller: Angelo Mozilo, Tea Partier? - I was combing through the Financial Crisis Inquiry Commission resource materials, and I found an interesting email from former Countrywide CEO Angelo Mozilo to his senior executives. It was written in 2004, and the main subject was the declining credit quality of loans due to heavy competition from mortgage originators. The last part of the email, though, got very political. I must admit that the upcoming election has exacerbated my concerns in that a Kerry win could cause a serious disruption in the economy if he is successful in rolling back a substantial portion of the tax breaks initiated by Bush. It is the wage earners $200,000 and over that are the drivers of the economy and that is the group that Kerry has stated that he will attack. This could clearly cause a major bump in the road. As you know I have no political bias but I would be concerned about any candidate that proposes a massive wealth transfer from the people to the federal government. I would like you to consider my concerns and let me know your thoughts. It’s true Mozilo had no political bias in terms of who got favorable lending treatment; lots of Democrats took out low-cost Countrywide “Friends of Angelo” loans. But the rhetoric and politics he uses here are straight up Texas GOP.

Matt Stoller: AG Tom Miller Negotiating in Secret with Banks Over Whether to Put Bankers in Jail - - Zach Carter wrote a good piece on homeowners’ demands of the big banks. National People’s Action has coordinated thousands of homeowners in asking for an aggressive settlement with the banks on their handling of foreclosures. Iowa Democratic Attorney General Tom Miller, who is heading the 50-state investigation, is one of their prime targets. But it’s this video that makes it interesting.  Look at what he’s saying. Miller has decided that he will keep the public in the dark about the negotiations over how banks will deal with the homeowners they hurt. They can’t know when decisions will be made. They can’t know if they will have principal reduced. They can’t know if they will get loan modifications. They can’t know if they will get restitution if they’ve been illegally kicked out of their homes. Miller will not even speak to criminal prosecutions of bankers over mortgage fraud because he is still negotiating with the criminals over whether to bring charges. The backstory here is that Miller had exuberantly vowed jail time for bankers to Iowa citizens, before backtracking on his commitment. This level of deception by high officials is now routine when it comes to cracking down on lawbreaking by big banks.

Banks Say They Expect Penalties From Foreclosure Probe - Three of the nation's largest banks said Friday that they expect to be sanctioned by the U.S. government for their foreclosure practices, securities filings show. The disclosures come on the heels of reports federal regulators are nearing a multi-billion dollar deal to settle allegations that the biggest banks abused borrowers and illegally foreclosed on homes. The months-long federal probe found significant and widespread deficiencies in how firms service home loans, which involves collecting payments, modifying delinquent loans, and foreclosing on borrowers upon default. A "small number" of foreclosures should not have occurred, a top bank regulator told a Senate committee last week after his agency surveyed less than 3,000 loan files. The filings are the first acknowledgment by the targeted banks that they're likely to face significant penalties arising from the investigations.

Rep. Waters says proposed $20 billion settlement falls short of servicing goals - Regulators may have their hearts set on a $20 billion settlement with mortgage servicers, but that's not enough to make up for the $1 trillion lost in family wealth since 2008, Rep. Maxine Waters (D-Calif.) said Friday. Waters issued that statement after reports surfaced that regulators have plans to settle with embattled lenders and servicers for $20 billion. Any money from the proposed settlement would be used to help borrowers who are underwater on their mortgage and to support loan modifications. "Particularly, I am concerned about the $20 billion settlement figure, spread across 14 servicers, that has been noted in various reports," Waters said. "Though this figure sounds like a large settlement to those unfamiliar with the scale of the foreclosure crisis, we must remember that over 3 million homes have been lost to foreclosure since 2006, and some analysts expect an additional 11 million foreclosure filings in the near future. Moreover, the Center for Responsible Lending estimates that foreclosures between 2009 and 2012 will result in $1.86 trillion in lost wealth for families."

Banks, Mars, and Venus - Federal and state regulators are considering a $20 billion settlement with banks over the Foreclosuregate scandal. Remember Foreclosuregate? During the housing bubble, lenders may have neglected to secure or convey properly to mortgage securitizers legally required documentation on home loans, and after the housing bust, the banks hired "robo-signers" to sign hundreds of foreclosure-related documents a day without actually reading or checking them. Now the feds want the banks to fork over $20 billion to reduce the principal amounts that homeowners owe on their mortgages, a settlement intended to encompass both appropriate punishment and practical redress. The divergent reactions to the $20 billion figure from banks, on one hand, and consumer groups, on the other, vividly demonstrate how, three years after the economy cratered, lenders continue to view the world in a radically different way than most other people.

The Foreclosure Fraud Settlement - The inter-regulator fight over the proper parameters of a foreclosure fraud settlement are really highlighting the changes in the financial regulatory world.  What we're told is that the OCC and Fed are urging a weak settlement, while FDIC, the state AGs, and the Consumer Financial Protection Bureau (CFPB) are pushing for a serious settlement.  Parts of this line up look quite familiar, but parts are new and exciting.  There's nothing new or surprising about the OCC protecting (rather than regulating) the banks. Similarly, it's not surprising to see the Fed back the banks, although, the Fed tends to be less gung-ho than OCC in these matters (and I would note that there isn't necessarily unanimity within any agency on these issues). It's also no surprise to see the state AGs on the other side, pushing for regulation. Some parts of this line up are new, however, and exciting. Already, we're seeing just how important the Consumer Financial Protection Bureau will be. The CFPB means that there is a voice at the table advocating consumer interests, not bank interests.

Is the Foreclosure Fraud Settlement Overbroad? - We don't actually know the terms of a foreclosure fraud settlement.  All that we're really hearing now is a proposed $20B figure.  There could well be other substantive terms in a settlement, but it's worth considering some of the arguments made by the banks in objection to a large dollar settlement.  Basically, the banks' argument is no harm, no foul.  Yes, they did some robosigning, but it was all fun and games, and no one got hurt.  Moreover, using any settlement dollars to help homeowners would reward undeserving profligates and encourage strategic defaulting, which would be bad morally and for the housing market.   There are a lot of problems with this line of argumentation.  First, we don't actually have a tally of servicer malfeasance.  Neither the AGs nor the federal regulators have done the sort of investigation necessary to really know the full extent of servicer wrong-doings.  Servicers might downplay the harms, but we just don't know.  This isn't just robosigning.  The banks forfeited their ability to make the "trust me" argument some point in fall of 2008.  

Foreclosuregate settlement: Is $20 billion too much or too little? - Federal and state regulators are considering a $20 billion settlement with banks over the Foreclosuregate scandal. Remember Foreclosuregate? During the housing bubble, lenders may have neglected to secure or convey properly to mortgage securitizers legally required documentation on home loans, and after the housing bust, the banks hired "robo-signers" to sign hundreds of foreclosure-related documents a day without actually reading or checking them. Now the feds want the banks to fork over $20 billion to reduce the principal amounts that homeowners owe on their mortgages, a settlement intended to encompass both appropriate punishment and practical redress. The divergent reactions to the $20 billion figure from banks, on one hand, and consumer groups, on the other, vividly demonstrate how, three years after the economy cratered, lenders continue to view the world in a radically different way than most other people.

The Bizarre Mortgage “Settlement” Negotiations -  Yves Smith - We are getting only odd tidbits out of the so-called settlement negotiations among the fifty state attorneys general, various Federal banking regulators, and mortgage servicing miscreants (meaning all of them). As Matt Stoller pointed out last weekend, the lack of transparency is troubling. Nevertheless, certain things are apparent.

  • 1. There has not been anything even remotely resembling an investigation. As we have said earlier, the eight week Federal exam was a joke. As Adam Levitin noted:…we don’t actually have a tally of servicer malfeasance. Neither the AGs nor the federal regulators have done the sort of investigation necessary to really know the full extent of servicer wrong-doings. Servicers might downplay the harms, but we just don’t know. This isn’t just robosigning. The banks forfeited their ability to make the “trust me” argument some point in fall of 2008. How can you possibly settle when you don’t know the extent of the abuses?
  • 2. The fact that the AGs and the Federal regulators have joined forces is another sign that no one has the guts to administer anything more than a slap on the wrist relative to the damage done.
  • 3. The latest sign of the weak stance being taken by the supposed enforcers is that they have offered an outline of standards separate from an economic deal. From the Wall Street Journal:

MERS Tapped for Federal Investigation - We have yet another major bank today that fully expects to be dinged by federal and state regulators for sloppy mortgage practices. PNC Financial Services Group Inc. expects to sign consent orders with U.S. regulators because of allegedly faulty mortgage servicing and foreclosures.The orders are likely to come from the Federal Reserve and the Office of the Comptroller of the Currency, Pittsburgh-based PNC said today in its annual filing with securities regulators. The actions may include activities tied to the Mortgage Electronic Registration System, the registry designed to track mortgage-servicing rights and ownership of U.S. residential loans, according to the filing. The MERS piece is interesting. As we know, MERS is basically at the end of its rope, forced to tell servicers to stop foreclosing in its name because of a string of lost court cases. Now, PNC, along with BofA and Citigroup, are saying publicly in regulatory filings that MERS may be ruled essentially invalid for mortgage transfers. Keep in mind that the major banks created MERS and still fund it.

Another County Seeking to Collect Unpaid Recording Fees From MERS  -- I must confess I get a perverse sense of satisfaction from watching MERS suffering pushback on a variety of fronts. The latest, as we mentioned a few weeks ago, is the prospect of litigation by various local governments asserting the right to the recording fees that the MERS system bypassed. The press release below is from the Guilford County Register of Deeds in North Carolina. As you can see, he is exploring the county’s options for recouping recording fees he believes that MERS owe to Guilford County, to the tune of $1.3 million (hat tip Lisa Epstein via ForeclosureFraud).I particularly like this sentence: “Do we want land records in America to be governed by major banking conglomerates on Wall Street or the people and laws of the United States of America?”The real question is whether a clever lawyer can find a legal theory that would allow the local governments to sue not just MERS but one of the parties that benefitted from the MERS process, presumably the sponsors. And then you’d need to file it on a class action basis so that the legal cost divided over a large number of plaintiffs would still allow for reasonable recoveries.

97% of All U.S. Mortgages are Backed by the Government -I heard a recent talk by Richard Wolff - Professor of Economics Emeritus at the University of Massachusetts in Amherst (PhD in Economics from Yale), where Wolff said that 97% of all U.S. mortgages are either written or guaranteed by the government.As Bloomberg explained last August:Fannie Mae and Freddie Mac, the government-controlled companies that issued and guaranteed more than 71 percent of mortgage-backed bonds last year. Between those companies and Ginnie Mae, which guarantees loans insured by the Federal Housing Administration, the government backed nearly 97 percent of U.S. mortgages in 2009.  There are supposedly plans in Washington to wind down Fannie and Freddie. Critics say that would destroy the "recovery" in housing.If continuing to throw money at Fannie and Freddie would stabilize the economy, I might be for it - even though it is not free market capitalism. I am not wed to either liberal or conservative ideologies, and am instead simply motivated to do whatever will work to stabilize the economy and help the most people.

Fannie Mae and Freddie Mac Delinquency Rates decline slightly - Fannie Mae reported that the serious delinquency rate decreased to 4.48% in December from 4.50% in November. This is down from 5.38% a year ago.  Freddie Mac reported that the serious delinquency rate decreased to 3.82% in January from 3.84% in December. (Note: Fannie reports a month behind Freddie). This is down from 4.15% in January 2010. These are loans that are "three monthly payments or more past due or in foreclosure". Some of the rapid increase in 2009 was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent. As modifications have become permanent, they are no longer counted as delinquent. The slowdown in the decline was probably related to the new foreclosure moratoriums last year. Going forward, a key question is if falling house prices will lead to an increase in serious delinquent loans.

Without Loan Giants, 30-Year Mortgage May Fade Away -  How might home buying change if the federal government shuts down the housing finance giants Fannie Mae1 and Freddie Mac2?  The 30-year fixed-rate mortgage loan, the steady favorite of American borrowers since the 1950s, could become a luxury product, housing experts on both sides of the political aisle say.  Interest rates would rise for most borrowers, but urban and rural residents could see sharper increases than the coveted customers in the suburbs.  Lenders could charge fees for popular features now taken for granted, like the ability to “lock in” an interest rate weeks or months before taking out a loan.  Life without Fannie and Freddie is the rare goal shared by the Obama administration and House Republicans, although it will not happen soon. The reasons by now are well understood. Fannie and Freddie, created to increase the availability of mortgage loans, misused the government’s support to enrich shareholders and executives by backing millions of shoddy loans. Taxpayers so far have spent more than $135 billion on the cleanup.

GSE 2.0 Scare Tactics: False Claim That No Government Guarantee = No Thirty-Year Mortgage -- Yves Smith - The propaganda strategy for selling the public on the creation of supposedly new improved GSEs is becoming more apparent. Recall that we had an initial skirmish a month ago, when the Center for American Progress published a plan to reform Fannie/Freddie and the housing finance system. It would create an FDIC-like insurance fund to stand behind private Fannie/Freddie like entities that will offer reinsurance with an explicit Federal guarantee on mortgage-backed securities. These new firms can also be controlled by banks.  This plan, which was very similar to ones presented by the Mortgage Bankers Association, the Federal Reserve and the New York Fed, t was clearly an Administration trial balloon; the CAP is the mainstream Democrat think-tank, with close ties to Team Obama. But after the CAP proposal got some resistance, the Treasury’s report, which came later in the month, went the route of presenting three alternatives rather than a specific plan. But we argued at the time that this seeming change was merely a tactical move, to present the Administration as fair brokers in a politically fraught process, and that it still favored what we called the GSE 2.0 plan.  We think the idea of reconstituting the GSEs in somewhat improved form a terrible idea because it preserves the bad incentives of a public/private system and launders housing market subsidies in an inefficient and unaccountable way through the banking industry (see here and here for more detailed discussions).

Only 1 in 4 Got Mortgage Relief From Obama Program - Just one in four of the 2.7 million homeowners who sought to participate in the Obama administration's signature mortgage assistance program have succeeded in getting their monthly payments reduced. The rest failed to qualify for the program or were disqualified after they were initially accepted into the program, according to an analysis by the Wall Street Journal of data on applicants to the program newly released by the Treasury Department.In all, about 680,000 homeowners who applied for the Home Affordable Modification Program, or HAMP, had received permanent modifications of their loans and were making timely payments or were still in the trial phase as of December.

GAO: Treasury Has Failed to Make Needed Improvements to HAMP - The Home Affordable Modification Program (HAMP) has basically been a disaster since its start, and it remains one to this day. Roughly nine months ago, the Government Accountability Office examined the program, found many problems, and made several recommendations to improve it. Since then, the Treasury department has failed to make most of the needed changes. From GAO report (PDF): In June 2010, we reported on several inconsistencies in the way servicers treated borrowers under HAMP that could lead to inequitable treatment of similarly situated borrowers. . In addition, we noted that while Treasury had taken some steps to ensure servicer compliance with program guidance, it had not yet finalized consequences for servicer noncompliance. We made eight recommendations to improve the transparency and accountability of HAMP in June 2010. Treasury stated that it intended to implement some of the recommendations, but little action has been taken to date. The report picks up on the fact that HAMP is a total mess that has basically failed to realize the program’s intent. The Treasury Department seems to also have little interest in implementing what sound like obvious recommendations to fix serious issues.

Principal Write-Downs Still Popular With Wonks – McArdle - With house prices still falling, it's natural that we're still talking about a program to do principal write-downs on home loans.  Tyler Cowen makes probably the best case for it: I know that a) this idea is WRONG, b) it is terrible for the long run rule of law, and c) it is EVIL and UNFAIR. It's also one of the few suggested economic remedies that might have worked or maybe could still work.  How so? It limits value-destroying foreclosures. It gives homeowners the right marginal incentive to keep on making payments and maintain the value of the home and to maintain their credit capabilities. It gives the housing market a fresh start rather than this waiting/coordination game where we wait for everyone to move on down a notch in house quality, thereby freezing parts of the housing market and choking off required recalculations. (How can you have a well-functioning housing market when so many people have negative equity? I've read estimates of twenty percent of the U.S. population.) It also limits the problem of future ARM resets, once interest rates rise in the future.

Megan McArdle Uses Straw Men to Argue Against Principal Mods -- Yves Smith - Megan McArdle has a post up discussing why she thinks the benefits of principal mods would be “at best small and mixed”. The problem with her lengthy discussion is that it is rife with straw men. Who is in favor of mods? The only people who under normal circumstances ought to have a vote on this matter, namely, the borrowers and the lenders. First mortgage lenders overwhelmingly favor mods to borrowers with who still have a viable income. Why? Do the math:Foreclosures are now running loss severities of 70% or higher. “Loss severity” means “loss as a percent of principal balance”, and it almost always is stated in terms of the original principal balance. So foreclosures result in really big losses. And this is only going to get worse:

      • –More borrowers are challenging foreclosures based on standing
      • – More judges are sympathetic to borrower arguments, so cases go more rounds and incur more costs
      • – Housing values are still falling in most localities; the overhang of foreclosure inventory only makes it worse
      • – Banks are destroying value of REO with failure to secure and maintain properties (a lot of reports on this, with very large falls in value)

HSBC Halts U.S. Foreclosures After Joint Examination by Fed, OCC - HSBC Holdings Plc, Europe’s biggest bank, has suspended U.S. foreclosures following a joint examination by the Federal Reserve and the Office of the Comptroller of the Currency.  The regulators issued letters noting “certain deficiencies” in the processing, preparation and signing of affidavits and “other documents supporting foreclosures” at HSBC Finance Corp. and HSBC Bank USA, the London-based lender said yesterday in its annual report.  “We have suspended foreclosures until such time as we have substantially addressed noted deficiencies in our processes,” HSBC said in the report.  HSBC Bank USA Chief Executive Officer Irene Dorner said in October that the bank reviewed its U.S. foreclosure process and didn’t find evidence of so-called robo-signers,

HSBC's Foreclosure Moratorium and Robo-Signing Claims Don't Stand Up to Scrutiny  - In HSBC's 2010 annual report, the bank asserted that it had stopped 'processing foreclosures' and that it 'suspended foreclosures' in December, even though the information wasn't made public until Feb. 28, when HSBC (HBC) filed the report with the SEC. But based on at least two cases still working their way through Florida's courts, that delay in disclosure apparently also meant that HSBC didn't tell attorneys bringing foreclosure actions in the bank's name to put their cases on hold. Indeed, if HSBC had systematically put its many pending foreclosure cases on hold in December, the news surely would have come out before now. So it's appropriate to ask: What does the moratorium announcement really mean? HSBC has also repeatedly asserted that it doesn't robo-sign. Despite those denials, HBSC's annual report concedes foreclosure document problems that certainly sound like those caused by robo-signing: 'certain deficiencies in the processing, preparation and signing of affidavits and other documents supporting foreclosures. . .including the evaluation and monitoring of third-party law firms retained to effect our foreclosures.' Even if that language refers to something other than robo-signing -- and frankly, anything else it could refer to would be worse -- the servicer foreclosing in HSBC's name in the two cases below is using robo-signed documents. So, is it really valid to say HSBC doesn't robo-sign?

Paul Jackson Declares “Misson Accomplished” -- Yves Smith - Paul Jackson has posted on a decision by an Alabama trial court involving the so-called New York trust theory that we have discussed at some length on this blog. Given how banks have been taking it on the chin ever since the robo-signing scandal broke last, I suppose I’d be inclined to gloat a little, as Jackson does, in response to a verdict in favor of a bank; bank PR been a particularly tough assignment, these past few months. But Jackson tries to treat this particular lower court decision as an important precedent, when this is anything but. In addition, Jackson evidently is not familiar the normal process of getting new legal arguments accepted in court, or of how decisions in one court are viewed in another. Because Alabama is widely known to have an anti-consumer state court, a decision in favor of the borrower would be seen as far more surprising, hence noteworthy, than a decision in favor of the bank. Alabama used to be a state where juries in class action suits would give mind-numbing awards to plaintiffs. As a consequence, big corporations have labored mightily and successfully in repopulating the judiciary with more pro-business jurists.Second, it is not unusual for new arguments, particularly in unsettled areas of the law, to lose on their debut. Think how long tobacco and asbestos litigation took to start getting traction in courtrooms. Plaintiffs’ lawyers go through a learning process as determine what hurdles they need to overcome to persuade a judge or jury

We Explain the Mortgage Mess on Harry Shearer’s Le Show on Sunday - 03/05/2011 - Yves Smith

Big Drop in New Foreclosures? - Yves Smith - There has been evidence here and there of a marked fall in new foreclosure filings. Lender Processing Services, which handles more than half of the loans serviced in the US, said its revenues in its Default Services Group were down in the final quarter of the year. Why? Its revenues are tied to initial foreclosure filings, and its were off 33%, no doubt in large measure due to the robo signing scandal. Recall that it led many banks to halt foreclosures (some all over the US, others in judicial foreclosure states only) while they inspected the state of play and scrambled to revamp procedures. Banks piously claimed that they found no problems in the correctness of foreclosure actions and that ex making the changes needed to assure affidavits were proper, they were going to be back to business as usual post haste. Now we already know that that isn’t the case. Since the robosigning scandal broke, foreclosure activity has been down. RealtyTrac reported that foreclosures in January were up only 1% over December levels, which was down 17% from the year prior.

Freddie Mac: U.S. home prices drop 4.3% in fourth quarter…U.S. home prices fell 4.3% on a year-over-year basis in the fourth quarter as foreclosures and slowing sales buoyed inventory levels, Freddie Mac said Monday in its Conventional Mortgage Home Price Index."Foreclosed-property and short sales remain a big part of the market. However, new foreclosures will begin to gradually slow," said Frank Nothaft, Freddie Mac's chief economist. "Delinquency rates reported by the Mortgage Bankers Association continue to recede from their peaks but remain high, particularly in distressed areas of the country."Home prices fell in every U.S. geographical region in the fourth quarter, with the steepest declines occurring in the Mountain region, where home values fell more than 4%. The region includes the states of Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah and Wyoming. Home values in the mountain region also plummeted 9.6% in the past 12 months and 20% over a five-year period.

Homeowner Suffers Horrific Injustice at the Hands of JPMorgan Chase - For over two years I’ve had a front row seat for the foreclosure crisis, the by-product of our government’s complete mishandling of the worst economic downturn in seventy years. During that time I’ve been exposed to some pretty horrific things… people living in their cars with a child sleeping in the trunk… the eviction of an 89 year-old couple… I’ve gotten to know what that fear sounds like and feels like… the fear of losing one’s home while the country talks about you as being nothing more than an “irresponsible borrower,” someone who never should have bought your home in the first place, even though you may have lived in it for 30 years. What I saw this past week, however, was something new for me… I’d heard of things like this happening before, written about them, even.  But, I had never seen anything like it, up close and personal.

Waiting Seven Years for Two Answers - WHEN Zella Mae Green of Georgia filed for bankruptcy to save her home from foreclosure in 2004, she and her lawyer wanted to know two things: Did she actually owe any back payments on her mortgage? And, if so, to whom?  Ms. Green took out a $40,250 mortgage in 1988, never refinanced and figured she is four payments behind. Wells Fargo contended that she owes 113 back payments, totaling more than $48,000.  Ms. Green said she would have given up years ago if it weren’t for her lawyer. She would have forfeited her two-bedroom home in Decatur to one of the three institutions that have claimed — at the same time, mind you — to hold title to it. “It’s been a big mess for a long time,” she said in a recent interview.

How this $83 fountain pen helped save a family home from foreclosure - Several months ago, I got a call from a couple facing foreclosure. They were convinced, and soon convinced me, that the bank had forged certain key documents in the case. I asked several pointed questions, got the facts I needed, and drafted both an answer to the complaint and an affidavit from my client about the fraud. The answer, which stated the facts in mostly general terms, I filed right away, and “kept my powder dry” with the affidavit. At first, the bank freaked out. They heaped scorn our defenses, calling them “frivolous” and “without basis.” Judges balked—even in the face of overwhelming evidence that they do it every day—at the thought that a bank could commit foreclosure fraud. Shamefully, one judge even threatened my client with criminal charges for perjury. But we did not waver. We used our secret to its best effect, and properly prepared, we survived the summary judgment hearing. The court set a trial date. I began the process of assembling our trial evidence and witnesses, including an expert witness to testify about the fraud we’d uncovered. And then the strangest thing happened: the bank gave up.

High Oil Prices Complicate Housing Recovery - Housing wasn’t anticipated to surge in 2011, but it wasn’t expected to be a huge drag on growth as it had been in the past three years.That outlook changed, however, after oil prices spiked in response to protests in the Middle East. Suddenly, businesses and consumers are uncertain where their energy bills are headed, but the best guess is up. Bigger fuel bills are making this winter harsher for many households. The Energy Information Administration estimates the average household in the Northeast will spend $2,431 on heating oil this winter, up 23.8% from last winter’s total. Businesses from airlines to chemical makers are also facing higher costs.Most economists think the rise in fuel costs will deter output growth rather than boost inflation. That is because higher energy costs leave less money available to spend on other goods. Given the slack in labor markets and capacity, higher fuel costs won’t translate much into higher wages or prices that would push up core inflation.

Cash-only home sales rise in California -Cash talks. And it's speaking loudly in California real estate these days, even in the nicest parts of town. All-cash buyers grabbed a record 30.9% share of the Golden State's houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems. Cash activity has been brisk for months in foreclosure-ridden areas such as Riverside and San Bernardino. But now, the cash buyer has become a major player in Southern California's most expensive communities, where cash deals account for as much as two-thirds of home sales.The trend is being driven by several factors, analysts say, including the difficulty of getting a "jumbo" loan from lenders still stinging from the mortgage meltdown. It also reflects speculation by wealthy investors who believe home prices are at or near a bottom. In the Southland's $1-million-and-up market, 29.2% of buyers paid cash last year — the highest percentage since 1994, DataQuick statistics show. For homes selling for $5 million and up, 62.2% paid cash.

Phoenix real estate breaks a record with 50 percent of all home sales coming from all cash investors. Locals barely can buy with FHA insured loans. Can a desert market dependent on cheap oil and survive in the $100+ a barrel world? -  The Phoenix real estate market is a fascinating case examination of an area guided by FHA loans for first time buyers and all cash investors purchasing 50 percent of properties.  In January of 2011, the latest month of stunning data, 1 out of every 2 homes sold went to an all cash buyer.  We are seeing many investors moving off the picket fence and purchasing homes in these desert cities.  Cash is being put into action.  The price has fallen dramatically and home prices are cheaper today than they were over a decade ago.  But is this a good deal?  Are eager investors making a good move out in Phoenix?  The median price for a home sale was $119,000 which is down y-o-y by 9 percent and the median condo price was $72,000 down 24 percent y-o-y.  When we look at the statistics we see that many eager investors are moving cash off the sideline and purchasing homes with all cash.

What Happened to the Middle Class? - What changed? Our expectations, mostly. Indeed, James Hanley (ia Jason Kuznicki) argues that it’s quite possible today to “live a 1950s middle class lifestyle while working part-time at contemporary American wages.” For example, in the 1950s, a middle class lifestyle meant a window air conditioner and some fans to move the air around; today it means central air conditioning. Back then a single car family was middle class; today most middle class families are two car families. A single television set was sufficient to be middle class back then; today-even though televisions are much cheaper-most middle class families have multiple televisions, many pay extra for a television that’s much larger than what their (grand)parents had, and most pay extra-sometimes a lot extra-for cable or satellite (i.e., once upon a time three free channels was middle class; now 100 pay channels is middle class). They didn’t pay for microwaves and computers (and internet access) in the 1950s, while we do now. We also eat out a lot more today than they did back then. One of the biggest changes is the size of American homes. In the 1950s, the average home size was just under 1,000 square feet; today it’s over 2,300 square feet. As importantly, a house back then most often had a single bathroom; now homes regularly have 2 1/2 baths or more.

Bankruptcy Filings Ticked Up Last Month - Consumer bankruptcy filings ticked up in February, but so far the rise has slowed from 2010. The number of personal bankruptcy filings rose 11% to 102,686 in February compared to a month earlier, the American Bankruptcy Institute and the National Bankruptcy Research Center said Tuesday. “Though consumers are striving to reduce their debt burden, high unemployment and a still-poor housing sector continue to fuel new bankruptcies,” Samuel J. Gerdano, the American Bankruptcy Institute’s executive director. Compared to the same time a year ago, however, personal bankruptcies fell 8%. While it’s still early, data for the first couple months of the year could indicate that consumers won’t have a repeat performance of the surge in filings in 2010. More than 1.6 million consumer bankruptcy filings were reported last year — the highest level in five years.

Spending & Income Rise In February - Personal income and spending rose again in January, the U.S. Bureau of Economic Analysis reports. The news offers fresh ammunition for arguing that the trend remains encouraging for two key pillars of the economy. But there's some fine print to consider. It remains to be seen how (or if?) the Middle East turmoil, and the associated rise in energy prices, will alter consumer behavior. As such, the February numbers may already be dated. Meanwhile, the jump in income last month was primarily due to a new cut in payroll taxes that began last month. Nothing wrong with that, of course, but it's not the same thing as saying that companies were handing out big raises last month.  On its face, disposable personal income (DPI) continues to look strong, rising 0.7% last month, up from December’s 0.4% rise. That’s the fourth consecutive monthly increase. But after excluding the lower payroll deductions that started in January, DPI gained only 0.1%, according to the government.  Personal consumption expenditures (PCE) advanced in January too, and for the seventh month running, but at a much slower rate: 0.2% vs. 0.5% in December. After adjusting for inflation, PCE actually slipped 0.1%.

U.S. Consumer Spending Cools as Food, Fuel Costs Climb -- Consumer spending cooled more than forecast in January as rising food and fuel prices caused Americans to cut back on post-holiday visits to malls and restaurants.  Purchases rose 0.2 percent, the smallest gain since June, as winter storms may have also discouraged shoppers, according to figures from the Commerce Department today in Washington. A report from Chicago-area purchasing managers showed businesses expanded in February at the fastest pace in two decades.  Economists at Morgan Stanley and Deutsche Bank Securities Inc. cut forecasts as the data showed households may have used some of the extra cash from the payroll tax cuts to boost savings.  “The consumer has become slightly more cautious,” . “The extra money for gas prices is coming out of consumers’ pocket. Spending will be positive, but modest.”

Personal Income and Outlays Report for January - The BEA released the Personal Income and Outlays report for January:Real PCE declined in January after increasing sharply in Q4. Note: The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter - so this graph still shows growth over Q4. Also personal income less transfer payments increased again in January. This increased to $9,427 billion (SAAR, 2005 dollars) from $9,325 billion in December.  This graph shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover, but has improved recently - and is still 3.2% below the previous peak.The personal saving rate increased to 5.8% in January. Personal saving as a percentage of disposable personal income was 5.8 percent in January, compared with 5.4 percent in December. This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the January Personal Income report. The 1.0% increase in personal income was well above expectations of 0.4%, although spending only increased 0.2% (compared to expectations of 0.4%). The core price index for PCE increased 0.1 percent in January - slightly below expectations.

Clothing prices to rise 10 percent starting in spring - Shoppers looking to update their wardrobes may find their money won't stretch as far.As the world economy recovers and demand for goods rises, a surge in raw material and labor costs is squeezing retailers and manufacturers who have run out of ways to pare expenses. Clothing prices had dropped for a decade as tame inflation and cheap overseas labor helped hold down manufacturers' costs. During the recession, retailers and clothing makers cut frills and experimented with fabric blends to keep prices in check. But cotton has more than doubled in price over the past year, hitting all-time highs. The price of synthetic fabrics has jumped roughly 50 percent as demand for alternatives has risen. Clothing prices are expected to rise about 10 percent in coming months, with the biggest increases in the second half of the year, Levi Strauss & Co., Wrangler jeans maker VF Corp., J.C. Penney Co., Nike and shoe seller Steve Madden also plan increases.

Michelin to raise passenger, LT tire prices - On May 1, Michelin North America Inc. will be increasing prices on Michelin, BFGoodrich, Uniroyal and private and associate passenger and light truck replacement tires sold in the United States by up to 8.5% due to increasing raw material costs. Michelin is the latest tire manufacturer to announce price increases. Other upcoming price hikes include:

  • * Nexen Tire America Inc. will raise tire prices up to 8% effective April 1. The increases will be applied to warehouse orders and April FDC production.
  • * Hankook Tire America Corp. will increase prices on its full line of passenger and light truck tires by a weighted average of 7%. The increases will go into effect April 1.
  • * Cooper will raise prices on its light vehicle tires effective March 15. The increases in total will average around 8% to 9%, with in-line adjustments.
  • * Continental Tire the Americas LLC will raise consumer tire prices in the U.S. up to 6%, with some in-line adjustments, effective April 1.
  • * Bridgestone, Firestone and associate brand passenger and light truck tires in the U.S. and Canada will vary up to 8%.

Consumer Outlook Index Falls, Hurt By Gas, Food Costs Sticker shock at the gas pump and grocery aisle are taking a toll on consumer psyches in March. The Royal Bank of Canada‘s consumer outlook index fell to 42.5 this month from a reading of 44.5 in February. The index has fallen for three consecutive months. The report said the consumers are reacting negatively to the recent jump in gasoline and food prices, in addition to unrest in the Middle East and the prospect of a federal government shutdown. The RBC current conditions index fell to 32.4 this month from 34.4 in February, while the expectations index dropped to 53.6 from 56.8. “What really stands out to us is worry about the future,” says Tom Porcelli, chief U.S. economist at RBC. He said consumers are worried about their ability to save and invest.

Your Incredible Shrinking Paycheck - Before I started writing this column on why paychecks are likely to keep shrinking even if unemployment starts to inch down, I consulted Google to see if the term Marxism was trending upward. It was and has been ever since the end of December, the conclusion of a year in which workers' share of the U.S. economic pie shrank to the smallest piece ever: 54.4% of GDP, down from about 60% in the 1970s. No wonder Marx is back in fashion. It's been more than 100 years since the German philosopher predicted that capitalism's voraciousness would be its undoing — as bosses invest more in new technologies to make things more cheaply and efficiently and less in workers themselves, who, deprived of fair wages, would eventually rise up and revolt. That hasn't happened, of course, though depressed wages certainly contributed to the revolution in Egypt, not to mention lots of other instances of public unrest over the past few years. But the fact that wages in the U.S. and most other rich countries have been falling since the 1970s and went off a cliff after the recent financial crisis is going to become a more pressing economic and political concern. Just think how hard it will be for Obama to sell himself in 2012 if salaries are still falling.

Credit Card Data Tells Mixed Story - American shoppers did not shed their reliance on credit cards over the year-end holidays. While the average debt on credit cards in December decreased by 4 percent compared with the same month a year before, Americans still carried an average of $4,284 on credit card statements in December 2010, according to data released this week by the credit monitoring company Experian. The data offers conflicting versions of the economy’s already mixed picture. While some consumers spent more during the holidays because the economy was rebounding, others were still unable to cover expenses without leaning on their credit cards. And while holiday spending also appeared to have been more robust than in the last several years, even more recent data has shown a bit of a slowdown in consumption this year. “You’ve got people who already had good credit and were pretty much managing their credit, and because of the risk, paid down their debt even more,” . Then there were “very dramatic increases in debt by people who, mainly, lost jobs, but also had medical emergencies, and turned to credit cards to carry them through the hard times.”

US retail sales climb 4.2% in February‎ - The nation's retailers delivered another strong sales performance last month, driven by store promotions, better weather and demand for spring merchandise. In a report that helped buoy the stock market, major retailers posted a 4.2% year-over-year sales increase in February. The gain, which beat expectations for a 3.6% rise, was spread across all major retail categories, including discounters, department stores, apparel sellers and teen clothing chains."The breadth and the strength of the sales gain in February was encouraging," said Michael Niemira, chief economist of the International Council of Shopping Centers. "This widespread improvement is on the heels of improving labor markets, broader improving economic conditions, and the reduction in payroll tax — all of which are more than offsetting the potentially negative drag of high fuel and food prices on consumer mind-sets."

February Sales: How Retailers Fared - Many large retailers reported their February sales numbers this week, with most of them coming out the morning of Thursday, March 3. Sort the chart below by company name, category, change in total or same-store sales, and total sales. Also, see January’s chart.

As Big Boxes Shrink, They Also Rethink - Major big-box retailers have been shifting to smaller stores—and scratching around for more profitable ways to fill under-used spaces as they go about reinventing themselves. Sears Holdings Corp. is letting prospective tenants browse an online list of Kmart and Sears stores with space to rent. Sears reached a deal to lease 34,000 square feet of store space in Greensboro, N.C., to Whole Foods Market Inc. for a grocery store set to open in 2012.Home Depot Inc. is selling off portions of its parking lots to fast-food chains and auto repair shops. Gap Inc. is reverting to a Russian nesting-doll strategy: after years of expanding by adding standalone stores such as GapKids and Gap Body, it is shrinking them and stacking them back inside its namesake Gap stores. Best Buy Co. last week became the latest retail chain to go smaller, announcing last week that it was slowing growth of new big-box stores this year in favor of adding 150 Best Buy Mobile locations, focused on smartphones. Wal-Mart Stores Inc. also said last week that it was accelerating the rollout of smaller locations—40,000 square feet or less—after it reported a seventh straight quarterly decline in sales at U.S. stores open at least a year. The retail giant, which rose to dominance with 185,000-foot Supercenters, plans to open its first Walmart Express store in the second quarter of this year, though it won't say where.

Lord, Make Us Thrifty, but Not Yet - Following up on my earlier post on the fall in American consumer spending: The flip side of the declining spending numbers is that the personal savings rate increased in January. Households had a saving rate of 5.8 percent (measured as the share of disposable income not spent), up from 5.4 percent in December.Isn’t that a good thing, you might ask? Don’t we want Americans to start budgeting more responsibly? In the long term, yes: it would benefit the economy to be less dependent on consumer spending and more reliant on exports. That requires a higher saving rate, at least to the levels seen before the credit bubble. But as St. Augustine of Hippo might say, Lord, make us thrifty, but not yet. In other words, we want Americans to start saving more in the future — that is, sometime after the economy has fully recovered. In the near term, though, businesses need consumer spending, not saving, to help them grow and eventually hire.

Truckers Rally Against Fee, Tax Proposals - Truck drivers rolled into Annapolis on Tuesday to protest legislation that would increase the state's fuel tax and vehicle registration fees.  Diesel fuel is already more than $3.80 a gallon in Maryland, and truckers said that's high enough.  "It's craziness. I don’t see how people are making it out here," said driver Mike Tyce.  "You're looking at a couple hundred dollars a day just in fuel. I fuel up every day. At the end of the month, that's thousands of dollars," said driver Bob Reynolds.  The Maryland Motor Truck Association opposes measures that it said would impose about $3,000 in new fees on every rig in the state. "We need to have some relief in this. We just can't absorb these costs,"

Oil Prices and PCE - The following graph shows the monthly personal consumption expenditures (PCE) at a seasonally adjusted annual rate (SAAR) for gasoline, oil and other energy goods compared to the U.S. spot price for oil (monthly). As oil prices fell sharply in late 2008, consumption of gasoline and other energy goods fell sharply too. On a quarterly basis, PCE, "Gasoline and other energy goods" peaked at $467 billion (SAAR) in Q3 2008, and fell sharply to $265 billion (SAAR) in Q1. The sharp decline in oil prices provided a cushion for the U.S. economy in early 2009.Now, with U.S. spot prices over $100 per barrel, gasoline and other energy goods PCE will probably come in around $425 billion (SAAR) in Q1 2011 (up from $379 billion (SAAR) in Q4 2010. This was already over $400 billion SAAR in January.  This is a drag on consumers of about $5 to $6 billion per month, at the current oil price, compared to the average for 2010.

DOT: Vehicle Miles Driven increased in December -- The Department of Transportation (DOT) reported that vehicle miles driven in December were up 0.6% compared to December 2009: Travel on all roads and streets changed by +0.6% (1.4 billion vehicle miles) for December 2010 as compared with December 2009. Travel for the month is estimated to be 243.4 billion vehicle miles.Cumulative Travel for 2010 changed by +0.7% (20.5 billion vehicle miles). This graph shows the rolling 12 month total vehicle miles driven. • Note: in the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. Currently miles driven has been below the previous peak for 37 months - another record that will be broken soon.• For the year (2010), this was the most vehicle miles traveled since 2007 and the third-highest ever behind both 2006 and 2007.

Costs of the Infrastructure Deficit - From the New America Foundation this week comes a brief report on the efficiency losses of America's outmoded infrastructure.  The costs approach $200 billion per year, with sitting in traffic making up over half that total.  An excerpt:Congestion has worsened as the expansion of the highway system has failed to keep pace with usage.  Since 1980, mileage of U.S. highways increased 4.5% while the number of passenger cars increased 12.7% and the number of trucks increased 56.4%.  As a result, the amount of time wasted has increased dramatically over the past few decades rising from 14 hours per driver in 1982 to 34 hours in 2009.  The cost of these delays has increased from $24 billion in 1982 to $115 billion in 2009 dollars.  Congestion has also slowed truck freight.  Truckers experience 243 million hours of bottleneck delay annually at a cost of $32.15 per hour, in addition to general traffic delay. Given that oil prices have increased dramatically in recent years, and are likely to remain elevated, the cost of congestion and poor infrastructure are rising.

General Motors: February U.S. sales increase 22% year-over-year - The real key is the seasonally adjusted annual sales rate (SAAR) compared to the last few months, not the year-over-year comparison provided by the automakers. But this is a strong increase for GM ...From MarketWatch: GM U.S. February auto sales surge 45.8% to 207,028 [GM] said January U.S. sales in February surged 45.8% to 207,028 vehicles from 141,951 in February 2010.

From MarketWatch: Ford U.S. February auto sales up 13.8% to 156,626
From MarketWatch: Chrysler sales rise 13% in Feb
From MarketWatch: Toyota U.S. February sales soar 41.8% to 141,846

U.S. Light Vehicle Sales 13.44 million SAAR in February -  Based on an estimate from Autodata Corp, light vehicle sales were at a 13.44 million SAAR in February. That is up 28% from February 2010, and up 6.8% from the sales rate last month (Jan 2011). This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for February (red, light vehicle sales of 13.44 million SAAR from Autodata Corp). This is the highest sales rate since August 2008, excluding Cash-for-clunkers in August 2009.  The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. The current sales rate is finally off the bottom of the '90/'91 recession - and there were fewer registered drivers and a smaller population back then. This was well above the consensus estimate of 12.7 million SAAR. But, with rising oil prices, the automakers might be under pressure in March.

World-Wide Factory Activity, by Country - Global manufacturing posted another month of strong gains in February, with expansion accelerating in most regions including the U.S. Just Greece remained in contractionary territory last month, according to national manufacturing purchase managers indexes compiled by Markit, the Institute for Supply Management and others. Asia also continued its factory-sector expansion, even as China’s official measure posted a slowing in growth. While the manufacturing expansion is good news for the recovery, the reports also note inflationary pressures growing in most of the world as producers deal with higher input costs. Click on the top of any column to resort the chart. Readings above 50 signal expansion

Gas prices up for 7 days in a row -- Fresh off a 27-cent jump last month, gas prices were up slightly in a daily survey by motorist group AAA, as the price of crude oil backed off recent highs.  The national average price for a gallon of regular gasoline rose Tuesday to $3.375, according to AAA. That was up 0.7 cent from $3.368 a gallon on Monday, and marked the seventh day in a row that prices have increased. Gas prices nationwide averaged about $3.17 a gallon last month, compared with $2.65 a gallon in February 2010. As in recent weeks, Hawaii reported the highest gas prices in the nation, with drivers in the state paying an average of $3.784 a gallon. The lowest gas prices were in Montana, at $3.065 an average gallon.  Gas prices jumped 20 cents in the last eight days of February1, as political unrest in Libya drove up the price of crude oil, the main ingredient in gasoline.

Using Gas Prices to Forecast the Unemployment Trend - Previously, we found that the average price of a gallon of gasoline in the U.S. can be used to forecast what the U.S. unemployment rate will be about two years ahead in time.  Since then, gasoline prices have been rising pretty significantly across the U.S. and are predicted to rise even further, so today, we're presenting a tool based upon our analysis that you can use to anticipate what the jobs situation will be like two years from now.  To find out, enter the latest average price of a gallon of gas in the U.S. into the tool as well as the most recently available value for the Consumer Price Index for All Urban Consumers, which lets us take inflation into account, and we'll project what the U.S. unemployment rate will likely be two years from now.  Now for a quick word of caution. The correlation between gas prices and the unemployment rate is positive, but is only of low-to-medium strength, which you can see in the spread of the data points about the trend line in our chart showing the correlation.

U.S. Postal Service expects cash shortage in '11 - The U.S. Postal Service will be unable to pay two major bills later this year unless Congress changes the law to eliminate Saturday mail deliveries, the postmaster general, Patrick R. Donahoe, told the House Postal Oversight Committee on Wednesday. Media reports say that as of Sept. 30, the end of the current fiscal year, the Postal Service must lay out $5.5 billion as an advance payment to cover future retirees' medical costs. And in October, it must pay $1.3 billion for workers compensation, Donahoe told lawmakers, according to the reports. The agency has cut 240,000 workers in recent years; it cut $3 billion of costs last year and expects another $2 billion of cost cuts this year, reports say. In September, regulators rejected the Postal Service's request to raise the first-class-letter rate to 46 cents from 44 cents

Dagny Taggart Wept - Oh, boy — this George Will column (via Grist) is truly bizarre:So why is America’s “win the future” administration so fixated on railroads, a technology that was the future two centuries ago? Because progressivism’s aim is the modification of (other people’s) behavior.Forever seeking Archimedean levers for prying the world in directions they prefer, progressives say they embrace high-speed rail for many reasons—to improve the climate, increase competitiveness, enhance national security, reduce congestion, and rationalize land use. The length of the list of reasons, and the flimsiness of each, points to this conclusion: the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism.As Sarah Goodyear at Grist says, trains are a lot more empowering and individualistic than planes — and planes, not cars, are the main alternative to high-speed rail.  And there’s the bit about rail as an antiquated technology; try saying that after riding the Shanghai Maglev.

Why conservatives hate trains - Via Paul Krugman, I come across this George Will column purporting to expose the "real" reason why many liberals support rail transport: This is not a claim you often hear spoken aloud, but it seems to be part of conservatives' tacit understanding of the world. Three questions suggest themselves. In decreasing order of deference to the conservative worldview, these are: 1. Do trains reduce individual liberty? 2. Do progressives support rail for this reason? 3. Why do conservatives hate trains so much?Do trains reduce freedom of movement? Not if you live in a city, they don't! If you try driving your car in a big city, you'll find yourself doing a lot of A) driving around looking for parking, as well as B) walking to and from your parking spot. If you have to use street parking, you'll find yourself temporally constrained as well, constantly checking your watch to see if there's still time on the meter. And that's all before taking traffic into account.

Trains and Freedom - A bit more on this subject — not serious, just a personal observation after a long hard day of reading student applications. (My suggestion that we reject all applicants claiming to be “passionate” about their plans was rejected, but with obvious reluctance.)Anyway, my experience is that of the three modes of mechanized transport I use, trains are by far the most liberating. Planes are awful: waiting to clear security, then having to sit with your electronics turned off during takeoff and landing, no place to go if you want to get up in any case. Cars — well, even aside from traffic jams (tell me how much freedom you experience waiting for an hour in line at the entrance to the Lincoln Tunnel), the thing about cars is that you have to drive them, which kind of limits other stuff. But on a train I can read, listen to music, use my aircard to surf the web, get up and walk to the cafe car for some Amfood; oh, and I’m not restricted by the War on Liquids. When I can, I prefer to take the train even if it takes a couple of hours more, say to get to Boston, because it’s much higher-quality time.

Fed’s Bernanke: Budget cuts could trim 200,000 jobs (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday a Republican spending cut plan would not cause a big dent to U.S. economic growth, but could cost around 200,000 jobs. Bernanke said that a $60 billion cut along the lines being pursued by Republican in the House of Representatives would likely trim growth by around two-tenths of a percentage point in the first year and one-tenth in the next year."That would translate into a couple of hundred thousand jobs. So it's not trivial," he said in response to questions from members of the House Financial Services Committee. The Republican-run House has passed a budget bill for the current fiscal year that includes $61 billion in spending cuts, but majority Democrats in the Senate say the reductions would endanger the economic recovery.

Jobs, Jobs, Jobs  - As a reminder, the weak payroll report for January was blamed on the snow. Usually I don't buy the weather excuses, but it did appear weather played a role this time. That is a key reason the consensus is so high for February. Bloomberg has the consensus at 180,000, MarketWatch has 200,000, Goldman's forecast is 200,000, and I heard ISI is at 230,000).It will be useful to average the two months to estimate the current pace of payroll growth - especially if weather played a role in January and there is a strong bounce back in February. And we have to remember the numbers are grim:
• There are 7.7 million fewer payroll jobs now than before the recession started in December 2007.
• Almost 14 million Americans are unemployed.
• Of those unemployed, 6.2 million have been unemployed for six months or more.
• Another 8.4 million are working part time for economic reasons,
• About 4 million more have left the labor force since the start of the recession (we can see this in the dramatic drop in the labor force participation rate),
• of those who have left the labor force, about 1 million are available for work, but are discouraged and have given up.

Is The Stalled Decline In Jobless Claims Really Over This Time? - Was that a tipping point for the trend in jobless claims? Today’s update of weekly filings for new unemployment benefits shows a drop to a seasonally adjusted 368,000 for the week through February 26. Initial claims haven’t been this low since May 2008. Today’s number also marks another milestone since the end of the recession: the first back-to-back weekly readings below 400,000. It still too early to declare victory for the trend in jobless claims, but it’s a bit harder to argue that this metric remains in neutral. Indeed, the more relevant four-week moving average for this series also dipped below 400,000 last week for the first in nearly three years. It’s going to take another few weeks to decide if this is real, but today’s report surely offers the best news for this measure of labor market activity in many months.

February planned layoffs highest in 11 months: Challenger (Reuters) - The number of planned layoffs at U.S. firms rose in February to its highest level in 11 months as government and non-profit employers let workers go, a report showed on Wednesday. Employers announced 50,702 planned job cuts last month, the highest level since March 2010 and a jump of 32 percent from January's 38,519, according to the report from consultants Challenger, Gray & Christmas, Inc. Layoffs were 20 percent higher than the 42,090 announced in February of last year, marking the first year-over-year increase since May 2009. Even so, the report said the pace of job cutting remains relatively subdued. Job cuts for January and February stand at 89,211, well below the 113,572 job cuts that were announced in the first two months of 2010. "It is too soon to say whether the increases in January and now February represent a trend,"

Gallup Reports Underemployment Surges To 19.9%, February "Jobs Situation Deteriorates": As Bad As 2010 - On one hand we have the Department of Truth about to tell tomorrow that NFP based on various seasonal and birth death adjustments increased by 250,000. On the other hand, we have Gallup which actually does real time polling without a procyclical propaganda bias. And Gallup does't have any good news: "Unemployment, as measured by Gallup without seasonal adjustment, hit 10.3% in February -- up from 9.8% at the end of January. The U.S. unemployment rate is now essentially the same as the 10.4% at the end of February 2010." And the one indicator that nobody in the mainstream media will touch with a ten foot pole: "Underemployment, a measure that combines part-time workers wanting full-time work with those who are unemployed, surged in February to 19.9%. This resulted from the combination of a sharp 0.5-point increase since the end of January in the percentage unemployed and a 0.5-point increase in the percentage working part time but wanting full-time work. Underemployment is now higher than it was at this point a year ago (19.7%)."

Charts of the Day: U.S. Unemployment above 10%, Underemployment near 20% - With the jobs numbers coming out tomorrow, it bears noting that the official U.S. data have been marred by low labour participation rates. The reality is that while the jobs picture is improved, many of the long-time unemployed have dropped out of the labour force and are not being counted as unemployed as a result. This has led to the unemployment rate declining at a rate which is not consistent with the fundamental picture in the labour market. The data from polling firm Gallup do not have this problem.  Below is their chart of the unemployment rate for 2010-2011.

ADP: Private Employment increased by 217,000 in February - ADP reports: Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000). Note: ADP is private nonfarm employment only (no government jobs).  This was above the consensus forecast of an increase of about 180,000 private sector jobs in February.

ADP: Employment Growth Accelerates in February - There’s enough upward momentum in today’s ADP Employment Report for February to encourage the belief that the labor market is healing. But true to form these days, there’s still not enough juice in the numbers to slay worries that job growth will be anything other than modest for the foreseeable future. Last month, nonfarm payrolls rose by a net 217,000, according to ADP. That’s up slightly from January’s 189,000 gain. Based on ADP’s historical data, February’s advance looks quite good. As good as the glory days of 2004-2007, in fact. Perhaps, then, today's number is a sign of better times approaching. Let’s see what comes from this Friday’s jobs report from the Labor Department, the more influential number. The consensus forecast calls for a rise that's more or less in sync with today's ADP report.

Friday’s Labor Department report may show best private job creation in years. But what kind of jobs? - The consensus of experts surveyed by Bloomberg puts February job growth at 180,000. But you don't want to know how many times and how badly that consensus has missed the mark in the past two years. In January it missed by 77 percent. Assuming job growth actually does come in at 180,000 for February, and keeps doing so steadily month after month, it will take until September 2014 before as many Americans have jobs as had them in December 2007 when the Great Recession began. Just in time for the next recession to start. As grim as that prospect is, a report by the National Employment Law Project contains worse news. Of the 8.84 million jobs that were lost in the recession, 1.3 million have been regained. But what kind of jobs? According to the NELP study, the growth of the past 12 months was concentrated:

    • • Lower-wage industries constituted 23 percent of job loss, but fully 49 percent of recent growth
    • • Mid-wage industries constituted 36 percent of job loss, and 37 percent of recent growth
    • • Higher-wage industries constituted 40 percent of job loss, but only 14 percent of recent growth

February Employment Report: 192,000 Jobs, 8.9% Unemployment Rate - From the BLSNonfarm payroll employment increased by 192,000 in February, and the unemployment rate was little changed at 8.9 percent, the U.S. Bureau of Labor Statistics reported today. The change in total nonfarm payroll employment for December was revised from +121,000 to +152,000, and the change for January was revised from +36,000 to +63,000.The following graph shows the employment population ratio, the participation rate, and the unemployment rate.The unemployment rate decreased to 8.9% (red line).  The Labor Force Participation Rate was unchanged at 64.2% in February (blue line). This is the lowest level since the early '80s. (This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although some of the decline is due to the aging population.)The second graph shows the job losses from the start of the employment recession, in percentage terms aligned at maximum job losses. The dotted line is ex-Census hiring.

February Employment Report - The BLS released its employment report for February this morning: Nonfarm payroll employment increased by 192,000 in February, and the unemployment rate was little changed at 8.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, construction, professional and business services, health care, and transportation and warehousing. Here's a bit of detail on the change in payroll employment (figures in thousands): The private sector is doing okay. Not great, but okay. But state and local government cutbacks in spending are doing a pretty good job in making a noticeable dent in the recovery of the US job market. Headwinds indeed.

The disappointing jobs situation - The general reaction to this morning’s jobs report is “meh”, as you might expect, given the release, where the phrases “changed little”, “about unchanged”, “little or no change”, “unchanged”, and “essentially unchanged” all appear in the first five paragraphs. But that’s largely a function of the fact that the release attacks the unemployment figures first; when it comes to payrolls, they rose by a statistically significant amount — 192,000 jobs, and the trend, while modest, is clearly in the right direction: Since a recent low in February 2010, total payroll employment has grown by 1.3 million, or an average of 106,000 per month. The really good news in this report is that it’s looking increasingly as though the sharp drop in the unemployment rate over December and January, when it fell from 9.8% to 9.0% in two months, is less of an aberration than it might seem. Even the worst news of the report, in table A-12, is something of a statistical aberration: while the mean duration of unemployment hit an atrocious new high of 37.1 weeks, that’s mainly because the upper bound for for unemployment duration was changed this year to 5 years from 2 years.

February Private Sector Job Growth Is The Highest In 10 Months - Today’s employment report for February suggests that the stock market rally that began last September correctly anticipated rebound 2.0 in the post-recession period. Private sector employment rose by a net 222,000 last month, the most since last April and a sharp rise from January’s feeble 68,000 advance. Even better, job growth was widespread across the economy. Only retail trade suffered a setback in the private sector. In short, today’s employment news is good—the best, in fact, in nearly a year. But today’s report is also a reminder that it’s going to take even higher levels of job growth to make a substantial dent in the elevated jobless rate. Unemployment barely budged last month, falling to 8.9% in February from January’s 9.0%. That’s a big yawn, and more than a little frustrating when you consider that we just received word of the best month for the labor market since last spring. The implication: If the economy maintains a monthly pace of job growth at February's rate, that’s probably enough to keep the jobless ranks from rising, but it’s well short of pulling down unemployment in the short run by anything more than a modest amount.

Jobs Report: Much Better Than Nothing - Woo-hoo!  Finally, a jobs report even a cynical economics blogger could love.  And yet, the quibbles bubble up.  This is a great jobs report by recent standards, but it is not a great jobs report compared to what we need for a sound recovery.  At this rate, employment will take years to return to pre-recession levels, and at that point, we'll still be below where we should be, because the workforce is still growing. A lot of bloggers and commentators out there are worried about government layoffs pushing us back into the ditch.  I think if you believe in the "strong" version of stimulus (multipliers 2x or higher), then this implies that we're probably going back into the ditch regardless of the prevailing political ideology.   Me, I'm not so worried, because I'm fairly lukewarm on stimulus--not a huge opponent, but also skeptical of the more optimistic claims about its effects.  Mostly I'm watching the private sector, and what we see in this report is that they're finally getting optimistic enough to do more hiring. It's not enough to undo all the misery.  But it's a start.

Finally, Signs Of A Recovery On The Jobs Front - After two years of bad jobs reports, it’s easy to pick one month out and make too much out of it. Nonetheless, the just-released February jobs report provides much more than just a glimmer of hope that the nascent economic recovery may actually be trickling down to the rest of us: America’s job engine picked up some steam last month. The nation’s employers added 192,000 jobs on net in February, after having added just 63,000 jobs the previous month, the Labor Department reported on Friday. The February number was about what economists had been forecasting. “Economic recoveries can be like a snowball rolling down a hill, in that it takes time to get some momentum,” . “People hesitate until they feel that the recovery’s durable enough, and then they have a tendency to jump in. Maybe we’re finally getting to that jumping-in moment.”

Why Jobs are Up - Unemployment is down and America, it seems, is going back to work.The February employment report from the Bureau of Labor Statistics, which details job increases and the unemployment report was released on Friday, offered a double whammy of good news. The unemployment rate dropped again to 8.9%. More importantly, the economy added 192,000 jobs last month. That was a huge jump from just a month ago, when the economy added just 62,000. Some of that was the result of weather. January had some pretty bad snow storms. February has turned surprisingly nice. So construction companies and transportation companies that are slowed by weather were able to hire. But it wasn't just weather alone. Companies in a lot of industries are hiring. Healthcare employers added 34,000 workers. Restaurants added 14,000 workers. And yes, construction added 33,000 workers. Those are small number but they all add up. Perhaps, the strongest sector and biggest surprise was manufacture, up 33,000 jobs. In fact, the U.S. manufacturing sector, which has long been given up for dead by many economist, has added 195,000 jobs since December 2009, making one of the fastest growing sectors of the economy.

Latest jobs report: Unemployment is lower, but historically high. - On the one hand, Friday morning's jobs report is the best report in three years. The unemployment rate fell to 8.9 percent in February, as the economy generated 192,000 new jobs. Granted, job growth was more robust in the spring of 2010. But that was due to the government hiring more than a million Census workers. This time, businesses are doing the hiring, finally comfortable that the recovery is self-sustaining, if sluggish. The private sector added 222,000 jobs in February, and has added 1.5 million workers in the past year.  On the other hand, the unemployment rate is woefully high by historical standards, and 13.7 million Americans remain out of work. At the current rate of job growth, it would take more than a decade for the United States to get back to a normal rate of unemployment of about 5 percent. There are 6.6 million fewer Americans working today than there were three years ago. Blacks, whites, teenagers, the elderly, women, men, high-school dropouts, grad-school graduates—every demographic group has unemployment close to historical highs. About 6 million Americans form a new pool of the long-term unemployed, whose prospects in the labor market remain very dim

The February Employment Report - The employment report for February was released this morning, and it is relatively good news. The report shows the unemployment rate falling slightly to 8.9 percent and payroll employment increasing by 192,000. The employment population rate was unchanged at 58.4 percent, and the labor force participation rate was unchanged at 64.2 percent. In addition, the broader unemployment rate, U-6 (which includes discouraged workers, involuntary part-time workers, and workers who are underemployed), fell from 16.1 percent to15.9 percent. Looking at this month in isolation, this is a big improvement. We need 100,000 to 150,000 new jobs per month to keep up with population growth (the number is likely closer to 100,000 than to 150,000, the uncertainly is over labor force participation rates after the recession). So 192,000 jobs not only keeps up with population growth, it also reemploys some previously unemployed workers — something that is very much needed since there are millions who have lost jobs since the recession started. There are, however, a couple of qualifications to these numbers

Unemployment Edges Lower as Job Growth Returns - The unemployment rate edged down to 8.9 percent in February, as the Labor Department reported that the economy generated 192,000 new jobs.  This number is undoubtedly inflated some by the weather-weakened January performance, when the economy generated just 63,000 jobs. The unemployment rate has now dropped by 0.9 percentage points in the last three months. During this period job growth as reported by the establishment survey has averaged just 136,000, only slightly faster than the 90,000 rate needed to keep pace with the growth of the labor force. It is difficult to reconcile the sharp drop in unemployment with the weak job growth. Generally, the establishment survey is much more accurate since it has a far larger sample and it is benchmarked every year to unemployment insurance data, which provide a near census of payroll employment. Other data in the establishment survey are consistent with the picture of modest job growth. Average weekly hours were flat at 34.2 for the month. This is up from the trough of 33.7 in June of 2009, but no higher than the level hit in May of last year. The growth in average hourly wages continues to slow slightly, falling to just a 1.6 percent annual rate over the last quarter compared with a 1.7 percent rate over the last year. These data certainly present no evidence of a marked uptick in the demand for labor.

Jobs in Perspective - Krugman - My basic reaction to today’s jobs report was, been down so long it looks like up to me. Clearly, this was better than the kind of report we’ve grown accustomed to seeing. But for perspective, here are annual averages of monthly job gains going back to Clinton:  All through the Clinton years, we routinely got job gains bigger than the latest number — and for much of that period the economy was already fairly close to full employment. So forgive me if I don’t get too excited about ~200,000 jobs when we’re still deep in the hole.

The Real News on Jobs - Robert Reich - Are we making progress on the jobs front? The Bureau of Labor Statistics reports 192,000 new jobs in Februrary (220,000 new jobs in the private sector and a drop in government employment), and a drop in the overall unemployment rate from 9 to 8.9 percent.To get the unemployment rate down to 6 percent by 2014 we’d need over 300,000 new jobs a month, every month, between now and then. Overall, the number of unemployed Americans – 13.7 million – is about the same as it was last month. The number working part time who’d rather be working full time – 8.3 million – is also about the same.But to get to the most important trend you have to dig under the job numbers and look at what kind of new jobs are being created. That’s where the big problem lies.The National Employment Law Project did just that. Its new data brief shows that most of the new jobs created since February 2010 (about 1.26 million) pay significantly lower wages than the jobs lost (8.4 million) between January 2008 and February 2010. While the biggest losses were higher-wage jobs paying an average of $19.05 to $31.40 an hour, the biggest gains have been lower-wage jobs paying an average of $9.03 to $12.91 an hour. In other words, the big news isn’t jobs. It’s wages.

Average Length of Unemployment Reaches High of 37.1 Weeks -The average duration of unemployment climbed to a high of 37.1 weeks in February. You can see the trend in this somewhat scary chart: You might be scratching your head right now. Why is the typical spell of unemployment getting longer, even though companies are finally adding jobs?A few factors are probably responsible.The first thing to consider is that there is some inertia to unemployment, for a whole host of complicated reasons like prejudice against idle workers. People who have been out of work for a year are much less likely to find a job in the coming month than people who have been out of work for just a month.In other words, even though businesses have picked up hiring, they’re probably disproportionately hiring people who have spent less time out of work. That leaves more of the long-term unemployed in the jobless pool, with each of those individual workers racking up even more weeks. The net effect is to pull up the overall average length of unemployment. (The median length of unemployment on the other hand ticked downward in February, to 21.2 weeks from 21.8 weeks.)

Gaining perspective on the employment picture - Atlanta Fed's macroblog - The employment report released today indicated a moderate increase of 192,000 in nonfarm payrolls and a slight decline in the unemployment rate from 9 percent in January to 8.9 percent. While certainly an improvement over recent months, employment growth still has not reached a level needed to produce significant drops in the unemployment rate. In a speech given yesterday, Atlanta Fed President Dennis Lockhart addressed some of the underlying issues that have potentially been holding back job growth. On the supply side, President Lockhart addressed three structural issues, including skill mismatch, house lock, and extended unemployment insurance. "Skill mismatch exists when work skills of job seekers do not match the requirements of jobs that are available. For example, a construction worker is unlikely to have the particular skills needed in the healthcare industry." Another possible explanation mentioned by President Lockhart for persistently high unemployment is the existence of  what is sometimes referred to as "house lock."

Employment Summary and Part Time Workers, Unemployed over 26 Weeks - Here are a few more graphs based on the employment report ...This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at the start of the recession.  In the previous post, the graph showed the job losses aligned at maximum job losses. In terms of lost payroll jobs, the 2007 recession is by far the worst since WWII, and the "recovery" for payroll jobs is one of the slowest. From the BLS reportThe number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.3 million in February. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. These workers are included in the alternate measure of labor underutilization (U-6) that declined to 15.9% in February from 16.1% in January. Still very high, but improving.This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 5.993 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 6.21 million in January. This is still very high.

Participation Rate Update - Last year I looked at some of the cyclical and long term trends for the participation rate: Labor Force Participation Rate: What will happen?. What happens to the participation rate is an important question. If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.9%.If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place (and can be very confusing - and I'm guilty of using different numbers).Here is a look at some the long term trends (updating graphs through February 2011)...

Duration of Unemployment, Unemployment by Education, Diffusion Indexes - This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. In general, all four categories are trending down. The less than 5 week category appears to be back to normal (fits with the initial weekly claims data).This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).Clearly education matters with regards to the unemployment rate - and it appears all four groups are now trending down.  This is a little more technical. The BLS diffusion index for total private employment was at 68.2 in February, the highest level since May 1998. For manufacturing, the diffusion index decreased to 64.2.  Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Why Washington Doesn't Care About Jobs - Remember when everyone agreed that what the American people wanted from Washington was, in John Boehner’s words, a “relentless focus on creating jobs”? In the past few months the unemployment rate has barely budged, and yet lawmakers of both parties have jettisoned the jobs agenda in favor of an austerity program that will barely reduce the deficit but will almost certainly hurt employment. If the Republican proposal to trim $60 billion from the fiscal budget puts thousands out of work, well then, says Boehner, “so be it.” This disconnect between the jobs crisis in the country and the blithe dismissal thereof in Washington is the most incomprehensible aspect of the political moment. But I think there are two numbers that go a long way toward explaining it. The first is 4.2.  So while the overall economy continues to suffer through the worst labor market since the Great Depression, the elite centers of power have recovered. The other number is 5.7 percent. That’s the unemployment rate for the Washington/Arlington/Alexandria metro area and just so happens to be lowest among large metropolitan areas in the entire country.

Number of the Week: Workers Not Benefiting From Productivity Gains - 0.3% — Increase in U.S. hourly wages, adjusted for inflation, since the economic recovery began. The labor market may be improving, but U.S. workers have yet to share much in the productivity and profits they’ve helped generate during the recovery. From mid-2009 through the end of 2010, output per hour at U.S. nonfarm businesses rose 5.2% as companies found ways to squeeze more from their existing workers. But the lion’s share of that gain went to shareholders in the form of record profits, rather than to workers in the form of raises. Hourly wages, adjusted for inflation, rose only 0.3%, according to the Labor Department. In other words, companies shared only 6% of productivity gains with their workers. That compares to 58% since records began in 1947.

Wage Growth Not Enough to Offset Energy Costs - The job market’s February rebound will give U.S. consumers a much-needed boost in income. But it’s not likely to be enough to offset their rising energy bills. Employment growth and wage rates from the Labor Department’s February jobs report suggest U.S. consumers’ work income from private employers rose 0.25%, or about $915 million, from the previous month. Judging from the amount of money they spent on energy-related items such as gasoline and home heating in January, the added wage income would be enough to cover a 1.7% increase in energy costs. That’s assuming they don’t spend more on other goods and services, and ignores the loss of any unemployment benefits they may have been receiving. Given the recent surge in the price of oil — it hit $104 a barrel Friday, up about 17% from a month earlier — energy costs are likely to rise a lot more. They were up 2.1% in January, during which the price of oil rose only 0.9%.

The Specter of Wage Declines -Today’s jobs report is not as encouraging on wages as it is on jobs. That’s something of a reversal: for most of the past three years, the wage trends have been better than the employment trends. The economy could now be headed into a period in which unemployment is falling but wages are not keeping with inflation.  In 2009, wage growth slowed, to about 2 percent, but inflation was nonexistent. In fact, prices were falling for much of the year, causing real wages to rise for most workers. In 2010, wage growth slowed further, to less than 2 percent, but inflation was still only 1.5 percent.Inflation is now picking up, because oil and food prices have jumped. Wages have not picked up. They grew just 1.7 percent over the last year, the Labor Department said today. If the job market continues to strengthen, wage growth will accelerate. But it may not do so fast enough to keep up with oil and food prices. With the unemployment rate close to 9 percent, most employers don’t have to offer big raises to keep their workers — which is why the Federal Reserve should be much more worried about the economy being too weak than about it being too strong.

The Wage Struggles of Men - The Hamilton Project has produced a fairly stunning chart, suggesting that median real wages for men have dropped significantly more than is commonly understood: Here’s Michael Greenstone, an M.I.T. economist and the director of the Hamilton Project, explaining: The red line is the usual picture of median earnings for full-time men. The problem with this line is that the percentage of men working over time has been declining over time. This attrition or dropping out of the labor force is not random, though, as the decline in full-time work it is disproportionately concentrated among low-skill men. This means that the red line is being propped up by the fact that it is increasingly comprised of higher skilled men. One sensible correction for this is to calculate the median wage for all men (not just the full-time workers). This is the blue line in the below graph. Why is this important? The full-time sample (red line) suggests that median wages have been stagnant since 1969. The blue line or full sample of men (which accounts for reduced labor force participation) suggests that median wages have declined by 32% or $15,000 (in constant dollars).

Chart of the day, US earnings edition - The jobs report this morning showed average hourly earnings increasing by 1 cent to $22.87 over the past month; that brings weekly earnings up to $782.15, on average, up 2.3% on last year. That’s a modest improvement, but an improvement all the same. But Michael Greenstone and Adam Looney decided to take a step back, and look at median earnings across the population overall, rather than just in the working population. The resulting picture, especially for men, is pretty gruesome:They write:This analysis suggests that earnings have not stagnated but have declined sharply. The median wage of the American male has declined by almost $13,000 after accounting for inflation in the four decades since 1969. This is a reduction of 28 percent! There’s a lot going on here, but a large part of it is that between 1970 and today, the share of men without any earnings at all increased from 6 percent to 18 percent. Many of those men are in prison, but a lot more are simply discouraged.

More on Men's Wages - One more thought on the Hamilton Project chart showing a big decline in men’s wages since 1969: it is not depicting the wage history of a typical male worker. The typical 50-year full-time male worker, for instance, is not making 28 percent less than the equivalent man was in 1969. Instead, the chart is showing the combination of two disturbing trends. One, wages for male workers have been roughly flat over the last 40 years, after taking inflation into account. Two, many more men are not working at all. They are on disability, are unemployed, have retired early or have otherwise dropped out of the labor force. In 1969, only 19 percent of men aged 20 and older were not working. Today, 33 percent are not. If you’re a man, your odds of making no income at all have risen sharply since 1969.

U.S. Economy Trades High-Paying Jobs For Low-Paying Positions, Report Finds - In the last 12 months, the U.S. economy has largely traded high-quality jobs for poorly-paid positions, according to a new report by the National Employment Law Project.  Though the economy has added more than a million jobs over the last year, new positions have skewed towards relatively low-wage industries, the New York-based non-profit finds in "A Year of Unbalanced Growth: Industries, Wages, and the First 12 Months of Job Growth After the Great Recession." The report finds a "striking imbalance" between the jobs being added and those lost over the last year:

  • Lower-wage industries constituted 23 percent of job loss, but fully 49 percent of recent growth
  • Mid-wage industries constituted 36 percent of job loss, and 37 percent of recent growth
  • Higher-wage industries constituted 40 percent of job loss, but only 14 percent of recent growth

Inequality and Political Power - In one of our recent Book Chats, Tyler Cowen offered1 his diagnosis for slow-growing income: a slowdown in innovation. Jacob Hacker2 and Paul Pierson3 have a different diagnosis. In their recent book, “Winner-Take-All Politics,” they point to government policies that have helped the affluent at the expense of the middle class and the poor.  Mr. Hacker is a professor at Yale, and Mr. Pierson is a professor at the University of California, Berkeley. You can see a video4 of Mr. Hacker and Mr. Pierson speaking about the book, and read Jonathan Alter’s review5 of the book for The Times. My conversation with the authors follows.

Whiter jobs, higher wages: Occupational segregation and the lower wages of black men - In 2008, the year of the election of the nation’s first black president, black men earned only 71% of what white men earned. In this report we examine how occupational segregation based on race is related to this disparity. We find that even after taking educational attainment into account, black men are overrepresented in low-wage jobs and underrepresented in high-wage jobs. Neither hard skills, soft skills, nor black men’s occupational interests provide convincing explanations for black male sorting into low-wage occupations.   The most plausible explanation we find is that labor market discrimination excludes many black men from high- wage jobs. Therefore, effectively combating employment discrimination will contribute significantly to closing the racial earnings gap and improving the socioeconomic position of black families and black communities. Read Briefing Paper 288

Economic parity dream needs a second wind - The nearly 400-year history of black people in America has always been a race to catch up. Recent data shows that history has not changed. African-Americans have only 10 cents in net wealth compared with 12 cents for Latinos and a dollar for whites. Among retirement-age adults, 60 percent of African-Americans and 65 percent of Latinos depend on Social Security for more than 80 percent of their income compared with 46 percent of whites.Joblessness is a major problem, too, among people of color. Unemployment among African-Americans is 16 percent, 13 percent for Latinos and 9 percent among whites, in 2009 the unemployment rate for black youths ages 16 to 24 was 31 percent. The State of the Dream Report also found that whites are three times as likely as blacks and 4.6 times as likely as Latinos to benefit from the tax breaks for those earning more than $250,000. The report also shows that the benefits of the reduced tax rate for capital gains and dividends flowed "overwhelmingly to whites." That and the weakening of the estate tax will continue to widen the wealth gap. Again, this is the disadvantaged history of blacks in America

Why do black men earn less? - EPI’s new paper, Whiter Jobs, Higher wages, shows that many black workers earn considerably less than their white counterparts. In fact, in 2008 black men earned only 71% of what white men earned. The median hourly wage for black male full-time workers was $14.90; for comparable white workers it was $20.84. Of course, a true wage comparison should account for multiple factors, from level of education to chosen field of study. EPI recently published two reports and on February 28 hosted the discussion Understanding the low wages of black workers, in an attempt to untangle the wage discrepancy and all the factors that may contribute to it. EPI’s research shows that educational and other differences can explain some, but not all of the discrepancy. “At the end of the day, it turns out that being black matters,” said Algernon Austin, Director of EPI’s program on Race, Ethnicity, and the Economy.

Food and Race -  An activist group called Applied Research Center has put out a new report titled “The Color of Food,” which documents racial disparities in earnings in America’s food supply chain. In a blog post summarizing the findings, they produce this eye-opening chart: Among the findings:People of color typically make less than whites working in the food chain. Half of white food workers earn $25,024 a year, while workers of color make $5,675 less than that. This wage gap plays out in all four sectors of the food system—production, processing, distribution and service—with largest income divides occurring in the food processing and distribution sectors. Women working in the food chain draw further penalties in wages, especially women of color. For every dollar a white male worker earns, women of color earn almost half of that.

State employment-population ratio declines, 2010 - In 2010, 32 states and the District of Columbia registered statistically significant deterioration in their employment-population ratios—the proportion of the civilian noninstitutional population 16 years of age and over with a job.Four states reported over-the-year declines of 2.0 percentage points or more: Colorado (−2.4 points), Utah (−2.3 points), Nevada (−2.2 points), and Delaware (−2.1 points). Twelve other states and the District of Columbia recorded decreases in their employment-population ratios from 2009 to 2010 ranging from −1.0 to −1.9 percentage points. Nine states registered the lowest employment-population ratios in their series in 2010: California, 56.3 percent; Colorado, 62.8 percent; Delaware, 56.2 percent; Georgia, 57.0 percent; Hawaii, 59.4 percent; Kentucky, 55.6 percent; Nevada, 57.0 percent; North Carolina, 56.1 percent; and South Carolina, 54.5 percent. West Virginia again reported the lowest employment-population ratio among the states, 48.8 percent, which it has done for 35 consecutive years.

A Look at State and Local Gov't Employment - The struggle by state and local goverments to reduce spending continues. Yesterday Ben Bernanke gave a speech on the subject. As Bernanke points out, there are really two problems caused by this wave of budget-cutting. The first is the sharp reduction in the actual services that S&L governments are expected to provide to their residents. Voters do not like electing politicians who raise taxes, of course; but will they reward politicians that have substantially reduced government services? I'm not sure, but I am quite sure that these cutbacks by state and local governments will become even more noticeable to voters over the coming year than they already are, particularly since the vast majority of S&L spending is on quite visible things like roads, police and fire departments, and of course the biggest single element, education. The following chart shows the number of state and government employees per 1,000 people in the US since January 2003 (which is when the US economy was at a roughly similar point in the business cycle, emerging from recession but not yet enjoying a strong recovery). The blue line is all S&L employees, while the red line (measured on the right axis) shows only educators. The picture speaks for itself.

Higher NC employer taxes to cut debt are likely -  North Carolina not only has a $2.4 billion state budget gap to close this year. The state also owes the federal government $2.6 billion for borrowing over the past two years to pay its share of unemployment checks for those who lost jobs. That means Republican legislative leaders who oppose new or temporary taxes to close the budget gap aren't taking that hardline approach to the unemployment debt. Higher taxes for employers appear likely, though they may not come immediately. North Carolina is one of 30 states that are a combined $42 billion in the red on unemployment, partially the result of a slow recovery from recession that pushed jobless rates to 11 percent in the state. The state collected in taxes barely half of the $1.9 billion in benefits that were disbursed in 2010, according to legislation.

Thousands of poor Utahns face less help with heating bills - Beginning Wednesday, Utahns will receive lower average payments from the Home Energy Assistance Target (HEAT) program. The state benefit will drop from an average of $510 to an average of $360 per household.HEAT is Utah’s version of the national LIHEAP program (Low Income Home Energy Assistance Program) which is federally funded. Its national budget from the U.S. Department of Health and Human Services is dropping from more than $5 billion to $2.5 billion. Utah’s funding is being cut from $30.1 million to between $14 and $17 million.  Utah Division of Housing and Community Development Director Gordon Walker said Tuesday the move was necessary in the face of certain federal budget cuts — even though Congress has yet to pass a new budget — and the increasing number of households applying for the heat and electric bill assistance.

Govs to feds: Avoid causing states any more pain - Their states on the brink of financial catastrophe, governors pleaded Saturday for the divided federal government to avoid doing anything that would hamper the tenuous economic recovery back home. Their message to Washington: prevent a government shutdown, abstain from spending cuts that dramatically will affect states and end even preliminary discussions about allowing states to declare bankruptcy. "Anything that Congress does that will undermine our recovery is quite troublesome to us," said Washington Gov. Christine Gregoire, head of the National Governors Association, as she opened the bipartisan group's winter meeting. "We're asking for cooperation.""We don't need a hiccup now in our recovery," she added. "We are fragile."

Obama has few options to aid strapped states - The budget crisis facing many states is threatening to undermine key elements of President Obama's agenda, but with Republicans in control of the House and widespread concern over the federal deficit, he has few options to make a significant difference.  Even those who say Obama needs to secure significant new federal spending to help states avoid cutting health care and education programs and laying off workers acknowledge the limits.  "We know there is not a great appetite for major new funding, but there is a real short-term crisis here," said Charles Loveless, the legislative director of a powerful labor union, the American Federation of State, County and Municipal Employees1.  Eventually, Obama could also come under pressure from state officials and the financial industry to provide emergency aid to states and municipalities if they can't pay off their debts.

Bernanke’s Prognosis & Prescription for State, Local Governments - The state and local fiscal crisis is going to get worse before it gets better, says the nation’s most powerful economist, Federal Reserve Chairman Ben Bernanke.But, the former member of a local school board in New Jersey adds: Don’t starve education. It is vital for future economic growth“Despite the many difficult adjustments to date, state and local fiscal repair is far from complete, and governors, mayors, and legislators will confront more tough decisions as they develop their budgets for fiscal year 2012,” the Fed chief said in a speech to New York City’s Citizens Budget Commission Wednesday evening.“Although the economy is recovering,” he said, “it is still operating well below potential and unemployment remains high. Stimulus grants from the federal government are winding down this year and will largely have ended by 2012,” he added. “Demands on Medicaid and other social service programs will likely remain elevated. Moreover, reserve funds are low, and the list of unused one-time fixes has been substantially depleted.”

Challenges for State and Local Governments - Ben Bernanke - As you know well, the deep recession of 2008 through 2009 and the subsequent slow recovery have battered state and local budgets. As the recession took hold, revenues dropped precipitously, especially at the state level. Driven partly by balanced-budget requirements under their constitutions, many governments have responded by cutting numerous programs and reducing workforces. As necessary as these cuts may have been, they have left some jurisdictions struggling to maintain essential services. The fiscal problems of state and local governments have also had national implications, as their spending cuts and tax increases have been a headwind on the economic recovery. Moreover, concerns about both the current fiscal condition of these governments and their longer-term commitments to provide pensions and health benefits have recently led to strains in municipal bond markets.

Joel Kotkin cannot find evidence of a "Back to the City" movement -  He puts together a table of suburban and core urban growth based on 2000 and 2010 census data: These are places for which the Census had released data by mid-February. Some of the places for which data has been released since then--St. Louis, Las Vegas and Birmingham--have the same pattern: in all cases suburban growth has outpaced central city growth. St. Louis' population has dropped to its lowest level since 1870. The results seem particularly surprising for Chicago and Washington, which have had successful redevelopment in their urban cores. But redevelopment can actually reduce density. I have long rooted for cities (although I confess that I myself live in an "urban" suburb). But facts are facts, and the facts from the 2010 census at this point do not support the idea of a reversal from suburbanization to urbanization.

Move the people to the growth, not the growth to the people - I attended an event at the Brookings Institution called "State Roads to Economic Recovery". The gist of the programme was pretty clear. Washington is gridlocked. State governments are slashing away at core spending. What can be done to draw some growth-supporting policies out of this mess? If useful actions are likely to emerge from governments, the assumption seemed to be, it's at the state level where the policy experiments will take place, and where good ideas will be found. Though the participants were all fairly clear on what those ideas should include: spare crucial investments in things like education and infrastructure, get more efficient in operation and use of revenue, get more efficient in the raising of revenue, and so on. I suppose it ended up being a mildly encouraging event. The great hope is that at least some of the state governments out there will use the crisis as an opportunity to adopt politically difficult policies that are nonetheless very good ideas—things like congestion tolling on crowded roads, or the use of public-private partnerships to build infrastructure.  But the thing that kept bugging me throughout the day was the problem in focusing on a state-level approach to recovery

California public‐sector workers are neither overpaid nor overcompensated - Full‐time state and local government employees in California earn about 7% less, on average, when compared with otherwise similar private‐sector workers.1 A rigorous analysis using a comprehensive monthly database2 that includes the necessary variables—education, experience, hours of work, organizational size, gender, race, ethnicity, citizenship, and disability—provides the most accurate comparison of public‐ and private‐sector compensation in California. Such an analysis shows that there is no significant difference in the compensation costs—either annual or hourly—between California’s private‐ and public‐sector workers.

Union Pay Isn’t Busting State Budgets - If you review the recent history of battles between unions and state or local governments, you’ll find similar stories. In New York, Rudolph Giuliani3 won big concessions. In Chicago, Richard Daley did, too. In Wisconsin — setting aside Gov. Scott Walker4’s attempt to end collective bargaining — unions have already agreed to a significant cut in take-home pay. It has become conventional wisdom to say that public sector unions are inherently problematic because they can use their political influence to win lavish pay from politicians. But that’s not quite right. The real problem with most union contracts for public workers is not the money — it’s almost everything else. On money alone, many politicians are pretty tough negotiators. They have both the motive and the means. They want to spend their budget on projects that are sexier than government pensions. And, as Mr. Rendell says today, politicians can often win a fight with unions in “the court of public opinion.” 

That Iraq Feeling - Krugman - I don’t watch cable news, or actually any kind of TV news. But I gather that there’s a virtual blackout on the huge demonstrations in Wisconsin, except on Fox, which portrays them as thuggish and violent. What that makes me think of is January-February 2003, when anyone watching cable news would have believed that only a few kooks were opposed to the imminent invasion of Iraq. It was quite spooky, realizing that hundreds of thousands of people could march through New York, and by tacit agreement be ignored by news networks whose headquarters were just a few blocks away.And it’s even more spooky to see it happening all over again.

Workers’ Uprising: Madison Capitol Protesters Ignore Gov. Walker’s Order to Leave, Key Wisconsin Republicans Defect - The protests and public activism in Wisconsin continues into its second week, with thousands continuing to stay in the capitol in Madison, a huge showing of support for the economic rights of union members and the restoration of a strong middle class. The following is a collection of updates and items on what's happening in Wisconsin and the rest of the country.The AP profiles the volunteer organizers in Madison who have kept the protests going1: Nearly two weeks after the start of massive protests against Gov. Scott Walker's proposal that would strip nearly all public employees of their collective bargaining rights erupted, a network of volunteers has emerged as the skeleton that keeps the daily demonstrations alive. ... In a third-floor room where the UW-Madison Teaching Assistants Association has based its support operations, a wood conference table is dwarfed by a mountain of bedding supplies, while posters organizing protests, rides and class coverage for absent TAs line the walls. "I think in general having a sense of humor in all of this has been important,"  "You have some students I've been talking to reflecting on it and they say, `Everybody sort of seems happy, this is a serious protest.' But it is needed to sustain this kind of energy."

Upwards of 125,000 March in Madison, as Activists Rally Nationwide to Back Wisconsin Workers - It began outside the University of Wisconsin Memorial Union. A few dozen members of the Teaching Assistants Association, the oldest graduate employee union in the world, rallied to object to Wisconsin Governor Scott Walker's plan to strip public employee unions of collective bargaining rights. The message from the TAA was blunt: 'All public sector workers are under attack. Faculty and staff are under attack. The UW as a whole is under attack. With these extreme acts, Scott Walker is seeking to undermine the labor peace of 50 years'.You need to get active now!' It worked. Two weeks later, upwards of 125,000 Wisconsinites rallied at the state capitol in Madison, as tens of thousands more rallied in communities across the state that American Federation of State, County and Municipal Employees union President Gerald McEntee calls 'ground-zero in the fight for labor rights. Police estimates from before the crowd hit its peak were in the range of 100,000, but busloads of union members and their allies continued to arrive through the afternoon. And while the crowds outside the capitol were massive, thousands more were inside the building. By nightfall, news outlets such as CNN were using the 125,000 figure, as the Wisconsin AFL-CIO cited estimates of 150,000.

The Wisconsin Lie Exposed – Taxpayers Actually Contribute Nothing To Public Employee Pensions - Pulitzer Prize winning tax reporter, David Cay Johnston, has written a brilliant piece for exposing the truth about who really pays for the pension and benefits for public employees in Wisconsin. Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to “contribute more” to their pension and health insurance plans. Accepting Gov. Walker’s assertions as fact, and failing to check, creates the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not. Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers. Via How can this be possible? Simple. The pension plan is the direct result of deferred compensation- money that employees would have been paid as cash salary but choose, instead, to have placed in the state operated pension fund where the money can be professionally invested (at a lower cost of management) for the future.

Walker’s Two-Year Budget Shows Repair Bill to Be Trojan Horse - The reality of Scott Walker’s two-year budget is setting in, and people have begun to connect the dots. The reason Walker needs to gut collective bargaining now is because he’ll need to silence state and local workers’ voices when he guts their pay later. That’s the only way you can have the municipalities and school districts absorb over $2.5 billion in cuts without any gaps in service. When Walker says he wants to give the local governments the “tools” they need, he means to cut their take-home pay. You can call it increases in health care or pension contributions or whatever else, the end result is a cut to take-home pay. What’s more, he wants to shift responsibility for those cuts to the local communities, making them the bad guys.

Revolt of the Cheeseheads - No matter what the short-term outcome, the upsurge of resistance in Wisconsin to efforts by Gov. Scott Walker to crush public sector unions will make history. The extraordinarily passionate yet disciplined, virtually nonstop demonstrations in the state capitol building have dramatized opposition to a national Republican strategy: tax breaks for the rich, reductions in public sector wages and benefits, privatization of public enterprises and strategic investments in political camouflage. I happened to be visiting the University of Wisconsin in Madison last week. The handmade posters carried through the streets and taped to the gilded columns of the rotunda vividly summarized deeper economic analysis.  Like the Democratic state senators who left the state to prevent a quorum vote on the governor’s proposed legislation, the demonstrators acknowledge the need for budget cuts.  Part of that shared sacrifice, they argue, should include increased taxes at the high end. Some pointed to a recent proposal by Gov. Mark Dayton, a Democrat, of Minnesota to do exactly that. Other signs point out that Governor Walker handed out $140 million in new corporate tax breaks before pointing to a budget shortfall of about the same amount (Forbes and others reported on those tax cuts in more detail).

Wisconsin Democrats Announce Recall Effort Against 8 Republican State Senators - The Wisconsin State Democratic Party just sent out an email to supporters announcing that they have officially filed recall papers against all 8 Republican Senators eligible for recall immediately. Depending on their success in gathering enough signatures – and the threshold is not too high, they need between 14,000 and 20,000 signatures in the various districts – the State Senate will be up for grabs in Wisconsin as early as this year.The filing of recall papers starts a 60-day clock for signature gathering. Then the signatures are examined and challenges made, but if the recall petition meets all requirements, the recall begins just 6 weeks later. Recalls in Wisconsin include primaries and general elections; it’s basically a do-over special election.

Unions vs. the Right to Work - How ironic that Wisconsin has become ground zero for the battle between taxpayers and public- employee labor unions. Wisconsin was the first state to allow collective bargaining for government workers (in 1959), following a tradition where it was the first to introduce a personal income tax (in 1911, before the introduction of the current form of individual income tax in 1913 by the federal government).Labor unions like to portray collective bargaining as a basic civil liberty, akin to the freedoms of speech, press, assembly and religion. For a teachers union, collective bargaining means that suppliers of teacher services to all public school systems in a state—or even across states—can collude with regard to acceptable wages, benefits and working conditions. An analogy for business would be for all providers of airline transportation to assemble to fix ticket prices, capacity and so on. From this perspective, collective bargaining on a broad scale is more similar to an antitrust violation than to a civil liberty. In fact, labor unions were subject to U.S. antitrust laws in the Sherman Antitrust Act of 1890, which was first applied in 1894 to the American Railway Union.

Countervailing what?: After unions - IN HIS Newsweek column, Ezra Klein tells us why he thinks we still need unions. Among other reasons, Mr Klein mentions this classic:[U]nions are a powerful, sophisticated player concerned with more than just the next quarter’s profit reports—what economist John Kenneth Galbraith called a “countervailing power” in an economy dominated by large corporations. They participate in shareholder meetings, where they’re focused on things like job quality and resisting outsourcing. They push back on business models that they don’t consider sustainable for their workers or, increasingly, for the environment. In an economy with a tendency toward bigness—where big producers are negotiating with big retailers and big distributors—workers need a big advocate of their own. There's clearly something to this, but I don't think the matter is so clear. Unions are at least likely to amplify as contain the power of big business. Over at Economics by invitation, our debate forum for dismal scientists, Gilles Saint-Paul offers a powerful summary of what I take to be the standard economic critique of labour unions, including this rebuttal of the "countervailing power", argument

Majority in Poll Back Employees in Public Unions - As labor battles erupt in state capitals around the nation, a majority of Americans say they oppose efforts to weaken the collective bargaining rights of public employee unions and are also against cutting the pay or benefits of public workers to reduce state budget deficits, according to the latest New York Times/CBS News poll. Labor unions are not exactly popular, though: A third of those surveyed viewed them favorably, a quarter viewed them unfavorably, and the rest said they were either undecided or had not heard enough about them. But the nationwide poll found that embattled public employee unions have the support of most Americans — and most independents — as they fight the efforts of newly elected Republican governors in Wisconsin and Ohio to weaken their bargaining powers, and the attempts of governors from both parties to cut their pay or benefits.

Unions, Norms, and Inequality -Read a working paper from Bruce Western and Jake Rosenfeld recently that argues that the decline in union density has been a bigger deal for wage inequality than most economists realize, largely because there’s been significant action through the channel of norms. The authors claim the effect can be empirically estimated: We study the effect of deunionization on rising inequality with a variance decomposition that assesses the contribution of the shrinking weight of the union wage distribution to overall wage inequality. We also argue that unions helped institutionalize norms of equity reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for the effect of unions on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality—an effect comparable to the growing stratification of wages by education. The impact is much larger for men than for women. Unfortunately, I don’t think there’s a publicly available copy of the paper yet. In general, I think the impact of norms and conventions on social outcomes is often underrated.

A Union Education - The raucous Wisconsin debate over collective bargaining may be ugly at times, but it has been worth it for the splendid public education. For the first time in decades, Americans have been asked to look under the government hood at the causes of runaway spending. What they are discovering is the monopoly power of government unions that have long been on a collision course with taxpayers. Though it arrived in Madison first, this crack-up was inevitable. We first started running the nearby chart on the trends in public and private union membership many years ago. It documents the great transformation in the American labor movement over the latter decades of the 20th century. A movement once led by workers in private trades and manufacturing evolved into one dominated by public workers at all levels of government but especially in the states and cities.  The trend is even starker if you go back a decade earlier. In 1960, 31.9% of the private work force belonged to a union, compared to only 10.8% of government workers. By 2010, the numbers had more than reversed, with 36.2% of public workers in unions but only 6.9% in the private economy.

Americans Don't Hate Unions - Krugman -The new poll reported in this morning’s Times will, I suspect, come as a shock to many political commentators. Quite a few news analyses of the assault on public-sector workers have simply assumed that the move was a political winner, with little if any thought given to the possibility that the general public wasn’t actually ready to go along. But whaddya know: while people don’t necessarily love unions — hey, I personally don’t necessarily love unions — most people apparently see them as having a legitimate role.Again, I’m having Iraq flashbacks: there was a prolonged period when the inside-the-Beltway view was that only crackpots believed that Bush had misled us into war, even as polling indicated a substantial fraction, and eventually a majority, of the public already believed just that:

Fair Play! - Megan McArdle quotes James Joyner on player compensation, in sports, and draws a moral concerning unions. McArdle doesn’t provide a link to the Joyner piece, but here it is. The title: “athletes are ruining sports!” The conclusion: “The bottom line is that players are human beings, who ought to have the right to take their talents to South Beach — or wherever they’re wanted. Just like fans can do.” This is, as Joyner is clearly aware, a bit of a paradox: athletes are making the game worse and they ought to have the right to do so. The ‘cure’ – namely, restrictions on pay and mobility – is ‘worse than the disease’, because it is manifestly grossly unjust. McArdle seems inclined to draw the opposite conclusion: since the game is better if players are restricted in their bargaining power, and since the point is a good game, the proper, market-minded conclusion to draw is that employee bargaining power should, in principle, be restricted to ensure it does not conflict with productivity-minded management decisions.

Are These People Overpaid? - David Rhode is a paramedic in Middleton, Wis. He works 56 hours a week, mostly in 24-hour shifts, frequently carrying wheezy patients up and down flights of stairs. He said he earns about $43,000 a year.  HuffPost asked Rhode, 36, how it feels to be overpaid. His eyebrows went up. "I drove my Ford Focus here," he said. "I live in a 950-square-foot condominium!"  Wisconsin has become the front line in a national debate over pay and benefits for unionized public workers, with conservatives arguing that people like Rhode have become a privileged class overburdening taxpayers. Gov. Scott Walker (R) is pushing a budget bill that calls for reduced pay, cuts to pension and health plans, and an end to collective bargaining rights for public workers. Similar measures are popping up in other states as lawmakers cope with recession-fueled deficits.

Do Queues for Public Sector Jobs Tell Us Anything? - The question of whether public sector workers are overpaid or underpaid compared to what they would earn in the private sector is a hot topic these days. A fair bit of academic research shows that people generally earn less money in the public sector (particularly in state and local governments) than people with the same qualifications doing the same type of job in the private sector.  Some people who disbelieve this evidence are now suggesting a different approach to illustrate that workers in the public sector are overpaid: looking at queues for job openings. For example, Andrew Biggs (from the AEI) argues that "state and local government jobs offer workers higher total compensation than those individuals could get in the private sector. As a result, people are lining up to get them."  But taking the existence of queues for public sector jobs as evidence that those jobs are overpaid is problematic, for a couple of reasons.

US conflict with unions is about more than just money - It began to be obvious months ago, as the fiscal stress on US states and cities increased, that friction with public sector unions was inevitable. Still, the force of the assault on the unions and the energy of their resistance have come as a shock. A startled country is unsure whose side to take. It does not help the stakes have been misrepresented. Hostilities began in Wisconsin. Tens of thousands have protested on the streets of Madison against Republican governor Scott Walker’s bill to roll back collective-bargaining rights. Neither side looks ready to capitulate. Now the conflict has spread. Republican governors and legislatures in Ohio and Indiana have also moved against their unions. Even states with Democratic governors or legislatures are seeking big concessions on pay and benefits. A moment of truth has arrived for organised labour in the US. Make that, organised labour in the US public sector. Unionism in the private sector is practically extinct. Just 7 per cent of private-sector workers are union members, down from 30 per cent in the 1960s. But in state and local government the average is 39 per cent, and in some states far higher: 73 per cent in New York, for example, 66 per cent in New Jersey, 58 per cent in California.

How Unions’ Trickle-Down Effect Trickled Away - Over the past few decades, the future has become increasingly uncertain for workers in the U.S. They can no longer count upon a relatively secure job with a single employer, an automaker perhaps. They can no longer depend on their wages rising over time with increases in productivity. Their employer-provided health and retirement benefits — if they have them — could end at any time. And one of the basic building blocks for a better future, education, is becoming harder and harder for middle class families to afford. Even those who can afford an education are less secure than in the past as digital technology advances at a rapid pace and the world becomes increasingly globalized. Lately, on top of everything else, workers have been warned that the age of innovation is over, the great stagnation is here, and they must accept a diminished outlook for the future.

Madison Police Ask Outside Agencies for Help - Authorities in Madison are asking law enforcement agencies across the state to send officers on overtime to the Capitol for security. They're expecting from 100,000 to 125,000 people -- or more, they acknowledge -- at the Capitol on Saturday. Protests of the budget repair bill stripping collective bargaining rights have been growing, and conservative groups are planning counter-protests this weekend to show support for the governor's plan. Madison authorities would like 300 to 400 officers present to help keep the peace. Northeast Wisconsin is being asked to send at least 60 officers, including members of the Brown County Sheriff's Department and Green Bay Police Department.

The Spirit of Egypt in Madison - Right now, at the invaluable website -- overflowing with blazing headlines -- you can see two worlds of trouble awkwardly intertwined.  The first is a Middle East newly afire, one in which Muammar Qaddafi’s rotting, mad regime is shrinking to the size of Libya’s capital, Tripoli, while the rest of the region continues to light up with protest.  In Iraq, tens of thousands of demonstrators ignored government warnings and curfews to attend a nationwide “day of rage” for a better life, “storming provincial government offices in several cities” and forcing government officials to resign, even as they faced tear gas, batons, and in some cases real bullets. Elsewhere nervous rulers were moving to placate their restless, angry populations, including 87-year-old Saudi King Abdullah, a sclerotic, American-backed autocrat who just announced a massive $36 billion package of benefits (think: bribe) aimed at his own people, lest they, too, get out of hand.  Nonetheless, as an headline tells us, the King -- according to a New York Times report, so “popular” as to be almost invulnerable to “democracy movements” -- now faces Facebook threats of the first “day of rage” in his kingdom. The U.S. is still betting that its Persian Gulf autocrats and oil sheiks will emerge as winners, but hold onto your hats.  In a crunch, the Saudi king’s popularity may prove all-too-Mubarakian, meaning that Washington would again find itself on the wrong side of history.

Cairo in Wisconsin - CBS News - The call reportedly arrived from Cairo. Pizza for the protesters, the voice said. It was Saturday, February 20th, and by then Ian's Pizza on State Street in Madison, Wisconsin, was overwhelmed. One employee had been assigned the sole task of answering the phone and taking down orders. And in they came, from all 50 states and the District of Columbia, from Morocco, Haiti, Turkey, Belgium, Uganda, China, New Zealand, and even a research station in Antarctica. More than 50 countries around the globe.  Ian's couldn't make pizza fast enough, and the generosity of distant strangers with credit cards was paying for it all.  Those pizzas, of course, were heading for the Wisconsin state capitol, an elegant domed structure at the heart of this Midwestern college town. For nearly two weeks, tens of thousands of raucous, sleepless, grizzled, energized protesters have called the stately capitol building their home. As the police moved in to clear it out on Sunday afternoon, it was still the pulsing heart of the largest labor protest in my lifetime, the focal point of rallies and concerts against a politically-charged piece of legislation proposed by Wisconsin Governor Scott Walker, a hard-right Republican.

Dispatches (V): Wisconsin - Open for Business or For Sale? - From the Milwaukee Sentinel Journal: Under the budget-repair bill passed by the Assembly on Friday, no bids would be required for the state to sell up to 37 heating and cooling plants across the state. The bill would empower the secretary of the state Department of Administration to sell the plants, which primarily serve University of Wisconsin campuses, including those in Madison and Milwaukee, as well as state prisons and other facilities. In a change from a similar proposal that Republican lawmakers sought six years ago, the bill stripped a requirement that the Public Service Commission review whether the sale is in the public interest.  Now, why would a no-bid provision be written into the bill? We don't know because:In a news conference this week, Walker declined to address the no-bid aspect of the bill, but insisted the state wouldn't rush into a deal.

Labor Organizers Consider General Strike in Wisconsin As Gov. Scott Walker Refuses to Negotiate Over Anti-Union Bill - Wisconsin Republican Gov. Scott Walker is expected to propose deep cuts to the state’s health programs for the poor and aid to local governments. Walker has also threatened to start the process of laying off 1,500 state workers unless 14 Democratic senators return to the state and vote to refinance millions in debt. The Walker administration is coming under intense criticism for largely shutting off the State Capitol to protesters ahead of his speech. Democracy Now! senior producer Mike Burke speaks to Frank Emspak, founder and producer of Workers Independent News. [includes rush transcript]

WI Update: Protesters Allowed to Stay Overnight in Capitol Indefinitely, Walker’s Gross ‘Meet the Press’ Appearance - Yesterday Wisconsin protesters spent another night in the state capitol, defying orders to leave by 4 PM and ignoring Gov. Scott Walker's threat of arrest or ejection. Their resolve paid off: in a late-afternoon decision, capitol authorities announced the overnight sit-ins can continue without incident, a small triumph for protesters who've been staying there for days. The Times: “Cooler heads prevailed,” said Jim Palmer, the executive director of the 11,000-member Wisconsin Professional Police Association. “They had said they were going to clear the place out, and then they thought the better of it. Now it’s clear that law enforcement professionals are running the show.” The feeling was generally positive on the heels of Saturday's 100,000-person rally -- despite MSM blackouts and misreportage -- particularly after a rumor (still unconfirmed) circulated that Dale Schultz, a top GOP Senator, had broken ranks from Republicans and was seeking a compromise on Walker's bill. Last night, when protesters inside the capitol were told of Schultz's possible reversal, they erupted with excitement. Here's video from Mother Jones' Andy Kroll:

Amity Shlaes Forgotten History – When Unions Go Bust, We All Do - For years, American workers’ wages have stagnated even as they produced more.  Now public sector workers are confronted by a new crop of Republican governors who want to put an end to unions. Conservatives are tasked with coming up with a narrative that makes villains out of these working folks and heroes out of the powerful people who aim to squeeze them for what’s left of their economic security. This is not easy. And you have to admire their ingenuity. Amity Shlaes, ever the eager revisionist, has whipped up a widely parroted narrative that contains just enough truth to give it the ring of plausibility. It goes like this: Governor Scott Walker is a paragon of virtue who will soon be embraced by the American public, just like his union-crushing predecessors Calvin Coolidge and Ronald Reagan. According to Shlaes’s account, Coolidge, then governor of Massachusetts, stood boldly against badly abused Boston policemen who walked off the job in 1919 and left the city unprotected against looters. After firing the policemen, Coolidge became a national hero and was promptly swept into the Vice President’s office on a wave of popular admiration. When President Warren Harding died, Coolidge took office and it was suddenly Morning in America.

Wisconsin Republicans Order Arrest of 14 Democrats Who Fled State - Gov. Scott Walker has ordered the arrest of 14 Democratic legislators who fled Wisconsin in a bid to avoid voting on the governor's controversial budget bill. The Republican majority in the state Senate passed a resolution Wednesday finding the AWOL Democrats guilty of contempt and disorderly conduct if they didn't make it back to Wisconsin by 4 p.m. After the deadline passed there was no immediate word that any of the 14 returned. "We simply cannot have democracy be held hostage because the minority wants to prove a point," Wisconsin Senate Majority Leader Scott Fitzgerald said. "They have pushed us to the edge of a constitutional crisis." The GOP actions may end up being simply symbolic, the Wisconsin State Journal reported, pointing out there are questions about whether the resolution is legal under state rules. The Wisconsin Constitution forbids the arrest of lawmakers while the Legislature is in session unless they're suspected of committing felonies, treason or breach of the peace, according to the newspaper.

What Gov. Walker Won't Tell You  - There is a kernel of truth in Wisconsin Gov. Scott Walker's claim of a "budget shortfall" of $137 million. But Walker, a Republican, failed to tell the state that less than two weeks into his term as governor, he, with his swollen Republican majorities in the Wisconsin legislature, pushed through $117 million in tax breaks for business allies of the GOP. There is your crisis. The state Legislature's Legislative Fiscal Bureau -- Wisconsin's equivalent of the Congressional Budget Office and a refuge for professional expertise and nonpartisanship -- warned Walker and the legislature that the measure would create a budget gap. There is your shortfall -- and not one resulting from established public employee benefits. Before the tax giveaways, the fiscal agency predicted a surplus for the state.  Now the governor has offered a proposal simple and clear in its intent, and patently dishonest. Walker wants state workers to contribute to their pension fund and is calling for an increase in their payments for medical insurance. Make no mistake: The governor's "budget repair bill" has little to do with a budget shortfall and everything to do with breaking unions, starting with public employees and then perhaps moving on to others as well.

Scott Walker’s ruthless ambition -- Wisconsin Governor Scott Walker has captured international attention with the political battle sparked by his budget bill that would remove collective bargaining rights from many public employees. With Tea Party backing for his union-busting platform, he is even spoken of as an up-and-coming 2012 presidential contender. Republican party leaders worry that even with a vulnerable President Obama, current possible frontrunners Mitt Romney, Sarah Palin and Ron Paul cannot win. As replacements, they are looking over three recently elected governors in traditionally Democratic states: Chris Christie in New Jersey, Florida's Rick Scott and, incongruously from famously progressive Wisconsin, Scott Walker. Walker has advantages. Unlike Christie, he has a pliable Republican state legislature with which to work. Scott is smarter and, alone of the three, brings real private sector experience. But Walker is doing what has distinguished his entire career: making the most of a big chance.

Protesters out in force nationwide to oppose Wisconsin’s anti-union bill - Nearly two weeks into a political standoff, tens of thousands rallied in Madison and in dozens of cities around the nation to oppose a bill that would severely limit collective bargaining rights for most Wisconsin public employees. Joel DeSpain, spokesman for the Madison Police Department, said the rally — in steadily falling snow — drew between 70,000 and 100,000 and may have been the largest protest in Madison since the Vietnam War. "I've been around Madison for 50 years, and I have not seen anything like it so far," he said. A Republican-backed bill containing the anti-union provisions prompted 14 Democratic state senators to flee Wisconsin, denying the Republican majority a quorum to pass it. The Republican-dominated state Assembly passed a version of the bill early Friday, but the Senate remains stymied until Democrats return. Despite exhortations by Republican Gov. Scott Walker, the Wisconsin Democrats were still hiding in Illinois as supporters rallied across the nation. The liberal group said it organized rallies in 66 cities, including every state capital.

America Waking Up To Value Of Unions "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time." When you put enough dots in front of people sooner or later they will connect the dots. And Americans are connecting the dots. Dots: Trade deals close factories, outsource jobs and pit workers against each other, then wages decline and unemployment is really high, while all the money goes to a few at the top. Then calls to cut the wages and benefits of the rest. Dots: Unions squashed, then pensions disappear, then calls to get rid of public-employee unions because they have pensions. Dots: Tax cuts for the rich, then panic over resulting deficits, then calls for cuts in the things government does for We, the People. People are connecting the dots: Unions mean better wages, benefits and working conditions.

At least 8,500 protest over collective bargaining - Binding arbitration for safety forces would be replaced by a procedure giving ultimate authority over contracts to elected officials, according to a key provision of a massive amendment to a bill that would sharply curtail collective bargaining rights. The 99-page amendment, outlined today at hearing of the Senate Insurance, Commerce and Labor Committee, also removes the right to strike for all public employees and establishes stiff fines for public workers who defy the no-strike ban. "We're staying focused on reducing the cost of government and making Ohio competitive, and the first place to start is with our own budgets," said Sen. Shannon Jones, R-Springboro, sponsor of Senate Bill 5. "This bill gives power back to the taxpayer and restores flexibility to the management of their hard-earned dollars." As an estimated 8,500 protesters demonstrated against the bill on the west lawn of the Statehouse, the committee met for about a half-hour to hear Jones outline amendments to her bill. The committee is expected to vote on the bill Wednesday with a vote on the Senate floor likely either shortly afterward or Thursday.

Ohio Vote Puts Curbs on Unions in Reach - Ohio state senators narrowly approved a bill that would prohibit public-employee unions representing 400,000 state and local workers from bargaining over health benefits and pensions, while also eliminating the right to strike.  While national attention has focused for weeks on a similar battle in Wisconsin, the vote, by 17-16 in Ohio's Republican-controlled Senate, virtually ensured that the Buckeye State will become the first to strip collective-bargaining rights from public employees as states grapple with recent gaping budget deficits. The move is especially significant because Ohio is larger than Wisconsin, and like its fellow Midwestern state, is both a stronghold of public-sector labor unions and a swing state politically.

Ohio GOP may invite backlash with tough stance on unions - State Republicans took the toughest line yet against public-sector unions this week, delivering an early and significant victory for a slew of lawmakers elected in November.  Perhaps too tough. Democrats and even some Republicans said that the bold action1 and the uncompromising way it was carried out could boomerang on Republicans in the next election, in much the same way that the stimulus bill and health-care overhaul haunted Democrats in Ohio and elsewhere last year.  "Anybody who thinks that the November elections of Republicans was a mandate misread the tea leaves," said Tim Grendell, a Republican senator from the Cleveland suburbs who was one of six from his party to vote against Senate Bill 52. "It was a mandate against the overreach of Obama and [Rep. Nancy] Pelosi3 and [Sen. Harry] Reid4 in Washington. And now there's going to be a backlash in Ohio. People in the public believe that this collective-bargaining bill was a Republican overreach, and now you're going to see a sort of slap-back reaction."

A Joke For Our Times - You may have noticed that I have not commented on union-busting in Wisconsin and Ohio. I view these events as small, inevitable details in America's decline. State budgets balllooned during the "good times" of the Bubble Era (1995-2007). Now those same budgets must contract because unwarranted asset price inflation (i.e. bubbles) will inevitably collapse. Everybody, including the public unions, thought they were rich during the Bubble Era. Laissez les bons temps rouler! But now in 2011 we know better. All the wealth created during those years went to the rich (chart above). The rest of us have been left holding the bag.Each state is using different tactics to repair their balance sheets, but the bottom-line says the states can no longer afford to provide basic services like public education. I expect this situation to continue for years to come. The fact that sociopaths like former Lehman executive John Kasich want to accelerate the rate of decay and make political hay at the same time is also a predictable outcome of America's decline.

Monday Map: Property Taxes By County, 2005-2009 Average - After a hiatus, the Tax Foundation's Monday Maps series returns today, starting with a county-level map of median property taxes. Click to view the high-resolution version, and be sure to visit the Tax Foundation's interactive property tax database.

Boise County files for bankruptcy - In a move rare in the United States and perhaps unprecedented in Idaho, Boise County is filing for federal protection against a multimillion dollar judgment. “This was not our first option. This was our last option,” said Jamie Anderson, chairwoman of the three-member Boise County Board of Commissioners. “This protects us so we can continue to operate.” Chapter 9 protection, from a section of federal code expressly for financially distressed municipalities, means that creditors can’t collect while the county is developing a plan for reorganizing its debts.

Caltrain board declares fiscal emergency - Caltrain's board of directors declared a fiscal emergency Thursday (March 3) after hundreds of riders packed SamTrans headquarters in San Carlos and asked members not to cut services. The Peninsula Corridor Joint Powers Board, which governs Caltrain, declared the emergency so directors could consider "radical" solutions and close a $30 million budget deficit Caltrain faces over the coming year, Caltrain Executive Director Michael Scanlon said.  The declaration gives the board a greater ability to make drastic service changes and cuts to keep its operating budget afloat in the 2012 fiscal year. The board's vote came after hundreds of people who packed the meeting had already left. Many warned transportation officials that cutting service would run the risk of losing riders permanently.

Muni Default Estimate: $100 Billion - A consulting firm founded by economist Nouriel Roubini said there could be close to $100 billion of municipal-bond defaults over the next five years as state and local government-debt problems damp the U.S. economic recovery. That figure would by most estimates represent a significant increase over defaults in recent history, but it doesn't appear to be as dire as a prediction last year by analyst Meredith Whitney.

SFPD: Cameras Could Bring Millions; Revenue Sought To Avoid Budget Cutbacks - A revived red light camera program could be worth millions of dollars to the city, at least in the short term, and might be the answer to some of the city's budgetary woes, police department officials said Monday. This was only one idea mentioned before a standing-room-only crowd of public safety workers whose leaders argued for raising more money rather than slashing their programs.Police Chief Aric Wheeler told the city's Finance Committee that recent research shows Santa Fe could reap as much as $1 million a year per camera at intersections along Rodeo Road or Paseo de Peralta. The figure is a huge jump from earlier estimates of around $70,000, and took a skeptical Finance Committee by surprise. Wheeler said the gap in projections resulted from a math error.

City of Houston announces layoffs - A massive budget shortfall will soon hit the city hard, and that means cuts in departments across the board.   For the first time, the mayor has released numbers on how many workers the city may have to lay off to cover a budget shortfall.  The mayor's office on Thursday said it's looking at possibly laying off 2,300 city workers. That figure came from dividing a $130 million budget shortfall by the average city worker income of $55,000.  It's important to remember that we're not just talking about people who are losing their livelihood, but likely services that will be cut on your block.  The mayor's said departments could focus only on personnel, or make cuts from different salary ranges and programs.

15000 police, firefighters rally against benefit cuts in Trenton - Public safety employees by the thousands rallied at the Statehouse Thursday, denouncing Gov. Chris Christie and state legislators who support him for fiscal posturing that they say means lost jobs, more out-of-pocket money for benefits and putting the public in jeopardy. The event was dubbed the Rally to Take a Stand for Public Safety, but Bill Lavin, president of the New Jersey State Firefighters Mutual Benevolent Association, had a more urgent description. "This, today, is an emergency response,'' Lavin told the firefighters, police and corrections officers, and emergency medical technicians jamming West State Street before, during and after the two-hour midday rally. Not only was the rally big — in the range of 15,000, by organizers' estimates — and long, running from 11 a.m. to 1 p.m., but it generated biting words. "If you are not for police and fire,'' Paul Nunziato, president of the Port Authority of New York and New Jersey's Policemen's Benevolent Association, warned elected officials, "please don't show up at our funerals and give eulogies for votes.''

Paterson To Layoff 25 Percent Of Police Force - The city of Paterson plans on laying off 125 of its police officers by April in order to help close a $77 million budget deficit. The layoffs would amount to about 25 percent of its police forces and would include eleiminating special task forces and postponing a plan to revive a gang unit.The reduction in law enforcement would also slash the number of patrol officers. It would also deliver demotions to over 30 veteran officers, which would decrease affected officers' salaries and help close the budget. The move would save Paterson about $6 million over two years

Crime-Filled Paterson, N.J. Staring At 100-Plus Police Layoffs - As many as 134 Paterson, N.J. police officers were expected to be laid off by the cash-strapped city. Budget problems may result in fewer police patrolling the streets of one of the Garden State’s most violent cities. A third of the officers are scheduled to be laid off, fueling fears that the cuts will mean a rise in crime, reports CBS 2’s John Metaxas. Crime is already up in Paterson and this cash-strapped city — the third most populous city in New Jersey — has the second highest level of gang activity in the state. Citizens here said it’s not the time to lay off any police officers — let alone a third of the force.

San Jose's budget deficit points to likelihood branch libraries will be open just three days a week - Several years ago, all of the branches were open six days a week, with a few open on Sundays. With the recent huge deficits, that number dropped to 5½, more recently to 4½ and after June 30--the end of this fiscal year--it may drop to three days a week.Depending on the budget--and things don't look good--officials running the library are looking at options, one of which is opening branch library doors three days per week. And while city officials aren't in favor of such a scenario, budget constraints, even with permanent pay and benefit cuts, may cause it to happen. On Feb. 14, at a city council study session, council members learned of some very grim possibilities. Even if every city employee took a 10 percent pay and benefit cut, that would alleviate only about one-third of the $110 million deficit, leaving the city about $72 million in the hole for fiscal 2011-12.

Warren Buffett Wants Your Taxes - Legendary Omaha investor Warren Buffett loves stuffing tax dollars into his pockets, which means that money never gets to schools, police, and libraries. Now it looks as if he is about to defeat an Oregon law intended to ensure taxes go for public purposes, not private gain.  In 2005 the Oregon Legislative Assembly passed a law (SB 408) requiring the state's four corporate-owned utilities to either turn over to government the taxes built into the rates they charge or give the money back to customers. The next year Buffett bought Oregon's other corporate electric utility, PacifiCorp. It is a subsidiary of his MidAmerican Energy Holdings, which operates utilities from Iowa to Utah to Oregon. As soon as PacifiCorp became part of Buffett's empire, his lawyers and lobbyists set out to undermine the tax true-up law. They fought to get unworkable rules at the Oregon PUC, and they sought repeal of the law.

Wisconsin Budget Would Slash School and Municipal Aid -  Gov. Scott Walker1, whose push to limit collective bargaining rights and increase health and pension costs for public workers has set off a national debate, proposed a new budget for Wisconsin on Tuesday that called for deep cuts to state aid to schools and local governments, provoking a new wave of fury.  Mr. Walker, a Republican, called for no tax or fee increases, but cuts of $1.5 billion to items like the schools and local governments — the preferable choice, he said, for solving a deficit expected to arise in the two-year budget period that begins in July. Mr. Walker presented his fiscal plan under extraordinarily tense circumstances: the sound of hundreds of protesters screaming “Recall! Recall!” and pounding drums outside the Capitol could be heard clearly inside the Assembly chamber, where lawmakers, the State Supreme Court and other dignitaries had gathered for what is customarily a formal occasion peppered with etiquette and tradition.

Wis. governor proposes deep cuts for schools - After focusing for weeks on his proposal to strip public employees of collective bargaining rights, Gov. Scott Walker on Tuesday presented his full budget -- a plan that cuts $1 billion in aid to public schools and local government but avoids any tax or fee increases, furloughs or widespread layoffs. Walker said the cuts could be paid for in large part by forcing government employees to pay more for their pension and health care benefits. And the governor whose cost-cutting ideas have stirred a national debate over public-sector unions gave no indication he would soften his demand to reduce their power at the negotiating table. Schools and local governments targeted for cuts would not be allowed to make it up with higher property taxes.

Wis. Schools face deep cuts under gov.'s budget - Gov. Scott Walker is plowing ahead with his full plan for balancing Wisconsin's budget, proposing massive cuts to public schools even as he faces a stalemate over his proposal to strip public workers of collective bargaining rights. With Senate Democrats still missing, Walker presented the second part of his two-year spending plan to the Legislature on Tuesday. It relies on getting concessions from government employees to help pay for about $1 billion cuts in aid to schools, counties and cities while avoiding any tax or fee increases, furloughs or widespread layoffs as lawmakers grapple with a projected $3.6 billion shortfall.Jamie Domini, a project coordinator at Badger Rock Middle School in Madison, said Walker's proposal — which includes an 8 percent cut in aid to schools amounting to about $834 million — would "completely gut the public education system in Wisconsin."

TN lawmakers may soften teachers union bill - State lawmakers may soften a controversial bill that would put an end to mandatory negotiations between school districts and the teachers union.  Leaders in the state House of Representatives are considering an amendment that would give local school boards the option of deciding whether to negotiate contracts with their teachers. The behind-the-scenes discussions are meant to smooth passage for a bill that would overturn the 1978 law that gave teachers the right to bargain as a group with districts. The change is being bandied about amid a delay in the bill's progress through the legislature. At the request of Gov. Bill Haslam, the Senate has held up a vote on the bill for nearly a week while House leaders work on a compromise that would keep the bill from getting bottled up. "I think that's a good example of a piece of legislation that's still developing," Haslam told reporters Tuesday. "We're not at the end of the road on that. I think there will be a few more twists and turns before we get there."

Nearly 500 in S.F. schools to get pink slips - Nearly 500 San Francisco teachers, aides and administrators will find pink slips in their mailboxes within the next two weeks as the school board works to backfill an estimated $27 million shortfall if the state's worst-case budget scenario pans out later this year.If the layoffs hold, class sizes would go up and overall support for students would decline, district officials said Tuesday night. The board voted 6-1 to send notices to 140 teachers, nurses and counselors, 194 teacher aides and 139 administrators. Board member Kim-Shree Maufas voted against the layoff notices. The notices are being sent out now to meet a March 15 deadline required by state law. District officials hope to rescind most of those notices before school starts in the fall. That would happen only if state voters pass proposed tax extensions and increases in June as part of Gov. Jerry Brown's budget proposal. The governor's proposal to place the measures on the ballot is before the Legislature.

Teacher layoff notices may stick in San Francisco Unified School District - More than 400 San Francisco teachers, administrators and aides will receive state-mandated notices that they could lose their jobs at the end of the school year, according to district documents. Although this number of potential layoffs is not out of the ordinary for the San Francisco Unified School District, the number of teachers who actually receive their walking papers could be far greater than past years. Gov. Jerry Brown has recommended a combination of spending cuts and revenue extensions to close California’s $28 billion budget deficit. His plan hinges on a possible June special election to let voters decide whether to extend vehicle and income taxes already in place.

Poverty levels spike in local schools - Seven out of 10 elementary students in Santa Rosa City Schools qualify for free or reduced-price lunches, reflecting a rising level of poverty in the city's core schools, according to guidelines established by the federal government. Less than a decade ago, about half of the elementary students in Sonoma County's largest school district were eligible for subsidized lunches. Today, at four of the district's 10 elementary schools, income levels are so low that more than 90 percent of students get help in paying for their lunches.

Williams says NYS budget could mean 750 layoffs - Governor Andrew Cuomo's belt tightening budget is meeting with resistance. Angry state workers are protesting over layoffs and cuts to close a $10 billion gap. Buffalo Schools Superintendent Dr. James Williams threatens to leave if Albany imposes a salary cap on school superintendents.Dr. James Williams is predicting dire consequences for the Buffalo School District. If Governor Cuomo's current budget proposal passes, Dr. Williams says there will be massive layoffs. "You're looking at about 750 people," said Dr. Williams. Every department in the school district will be analyzed. Dr. Williams said, "We're looking at our class size that we have to staff to the max based on the union contract."Even his own future remains in limbo if Albany passes a cap on the salary of superintendents. Williams' salary was capped back in 2005 at $225,000. But if a state cap brought that down to $175,000, Dr. Williams said, "No, I would not stay."

Detroit Public Schools Face 'Draconian' Cuts - With Detroit's public school district facing a $327 million budget deficit, the state-appointed Emergency Financial Manager has proposed closing half the district's schools and putting up to 60 kids in a classroom. Robert Bobb admits that his deficit elimination plan could be disastrous for students — he calls it "draconian" — but he may have no choice but to implement it. In January, he gave the plan to the state of Michigan, warning that it's the only way for Detroit Public Schools to "cut its way out" of its deficit. The state's department of education says that's exactly what Bobb should do. "We're working through some very difficult and challenging budget situations," Bobb said last week. He backed away somewhat from one of the plan's most staggering provisions: 60 kids in some classrooms. But he says class sizes will go up as the district closes about half its schools.The plan also calls for replacing individual school principals with regional ones, and cutting all general bus service.

District 205 Teacher Layoffs Could Cut into Tenured Ranks - Six Rockford schools will close. The developments are sending shock waves throughout the affected areas. Emotions ran high as more than 500 people came to the special board meeting to hear the fate of the district. "Save our schools, save our schools. They won't let us in," they said.  Due to widespread interest in district cuts, the board meeting was moved there to accommodate a large crowd. In all the board voted to close six schools, repurpose two, and decided to leave the fates of three schools alone. Board members are split on last night's progress. "I'm very concerned about the overall impact on schools, predominately on one side of Rockford - bottom line - and on a segment of students that really don't have a voice. I think that the programs and the schools and everything that we vote upon were appropriate. I'm not terribly dismayed by any of the votes." The closures are expected to save the district about five-million dollars. Five of the six buildings house elementary school students. We're told the toughest vote for board members was closing New Milford.

Bernanke for Early Childhood Education? -  On Wednesday, the Fed chairman, Ben S. Bernanke, not only gave an entire speech about the spending and taxation challenges facing local governments but explicitly advocated against cuts to education spending: No economy can succeed without a high-quality workforce, particularly in an age of globalization and technical change. Cost-effective K-12 and post-secondary schooling are crucial to building a better workforce, but they are only part of the story. Research increasingly has shown the benefits of early childhood education and efforts to promote the lifelong acquisition of skills for both individuals and the economy as a whole. The payoffs of early childhood programs can be especially high. For instance, preschool programs for disadvantaged children have been shown to increase high school graduation rates. Because high school graduates have higher earnings, pay more taxes, and are less likely to use public health programs, investing in such programs can pay off even from the narrow perspective of state budgets; of course, the returns to the overall economy and to the individuals themselves are much greater.

Unusual evidence of the intense demand for quality schooling - Every parent knows admissions decision time is incredibly stressful, both for them and for their offspring. The Wall Street Journal reports that surging admissions to the best schools have made it even more stressful, and some wonder whether it’s worth it:…worries that fewer spots were available in the schools this year after siblings and legacy applicants were factored in, as well as parents’ complaints that some children had been shut out unfairly from some schools. “It’s madness,” said M. Starita Boyce Ansari, a Manhattan philanthropy adviser, “…they should be able to enjoy their lives instead of being subjected to all this pressure” Oh, I forgot to mention, the group of applicants who are subject to all this pressure are: 4-year-olds.

Faced with state budget cuts, U releases study showing $8 billion annual impact - The University of Minnesota released a study today that shows the institution plays a major role in the state economy by generating $8.6 billion in economic impact each year. The University system (along with almost every other state-funded entity) faces major budget cuts at the Legislature this session, as the governor and legislators try to resolve a $5 billion deficit. University President Robert Bruininks said last week that if the system sees a 15 to 20 percent cut in state funding, it could mean double-digit tuition increases.Some findings of the report:

  • Every dollar invested in the university by the state generates $13.20 in the statewide economy.
  • The university’s overall economic impact in Minnesota totals $8.6 billion annually.
  • A total of 79,497 jobs in Minnesota are supported by the U of M, including 37,178 jobs in communities across the state through university spending.
  • Research at the university plays a major role in the state’s economy, generating $1.5 billion in annual economic impact and supporting 16,193 jobs.

Tuition rates continue to rise across the board, UCCS included - Last January, CU Boulder student Nic Ramos made national headlines when he strolled into the Bursar's Office to pay his tuition with 14,309 one-dollar bills. It took three staff members nearly an hour to count out all the money.The rise in tuition prices has outpaced inflation by a substantial margin for many years now, but the current economic recession has put those prices in the limelight as many public universities struggle to cut costs and increase revenue in order to keep their services afloat.UCCS is no exception: for the 2010-2011 academic year, tuition at UCCS rose by an astounding 7 percent over the previous year, equating to an additional $420 to $450 per year for the average undergrad.The outlook for next year isn't looking particularly rosy either, as the University of Colorado system expects a $77 million budget gap they will need to fill; directors have already requested permission to raise our tuition beyond the 9 percent-per-year cap mandated by the state legislature.

U.C. Davis Braces For Cuts - Up to 500 jobs could be eliminated, and students could face higher fees under a proposal being circulated by U.C. Davis Chancellor Linda Katehi. In a letter released by her office, Katehi projects a shortfall of $107 million next year, as a result of Gov. Jerry Brown's proposed budget cuts. Katehi wants to offer admission to more out-of-state students, because they pay higher tuition. That could raise an extra $4 million to help offset further student cuts. Her office said a consequence is that the freshman admission rate could drop, as the number of applications has increased.

For Profit or For Students? - For-profit colleges are expanding enrollments at a rapid pace, but it is questionable whether these revenue-seeking universities give adequate consideration to students’ welfare, retention/graduation rates, and overall economic well-being alongside their bottom line profits. A new post by Judith Scott-Clayton, a professor at Columbia Teachers College and new weekly contributor to the New York Times Economix blog, explores the merits of for-profit colleges, arguing that in many ways these schools are more efficient at seeking funding opportunities for students and adopting new teaching technologies. These schools procure more Federal dollars per student and employ more cost-saving technologies, in the classroom and online, than their non-profit public and private competitors. However, the real question is not a matter of efficiency, but instead concerns students and the taxpayers funding Federal loans and grants consumed by for-profits. Are the relative merits of profit-oriented schools, including their comparative advantage in securing Federal funding, being used to improve the return on investment for students or for their shareholders? On the macro level, does the growth of for-profit higher education promote new risks in the economy, as drop-out and loan default rates continue to increase?

Student Debt Can be Deadly - Student loans can’t be discharged in bankruptcy. Credit card debt has even led to some untimely deaths. Why are we condemning our young people? This week’s credit check: The average undergraduate student graduates college with $4,100 in credit card debt and $19,300 in student loans. Suicide is the second leading cause of death among college students. We may be trying to Win the Future, be we sure do like to get our young people mired in debt at an early age. And we’re doing less to help them stay out of it. President Obama’s recent budget proposal included ending an experiment that gave out Pell Grants for summer courses and eliminating a subsidy for paying interest on student loans for current grad students. That looks mild, of course, compared to what the GOP proposes to do — cut the maximum grant payment by $845, end funding to other aid programs, kill AmeriCorps entirely, and slash billions from agencies that support academic research. But as explained in “Up to Our Eyeballs“, the cuts to grants isn’t exactly new.

Five myths about liberal academia - Do red-blooded, hard-working Americans pay thousands of dollars each year to send their children to college, only to have those kids turned into pot-smoking Obamacare-lovers by a pack of communist hippies? This stereotype -- professors as brainwashing left-wing ideologues -- has dogged academia at least since the Vietnam War era. But our nation's vilified professoriate isn't composed of just Marxists and Whole Foods shoppers. Let's upend five popular misconceptions about the people educating the next generation.

On the Rising Number of College Grads Entering Public Service - Back in 2008, I wondered how the financial crisis might affect college graduates’ career ambitions. Perhaps the recession might cause the country’s best and brightest to reprioritize what they wanted out of a job: The prize-winning economist Esther Duflo and other commentators had similarly asked whether the financial crisis would lead to a reallocation of young talent across the economy.  More than two years later, our suspicions have been borne out: The number of recent college grads in public service jobs has skyrocketed in the last two years. As I wrote in an article today, in 2009 16 percent more young college graduates worked for the federal government than in the previous year and 11 percent more for nonprofit groups, according to an analysis by The New York Times of data from the American Community Survey of the Census Bureau. A smaller Labor Department survey showed that the share of educated young people in these jobs continued to rise last year.

Education a leveler? -The role of education in social inequalities is difficult to assess, because it seems to have contradictory tendencies.  On the one hand, improving access to education at all levels -- from elementary school to graduate school -- levels the playing field because it enhances the ability of everyone affected to realize their human talents and to pursue their goals with a greater foundation of cognitive and mental skills.  Closing the literacy gap, the numeracy gap, or the technology gap across all of society gives the previously disadvantaged population a better chance to compete for success in seeking employment or creating other economic and social benefits for themselves and their families.  Traditional sources of social inequality -- positions of privilege in social hierarchies, privileged access to political benefits, disproportionate ownership of land and other forms of productive property -- are to some extent blunted by a greater degree of equality of access to good schooling and the knowledge and skills it provides.  So we might say that improving the quality and reach of a society's educational system should be expected to reduce existing inequalities.

The awful truth: education won't stop the west getting poorer -Western Europeans and Americans are about to suffer a profound shock. For the past 30 years governments have explained that, while they can no longer protect jobs through traditional forms of state intervention such as subsidies and tariffs, they can expand and reform education to maximise opportunity. If enough people buckle down to acquiring higher-level skills and qualifications, Europeans and Americans will continue to enjoy rising living standards. If they work hard enough, each generation can still do better than its parents. All that is required is to bring schools up to scratch and persuade universities to teach "marketable" skills. That is the thinking behind Michael Gove's policies and those of all his recent predecessors as education secretary. But the financial meltdown of 2008 and the subsequent squeeze on incomes is slowly revealing an awful truth. As figures out last week from the Office for National Statistics show, real UK wages have not risen since 2005, the longest sustained freeze in living standards since the 1920s. While it has not hit the elite in banking, the freeze affects most of the middle class as much as the working class. This is not a blip, nor the result of educational shortcomings. In the US, which introduced mass higher education long before Britain, the average graduate's purchasing power has barely risen in 30 years.

MA Teacher Retirement System (and WI a bit) - H35 provides for these amendments to the MA teachers retirement system by Gov. Duval Patrick: This legislation filed by Governor Patrick proposes further pension reforms to achieve the following objectives:

  • Update the system to reflect demographic changes, such as the fact that people are living and working longer;
  • Eliminate abuses, through anti-spiking measures, extending the number of years used to calculate pension benefits, and increasing scrutiny of legislation benefiting individual employees; and,
  • Address fairness issues, through updating purchase of creditable service and buyback provisions, eliminating early retirement incentives, pro-rating benefits based on employment history, eliminating the right to receive a pension while receiving compensation for service in an elected position, and allowing retirees who married a person of the same sex within the first year after it became legal to change their retirement option in order to provide a benefit to their spouse.

State's long-term pension debt jumps -  The financial hole in Illinois' government pension systems grew even larger last year, the state auditor reported Thursday — a problem that tends to increase pressure on a state budget already stretched too far. The long-term gap between what Illinois owes future retirees and the money available to pay them jumped 21 percent under a new measuring system, Auditor General William Holland reported. Even under the old system, the gap grew by 10 percent.  Illinois government employees, downstate teachers and university staff have been promised $139 billion worth of retirement benefits, but the pension systems have only $63 billion in assets. Eventually, the state will have to come up with money to make up that difference. As state government devotes more money to government pensions, it leaves less for education, law enforcement, human services and other needs. Illinois borrowed about $3.7 billion this year to help make the annual contribution to retirement systems. The amount owed in the next budget will top $5.4 billion, the auditor said.

Pension problems weigh on Pittsburgh (CNN)

-- Pittsburgh isn't ready to throw in one of its Steeler "terrible towels" just yet. But runaway pension costs for its firefighters, police officers and other public workers could crush the Steel City. The players on the field in this battle are different. Instead of a Republican governor at the center of the controversy as in Wisconsin, Pittsburgh's Democratic mayor is leading the charge. "It's not even about being Democrat or Republican. It's about being able to manage and run local government," said Mayor Luke Ravenstahl, noting he grew up in a union family. The numbers are staggering. The unfunded obligation in Pittsburgh's pension system has ballooned to $700 million. Half of all tax dollars in Pittsburgh go to pension and health care plans for public workers, as well as the city's debt obligations. That number could rise to 70% if the city fails to take action.

States Eye Shift From Pensions to 401(k)-Style Plans - Policy makers across the country are considering scrapping guaranteed retirement benefits for public workers in favor of 401(k)-like plans.  In pursuing the switch, some state and local governments hope to shift more responsibility and risk—as well as potential reward—to employees. But some are discovering that closing down a pension plan can carry hefty costs.  Many say 401(k)-style plans can yield meaningful cost savings over time if employer contributions are substantially reduced from what they were, and relieve governments of the obligation to make guaranteed payouts. Yet shorter-term pain can result from such a switch.

Public Pension and Healthcare Costs and Financial Common Sense - Let's scrape away all the ideological baggage and just look at the numbers, shall we? If you must assign a point of view, then let's take the POV of someone who is, broadly speaking, sympathetic to unions and wants to "do the right thing" but who is also a private sector worker who has seen his/her income and assets fall in the past three years even as inflation, official and otherwise, has further eroded the purchasing power of his/her stagnant income. As a result, paying higher taxes is a direct reduction in disposable income and thus a serious sacrifice.  There are about 106 million private sector wage earners and about 24 million public sector employees in the U.S. for a total of about 130 million jobs.  Here is a graph of the GDP growth of the U.S. since 2000. Broadly speaking, GDP grwoth is the foundation of higher taxes and higher incomes. If GDP is flat, then household incomes are also flat. The State (broadly speaking, all government) cannot increase taxes above the growth rate of the GDP without crimping private-sector households.

The Truth About Pensions - Krugman - Dean Baker has a deeply enlightening analysis of state pension shortfalls (pdf), containing a lot of stuff I didn’t know. The basic moral is that the official story these days — of years and years of huge giveaways to unions, resulting in gigantic, unpayable debts — is just wrong: to a very large extent, the pension shortfall has emerged just since 2007, thanks to the financial crisis, and even then it’s not nearly as big relative to future state incomes as widely imagined. Here’s a key figure:  It puts an entirely different light on the situation. Whaddya know, we’re being sold a bill of goods.

The imaginary public sector pension fund crisis - - "The Origins and Severity of the Public Pension Crisis," a new paper from economist Dean Baker, co-director of the left-leaning Center for Economic and Policy Research, makes a decent argument that the so-called "crisis" isn't as bad as the Republican governors busily busting unions all across the United States would have us believe. Baker shows that the bulk of the predicted shortfalls auguring long-term trouble for government worker pension funds can be attributed to the sharp drop in the stock market between 2007 and 2009. Assuming decent economic growth, future liabilities, as measured against projected future GDP, are, in Baker's view "manageable." The likelihood that Baker's paper will change any minds is poor. The fight over public sector unions doesn't come down to the question of how to balance state financial ledgers -- instead, it's all about political power. Unions support Democrats; therefore Republicans seek to crush unions. Republicans are especially aggrieved by public sector unions, which they believe unfairly use taxpayer funds to pursue agendas that conflict with the conservative mandate.

How Big Is the Pension Funding Gap? - As I mentioned in my column this week, the accounting assumptions behind the valuing of government pensions go a long way toward determining whether government workers appear to be overpaid — and also toward determining how much long-term fiscal trouble state and local governments face. These governments generally assume that pension funds will earn 8 percent a year. That’s roughly the historical return of the stock market. Using that assumption, the Center for Retirement Research at Boston College estimates a current funding gap of $700 billion for all state and local governments. There are two reasons to question the 8 percent number, however. My own instinct is that one of the reasons is more valid than the other. The first — the one for which I have not yet heard a persuasive argument — is that the stock market does not return 8 percent a year over every given period. For this reason, companies (and individuals) cannot assume an 8 percent return when valuing their own pensions. A government seems different, though. It can much more easily smooth over variable returns. The second reason to question the 8 percent assumption strikes me as more valid and more worrisome. Should we really assume that the stock market will return 8 percent in the future, as it has in the past? I’m not so sure.

How bad is the state pension funding mess? - Dean Baker says not so bad; Kevin Drum, Paul Krugman, and others seem to take his side.  Josh Barro says it's bad.  I side with Barro.  Here is one Baker passage: The total shortfall for the pension funds is less than 0.2 percent of projected gross state product over the next 30 years for most states. Even in the cases of the states with the largest shortfalls, the gap is less than 0.5 percent of projected state product. Beware of the 30-year comparison I say.  A lot of sums look small compared to thirty years' worth of output.  I worry when I read sentences such as this: The major reason that shortfalls exist at all was the downturn in the stock market following the collapse of the housing bubble, not inadequate contributions to pension funds. In my house, that's what inadequate means.

Golden Years? - One big reason public employees are under siege in Wisconsin and other states is because they now enjoy more secure retirement benefits than most private-sector workers. The question is whether the right way to close that gap is by reducing security for government employees or increasing it for everyone else. For private-sector workers, retirement security is unmistakably eroding. The change is rooted in the shift from “defined benefit” pensions, under which employers guarantee their workers a fixed payment after retirement, to “defined contribution” pensions, such as 401(k) plans, under which employers commit only to contributing a fixed amount that employees must invest on their own. In 1985, about four in five workers at medium- and large-sized private firms received a defined-benefit pension, according to federal statistics. Today, less than one-third are covered under such plans.

Governors Scramble to Rein In Medicaid - More than half the states want permission to remove hundreds of thousands of people from the Medicaid insurance program, a move that would represent a rare cut to a national social program. The push sets up a showdown between states struggling with fiscal 2012 budgets and the Obama Administration, which says it may lack the authority to allow such cuts. That means Congress could be forced to settle the matter.  Nearly every state has nipped at parts of the program, which currently insures 53 million Americans. Arizona stopped covering certain organ transplants, Washington pared vision and dental services and South Carolina has eliminated coverage of circumcisions.But governors say those aren't enough to control a program that swelled during the downturn and is now tied with education as their top expense. Created in 1965, Medicaid was designed as a federal-state partnership to provide a health coverage for the poorest Americans, particularly those with children. As of 2009, states on average cut off working parents earning more than $11,616 a year, according to the Kaiser Family Foundation, although in some states the income threshold is as high as $48,400.

Cash-Strapped States Target Medicaid To Close Budget Gaps - While the nation's unemployment nearly doubled to 9.5% from December 2007 through June 2010, Medicaid enrollment has jumped by 17.8%, according to the Kaiser Commission on Medicaid and the Uninsured. Medicaid spending nationwide hit $381 billion in 2009, a 13% increase from 2007. States are responsible for anywhere from 20% to 50% of that bill, depending on the age of patients and average income levels. In 2009, states paid 34% of the total, according to the Department of Health and Human Services. Enrollment is only expected to continue to rise, as unemployment stays high and more employers cut health insurance coverage. January's unemployment rate stood at 9%. The increase in Medicaid rolls in 2012 since 2008 is likely to be over 9%, according to Michael Leachman, assistant director of the state fiscal project at the Center on Budget and Policy Priorities. On average, Medicaid consumes 22% of a state's budget, rising to as much as 28% in New York and 33% in Illinois, according to a report from the Wells Fargo Research & Economics team.

Brewer's Arizona Medicaid Cuts May Slam Hospitals as Patients Lose Funding - The Medicaid program that covers 48 million Americans is the single biggest expense for states, consuming 22 percent of their total $1.6 trillion in expenditures, according to a National Governors Association report. That makes it a primary target of governors grappling with budget deficits of as much as $125 billion in the coming fiscal year, from Republicans like Brewer and Florida’s Rick Scott, to Democrats including New York’s Andrew Cuomo and California’s Jerry Brown.  Nowhere has the national Medicaid crisis come under a harsher glare than in Arizona, where Brewer, 66, drew international condemnation for being the only governor to stop paying for certain organ transplants, including hearts and livers. Cutting Medicaid for about one in five Arizonans now on the rolls, as she proposes, would help save $541.5 million in the coming year.

Report: State Medicaid enrollment soaring - Medicaid enrollment has soared more in Wisconsin than in any other state but Arizona in recent years, putting pressure on the state budget, according to a report released today by the Wisconsin Taxpayers Alliance. "State leaders need to confront these challenges," said the report, adding "any new money for Medicaid will likely come at the expense of other state programs, most notably education and property tax relief." Gov. Scott Walker plans to release his budget for the next two years Tuesday. His budget repair bill for this year, released this month but stalled by protests, gives his administration new powers to reshape the program. Medicaid, the state-federal health plan for the poor, covers 1.2 million people in Wisconsin, or one in five residents. The program faces a $1.8 billion state budget deficit over the next two years. It includes BadgerCare Plus, Family Care and SeniorCare, among other services.

Digital Mammography Saps Medicare Dollars - Here I am cross-posting a large chunk from a piece which focuses on how “Digital Mammography Saps Medicare Dollars.”  The subtitle reads: “How GE, Others Used Political Muscle, Advertising to Lure Medicare into the New Procedure.”   For regular Health Beat readers, the second half of the story will be eye-opening. (Scroll down to “A Promising New Technology”).  Most of you know that our health care system  is suffering from what some call “an epidemic” of testing, but few journalists have written about the role that lobbyists for corporate giants such as GE have played in making hospitals feel that they have no choice but to buy exorbitantly expensive, and not always fully tested, medical equipment.  Click on the link to read the full story.

Medicaid and health outcomes (again) - Avik Roy has read and posted about the papers I reviewed as part of my Medicaid-IV series. If you’ve forgotten, the purpose of that series of posts was to examine studies that use proven, sound methods to infer the causal effect of (as opposed to a correlation between) Medicaid enrollment on health outcomes. From that series, I concluded that there is no credible evidence that Medicaid is worse for health than being uninsured. Considering only studies that show correlations (not causation), Avik disagrees.The point I want to drive home in this post is why an IV approach is necessary in studying Medicaid outcomes. People enrolling in Medicaid differ from those who don’t. They differ for reasons we can observe and for those we can’t. An ideal study would be a randomized controlled trial (RTC) that randomizes people into Medicaid and uninsured status. Thats neither practical nor ethical. So we’re stuck, unless we can be more clever.

Uninsured's numbers surge during recession - A health care crisis is sweeping the Central Valley, devastating middle-class and poor families and threatening to overwhelm the region's fragile safety net. The deep recession has pushed the ranks of the uninsured here to unprecedented levels. At the same time, a dire state budget deficit has forced lawmakers to drastically scale back or eliminate key health care programs for the state's poorest residents.At the nexus of these two trends lies a troubling new reality: Across class lines, people are struggling to access care -- or simply are going without.  Doctors and nurses at county and nonprofit clinics say they're seeing mounting numbers of out-of-work professionals and laid-off blue-collar workers joining the chronically poor and undocumented in waiting rooms throughout the region. In the past few years, growing numbers of unemployed workers have added 700,000 to the ranks of the state's uninsured, bringing the total to 7.1 million.

Medical costs are going up; we have to cut our insurance - Some catching up on health care reform progress makes sense as we keep in mind these posts from Beat the Press Dean Baker writes: Second, the story of massive huge future budget deficits has little to do with aging. It is a story of a broken private health care system. If the United States paid the same amount per person for health care as any other wealthy country we would be looking at huge budget surpluses, not deficits. Of course we can't lower our costs because of the enormous power of the health care industry. The big deal in national planning and in recent MA statements by planners, Gov. Patrick, and others is the 'global payment method' (of which there are many proposals of programs) to replace fee for service billing. Somehow a global payment system determined by a standard treatment sequence will cut an estimated amount of duplication and excess testing among a list of things. Estimates range from 4% to 14% 'savings' through a mechanism jointly approved by the Blue Cross insurers and hospital association is to accomplish this in MA, but no proposals are very concrete from my survey of MA articles. Pay for Performance Summit will happen in March where the many proposals of 'global payments' will be discussed among many items.

What Can the US Learn from Other Countries' Health Care Systems? - Even after the Patient Protection and Affordable Care Act (PPACA) of 2010, and in part, because of it, health care remains a major issue of public policy in the United States. It is central to ideologically charged discussions of fairness, the role of government, and even the budget, since the cost of health care is the single largest driver of the federal deficit. In confronting this complex and sensitive issue, it seems only reasonable that we ask what we can learn from the experience of other countries. As the first in an occasional series, this post will look at broad international comparisons of health care systems. Subsequent posts will examine what can be learned from individual countries. To some on the right, the answer to what can be learned from other countries' health care experience is simple: Nothing! In a recent survey by the Harvard School of Public Health, 68 percent of respondents who identified themselves as Republicans maintained that the United States already has the best health care system in the world. (So did 32 percent of Democrats). There is a widespread view among conservatives that foreign health care systems are socialized medicine. Socialized medicine is bad. Don't go there.

US pulls 500 unauthorized prescription drugs – The US Food and Drug Administration on Wednesday said it wants 500 unauthorized prescription drugs for cough, cold and allergy symptoms pulled from the market because of risks to the public. "We don't know what's in them, whether they work properly or how they are made," FDA director of the Office of Compliance, Center for Drug Evaluation and Research Deborah Autor told reporters. The FDA published a list of 500 medications that are available only through a doctor's prescription, and said companies must "stop manufacturing them within 90 days and stop shipping the products within 180 days." Autor said "all or almost all" of the drugs are made in the United States.

David Suzuki: Politicians who reject science are not fit to lead - I wish I could say that we’ve evolved when it comes to science. But sometimes reading the news and listening to the pronouncements of politicians, especially south of the border, I’m bewildered by the rampant ignorance about science and the antipathy toward it.One example I just came across was a comment by the governor of Maine, Paul Lepage, about bisphenol-A, or BPA, which is used mainly in plastic containers and toys. Health Canada recently declared BPA a toxic chemical because of its links to breast cancer, developmental problems in children, prostate disease, and fertility issues. In response to calls for his state to restrict BPA use, Lepage said, “There hasn’t been any science that identifies that there is a problem. The only thing that I’ve heard is if you take a plastic bottle and put it in the microwave and you heat it up, it gives off a chemical similar to estrogen. So the worst case is some women may have little beards.”

Dangerous New Organism Found and Linked to GMOs! - The following information is vitally important to understanding just how dangerous genetically modified organisms (GMOs) are, not only to the environment, but to the health of everyone on the planet. One of the nation’s senior scientists alerted the federal government to a newly discovered organism that may have the potential to cause infertility and spontaneous abortion in farm animals, raising significant concerns about human health. Dr. Don Huber, professor emeritus at Purdue University, believes the appearance and prevalence of the unnamed organism may be related to the nation’s over reliance on the weed killer known as Roundup and/or to something about the genetically engineered Roundup-Ready crops. In a letter to Secretary of Agriculture Tom Vilsack, the professor called on the federal government to immediately stop deregulation of roundup ready crops, particularly roundup ready alfalfa.

Control over your food: Why Monsanto's GM seeds are undemocratic - The USDA, and even some leaders of the organics business such as Whole Foods and Stonyfield Farms, endorse the notion of “coexistence” between GM and organic crops – a comforting yet flawed claim. Numerous organic farmers have reported the unwanted arrival of GM seeds contaminating their fields, rendering organic crops unmarketable. Even more troubling, “Roundup Ready” and other herbicide-resistant seeds by their nature promote the use of toxic herbicides – the use of which, contrary to industry claims, has risen as GM crops have proliferated, according to USDA data.Even with buffer zones to segregate GM and organic fields, “Some degree of cross-pollination will occur regardless of what mechanism is going to be put in place,” agronomist Jeff Wolt, of Iowa State University’s Seed Science Center, told the Associated Press.The GM threats to biodiversity and democracy are closely related. When you pair proprietary technology that’s designed to retain company control of seeds (the very lifeblood of our food supply) along with highly concentrated market control, you get a hazardous blend of ecological, economic, and political centralization.

Cloned animals – Consumers shall have no choice - A non-public EU Commission paper confirms that food from offsprings of cloned animals are already on the European market. The animals get into the market via the import of breeding material from the US. The EU Trade Commission argues that in future too these products should not be regulated, labelled or controlled for unexpected risks, because so far no systems have been established for registering the animals in exporting countries such as the US. If the EU Commission succeeds, consumers within the EU will not get any information about these products like milk and meat, despite a high level of consumer rejection of cloning of animals for food production.“Products that are widely rejected on ethical concerns are to be disposed of via consumers. The EU Commissioner De Gucht is giving in without a fight to industrial agriculture lobbyists. This is astonishing since only very few companies are making profits from this highly controversial technology,” says Christoph Then at Testbiotech in Germany. According to the EU Commisison paper circulated within the European Parliament, the Commissioner for Trade only intends to regulate products that are directly derived from the cloned animals. But these products only have a very small market volume. The food products that are derived from their offspring have a much greater impact on markets.

Wheat disease a threat to global food security - Scientists believe stem rust, which looks like red dust on wheat, could threaten global food security. A new strain of the disease is spreading throughout eastern and southern Africa and researchers say it could arrive in Australia on high winds. Researchers are racing for ways to protect vital food crops and have just been given a $40 million boost from the Bills Gates Foundation. Grains Research and Development Corporation (GRDC) chair of cereal rust research at the University of Sydney, Professor Robert Park, says stem rust has the potential to kill wheat crops. He says there is one particular variety of wheat rust which is proving difficult to stop - UG99 - found in Uganda in 1999.

Food Prices Rose Again in February - Not good: Global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar, FAO said today. FAO expects a tightening of the global cereal supply and demand balance in 2010/11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. "Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,"  The picture at top shows the history of the FAO index since 1990, showing that, in real terms, we are now way above the peak of the 2008 food price shock.  (Although, if the index went back longer, it would show that food prices used to be much higher than they are even now).Here's the breakout by commodity group recently:

Are Food Prices Worth the Worry? - I recently wrote a couple of articles for a Minyanville feature package on food prices. Here’s a sum-up of their findings on food prices:

  • Corn, sugar: Pray for good weather and a loss of government interest in ethanol* so that corn prices don’t skyrocket. Sugar is in a similar situation.
    Meat: Due to rising prices and production constraints, chicken is set replace beef as America’s meat of choice over the next decade.
    Wheat, dairy: Wheat prices look like they might actually go down. So do dairy prices. Both, however, are strongly linked to corn prices.
    Fruit, veggies, vegetable oils (and products containing them), and even beer stand to increase.
    Coffee, ironically, is in the scariest situation, if you happen to be an addict. Hoarding coffee might be a very good idea.

Climate Change and the Water Crisis in the U.S. Southwest - While climate change may seem remote, the water crisis in the Southwest is all too immediate. Recent years of drought have reached critical levels, threatening to curtail agriculture and even the normal patterns of urban life throughout the region. Even if today’s climate remained unchanged, water use in Arizona, California, Nevada, New Mexico and Utah would more than double over the next century, just from population and income growth. In a recent study, Elizabeth Stanton and I show that the changing climate will make a bad situation worse, increasing the Southwest’s water consumption by an additional one-third of today’s level of use. There is simply no way to get that much water; the region’s rivers and rainfall aren’t going to grow. Ocean desalination is expensive, energy-intensive, and environmentally controversial. Groundwater, which makes up the water deficit today, is bound to run out at some point; it is being used far beyond its recharge rate in California and Arizona, and probably elsewhere as well. There are two different estimates of California’s current groundwater reserves; the state would need three times the more optimistic estimate in order to make it through the next century.

Managing California's water - Throughout the "fruitful rim," where most U.S. fruits and vegetables are produced, the most challenging environmental constraint is not insufficient land but rather insufficient water. California, in particular, faces several different kinds of crisis in the next several years unless water is managed better.  According to a report in February from the Public Policy Institute of California, entitled "Managing California’s Water: From Conflict to Reconciliation," these crises include:

  • extinction and decline of native species,
  • catastrophic floods,
  • water scarcity, and
  • deteriorating water quality.

Some of the most serious problems are occurring in the Sacramento-San Joaquin River Delta, not far from my home this year in Davis, CA.  The region is at risk from both ecological and agricultural disasters in coming years, with an aging network of levees and an environmentally unsustainable system for shifting water from north (where it is more plentiful) to south (where agricultural and urban water deficits are worst). 

Australia’s farms “particularly vulnerable” to climate change, adviser Ross Garnaut Says -- Australia, the fourth-largest wheat exporter, risked more climate-change damage than other developed countries partly because of the threat to its agriculture, said Ross Garnaut, the federal government’s adviser on the topic.“Our agriculture is particularly vulnerable,” Garnaut told reporters in Canberra. “Australia is already a country of climate extremes where in many places in some parts of the year, temperatures are already near the upper limits of agriculture.”Australia, also the fourth-largest cotton shipper and biggest coal exporter, will impose a price on carbon in July next year before the start of a trading system as early as 2015, according to plans set out by the ruling Labor Party. Record rain, flooding and a cyclone in the nation’s east damaged crops this season, while drought cut output in the west, increasing concerns that climate volatility and warming will curb output.

In Price of Farmland, Echoes of Another Boom - The 80 acres of rich farmland that Jeff Freking and his brother Randy bought near Le Mars, Iowa, on Monday for $10,000 an acre would seem to have nothing in common with a condo in Miami or a house in Las Vegas.  But as prices for agricultural land surge across America’s grain belt, regulators are warning that a new real estate bubble may be forming — echoing the frothy boom in home prices that saw values in Miami and Las Vegas skyrocket and then plummet.  “It just seems to be going up in leaps and bounds here,” said Jeff Freking, who bought a similar farm, also in northwestern Iowa, for $6,000 an acre just two years ago. “Everybody thinks it’s crazy.”  The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.

The Effects of Rising Global Food Prices - Food prices are shooting up to levels last seen back in 2008, when foodstuff inflation hit populations around the world. If present trends continue, though, some consumers might find themselves looking back on that earlier era with nostalgia.Economist Joachim von Braun, director of the Center for Development Research in Bonn, Germany, says the world could be facing a new era of expensive food. "The best forecasting models for the long run, for the next few decades," von Braun says, "are that we may have to face 50 percent increases in grain prices by 2030 and further increases, up to doubling trend prices, by the middle of the century." If current trends are any indication, these trends are likely to bring plenty of political instability in their wake.

Worsening food deficit -  Agricultural output growth around the globe is failing to keep pace with the increase in demand. The smallest corn inventories in 37 years are a sign farmers around the globe are failing to produce enough grain to meet rising consumption, even as planting expands and food prices surge. Growers from Canada to Russia boosted annual output of wheat, rice and feed grain by 16 per cent since 2000, not enough to keep up with the 20 per cent gain in demand, US Department of Agriculture data show. While a Bloomberg survey of 25 analysts shows the agency may forecast a 3.5 per cent increase in US corn planting, the government says world stockpiles will equal 15 per cent of use, the lowest since 1974

Global food prices hit new record high -- Global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar, [UN Food and Agriculture Organisation] said today. What is driving up food prices to record levels?  As I’ve discussed in CP’s food insecurity series, it’s harvests ruined by extreme weather, coupled with rising oil prices, increasing demand from population growth and changing diets in a global market made all the tighter by unsustainable biofuels policies.The only good news going forward is that the Chinese drought has abated somewhat.Here’s more from the FAO release:FAO expects a tightening of the global cereal supply and demand balance in 2010/11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. International cereal prices have increased sharply with export prices of major grains up at least 70 percent from February last year.

Yes, You Can Survive The Coming Economic Nightmare – One Family In California Grows 6,000 Pounds Of Produce On Just 1/10th Of An Acre -If you work hard and get prepared, you can survive the economic nightmare that is coming.  All over the United States and around the world there are millions of people that are learning how to become more self-sufficient.  For example, there is one family that is actually producing 6000 pounds of produce on just 1/10th of an acre right in the middle of Pasadena, California.  In fact, they grow so much food that they are able to sell much of it to restaurants in the area.  Video of this incredible "urban homestead" is posted below.  The key is to start with what you have.  The family in the video below would like to have a large acreage, but for now they have turned what they do have into an absolute miracle.  Yes, a horrific economic nightmare is coming to this country, but you don't have to be afraid.  One of the main reasons why so many of us are trying to warn people about what is coming is so that they will wake up and take massive action to become self-sufficient like the people in the video below have.

TheEconomist: How much is enough? A Special Report on Feeding the World - In 1996 the United Nations’ Food and Agriculture Organisation (FAO) estimated that the world was producing enough food to provide every man, woman and child with 2,700 calories a day, several hundred more than most adults are thought to need (around 2,100 a day). The Lancet, a medical journal, reckons people need no more than 90 grammes of meat a day. On average they eat more than that now. As Abhijit Banerjee of the Massachusetts Institute of Technology says, “we live in a world that is capable of feeding every person that lives on the planet.”Indeed, the world produces more than just enough to go round. So why worry about producing more food? Part of the answer is prices. If output falls below demand, prices will tend to rise, even if “excess” calories are being produced. That happened in 2007-08, and is happening again now. Over the past four years prices have been more volatile than they have been for decades. This is bad for farmers (who are left not knowing how and where to invest) and worse for consumers, especially the poor, who risk suddenly being unable to afford basic food. In this special report:

UN: Food prices hit record high in February - Global food prices reached new highs in February, a U.N. food agency said Thursday, warning that oil price spikes could provoke further increases. Skyrocketing food prices have been among the triggers for protests in Egypt, Tunisia and elsewhere and raised fears of a repeat of the food price crises in 2007 and 2008. Global oil prices have spiked on concerns about the potential impact of supply disruptions from Libya. The Food and Agriculture Organization said in a statement that its food price index was up 2.2 percent last month, the highest record in real and nominal terms since the agency started monitoring prices two decades ago

UN: Food Prices Hit Record High In February - Global food prices are the highest in 20 years and could increase further because of rising oil prices stemming from the unrest in Libya and the Mideast, a U.N. agency warned Thursday. Skyrocketing food prices have been among the triggers for protests in Egypt, Tunisia and elsewhere, and raised fears of a repeat of the food price crises in 2007 and 2008. Some experts point to key differences compared to those years: for one, the price of rice, a dominant component of regular diets in many parts of the world, is much lower today. Still, aid group Oxfam called the hike "deeply worrying."The Food and Agriculture Organization said in a statement that its food price index was up 2.2 percent last month, the highest level since January 1990 when the agency started monitoring prices

IMF warns food prices to stay high - The world faces a prolonged period of high food prices, the International Monetary Fund has warned, arguing that the main reason for the sharp rise in agricultural commodities prices is a structural shift in demand. The warning came as the UN Food and Agriculture Organisation’s (FAO) index of global food prices rose to a record high in February, the eighth consecutive monthly increase. In an article published on Thursday, IMF commodities economists wrote that “the world may need to get used to higher food prices”.The economists said that a large part of the surge in food prices was related to temporary factors, such as the weather. “Nevertheless, the main reasons for rising demand for food reflect structural changes in the global economy that will not be reversed,” they added. Last week, the US Department of Agriculture forecast nominal record farm-gate prices for corn, wheat and soyabeans in the crop year that begins with the 2011 harvests, predicting that the tightness in the markets would “not be entirely mitigated over the course of one or even two growing seasons”.

Will Increasing Food Prices Lead To More Revolution? - According to the World Bank, food prices are on the rise again. Impoverished people in third world countries already spend 50 percent of their budgets on food and many to worry that, with increased prices, millions more will slip into poverty, this according to a recent article by The Guardian: "Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world," Zoellick said. "The price hike is already pushing millions of people into poverty, and putting stress on the most vulnerable, who spend more than half of their income on food.'Robert Zoellick, president of the World Bank, added that food prices have risen 30 percent in the past year, close to the high prices reached in 2008. In 2008, food prices ignited riots across the third world, from Argentina to Bangladesh. In many ways, the current crisis has the opportunity to be worse than 2008.

Forget fuel costs, U.S. farmers cheer oil surge - Not too long ago, a surge in oil prices such as this week's would have caused a groan of misery from the U.S. farm belt, forced to pay higher prices for tractor fuel and fertilizer. Today, farmers are far more likely to cheer.  The farm sector's response to a surge in fuel costs1 has inverted for two important reasons: the rise of biofuels now means more corn and soybeans are likely to be drawn into the fuel pool; and the disconnect between natural gas and crude prices means fertilizer costs are not being dragged higher. While neither trend is new, it's been put in sharp relief this week as U.S. oil prices surged to $100 for the first time since 2008 amid Middle East unrest. U.S. crude futures rose toward $100 per barrel again on Friday before easing. On balance, the surge is far more likely to lend support for a near-record corn sowing season than it is to crimp farm income6 through higher costs for crop chemicals and transportation charges, analysts say.

US Ethanol Production - The first graph (below) shows total production of ethanol in the US (almost of all of which is from corn).  The data are from the Renewable Fuels Association - yearly through 2008, then monthly, with Dec 2010 and Jan 2011 being averages of the weekly data for those months: You can see the steady rise through the eighties and nineties, then the big take off as oil prices shot up in the 2000s and both policy and commercial advantage dictated converting more of the corn crop to ethanol. Things have slowed down a little bit in 2010, but ethanol production is still growing.  We are now approaching a million barrels/day of ethanol production.  However, recall that ethanol only has about 2/3 the energy content of oil products like gasoline, so we are at about 0.6mbd in an energy equivalent basis.  This can be compared to US crude oil production of about 5.3mbd in 2010, and US consumption of about 18.8mbd of oil products in 2009. The next graph shows the total potential ethanol production if the entire US field corn crop had been converted to ethanol (pale pink - methodology here).  Also shown in the darker tones are the production capacity of ethanol plants in production, and under construction:

Global Biofuel Production - Here are updated graphs of global biofuel production through 2009. The latest statistics are from the Renewables 2010 Global Status Report.  The graph above shows volume of biofuel production (expressed in millions of barrels/day), broken out by ethanol and biodiesel.  The main takeaway is that biofuel growth slowed sharply in 2009 with the lower fuel prices of the great recession, but production did not actually fall. The next graph shows the share of US ethanol in the global biofuel total. US corn ethanol production continues to be about half of the global total (the other major players are Brazilian sugar ethanol and European biodiesel production). Expressed as a fraction of the global liquid fuel supply (from the EIA), it looks like this: We are up to just shy of 2% of global fuel being biofuels in 2009 (probably we crossed that in 2010).

Today in helium - In 1996, Congress passed the Helium Privatization Act, which directed the Secretary of the Interior to sell off the entire Helium Reserve by 2015. Of course, this was at a time when there were more uses for Helium than ever. But here’s the problem: the price that the helium is being sold at in order to deplete the reserves by 2015 is incredibly below market. It’s practically a liquidation sale. But the low prices are necessary in order to meet the Congressional directive to eliminate the helium reserve. What’s more, not only is helium being sold below market, but getting rid of the helium reserves is creating a temporary glut in supply. As a consequence, helium is too cheap. Far, far, too cheap. So there’s no incentive to recycle it (possible in industrial applications). Right now, once it’s used, it’s gone. As a result, it’s estimated that the world could actually run out of helium in as little as 30 years.

United States' reliance on coal to generate almost half of its electricity, costs the economy about $345 billion a year in hidden expenses not borne by miners or utilities, including health problems in mining communities and pollution around power plants (Reuters) - The United States' reliance on coal to generate almost half of its electricity, costs the economy about $345 billion a year in hidden expenses not borne by miners or utilities, including health problems in mining communities and pollution around power plants, a study found.Those costs would effectively triple the price of electricity produced by coal-fired plants, which are prevalent in part due to the their low cost of operation, the study led by a Harvard University researcher found. "This is not borne by the coal industry, this is borne by us, in our taxes," said Paul Epstein, a Harvard Medical School instructor and the associate director of its Center for Health and the Global Environment, the study's lead author. "The public cost is far greater than the cost of the coal itself. The impacts of this industry go way beyond just lighting our lights."

Green Growth or No Growth - We face serious environmental problems. People are looking for answers in a green economic future. But what would it look like? IDEAS host Paul Kennedy moderates a debate at the University of Ottawa on the resolution: Be it resolved that building an environmentally sustainable society will require an end to economic growth. Participants include Peter Victor, author of Managing Without Growth: Slower By Design, Not Disaster, Tim Jackson, author of Prosperity Without Growth: Economics for a Finite Planet; Richard Lipsey, one of Canada's pre-eminent economists, and Paul Ekins, author of Economic Growth and Environmental Sustainability: The Prospects for Green Growth. For further information about the debate and to watch a webcast of the debate, visit the Sustainable Prosperity website. Listen to Green Growth or No Growth

Benefits of Clean Air Act Rules to Reach $2 trillion, EPA Says - A two-decade-old crackdown on smog and soot under the Clean Air Act will yield about $2 trillion in annual benefits by 2020, according to a study (pdf) that was released by U.S. EPA this morning and was touted as proof that the embattled agency’s rules are an economic boon for the American people. Those rules prevented an estimated 160,000 deaths last year, according to the analysis, and within a decade, that number is projected to rise to about 230,000. That year, the new pollution controls will prevent an estimated 200,000 cases of heart disease, 2.4 million asthma flare-ups and 22.4 million missed school and work days. The study was ordered by the 1990 amendments to the Clean Air Act, which were signed into law by President George H.W. Bush. Most of the stricter limits on smog and soot also date back to those amendments, which passed with support from both parties

The most toxic cities in America - During the Revolutionary War Philadelphia served as one of America's first capital cities. These days, however, Philadelphia could be considered the capital of toxicity, since the city and its environs ranked No. 1 on our 2011 Most Toxic Cities list. One big reason: The sprawling Philadelphia-Camden-Wilmington Metropolitan Statistical Area (MSA), including parts of four states (Pennsylvania, New Jersey, Delaware and one county in Maryland), is pocked with more than 50 Superfund sites -- areas no longer in use that contain hazardous waste. While the East Coast metro, with its old industrial sites, grabbed the top spot, California metropolitan areas claimed four of the 10 spots on our Most Toxic list, primarily due to the chronic air quality problem known as smog. In Pictures: America's Most Toxic Cities

Climate change deniers aren’t ’skeptics,’ they’re cranks - According to The Nation’s Mark Hertsgaard, allowing climate change deniers to pose as cautious skeptics has sabotaged the US response to the global warming crisis. Hertsgaard, who’s reported on climate change for over twenty years, joins The Real News Network to explain how the media has provided a platform for right-wing fringe groups to peddle a distorted ideology and a mercenary support for the coal and oil industries. True skeptics, Hertsgaard says, are invaluable to the scientific process because scientific hypotheses must be tested. But those who claim that the science is mixed on whether climate change is occurring deserve the name “climate cranks.” A genuine skeptic is driven by facts and open to changing their position, while the outright denial of overwhelming evidence that climate change is real, urgent and dangerous by this crop of conservatives does not warrant them the title of skeptics, he says.

Groucho Marxist Bill McKibben takes on Glenn Beck - My life as a communist actually began without me knowing it, on Friday evening, when Glenn Beck spent his program explaining about a “communistic” conspiracy that included 10 groups in America. One was, a global campaign to fight climate change that I helped found three years ago. He even put our logo up on his whiteboard – and next to it a hammer and sickle. Since I don’t actually watch Mr. Beck, I didn’t know about it until e-mails began to arrive, informing me that indeed I was a communist. My first reaction was: I’m not a communist. I’m a Methodist. But then I reconsidered. Fellow Eaarthling and sometime CP blogger Bill McKibben offers a light touch in his response to the clown prince of disinformers.  Beck is the guy who told William Shatner, “I think there are too many stupid people.”  Now that’s humor! Here’s more from McKibben’s new Washington Post column, “My life as a communist“:

If climate scientists are in it for the money, they're doing it wrong - So, are there big bucks to be had in climate science? Since it doesn't have a lot of commercial appeal, most of the people working in the area, and the vast majority of those publishing the scientific literature, work in academic departments or at government agencies. Penn State, home of noted climatologists Richard Alley and Michael Mann, has a strong geosciences department and, conveniently, makes the department's salary information available. It's easy to check, and find that the average tenured professor earned about $120,000 last year, and a new hire a bit less than $70,000.  That's a pretty healthy salary by many standards, but it's hardly a racket. Penn State appears to be on the low end of similar institutions, and is outdone by two other institutions in its own state (based on this report). But, more significantly for the question at hand, we can see that Earth Sciences faculty aren't paid especially well. Sure, they do much better than the Arts faculty, but they're somewhere in the middle of the pack, and get stomped on by professors in the Business and IT departments.

Global Warming Causes Severe Storms - Research Meteorologists found that the temperature changes brought on by global warming are significant enough to cause an increase in the occurrence of severe storms. Severe storms are those that cause flooding, have damaging winds, hail and could cause tornados. Their study revealed that by the end of this century, the number of days that favor severe storms could more than double certain locations, such as Atlanta and New York. Researchers also found that this increase would occur during typical stormy seasons and not during dry seasons when it may be beneficial. As new storm forecasts hit home, areas already prone to severe weather need to be on the lookout for more storms. The latest forecast says global warming spells bad news for those areas.

Extreme winter weather linked to climate change - This winter’s heavy snowfalls and other extreme storms could well be related to increased moisture in the air due to global climate change, a panel of scientists said on Tuesday. This extra moisture is likely to bring on extraordinary flooding with the onset of spring in the Northern Hemisphere, as deep snowpack melts and expected heavy rains add to seasonal run-off, the scientists said in a telephone briefing.As the planet warms up, more water from the oceans is evaporated into the atmosphere, said Todd Sanford, a climate scientist at the Union of Concerned Scientists. At the same time, because the atmosphere is warmer, it can hold onto more of the moisture that it takes in.Intense storms are often the result when the atmosphere reaches its saturation point, Sanford said.This year, a series of heavy storms over the U.S. Midwest to the Northeast have dropped up to 400 percent of average snows in some locations, said Jeff Masters, director of meteorology at Weather Underground.

Yes, “human-induced increases in greenhouse gases have contributed to the observed intensification of heavy precipitation events” over much of the NH - Do climate scientists have to caveat every attribution? Not until reporters do. Here we show that human-induced increases in greenhouse gases have contributed to the observed intensification of heavy precipitation events found over approximately two-thirds of data-covered parts of Northern Hemisphere land areas. This statement is, according to NYT opinion blogger Andy Revkin, so unacceptably definitive as to warrant a whole blog post:  “In scientific literature you rarely see statements so streamlined and definitive. For climate science, this is the equivalent of a smoking gun.” Actually, the statement isn’t a terribly strong one for the scientific literature, particularly given the use of the phrase “have contributed,” and most especially for a study about the trend in increased heavy precipitationDr. Kevin Trenberth, head of NCAR’s Climate Analysis Section, has explained the connection between human-caused global warming and extreme deluges:  “There is a systematic influence on all of these weather events now-a-days because of the fact that there is this extra water vapor lurking around in the atmosphere than there used to be say 30 years ago. Trenberth has further said, “It’s not the right question to ask if this storm or that storm is due to global warming, or is it natural variability. Nowadays, there’s always an element of both.”

Greenland’s glaciers double in speed (with video) The contribution of Greenland to global sea level change and the mapping of previously unknown basins and mountains beneath the Antarctic Ice Sheet are highlighted in a new film released by Cambridge University this morning. The work of glaciologist Professor Julian Dowdeswell, Director of Cambridge University’s Scott Polar Research Institute, is the focus of This Icy World, the latest film in the University’s Cambridge Ideas series. A frequent visitor to both the Arctic and Antarctic, Dowdeswell’s research has found that the glaciers around Greenland are the fastest flowing in the world.

February Arctic ice extent ties 2005 for record low  - The records broken this winter were supposed to be for cold weather.  But fast on the heels of the Arctic seeing the lowest January sea ice extent in the satellite record, the National Snow and Ice Data Center reports: February 2011 tied February 2005 for the lowest ice extent for the month in the satellite record. Including 2011, the February trend is now at -3.0 percent per decade. The NSIDC has more details: While ice extent has declined less in winter months than in summer, the downward winter trend is clear. The 1979 to 2000 average is 15.64 million square kilometers (6.04 million square miles). From 1979 through 2003, the February extent averaged 15.60 million square kilometers (6.02 million square miles). Every year since 2004 has had a mean February extent below 15 million square kilometers (5.79 million square miles).

Here's how the Arctic will look by the end of this century - A team of University of Nebraska-Lincoln and South Korean climatologists analyzed 16 global climate models from 1950 to 2099 and combined it with more than 100 years of observational data to evaluate what climate change might mean to the Arctic''s sensitive ecosystems by the dawn of the 22nd century. Based on the climate projections, the new study has shown that the areas of the Arctic now dominated by polar and sub-polar climate types will decline and will be replaced by more temperate climates—changes that could affect a quarter to nearly half of the Arctic, depending on future greenhouse gas emission scenarios, by the year 2099. Changes to Arctic vegetation will naturally follow shifts in the region''s climates: Tundra coverage would shrink by 33 to 44 percent by the end of the century, while temperate climate types that support coniferous forests and needle-leaf trees would push northward into the breach, showed the study. 'The expansion of forest may amplify global warming, because the newly forested areas can reduce the surface reflectivity, thereby further warming the Arctic. The shrinkage of tundra and expansion of forest may also impact the habitat for wildlife and local residents,' said Song Feng, research assistant professor in UNL''s School of Natural Resources and the study''s lead author. According to the study, by the end of the century, the annual average surface temperature in Arctic regions is projected to increase by 5.6 to 9.5 degrees Fahrenheit, depending on the greenhouse gas emission scenarios.

Global Boiling Report: Every Sector Of US Economy Sensitive To Changes In Weather - A new scientific study finds that the climate affects every sector of the U.S. economy. In “U.S. Economic Sensitivity to Weather Variability,” Jeffrey Lazo of the National Center for Atmospheric Research, economists Megan Lawson and Donald Waldman of the University of Colorado, and Peter Larsen of Lawrence Berkeley National Laboratory find that “U.S. economic output varies by up to $485 billion a year of 2008 gross domestic product — about 3.4 percent — owing to weather variability.” They explain:Weather directly and indirectly affects production and consumption decision making in every economic sector of the United States at all temporal and spatial scales. From very local short-term decisions about whether or not to pour concrete on a construction project to broader decisions of when to plant or harvest a field, to the costs of rerouting an airplane around severe weather, to peak demand electricity generation in response to extreme heat, to early season snow for a bumper ski season in Colorado, drought in the Midwest, or wind-fueled wildfires in California, weather can have positive or negative effects on economic activity.

Evidence for super-exponentially accelerating atmospheric carbon dioxide growth - We analyze the growth rates of atmospheric carbon dioxide and human population, by comparing the relative merits of two benchmark models, the exponential law and the fi nite-time-singular (FTS) power law. The later results from positive feedbacks, either direct or mediated by other dynamical variables, as shown in our presentation of a simple endogenous macroeconomic dynamical growth model. Our empirical calibrations confi rm that human population has decelerated from its previous super-exponential growth until 1960 to "just" an exponential growth, but with no sign of more deceleration. As for atmospheric CO2 content, we find that it is at least exponentially increasing and most likely characterized by an accelerating growth rate as of 2009, consistent with an unsustainable FTS power law regime announcing a drastic change of regime. The coexistence of a quasi-exponential growth of human population with a super-exponential growth of carbon dioxide content in the atmosphere is a diagnostic that, until now, improvements in carbon effi ciency per unit of production worldwide has been dramatically insuffi cient.

Need Versus Greed - Sachs - India’s great moral leader Mohandas Gandhi famously said that there is enough on Earth for everybody’s need, but not enough for everybody’s greed. Today, Gandhi’s insight is being put to the test as never before.   The world is hitting global limits in its use of resources. We are feeling the shocks each day in catastrophic floods, droughts, and storms – and in the resulting surge in prices in the marketplace. Our fate now depends on whether we cooperate or fall victim to self-defeating greed. The limits to the global economy are new, resulting from the unprecedented size of the world’s population and the unprecedented spread of economic growth to nearly the entire world. There are now seven billion people on the planet, compared to just three billion a half-century ago. Today, average per capita income is $10,000, with the rich world averaging around $40,000 and the developing world around $4,000. That means that the world economy is now producing around $70 trillion in total annual output, compared to around $10 trillion in 1960.

Electric Vehicles: Myths vs. Reality - Sierra Club - Myth 1: Switching to an electric vehicle will just mean that the same amount of pollution comes from the electricity generation rather than from the tailpipe — I'll just be switching from oil to coal. Reality: According to a range of studies, an electric car leads to 35 to 60% less carbon dioxide pollution from electricity than the CO2 pollution from the oil of a conventional car with an internal combustion engine.[1][2][3] In some areas, like many on the West Coast that rely largely on wind or hydro power, the emissions are significantly lower for EVs. And that's today. As we retire more coal plants and bring cleaner sources of power online, the emissions from electric vehicle charging drop even further. Additionally, in some areas, night-time charging will increase the opportunity to take advantage of wind power -another way to reduce emissions.

Nuclear War Could Reverse Global Warming - Nuclear war is a bad thing. Right? Scientists from NASA and a number of other institutions have recently been modeling the effects of a war involving a hundred Hiroshima-level bombs, or 0.03 percent of the world's current nuclear arsenal, according to National Geographic. The research suggests five million metric tons of black carbon would be swept up into the lowest portion of the atmosphere. The result, according to NASA climate models, could actually be global cooling. From National Geographic: In NASA climate models, this carbon then absorbed solar heat and, like a hot-air balloon, quickly lofted even higher, where the soot would take much longer to clear from the sky. While the global cooling caused by superpower-on-superpower war could be catastrophic (hence the term "nuclear winter") a small scale war could have an impact on the world climate, says National Geographic. Models suggest that though the world is currently in a warming trend, small-scale war could lower global temperatures 2.25 degrees F for two-to-three years following war. In more tropical areas temperatures could fall 5.4 to 7.2 degrees F.

China’s coal policy is breathtakingly self-destructive - Back in 2007, I wrote that “the immorality of China’s coal policy is breathtaking (literally).”  Sadly, even as it has become the world leader in clean energy, China’s self-destructive coal policy continues unabated.  China’s CO2 emissions now surpass ours by some 40%! Our cumulative emissions greatly exceed theirs, of course, so I’m not diminishing America’s culpability in the coming climate catastrophe at all. But their CO2 growth rate is staggering whereas ours is mostly stagnating. Moreover, the impacts of unrestricted CO2 emissions will surely be much harder on their country than ours, and not just because they are poorer with vastly more people.  They are very reliant on inland glaciers that will likely all but vanish this century.They are vastly more vulnerable to food insecurity. We’re the breadbasket for the world, with vast surplus agricultural production, whereas they might have to import wheat this year if their current extreme drought continues.  They already import staggering amounts of soybeans.

What If Greenpeace Ran China?  - Though I am very often at loggerheads with positions that Greenpeace takes, a significant part of the following makes sense to me at least. As we all know, China's rise to becoming the world's second largest economy has been accompanied by becoming the world's most polluting economy in terms of carbon emissions and likely much else. My general belief is that while the PRC leadership expresses concern over these facts, it is reluctant to offend export lobbies in resource-intensive manufacturing industries. Moreover, it is not so easy of breaking away decisively with what, for the most part, can now be considered a "tried and true" growth strategy. As a remnant of Soviet-style central planning, the Politburo still prepares five-year plans, basically blueprints for running the country. While the likes of William Easterly and those of a libertarian bent pooh-pooh these plans, it is remarkable how the major emerging economies China and India still engage in them. Though environmental overtures were already evident in the 11th and indeed the 10th five year plan, Greenpeace suggests the difference with the forthcoming document may be that it will have more teeth. So it can wish; let's see. In the meantime, if Greenpeace ran China, it would probably implement its following suggestions:

China faces up to 'terrible' state of its ecosystems. Wetlands hardest hit by land reclamation and pollution - Counting the cost of decades of breakneck development, Chinese scientists and policy-makers last week outlined the daunting challenges they face in trying to halt the country's environmental degradation. Government officials at the Symposium on Ecosystem Monitoring and Evaluation in Beijing promised to step up investment in ecological conservation and restoration over the next five years, although no precise details were given. Other delegates warned that the lack of a national long-term strategic plan for the environment, compounded by insufficient coordination among government sectors, could jeopardize such efforts."The ecological situation is terrible," admits Xu Jun of the Ministry of Science and Technology. More than a quarter of China's grasslands, for instance, have been lost to farming and mining activities in the past decade, and 90% of the country's remaining 4 million square kilometres of grassland is in poor health. The grassland loss contributes to problems such as water shortages and sandstorms.

China issues warning on climate and growth - China’s environment minister on Monday issued an unusually stark warning about the effects of unbridled development on the country’s air, water and soil, saying the nation’s current path could stifle long-term economic growth and feed social instability.In an essay published on the agency’s Web site, the minister, Zhou Shengxian, said the government would take a more aggressive role in determining whether development initiatives contributed to climate change through a new system of risk assessment.Ignoring such risks, Mr. Zhou said, would be perilous.“In China’s thousands of years of civilization, the conflict between humankind and nature has never been as serious as it is today,” he wrote. “The depletion, deterioration and exhaustion of resources and the worsening ecological environment have become bottlenecks and grave impediments to the nation’s economic and social development.”

China to slow GDP growth in bid to curb emissions - China will try to slow GDP growth to ease pressure on the environment following a series of unusually stark warnings from senior ministers about the country’s current mode of development.The announcement that economic growth targets will be lowered from 8% to 7% over the next five years may mark the end of China’s peak growth years as environmental constraints drive up the expense of resources and pollution control.“In China’s thousands of years of civilisation, the conflict between humanity and nature has never been as serious as it is today,” the environment minister Zhou Shengxian wrote on his ministry’s website.“The depletion, deterioration and exhaustion of resources and the deterioration of the environment have become serious bottlenecks constraining economic and social development.”

Toxic Contamination From Natural Gas Wells - Interactive - The New York Times collected data from more than 200 natural gas wells in Pennsylvania. Many of them are tapping into the Marcellus Shale, a vast underground rock formation. But a method being used to stimulate wells, called hydraulic fracturing, produces wastewater containing corrosive salts and radioactive and carcinogenic materials. In Pennsylvania, this wastewater has been sent through sewage treatment plants that cannot remove some of the contaminants before the water is discharged into rivers and streams that provide drinking water. The Times was able to map 149 of the wells.

Wall Street Journal poll: Most popular spending cut is to subsidies for new nuclear plants - It is no big surprise that Americans don’t want cuts in Social Security, Medicare, or K-12 education.   But the new WSJ/NBC poll does have some surprises: The survey found that the most popular potential spending cuts were subsidies to build new nuclear plants, with 57 percent support…. Of course, nuclear is absurdly over-subsidized (see “Nuclear Pork — Enough is Enough“).  In fact, a new report by the Union of Concerned Scientists, Nuclear Power: Still Not Viable without Subsidies (the source of the chart above) finds:Government subsidies to the nuclear power industry over the past fifty years have been so large in proportion to the value of the energy produced that in some cases it would have cost taxpayers less to simply buy kilowatts on the open market and give them away….New nuclear power plants look to be even more uneconomical: Nuclear Bombshell: $26 Billion cost — $10,800 per kilowatt! — killed Ontario nuclear bid Exelon’s Rowe: Low gas prices and no carbon price push back nuclear renaissance a “decade, maybe two” Exclusive analysis, Part 1: The staggering cost of new nuclear power

A Window Into the Nuclear Future - Bill Gates1 reshaped the computer industry by pumping out new versions of Microsoft Windows software every few years, fixing and fine tuning it as he went along. He's now betting that he can reshape the energy industry with a project akin to shipping Windows once and having it work, bug-free, for 50 years. Thanks to his role funding and guiding a start-up called TerraPower LLC, where he serves as chairman, Mr. Gates has become a player in a field of inventors whose goal is to make nuclear reactors smaller, cheaper and safer than today's nuclear energy sources. The 30-person company recently completed a basic design for a reactor that theoretically could run untouched for decades on spent nuclear fuel. Now the company is seeking a partner to help build the experimental reactor, and a country willing to host it.

NYT bombshell! Radioactive fracking waste sent to Pennsylvania public sewage plants, then discharged into streams, levels thousands of times higher than approved - Environmentalists say using natural gas will help slowclimate change because it burns more cleanly than coal and oil.  Lawmakers hail the gas as a source of jobs. They also see it as a way to wean the United States from its dependency on other countries for oil. But the relatively new drilling method — known as high-volume horizontal hydraulic fracturing, or hydrofracking — carries significant environmental risks. It involves injecting huge amounts of water, mixed with sand and chemicals, at high pressures to break up rock formations and release the gas.With hydrofracking, a well can produce over a million gallons of wastewater that is often laced with highly corrosive salts, carcinogens like benzene and radioactive elements like radium, all of which can occur naturally thousands of feet underground. Other carcinogenic materials can be added to the wastewater by the chemicals used in the hydrofracking itself.  The documents reveal that the wastewater, which is sometimes hauled to sewage plants not designed to treat it and then discharged into rivers that supply drinking water, contains radioactivity at levels higher than previously known, and far higher than the level that federal regulators say is safe for these treatment plants to handle.

Some Basic Sanity Checks on the NYT Radioactivity Piece  - So, to summarize, the ballpark model here is 1 billion gallons/year of radioactive wastewater at 5000 pCi/L going into two rivers with a combined total flow of 25000 cubic feet per seconds, on average.  So now it's just unit math.  There are 365.25x24x3600 = 31557600 seconds in a year. There are 7.5 gallons in a cubic foot. So overall, the wastewater stream, as a fraction of the river flow, is 1,000,000,000/7.5/25,000/31,557,600 = 0.017%.  So diluted by the full river flows, the 5000 piC/L becomes 0.85 piC/L - which we may as well call 1 piC/L (given the limited accuracy of this calculation). So on an average basis, this says the residents of Baltimore, etc, downstream on the Susquehanna are probably ok (the standard, recall, was 15 piC/L).  However, it would certainly seem like there would be huge potential for localities in Pennsylvania to exceed the safe standard.  In particular, the Mononghela purportedly had more of the waste, but only has a fifth the flow of the Susquehanna, so appears to have much higher potential for problems.   The major caveat here is the assumption that the NYT's reported spreadsheet of wells may be highly unrepresentative.  If they are the cherry-picked worst cases, the overall problem will be much less in scale than the above calculation indicates

Gasland and Natural Gas Drilling  - Below is a film clip from the Oscar-nominated picture, ‘ Gasland‘. The film on the effect of natural gas drilling on country landowners is up for best documentary tomorrow night. Also see Industry tried to get "Gasland" out of Oscars and A Colossal Fracking Mess for why this film is causing a buzz.

Record U.S. Natural-Gas Output Likely To Continue -- The U.S. is inundated in natural gas, and the glut may not ease any time soon. Domestic production last year hit its highest level in almost 40 years, and 2011 will likely see another year of strong production. That means another year of subdued electricity prices and pressure on drillers' bottom lines as well as a powerful incentive for companies and other consumers to switch to the heating fuel. With no way to export large quantities of gas and a drilling boom fueled by easy availability of credit and widespread international interest in U.S. gas assets, the glut is seen continuing through 2011.  "Rising production will once again overwhelm demand, leading to yet another year of low prices," Credit Suisse analyst Stefan Revielle said in a research note. In its latest outlook, the EIA saw U.S. production increasing by 0.8% this year, while deliveries to consumers are expected to rise by 0.3%. For consumers, that means cheaper electricity prices and inexpensive gas for heating and cooking in homes and businesses.

When the believers stop believing: Chesapeake dumps shale gas assets  - Only two years ago Chesapeake Energy Corp. president Aubrey McClendon was telling us about the limitless future of natural gas in North America. It was going to free us from foreign oil by allowing us to convert our vehicle fleet to run on domestically produced natural gas from vast shale deposits. Technology was now making these deposits accessible, and McClendon offered up "research" done by a nonprofit largely funded by his company that showed that these deposits could power America for another century. It is a good thing that McClendon, who still runs Chesapeake, isn't taking his own advice these days. Since the crash in late 2008, natural gas prices have been mired in the $3 to $4 range, not high enough to justify the high costs associated with most shale gas drilling. And that means, of course, that natural gas drilling is taking place only in those spots which are deemed easy enough and cheap enough to exploit profitably at these prices.

TheOilDrum: Is "shale oil" the answer to "peak oil"? - Readers have been asking questions about a couple of shale oil articles recently. One is an AP article called New drilling method opens vast oil fields in US. A similar article is a CNBC article titled Massive New US Oil Supply – ‘Peak Oil’ Fears Overblown? Both of these articles talk about the extraction of shale oil in the Bakken and other locations, using horizontal wells and hydraulic fracturing.  There are several questions that might be asked:

  • 1. Is this really a new drilling technique?
  • 2. How likely is the 2 million barrels a day of new production, and the 20% increase in US production, by 2015?
  • 3. Can this additional oil supply really reduce the US’s imports by over half?
  • 4. How much of a difference will this oil make to “peak oil”?

Massachusetts Company Making Diesel With Sun, Water, CO2 - A Massachusetts biotechnology company says it can produce the fuel that runs Jaguars and jet engines using the same ingredients that make grass grow.Joule Unlimited has invented a genetically-engineered organism that it says simply secretes diesel fuel or ethanol wherever it finds sunlight, water and carbon dioxide.The Cambridge, Mass.-based company says it can manipulate the organism to produce the renewable fuels on demand at unprecedented rates, and can do it in facilities large and small at costs comparable to the cheapest fossil fuels.What can it mean? No less than "energy independence," Joule's web site tells the world, even if the world's not quite convinced.

Big Oil Lobby Announces It Will Start Donating Directly To Candidates - The American Petroleum Institute, the Big Oil industry’s chief lobbying organization, will start directly backing political candidates in the second quarter of this year. API, whose membership includes oil giants like Exxon-Mobil and Chevron, already spends tens of millions of dollars every year on lobbying, advertisements and Astroturf campaigns to support the the oil industry agenda. As CAP’s Dan Weiss wrote, API “wants to drill in fragile, sensitive places, keep government tax breaks, expand offshore drilling without reforms, and block global warming pollution reduction requirements.”“This is adding one more tool to our toolkit,” Martin Durbin, API’s executive vice president for government affairs, told Bloomberg News. “At the end of the day, our mission is trying to influence the policy debate.” As Bloomberg pointed out, oil-supported political action committees like the Independent Petroleum Association of America overwhelmingly donate to Republican candidates

House GOP all vote to protect Big Oil subsidies - House Republicans voted in lockstep this afternoon to protect corporate welfare for Big Oil, even as they call for draconian cuts to programs that everyday Americans depend on each day.  ThinkProgress has the story.As the House of Representatives moved toward approving a stopgap resolution to avert a government shutdown for another two weeks, Democrats offered a motion to recommit that would have stripped the five largest oil companies of taxpayer subsidies, saving tens of billions of dollars in taxpayer funds. The motion failed on a vote of 176-249, with all Republicans voting against (approximately a dozen Democrats joined the GOP). A similar vote two weeks ago to recoup $53 billion in taxpayer funds from Big oil was also voted down, largely along party lines. The former CEO of Shell Oil, John Hoffmeister, recently said Big Oil doesn’t need subsidies “in face of sustained high oil prices.”  From 2005 to 2009, the largest oil companies have made a combined $485 billion in profits.

Exclusive: Multiple independent lab tests confirm oil in Gulf shrimp - Experts operating states apart confirm toxic content in not just shrimp, but crab and fish too.  The federal government is going out of its way to assure the public that seafood pulled from recently reopened Gulf of Mexico waters is safe to consume, in spite of the largest accidental release of crude oil in America's history. However, testing methodologies used by the government to deem areas of water safe for commercial fishing are woefully inadequate and permit high levels of toxic compounds to slip into the human food chain, according to a series of scientific and medical professionals interviewed by Raw Story. In two separate cases, a toxicologist and a chemist independently confirmed their seafood samples contained unusually high volumes of crude oil and harmful hydrocarbons -- and some of this food was allegedly being sent to market. One test, conducted by a chemist from Mobile, Alabama, employed a rudimentary chemical analysis of shrimp pulled from waters near Louisiana and found "oil and grease" in their digestive tracts.

Oil Drilling to Resume in the Gulf’s Deep Waters - The Interior Department1 said Monday2 that it had approved the first new deepwater drilling permit in the Gulf of Mexico since the BP explosion and spill last spring, a milestone after a period of intense uncertainty for industry and a wholesale remaking of the nation’s system of offshore oil3 and gas regulation. Michael R. Bromwich4, director of the Bureau of Ocean Energy Management, Regulation and Enforcement5, said that Noble Energy6 had been granted permission to resume drilling in 6,500 feet of water off the coast of Louisiana.  Work on the well was suspended, along with virtually all other drilling activity in water deeper than 5,000 feet, immediately after the Deepwater Horizon accident last April 20. The disaster killed 11 rig workers and spewed nearly five million barrels of oil into the ocean.  Still, there was no indication that drilling in the gulf would return anytime soon to levels preceding the BP well blowout.

EIA - 2010 International Energy Outlook

Norway Oil Drillers Hit Record Dry Spell as Reserves Wane - Statoil ASA and Eni SpA are among companies with plans to drill a record number of wells in Norway’s far north this year to help the world’s second-largest gas exporter to sustain output. So far, they’ve struck out. All four wells drilled in the Barents and Norwegian seas this year have failed to find oil or gas, adding to two dry wells in the North Sea, the biggest number of failures to start the year since the country’s oil era began in 1966, according to government data. Oil companies plan as many as 22 wells in Norway’s Arctic this year, up from 12 last year. Helge Lund, chief executive officer at state-controlled oil company Statoil, says the industry has been unable to “crack the code” of the Barents Sea, off Scandinavia’s northern tip. Norway, where energy production makes up about 25 percent of the economy, is pushing into the Arctic and relying more on gas because oil output has slumped 50 percent since peaking in 2000.

Crude Oil Climbs From One-Week Low as Iran Protests Add to Supply Concern Oil rose from the lowest in a week in New York as Libyan crude exports were curbed by fighting in the North African country while demonstrations planned in Iran raised concern of wider disruptions.  Futures climbed as much as 1 percent after authorities in Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, arrested opposition leaders to derail demonstrations scheduled for today. Fighting in Libya may have shut as much as 850,000 barrels a day of output, according to the International Energy Agency.  Iran pumped 3.7 million barrels a day in February, according to estimates compiled by Bloomberg, making it OPEC’s second-biggest producer behind Saudi Arabia. Opposition supporters are planning to hold a demonstration today after leaders Mehdi Karrubi and Mir-Hossein Mousavi were transferred to a Tehran prison, according to the opposition Kaleme website.

U.S. gasoline price jump biggest since Katrina - The average price U.S. drivers paid for gasoline soared 19.4 cents in the latest week to $3.38 a gallon, the biggest jump in pump prices since Hurricane Katrina disrupted petroleum supplies in September 2005, the Energy Department said on Monday.Gasoline prices rose a record 46 cents during the week Hurricane Katrina devastated offshore drilling platforms and Gulf Coast oil refineries. Gasoline prices are up 68 cents from a year ago because of skyrocketing crude oil costs, as unrest in Libya sent U.S. oil trading above $100 a barrel.The price of crude, which accounts for more than half the cost of making gasoline, rose by more than $8 a barrel last week. Every $1 increase in a barrel of oil is equal to a 2.4-cent rise in a gallon of gasoline.

Oil above $114 after Libya cuts - Brent crude rose more than $2 a barrel today as concerns persisted about security of supply from the Middle East and North Africa. The concerns come even after top exporter Saudi Arabia boosted supply to meet the shortfall caused by a cut in exports from Libya, after violent revolt shut down as much as three-quarters of the North African nation's output, according to some estimates. As protests have intensified and spread through the Arab world, investors fear any impact on output from Saudi Arabia.  Brent crude rose by $2.18 to $114.32 a barrel and US crude rose $1.68 at $99.57 a barrel.  Both benchmarks posted their highest weekly close in two and a half years last week.  National Australia Bank commodities economist Ben Westmore said there was a continued threat that conflicts would

Oil Trades Near Highest in Two Years as Unrest Spreads - Oil traded near a 29-month high in New York after turmoil that cut Libya’s output spread to Oman, raising concern Middle East production may be disrupted further. Futures had the biggest weekly gain in two years last week as hedge funds raised bullish oil bets amid estimates that Libya’s crude flow was cut by as much as two-thirds. Protestors in Oman were killed in clashes with police yesterday. The turmoil has made crude prices more vulnerable to a “spike-and- crash” scenario, according to Bank of America Merrill Lynch. “The flash-fire is spreading,”  “The situation in Oman creates speculation the unrest will spread to Saudi Arabia itself, though living standards in Saudi are higher and the country is much richer.”Crude for April delivery on the New York Mercantile Exchange was at $97.58 a barrel, down 30 cents, at 1:33 p.m. London time after rising as much as $2.08, or 2.1 percent, to $99.96. Prices rose 14 percent last week, the most since the five days ended Feb. 27, 2009.

When record-breaking becomes a problem - The U.S. Energy Information Administration, or EIA, officially reported on March 1st that domestic gasoline prices have reached the second largest one week increase since 1990..The cost of a single gallon shot up 19 cents between Monday, February 21st and Monday, February 28th. It’s a jump exceeded only by the week that Hurricane Katrina wreaked havoc across the Southeastern United States, spurring a 46 cent increase. Closing out at $3.38 per gallon for regular grade gasoline, the landmark week fell short of the record $4.11 per gallon retail price set in July 2008. But that high price is not far off. Ongoing political turmoil in the Middle East could well push the cost of crude oil much higher, as the EIA explains:Many factors affect retail gasoline prices, but changing prices for domestic and global crude oils are particularly important….  A $10 per barrel change in the spot price of crude oil translates into about a 24 cent per gallon change in the retail price of gasoline within about two months.

Diesel prices up 14.3 cents in the last week, says EIA - Diesel prices saw their single largest weekly price hike since a 14.6 cent increase during the week of June 8, 2009, with a 14.3 gain, bringing the price per gallon up to $3.716, according to data from the Department of Energy’s Energy Information Administration (EIA).On an annual basis, diesel prices are up 74.1 cents. Diesel prices have gone up for 13 straight weeks for a cumulative 55.4 cent gain, coupled with prices being above $3.40 per gallon for the seventh straight week. Current prices are at their highest level since reaching $3.659 the week of October 13, 2008. This week’s price also represents the 22nd consecutive week prices have been at $3 per gallon or more. Prior to the week of October 4, when diesel prices hit $3.00 per gallon, the price per gallon of diesel was below the $3.00 mark for 18 straight weeks.

Oil prices push past US$98 a barrel after Iran imprisons opposition leaders - Oil prices climbed Tuesday as Iran clamped down on anti-government protesters and unrest in the Middle East threatened to keep energy prices high for months to come. Benchmark West Texas Intermediate for April delivery gained $1.23 to US$98.20 a barrel in late morning trading on the New York Mercantile Exchange.In London, Brent crude gained $1.74 to US$113.54 per barrel on the ICE Futures Exchange. Oil prices surged 13 per cent last week, peaking above US$100 per barrel, as Libyan protesters expanded their control over the country. While the Libyan uprising continued Tuesday, news agencies reported that Iranian authorities had imprisoned opposition leaders in Tehran. Iranian authorities denied the reports.

Behind the Spike in Oil Prices - (video) Mark Zandi helps CNN understand how unrest in the Middle East hits U.S. consumers and businesses.

Merrill warns oil market would struggle with further Middle East unrest - Oil prices are edging up again as the tensions in Libya continue, and analysts at Merrill Lynch believe supplies from the country could be disrupted for months. In fact it could be the eighth largest supply shock since 1950, the bank says. Reports suggest companies have already shut down onshore production, and Merrill estimates as much as 1.2m barrels a day could have been halted. With the oil infrastructure on the east side of the country, it could be prone to attacks from opposition forces or those loyal to Colonel Gaddafi. Admittedly, other suppliers such as Saudi Arabia are talking about making up the shortfall, but this can't go on indefinitely.

Libyan chaos stirs global panic over oil supplies - No one knows whether Gadhafi or the rebels trying to oust him will end up controlling Africa's biggest oil reserves. Fears abound that Libya could turn into a fractured nation with competing armed groups ruling over rich and remote desert fields lying hundreds of miles (kilometers) apart from each other. The chaos in Libya as it descends into virtual civil war has sent international oil prices skyrocketing despite a pledge from Saudi Arabia, the world's largest oil exporter, to ramp up exports. And that volatility is likely to continue, because it could take weeks or even months for Libyan production and exports to return to normal levels, experts said. That has sent already over-caffinated oil traders into a frenzy that won't calm down until there's more clarity about what is happening on the ground in Libya. The International Energy Agency reported late Friday that Libya is probably still producing about 850,000 barrels of oil daily, down from its normal capacity of 1.6 million barrels - but acknowledged the estimate is based on "incomplete, conflicting information."

Libyan chaos stirs global panic over oil supplies - Libya's oil industry is in chaos, and that's no exaggeration. Armed men loot equipment from oil field installations. British commandos execute secret raids in the Libyan desert to rescue stranded oil workers as security disintegrates rapidly in remote camps. Libyan port workers, frightened of being caught up in Moammar Gadhafi's violent crackdown on protesters, fail to show up for work, leaving empty tankers floating around the Mediterranean Sea waiting to load crude. And the European oil companies extracting Libya's black gold are operating in crisis mode, trying to get stranded expatriate workers out and safe amid conflicting information on how much oil is still being pumped and just where it all is. That was just this week. The situation may not get better in the near future.

The Economist — Daily Chart: which countries depend on Libyan oil? - Italy is by far the biggest importer of the stuff; conversely, the country provides only a small fraction of America’s imported oil.

Oil price set to double if production is cut off - Oil prices could hit $200 a barrel if the unrest in the Middle East spreads to countries such as Algeria and Saudi Arabia, according to analysts at Nomura. They predicted a doubling in the price if production were to be cut off by the world's biggest producers.  Oil hit a 30-month high last week as the turmoil in Libya cut supplies by over a million barrels a day, raising the chances of a global supply shock that could push the UK economy back into recession. UK retailers forecast the recent rise in crude could push fuel prices up by 5p per litre.  Brent crude reached almost $120 per barrel, its highest level since August 2008, as international oil companies pulled out of Libya and foreign workers fled the country. Crude prices eased, closing at $111.36 per barrel on Friday, after the Organization of Petroleum Exporting Countries (Opec) promised to make good any lost production. But some experts fear the cartel will struggle to mobilise extra supplies quickly enough, or that vital producers such as Saudi Arabia may also be engulfed by revolution.

Oil Supply Disruptions in The Middle East Now Becoming Evident - The impacts of the disruptions in the Middle East are now starting to become evident as supplies no longer flow into the delivery pipelines that carry fuel from countries such as Libya to their European customers. It is now considered likely that the 1.6 mbd that Libya delivers to the world market will not be available for some time. Ireland, for example, which has had other problems with the banks in the recent past, is now faced with the loss of perhaps 23% of its fuel supply, which while only 14 kbd is, for that country, likely to be very significant. For while the Libyan shortage at present may be just due to Gadhafi ordering the ports closed, if he is also ordering the destruction of facilities, as is rumored, then the consequences may be more long term. ENI has reported that the Libyan shortfall is currently 1.2 mbd. It is in this context that the world turns to OPEC, which has stated that it has enough oil in reserve to stabilize deliveries, and looks to see a compensating production increase from those nations with that potential. And here is the rub, for some OPEC countries are themselves in a little political difficulty which might negatively impact their own production, while those that can, in the short term, increase flow volumes to match the shortfall are likely all called Saudi Arabia.

Survey of Oil Exports from the Middle East - With all of the current strife in the Middle East and North Africa hitting the main stream media, I thought it would be interesting to examine the petroleum export trends for the countries in these regions. My hypothesis is that as the exports for oil exporting countries go into decline, this stress on the economy will increase the likelihood of civil unrest and political upheaval. Especially those countries which are heavily dependent upon petroleum exports for revenue will suffer sever economic contractions as export revenues decline and then ceases altogether. These ex-exporters will then either have to decrease their domestic consumption or start importing petroleum. The transition from exporter to importer would not be easy, and cutting consumption, to maintain exports, would not go over very well, politically either. With little other revenue sources, declining rates of petroleum exports are a formula for civil unrest and regime change.

Soaring Oil Prices A Double-Edged Sword in the Middle East - Why is the Arab world convulsing with social and political unrest when triple digit oil prices should be bringing enormous wealth to the region? The answer may be that the link between energy inputs and food prices suddenly makes soaring oil prices a double-edged sword in the world’s largest food importing region. Egyptians are about to find out that it is a lot easier to eradicate your local dictator than feeding your population. The crush of poverty is felt under the weight of a population of 80 million people who live in a country where average annual rainfall is less than two inches and where only 3% of the land is arable. Aside from a narrow strip along the life-sustaining Nile River, Egypt is basically an inhospitable desert. Yet the population of Egypt has tripled to 80 million today from 27 million in the early 1960s. While the birth rate for an average Egyptian woman has fallen from six children to just over three, it still fuels more than 2% annual growth in the population. At this pace, Egypt’s population will double to 160 million by 2050.

Iraq's February oil export highest since invasion - A senior Iraqi oil official says the country's crude oil exports in February reached their highest level since the 2003 U.S.-led invasion. Falah al-Amiri, the head of the state oil marketing organization, said on Tuesday that the oil exports averaged 2.202 million barrels a day. In January, Iraq's export averaged 2.161 barrels a day. Al-Amiri told The Associated Press that the achieved price for per barrel ranged between $97-98, making revenues exceed $6 billion for February. Iraq has struggled to raise oil exports, which account for 95 percent of its revenues, hampered by aging infrastructure, the effect of years of sanctions and periodic attacks on pipelines following 2003 invasion.

No Oil for Freedom? - NO BLOOD FOR OIL. Remember that bumper sticker from the Iraq war? Today the spilling of blood is once again implicated in the security of the oil supply. This time, though, the blood belongs not to American soldiers but to Arab protesters demanding democratic freedoms. Rather than lower prices at the gas pump, civil strife appears to be raising them. Should gas prices continue to spike, the Arab world's re-enactment of Europe's revolutions of 1848 may inspire consumers in the United States and the rest of the industrialized world to slap a new sticker onto their bumpers: LESS FREEDOM, MORE OIL. At first the Middle East's pro-democracy movement didn't affect significantly the global movement of oil. Tunisia, where the movement started, doesn't have much oil, and Egypt is a net importer. But traders started bidding oil prices up almost immediately out of fear that the anti-government protests would spread, as indeed they did to Libya. Libya is a major oil exporter to Europe, and since the protests began, its oil output has been halved. The Saudis upped production by half a million barrels per day to stabilize the market, but much of that oil, because of its higher sulfur content, makes for "imperfect substitutes," according to the International Energy Agency.

Saudi intellectuals call for sweeping reforms - More than 100 leading Saudi academics and activists are calling on the oil-rich country's monarch to enact sweeping reforms, including setting up a constitutional monarchy, as mass protests that have engulfed other Arab nations lapped at Saudi Arabia's shores. The statement seen on several Saudi websites Sunday reflects the undercurrent of tension that has simmered for years in the world's largest oil producer. While King Abdullah is seen as a reformer, the pace of those reforms has been slow as Saudi officials balance the need to push the country forward with the perennial pressure from hard-line clergy in the conservative nation.

Libya, oil production, OPEC responses, Saudi Arabian capabilities and the SPR - The impacts of the disruptions in the Middle East are now starting to become evident as supplies no longer flow into the delivery pipelines that carry fuel from countries such as Libya to their European customers. It is now considered likely that the 1.6 mbd that Libya delivers to the world market will not be available for some time. Ireland, for example, which has had other problems with the banks in the recent past, is now faced with the loss of perhaps 23% of its fuel supply, which while only 14 kbd is, for that country, likely to be very significant. For while the Libyan shortage at present may be just due to Gadhafi ordering the ports closed, if he is also ordering the destruction of facilities, as is rumored, then the consequences may be more long term. ENI has reported that the Libyan shortfall is currently 1.2 mbd.  It is in this context that the world turns to OPEC, which has stated that it has enough oil in reserve to stabilize deliveries, and looks to see a compensating production increase from those nations with that potential. And here is the rub, for some OPEC countries are themselves in a little political difficulty which might negatively impact their own production, while those that can, in the short term, increase flow volumes to match the shortfall are likely all called Saudi Arabia.

Jim Rogers: Don't Believe The Saudis, They Don't Have The Oil They're Talking About - Jim Rogers spoke to Bloomberg Television today on the situation in the Middle East. While his bullishness on oil is well known, his comments on the Saudi Arabians' ability to compensate for the loss in Libyan production are of interest. 0:15 Saudi Arabia can't make the short fall from Libyan supplies; They've said in the past that they can increase production, but they can't. They told George W. Bush they couldn't. The reason oil is going up is that the world is running out of known reserves of oil. 0:45 Oil could go back down for a while, if things come down in the Middle East. But the reality is the underlying oil supply story means oil is going higher in the long-term.

California's average gas price is highest in U.S., $3.845 a gallon -California has grabbed the top spot in a painful competition for highest gasoline prices in the nation, surpassing Hawaii and Alaska, the states where fuel is almost always more expensive than anywhere else in the U.S.  On Friday, California drivers paid an average of $3.845 for a gallon of regular gasoline, up more than 3 cents from the day before. With that increase, California became the state with the most costly gas, according to AAA's daily fuel-price survey, toppling Hawaii, which was close behind at an average price of $3.836. Alaska came in third at $3.80. Motorists can blame increasingly expensive oil and the rigors of making California's clean-burning gasoline, which is produced by few refineries outside the state, experts said. In New York futures trading, U.S. benchmark crude rose $2.51 to $104.42 a barrel, the highest closing in 2 1/2 years. In London, the European benchmark Brent crude rose $1.18 to $115.97 a barrel.California has been hit harder than many other states by rising oil costs because its refineries use a significant amount of imported oil with a price based on Brent crude. And domestic crude from Alaska, which accounts for more than 15% of the state's oil supply, has been trading at about $116 a barrel, well above the U.S. benchmark grade.

Only a recession stands in the way of $200 oil - With very limited excess capacity in Saudi Arabia and the rest of OPEC, further production shutdowns in the convulsing Middle East will soon push oil prices to new record highs. The Brent futures contract, the world’s benchmark price, almost reached $120 per barrel in London last week. With gasoline soon to cost six pounds a gallon (£1.32 pounds/liter), the British government is already considering alternative rationing systems to the brute price mechanism at the pumps.  Amid the chaos sweeping through the Middle East, it is easy to lose sight of where oil prices were trading before the political protests began. Brent was north of $100 per barrel before protestors started sweeping into Cairo’s Tahrir Square. The triple digit price for oil was due to runaway global demand, which by the end of last year had soared to more than a record 87 million barrels per day. It was yet not about potential supply shocks from Libya or anywhere else in the Middle East. Now throw in supply disruptions from the world’s largest oil producing region, and it isn’t hard to find a path to $200 per barrel oil.

There Are No Good Outcomes - The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense. 

Should the United States tap its oil reserves as crude rises?… In the United States, The New York Times reports today, calls are mounting for the government to look at tapping oil reserves that now account for more than 700 million barrels. “Between the lost production in Libya, the crude oil dislocation associated with additional Saudi production and the prospect of further turmoil in the region, we are now unquestionably facing a physical oil supply disruption that is at risk of getting worse before it gets better," Senator Jeff Bingaman, who chairs the Senate Energy and Natural Resources Committee, said late on Wednesday. Others have voiced similar concerns, the report said. As it released its monthly consumer outlook index today, Royal Bank of Canada said that one in every three consumers in the United States has already cut back on discretionary spending because of the increase in prices at the gas pump. “There has been quite a lot of debate about the impact of rising gasoline prices on consumption in general,

Geithner: We can tap oil reserves if we need them - Treasury Secretary Tim Geithner told lawmakers Thursday that the U.S. and other nations are prepared to tap back-up oil reserves if Libya unrest continues and severely disrupts oil supplies. Libya is the first oil exporting nation to be engulfed in the political upheaval spreading across North Africa and the Middle East, and investors have been worried that chaos in the region will drive crude prices even higher. Price spikes have followed increasingly violent protests in Libya that have claimed more than 1,000 lives, according to the United Nations. Libya's ambassador to the United States has estimated the death toll at 2,000. Geithner said Treasury is monitoring oil prices and a potential supply disruption and is prepared to act.

Update On Oil And The Arab Uprising - While Libya is a major oil exporter, and fellow OPEC member Bahrain continues to have major demonstrations by the Shi'i majority against the Sunni monarchy, it continues to be the case that generally major oil exporting Arab nations are having fewer and less severe uprisings than non-oil exporters. The main latter ones without uprisings continue to be Morocco and Syria, both of which have had some minor demonstrations, but apparently remain largely calm. However, some other major oil exporters have either experienced demonstrations or are very nervous about the possibility of there being some. Much attention has focused on the big one, Saudi Arabia, where Shi'a are about 17% of the population and concentrated in the oil producing Eastern Province and have long been oppressed by the Sunni majority. There have been calls for reforms, although no demos yet. King Abdullah has responded with a $36 billion plan to spread around a bunch more money. Key blog on the Kingdom is John Burgess's Crossroads Arabia at . According to his links, probably Abdullah's move will work, and the majority Sunni population remains largely loyal to the royal family.

U.S. cables detail Saudi royal welfare program (Reuters) - When Saudi King Abdullah arrived home last week, he came bearing gifts: handouts worth $37 billion, apparently intended to placate Saudis of modest means and insulate the world's biggest oil exporter from the wave of protest sweeping the Arab world. But some of the biggest handouts over the past two decades have gone to his own extended family, according to unpublished American diplomatic cables dating back to 1996. The cables, obtained by WikiLeaks and reviewed by Reuters, provide remarkable insight into how much the vast royal welfare program has cost the country -- not just financially but in terms of undermining social cohesion. Besides the huge monthly stipends that every Saudi royal receives, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. Among them: siphoning off money from "off-budget" programs controlled by senior princes, sponsoring expatriate workers who then pay a small monthly fee to their royal patron and, simply, "borrowing from the banks, and not paying them back."

Saudi money supply jumps 8.1% - Saudi money supply rose 8.1 percent on the year in January, and the central bank’s foreign assets inched up 1 percent year on year, data from the Saudi Arabian Monetary Agency (SAMA) showed Sunday. M3, the broadest measure of money supply, came in at SR1.087 trillion ($289.9 billion) in January, up from SR1.006 trillion in the same month a year ago and from SR1.080 trillion in December, according to data posted on SAMA’s website. SAMA’s net foreign assets rose to SR1.668 trillion in January from SR1.651 trillion in December and SAR1.535 trillion in January last year, the data showed. Saudi Arabia, which has filled its coffers with surplus income from oil exports this decade, has drawn on its reserves to fund record budgets and keep its $400 billion five-year infrastructure development program on track. While this spending helped the Arab world’s largest economy grow last year, according to the Kingdom’s budget released last December, banks have remained hesitant to extend credit.

If You Think This Oil Spike Is Temporary, Check Out This Chart - This oil price spike is going to be anything but short lived, if you believe this chart from Morgan Stanley. It details how by the year 2013, there's not going to be any excess supply in the system. That means, even if the Saudis aren't lying about being able to ramp up production like Jim Rogers says, they've only got two more years to do so before that spare capacity evaporates. So beyond the Middle East instability trend, there's a much bigger problem lurking.  Don't miss: 12 countries that will get wrecked in an oil price spike >

Oil's Next Danger Zones - Whether you produce the stuff, refine it, consume it or speculate in it, it's impossible to separate oil from political risk.  Today the focus is on Egypt and Libya. Tomorrow, it could be Algeria, Saudi Arabia or Nigeria that triggers a price shock.  The supercharged price of crude is part of a new normal, where political risk trumps the old law of supply and demand.  In the grand scheme of things, Libya is a relatively small oil player. It’s the 18th-largest producer in the world and ranks ninth in proven reserves. The world can easily cope without its oil.  The concern, however, is that Libya is a harbinger of what may lie ahead in the Arab world, where democracy is stunted and small elites control the vast oil wealth.

The 2011 Oil Shock - THE price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark. The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 are all painful reminders of how the region’s combustible mix of geopolitics and geology can wreak havoc. With protests cascading across Arabia, is the world in for another oil shock?  There are good reasons to worry. The Middle East and north Africa produce more than one-third of the world’s oil. Libya’s turmoil shows that a revolution can quickly disrupt oil supply. Even while Muammar Qaddafi hangs on with delusional determination and Western countries debate whether to enforce a no-fly zone (see article), Libya’s oil output has halved, as foreign workers flee and the country fragments. The spread of unrest across the region threatens wider disruption.  The markets’ reaction has been surprisingly modest. The price of Brent crude jumped 15% as Libya’s violence flared up, reaching $120 a barrel on February 24th. But the promise of more production from Saudi Arabia pushed the price down again. It was $116 on March 2nd—20% higher than the beginning of the year, but well below the peaks of 2008. Most economists are sanguine: global growth might slow by a few tenths of a percentage point, they reckon, but not enough to jeopardise the rich world’s recovery.

Oil Markets And Arab Unrest: The Price Of Fear - TWO factors determine the price of a barrel of oil: the fundamental laws of supply and demand, and naked fear. Both are being tested by the violence that is tearing through Libya, the world’s 13th-largest oil exporter. The price of a barrel of Brent crude now hovers around $115. On February 24th, however, it rose to almost $120, as traders realised that they might have to do for a while without some or all of Libya’s exports: some 1.4m barrels a day (b/d), or about 2% of the world’s needs.  The situation in Libya is grim, as the rebels and the forces of Muammar Qaddafi battle for control of the country’s only resource. Brega, the seat of the Sirte Oil Company in the east of the country, has changed hands three times in recent days. Most of the oil workers have fled, and production has fallen by two-thirds. The ports of As Sidra, Brega, Ras Lanuf, Tobruk and Zuetina, which together handle almost 80% of Libya’s oil exports, were all seized by the rebels; two have now been retaken by Colonel Qaddafi’s forces. The rebels remain in control of Africa’s largest oilfield, Sarir, pumping some 400,000 barrels on a normal day. But for how long?

The Collapse of the Old Oil Order How the Petroleum Age Will End By Michael T. Klare - Whatever the outcome of the protests, uprisings, and rebellions now sweeping the Middle East, one thing is guaranteed: the world of oil will be permanently transformed.  Consider everything that’s now happening as just the first tremor of an oilquake that will shake our world to its core.  For a century stretching back to the discovery of oil in southwestern Persia before World War I, Western powers have repeatedly intervened in the Middle East to ensure the survival of authoritarian governments devoted to producing petroleum.  Without such interventions, the expansion of Western economies after World War II and the current affluence of industrialized societies would be inconceivable. Here, however, is the news that should be on the front pages of newspapers everywhere:  That old oil order is dying, and with its demise we will see the end of cheap and readily accessible petroleum -- forever.

Wake Me, Shake Me - A quickening of events pulses through lands where for so long time stood still, and the oil - what's left of it - lies locked for the moment beneath hot sands - woe upon all ye soccer moms! - while Colonel Gadhafi ponders the Mussolini option - that is, to be hoisted up a lamp-post on a high-C piano wire until his head bursts like a rotten pomegranate. Then the good folk of Libya can fight amongst themselves for the swag, loot, and ka-chingling oil revenues he left behind. Meanwhile, Hillary Clinton scowls on the sidelines knowing how bad it would look if US marines actually hit the shores of Tripoli (and perhaps how fruitless it might turn out to be). And Italian grandmothers across the Mediterranean wonder why there's no gas to fire up the orecchiette con cime di rapa.  The fluxes of springtime run cruelly across the sands of Araby, clear into Persia where the ayatollahs' vizeers toy with uranium centrifuges and thirty million young people wonder how long they will allow bearded ignoramuses to tell them how to pull their pants on in the morning. Along about now, I wouldn't feel secure standing next to somebody lighting a cigarette in that part of the world.

Bubbles, oil & troubles: How rising prices threaten the global recovery - Prices of just about everything have been rising precipitously in recent months --  from cotton and corn to copper, and, of course, oil. Generally speaking, high prices for commodities are bad for growth, for two reasons. First, they spark inflationary pressures that can force central banks to hike interest rates, thus slowing down economies. Secondly, they cause consumers and companies to spend more on food, raw materials and energy. That eats into their ability to spend on other stuff and dampens economic growth as well. With oil at $100, you'd think the world's economists would be in a frenzy of dire predictions and growth downgrades. But they're not. I've noticed that the reaction from economists to high commodity prices – generally speaking – has been muted. Sure, they are taking note of the potential risks. But overall they've stuck to their position that the global economic recovery is proceeding along nicely and are taking something of a wait-and-see approach to recalculating where the global economy will head in 2011. However, I'm getting a sinking feeling in my gut that the rising prices could have a bigger, more painful and more protracted impact than many economists now expect.

Libya highlights China’s lack of strategic reserves - Beyond the current price spike, Libya’s oil crisis will have far more long-term repercussions in China and India. The supply disruption is a real wake up call for Beijing and New Delhi to speed up the construction of strategic reserves.The result? Higher oil prices as both countries import extra oil for their reserves. China is today the world’s second-largest oil importer, only behind the US. India is the world’s fifth largest, ahead of countries such as South Korea, France and the UK. But the pair lack a strategic petroleum reserve that can be tapped during a supply crisis similar in size and scope to the ones held by Western countries.  Neither China nor India have had experience dealing with a geopolitical supply disruption. When the last major disruption occurred – in late 2002 and early 2003 during the oil strike in Venezuela – both were still relatively smaller importers. Take China: oil imports as a share of the country’s total oil demand has grown to 54 per cent in 2010, up from 30 per cent in 2002, according to estimates by Deutsche Bank. And China was a net oil exporter during the 1990-91 Gulf war following the invasion of Kuwait by Iraq. India is even more exposed as the country imports nearly 80 per cent of its oil consumption.

Lithium: A Metal in Short Supply - What do a cell phone, a laptop and an electric car have in common? All three use batteries made with lithium — the lightest metal in nature. Lithium is difficult to find and excavate. Tiny amounts are found in compounds everywhere, including in the bodies of mammals, but in extremely small quantities. The best way to mine it is to dig under the beds of dried lakes with high saline contents, where volcanoes in wet climates leached groundwater into a landlocked basin tens of thousands of years ago — not exactly in your backyard. Very few places on the globe match these exacting conditions, and some of them are politically problematic. Click here for Lithium Slideshow

China’s airport overkill - Around three quarters of China’s 175 gleaming airports are losing money, many are barely used and some don’t have any flights at all. Beijing’s solution to this problem? Accelerate the building spree with a plan to add 45 new commercial airports over the next five years, bringing the total across the country to more than 220 by 2015.The country’s civil aviation regulator announced last week that the government plans to invest more than Rmb1,500bn($230bn) in the aviation sector in the next five years, with the bulk of the money to be spent on new airports and new aircraft.That compares with the roughly Rmb1,000bn spent in the sector over the last five years.The total national aircraft fleet, operated almost entirely by state-owned carriers, will be expanded to more than 4,500 over that time from 2,600 aircraft at the end of last year.

China Lowers Growth Rate Target In Sustainability Drive - China's Prime Minister Wen Jiabao says China is lowering its annual economic growth target from 8% to 7% and is determined to contain soaring prices. He was speaking in a question and answer session with internet users in what has become an annual online chat. Mr Wen said China needed to ensure that growth was sustainable.  Inflation is officially running at almost 5% but food prices have surged by 10%, creating public discontent. The lowering of the growth rate is mainly symbolic - as economic growth has exceeded the 8% target every year in the last six years.  Last year, growth reached 10.3%, making China the world's fastest-expanding major economy.

The Plastics Shredders of China - Of the many truisms that China has overturned in the last thirty years, one of the most interesting is the idea that poor (or relatively poor) developing countries are inclined to re-use goods, and that wealthy (or relatively wealthy) developed countries throw things away without fully utilizing their value. That is to say: developed countries waste, and developing countries practice thrift. But consider, then, those baskets, imported from Thailand (originally, with fruit in them). They are perfectly re-usable, and likely would have been thirty years ago. But China, now the world's second largest plastics consumer, is home of the world's largest recycled plastics industry -- an industry that (according to imprecise industry officials) includes 40,000 and 60,000 small, family-owned companies.

China’s Highly Unequal Economy - US President Barack Obama stated optimistically that ‘With China’s growing middle class, I believe that over the coming years, we can more than double our exports to China and create more jobs here in the United States.’ To be sure, that is a reasonable expectation.  However, when looking under the bonnet at China’s economic engine, it’s clear that a growing middle class with rising disposable income and consumption is missing. Instead, there’s an economy that is still dominated by state owned firms and state-led investment, as well as by rapidly rising inequality. Instead of an enlarging urban middle class, China is increasingly splitting into a small upper class that spends freely on luxury goods, and a remaining population whose earnings and savings are eroded by inflation and state confiscation.   First, real urban disposable income rose a comparatively tepid 7.8 percent in 2010, despite economic growth of nearly 10 percent. However, urban retail sales of consumer goods grew 14.5 percent. While the growth of consumption is good for China's economy, the pattern of this growth suggests rising inequality.

Higher Personal Income To Aid The Needy - China's central government will send a bill to the National People's Congress for approval that raises the threshold of taxable personal income to help Chinese households cope with rising cost of living.  Premier Wen Jiabao said during an online chat with a surging number of Chinese Netizens Sunday, that the threshold raise will be discussed by the State Council, the cabinet, Wednesday and then delivered to the NPC for review and approval.  The announcement immediately gets a roaring warm response from Chinese Netizens, who have long argued for the raise of threshold of taxable income. The last time Beijing raised the starting line in 2008 from 1,600 yuan to 2,000 yuan.  Though Wen did not reveal by how much the threshold is going to be raised this time, analysts have predicted it will rise to 2,500 yuan or even 3,000 yuan.

China's Wen Vows to Contain Food, Home Prices Amid `Jasmine' Protest Calls - Chinese Premier Wen Jiabao pledged to curb inflation and punish abuse of power in an online forum with citizens as the government tries to head off dissent amid a renewed call for nationwide “jasmine revolution” protests.  The leadership is “determined” to punish abuse of power, which is too concentrated in the government and key officials, Wen said in an online interview with Chinese citizens on the site of the official Xinhua News Agency. Wen promised to boost food supplies to hold down costs, and to tackle surging property prices that have put home ownership beyond the reach of many.  Growing inequality is a threat to social stability, Wen said in the discussion, which comes as the ruling Communist Party prepares for the annual meeting of China’s legislature. Wen’s pledges also come as online postings called for the second week for rallies in major cities to protest corruption and misrule, inspired by the “jasmine revolutions” in the Middle East.

As Bloomberg Reporter Is Beaten Up In China, Wen Jiabao Promises To Crack Down On "Power Abuse" --  Bloomberg reports that "Chinese Premier Wen Jiabao pledged to punish abuse of power by officials and narrow the growing wealth gap as police blanketed Beijing and Shanghai to head off planned protests inspired by revolts in the Middle East." In other words, beatings (and disappearances) will continue until morale finally improves. As for the beatings, Bloomberg's Stephen Engle managed to experience one up close and personal: "Security officers also detained several foreign journalists, including Stephen Engle, a reporter for Bloomberg Television. The Wall Street Journal saw Mr. Engle being grabbed by several security officers, pushed to the ground, dragged along by his leg, punched in the head and beaten with a broom handle by a man dressed as street sweeper." Yes, China may be the most repressive regime when push comes to shove, but should 1+ billion angry and hungry Chinese decide there is nothing all that unique about China compared to Tunisia, Algeria, Egypt, Libya, Bahrain, Oman, Saudi Arabia, Ivory Coast, Vietnam, North Korea, Djibouti and countless more to come, not even the most convincing "blanketing" by police forces will do much of anything to prevent the only revolution that matters.

Premier Wen: China’s rise lies in talents, education, not GDP (Xinhua) -- China's rise lies in talents and education, not gross domestic product (GDP), Premier Wen Jiabao said Sunday. Wen made the remarks during an online chat with Internet users. "The whole world is talking about China's rise, and what the people talk about most is (China's) GDP. But I think China's rise lies in talents and education," he said. He said he attaches greater importance to two other figures: the proportion of education expenditure in GDP and the proportion of scientific R&D expenditure in production. "That concerns our nation's future," he said. He also said an important aspect for China's higher-learning education reform is to encourage students' creative spirit and independent thinking, in a bid to foster more high-calibre talents. More than 6 million students graduate from universities in China every year.

China Forced To Deny It Will Experience HYPERinflation In 2011, As Russia Unexpectedly Hikes Interest Rates - And now for this evening's stunner, via Dow Jones. "There won't be hyperinflation in China this year, the state-run China Securities Journal reported Tuesday, citing Yao Jingyuan, the chief economist of the National Bureau of Statistics. The abundant stocks of grains and main agricultural products in China are key factors in stabilizing consumer prices, the newspaper quoted Yao as saying. China's consumer price index rose 4.9% in January from a year earlier, picking up from December's 4.6%." So putting aside what official denial means about the validity of a story, not to mention this utterly bizzare and completely out of left field statement, China's best and only reason why it won't have hyperinflation is that it has "abundant stocks of grains and agricultural products."... We can, at best, hope that this has to be some early version of an April Fool's joke, or else things are truly far worse than anyone expected.  In the meantime, Russia, which will soon come out with comparable warnings, unexpectedly hiked interest rates by 0.25% to 8.00%

IMF Economists Weigh In on Current-Account Balances Debate - Olivier Blanchard, chief economist of the International Monetary Fund, sees a teachable moment in the running debate within the Group of 20 leading economies over dangers of large current-account surpluses and deficits, the broadest measures of nations’ trade balances.So Mr. Blanchard, on leave from the Massachusetts Institute of Technology, is offering a seven-page essay titled “ (Why) Should Current Account Balances be Reduced?” The IMF is due to publish this essay, co-authored with IMF colleague and Harvard-trained economist Gian Maria Milesi-Ferretti, on Tuesday. The bottom line: “One may argue that every country has the right to be wrong so long as it doesn’t cause harm to others.” Without naming names, they cite three sets of circumstances in which there is a risk of such harm.

Can Manny Pacquiao Knock Out Chinese Textiles? - Yours truly aside, survey after survey usually shows the same phenomenon among Filipinos of having a very favourable opinion of their former colonial masters in the United States. (Having the second largest Asian population Stateside may have something to do with it.) This was true even at the height of global anti-American fervour after the invasion of Iraq. As a minnow in world affairs, minor players like the Philippines need to piggyback on others' efforts. So, when Bush called for GWOT, our government thought "free money from Washington!" and went along. It seems old habits die hard even when the Chinese are now around who are perhaps even more eager to win friends and influence people. I have thus been following the progress of the "Save Our Industries Act" whose progress has been mixed in the American legislature. Alike nearly every other country in the world, the Philippines and the United States' textiles and garments industries have not been faring well in the face of Chinese competition, especially since the phase-out of textile quotas (the Multi-Fibre Agreement or MFA) in 2005. Go ask Brazil. Sensing an opportunity to ride the wave of Sinophobia as well as industrial survival instincts, both countries have teamed up to try and beat China at its own game by tilting the playing field via political shenanigans.

Obama trade plans are stalledPresident Obama1 has made expanding exports a centerpiece of his plan for accelerating the economic recovery, but in recent weeks, his trade agenda has nearly ground to a halt amid partisan feuding.  Although the White House renegotiated a pivotal free-trade agreement with South Korea2 in December, scoring rare bipartisan praise, House Republican leaders have refused to allow the deal to move forward.  To add to the pressure on the administration, House Republicans in February blocked a big expansion of trade adjustment assistance — which provides cash, training, relocation, job search and other benefits to workers displaced by globalization — from being renewed. Many of the 220,000 workers who took part in the program last year could have their benefits reduced as a result.  Another program, which gives duty-free preferences to 4,800 products from poor countries that are allies of the United States, expired in December after a Republican senator, Jeff Sessions3 of Alabama, blocked a vote to extend it. Mr. Sessions acted partly at the behest of a sleeping-bag manufacturer in his state, which argued that the preferences put it at a disadvantage.

GOP Freshmen Call on Obama to Tee Up Trade Deals - In a letter sent to President Barack Obama today, 67 of 87 freshman Republicans threw their heft behind efforts to pass trade-opening pacts with South Korea, Colombia and Panama, urging the administration to get the three deals teed up for passage by July 1. The bumper crop of Republican freshmen who entered Congress this year were never a slam-dunk for free trade. Though the Republican Party had traditionally backed such agreements, negative public sentiment, worries about outsourcing jobs and the antipathy toward most government initiatives taken by the Tea Party movement made the freshmen an unknown quantity on trade, worrying some Republican leaders. Those fears proved unfounded. “We are committed to working with you,” the lawmakers’ letter reads. “Our economy and our job market cannot afford anything less than swift and decisive action.”

NAFTA: Game Over for US Ban on Mexican Trucks  - Here's something I hope that we can all agree is a good outcome. A sore point among many in US-Mexico relations has been the truck ban imposed on trucks making deliveries from Mexico to its ertswhile NAFTA "trade partner" the US of A. You see, trucker-protectionists were successful in convincing rather gullible lawmakers (who count on union votes) that Mexican truckers were a road safety hazard. This despite Mexican truckers actually having a better safety record than their US counterparts prior to the ruling, but that may be behind us now (hopefully). For more on the background of this conflict, see my earlier post. Aside from the soft bigotry of no border-crossing expectations--"driving while Mexican" became an offence to critics of the practice like myself--there were also associated costs passed on to consumers of burdensome loading at the border so American trucks could carry on these goods to their CONUS destinations. Wasted gas, wasted labour, and environmental effects due to the border hold up were all in evidence.

Do currency appreciations reduce imbalances? Half a century of evidence - Over the past decade, several emerging market economies – China in particular – have run substantial and persistent current-account surpluses. Loose monetary policy in the US could now result in higher domestic inflation within these emerging economies and lead to the sort of real currency appreciation that many countries want to avoid. If China only allowed its currency to appreciate, the global economy would rebalance and stabilise – or so the argument goes. This column studies the historical record of large exchange-rate revaluations. It supports the idea that currency appreciations have an impact on the current account but argues that this can come at a cost – the reduction in exports risks putting the brakes on global growth.

The Debate on Free Trade Continues - My last post, “How Convincing Is the Case for Free Trade?,” brought on a flood of comments, the gist of which, to paraphrase Shakespeare, reminded me that there are more things in heaven and earth, economist, than are dreamt of in your philosophy. The economist’s case for free trade is cobbled together from the toolkit labeled normative economics, a branch of economic analysis that seeks to identify what is efficient and what is not and, thus, what is good policy and what is not — and, therefore, what should and should not be done. I have already written several posts that were critical of that branch of economics. My objection to this approach is the dictatorial, collectivist nature of normative analysis.  In a nutshell, in that branch of inquiry, economists view the world as a giant cattle farm to be managed in ways that maximize the collective weight of the cattle, totally in abstraction from the welfare of any individual animal. We call the collective weight of the cattle social welfare. The cattle-farm model then allows us to say, with a straight face, that if a public policy bestows a gain of $2,000 on George but makes Martha $1,000 poorer, social welfare has been increased.

They are Just Trade Agreements, not “Free-Trade” Agreements - A NYT article on President Obama's trade agenda repeatedly referred to "free-trade" agreements. This is a term that politicians who back these pacts use to garner public support, however it is not accurate. The deals generally do little or nothing to reduce barriers to trade in highly paid professional services, like physicians and lawyers' services. They also increase protectionism in some areas, most notably by strengthening copyright and patent protections. It is understandable that the proponents of these trade pacts would want to dub them "free-trade" pacts to make them more politically appealing. However the media should not be using such inaccurate terminology.

Global Imbalances without Tears - Likewise, economists have long noted that for countries gorging on capital inflows, there is a big difference between debt instruments and equity-like investments, including both stocks and foreign direct investment.So, with policymakers and pundits railing against sustained oversized trade imbalances, we need to recognize that the real problems are rooted in excessive concentrations of debt. If G-20 governments stood back and asked themselves how to channel a much larger share of the imbalances into equity-like instruments, the global financial system that emerged just might be a lot more robust than the crisis-prone system that we have now.Unfortunately, we are very far from the idealized world in which financial markets efficiently share risk. Of the roughly $200 trillion in global financial assets today, almost three-quarters are in some kind of debt instrument, including bank loans, corporate bonds, and government securities. The derivatives market certainly helps spread risk more widely than this superficial calculation implies, but the basic point stands.

More on growth-reducing structural change - In an earlier post, I presented some preliminary results on what I called “growth-reducing structural change.” This refers to the highly anomalous and puzzling phenomenon whereby labor moves from high- to low-productivity activities.In joint work with Maggie McMillan (Tufts and IFPRI) we have now updated and expanded our dataset and have more complete results. Here is a preview:This shows a decomposition of aggregate labor productivity growth during 1990-2005 between two components: (i) labor productivity growth within sectors (“within”); and (ii) the economy-wide productivity effects of labor reallocation across sectors (“structural”). The economy is disaggregated into nine sectors.Remarkably, the African countries in our sample (Ethiopia, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa, and Zambia) have experienced even more growth-reducing structural change than the Latin American countries. This runs totally against our expectations for a set of countries at such low levels of development (for the most part), where a Lewis-style dual economy growth dynamic ought to be in place.

The Lands Autocracy Won't Quit— Let the Middle East and North Africa be buffeted by populist discontent over repressive governments. Here in Lenin’s former territory, across the expanse of the old Soviet Union, rulers with iron fists still have the upper hand.  Nearly two decades ago, the collapse of Soviet Communism offered the promise that power would soon be wielded differently in this region: The newly independent former Soviet republics, sprung from the shackles of totalitarianism, would embrace free elections, multiple political parties and a vigorously independent media.  But those hopes now seem premature, or perhaps naïve. In the 1990’s, the Soviet breakup sowed chaos — most notably in Russia — and a corps of autocrats arose in response, pledging stability and economic growth. The brand of democracy that is advanced in the West emerged discredited in many of these countries.

Brazil To Use Debt Markets To Help Stem Currency Gains - Brazil's government will continue to sell overseas global bonds denominated in Brazilian reais to help with broader efforts to contain the appreciation of the Brazilian real against the dollar, as well as to increase the availability of these kinds of securities, a senior Treasury official said.  "When an investor acquires an overseas bond denominated in Brazilian reais, the money goes directly to the government's foreign reserves, and it doesn't enter the foreign exchange market," Deputy Treasury Secretary Paulo Valle told Dow Jones Newswires.

Bank of Japan Easing to Make Yen `Worst' Currency, Morgan Stanley Says - The yen is likely to fall because the Bank of Japan will probably take more monetary easing measures and investor concerns over the government’s fiscal policies may increase, according to Morgan Stanley.  BOJ Governor Masaaki Shirakawa said yesterday worsening growth prospects in Japan are causing deflation to continue and said monetary policy plays a large role in fighting persistent price declines. Moody’s Investors Service on Feb. 22 reduced Japan’s debt rating outlook on concern political gridlock will constrain efforts to tackle debt that is poised to exceed twice the size of gross domestic product.  “We see the BOJ easing this year,” said Emma Lawson, a Hong Kong-based currency strategist at Morgan Stanley, in an interview at a Euromoney conference in Singapore yesterday. “In that regard, the market is likely to return to using the yen as a funding currency.”

Reserve Bank of Australia member warns of commodity bubble - Reserve Bank board member Professor Warwick McKibbin has warned of a potentially devastating bubble in global commodity prices and property prices in Asia. Professor McKibbin, who is also director of the research school of economics at the Australian National University, says if there is a big downturn in Asia Australia could be hit harder because of Australia's reliance on resource revenue. "The longer that you have excess liquidity chasing assets and chasing commodities, the more prices will rise," he explained.  "What is needed is realignment of exchange rates in Asia, an appreciation of the Asian economy and a move off zero interest rates in the US and Europe towards more normal levels to make investments be focused on getting a rate of return that is greater than negative."

High global crude, commodity rates may add to inflation: Pranab - Grappling with a high rate of price rice, the government today expressed concern that increasing prices of crude and other commodities in global markets could add to inflationary pressure in the country. “The possibility of the global commodity inflation adding to domestic inflationary pressures cannot be ruled out,” Finance Minister Pranab Mukherjee said at the 83rd Annual General Meeting of industry chamber Ficci here. Noting that the steady increase of international crude oil and other commodity prices is a reality, the Minister said, “We are already confronting (the situation)“. He made these comments a day after presentation of Budget proposals for 2011—12 that seek to raise the economic growth rate to about 9 per cent from 8.6 per cent in the current fiscal. Crude oil prices in the international market are ruling above USD 100 a barrel and with the crisis worsening in Libya and other Middle East countries, they may go up further.

EU Raises Growth Forecast, Expects Inflation to Accelerate - The European Commission raised its economic-growth forecast for 2011 and said higher oil and commodity prices could keep inflation above the European Central Bank’s limit for most of the year. Gross domestic product in the euro region may increase 1.6 percent in 2011, above a November forecast of 1.5 percent, the Brussels-based European Union executive said in a report today. Inflation, which quickened to 2.4 percent in February, will average 2.2 percent this year, the commission forecast. That’s up from its November projection of 1.8 percent and above the ECB’s ceiling of 2 percent.Inflation pressures are building as the region’s economy gains strength and unrest in North Africa and the Mideast help push up energy and commodity costs. Europe’s services and manufacturing industries grew at the fastest pace in more than four years last month. At the same time, oil prices have jumped 15 percent since mid-February as violence flared in Libya, adding to the ECB’s concerns about rising price pressures.

EU ruling on sex equality: price differentiation, price discrimination or an Unintended Consequence? - If it can be statistically proved that women have fewer car accidents than men, is it fair that they should pay the same for their vehicle insurance? And if a man and a woman have paid the same contributions to a private pension scheme during their working lives, but after they both retire at 65 the man is statistically likely to live for a shorter time that the woman, is it reasonable that the man receives the same monthly pension payment as the woman for the rest of his life?  Until now, the female motorist will have paid a lower insurance premium for her car, to recognise the lower likelihood of making a claim which will cost the insurer money. However the male pensioner has received a higher monthly pension payment, to reflect the fact that he should receive as much benefit from his pension before his likely date of death, as the female pensioner before her, later, likely date of death. From today, these charges and payments must be made equal, thanks to a ruling in the European Court of Justice ruling that gender equality must be used in insurance pricing and pension payments. The court statement says that “Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination.”

Mauldin: When Irish Eyes Are Voting - Most of the world is focused on the Middle East and Libya, and rightly so. We will look at that in a minute. And I agree the Middle East is important. But my eyes are focused on what I think is the far more important event of the day, and that is the election going on in Ireland. I have written about Ireland before, but we need to once again focus on what are not smiling Irish eyes. Ireland was once the envy of Europe, with one of the highest growth rates in the world. It was not long ago that Ireland could borrow money at lower rates than Germany. Now rates are 6% and likely to rise with the new government. Let’s look at a few data points from a brilliantly written article by Michael Lewis, who ranks as one of my favorite writers. When he writes, I read it just for the education on what great writing should look like, as well as for the always fascinating information. The article is at Vanity Fair.

Enda Kenny to call for bail-out to be renegotiated - Enda Kenny, leader of Ireland's Fine Gael party, hailed a "democratic revolution" after angry voters this weekend hammered an Irish government blamed for a catastrophic economic collapse and loss of sovereignty to the European Union. Ireland's new prime minister will warn Angela Merkel and Nicolas Sarkozy that a massive Irish backlash against the country's austerity programme means the £72 billion bail-out must be renegotiated. Mr Kenny is expected to form a coalition government later this week after Ireland's ruling Fianna Fail party was "wiped out" in early elections, losing over 50 seats in its worst election result in 85 years.  Ireland's new leader travels to Helsinki on Friday for a meeting of centre-Right EU leaders and confrontation with the German chancellor and French president over the EU and International Monetary Fund austerity programme.  He will plead with the EU for reduced interest rates on loans that Ireland was forced into last year when the collapse of Irish banks threatened to destroy the euro. The new Irish government will also ask that investors, often other European financial institutions, take on some of an £85 billion debt burden of Irish banks, currently carried by taxpayers.

Ireland's new government on a collision course with EU - Exit polls and early tallies from Ireland's general election heralded political annihilation for Fianna Fail (FF), the party which has ruled Ireland for more than 60 years of the Irish Republic's eight decades of independence. The unprecedented and historic defeat, Fianna Fail's worst result in 85 years, makes the Irish government the first eurozone administration to be punished by voters in the aftermath of the EU's debt crisis. Voter turn-out was exceptionally high at more than 70 per cent, indicating public anger at the government and the EU. Late last year, Ireland was forced to accept a £72 billion EU-IMF bailout to cover huge public debts that were ran up to save failed Irish banks. The bail-out was designed to prevent financial contagion that threatened the existence of the euro, but according to economic forecasts, the cost of servicing Irish bank debt and the EU-IMF bank loans will consume 85 per cent of Ireland's income tax revenue by 2012, a burden that a majority of voters find intolerable.

S&P warns of downgrades on Portugal and Greece - Leading credit rating agency Standard & Poor's has warned that it could further downgrade both Portugal and Greece's debt in the coming two months, depending on the outcome of a crucial European leaders' summit later this month. The agency said in a report Wednesday that it is maintaining its A- rating on Portugal and its BB+ rating on Greece but has kept both countries on so-called "CreditWatch with negative implications." Heavily indebted Greece accepted a bailout last year, as did Ireland, and ailing Portugal is widely expected to follow suit even though it managed to raise another euro1 billion ($1.38 billion) on Wednesday S&P said it could lower the ratings on both countries within the next two months after analyzing an expected new European bailout mechanism. EU policymakers are set to decide later this month on the key features of the European Stability Mechanism, which is due to replace the current European Financial Stability Facility from 2013.

Moody's Says Spanish Banks May Need $69 Billion - Spanish banks may need to raise as much as €50 billion ($68.77 billion) boost their solvency and regain market confidence, more than twice the amount the government has said would be needed, Moody's Investors Service said Monday.  The estimate is up from the €17 billion that Moody's had calculated in December, and would be mostly concentrated in the savings banks sector, senior analyst Alberto Postigo said in the rating agency's Weekly Credit Outlook publication.  Moody's warning came as Qatar said it plans to invest €300 million in Spain's savings banks, or "cajas." It would be the first injection of sovereign capital into the savings banks since the start of the 2007-2008 crisis.

Return to the Drachma?: Economists Warn Greece May Have to Quit Euro - SPIEGEL - Greece's debts are rising rapidly despite radical austerity measures. Now a group of leading European economists has warned that creditors might have to write off more than 30 percent of their loans. Greece might even have to reintroduce the drachma to overcome its debt crisis, they argue. The European Economic Advisory Group (EEAG), a group of leading European economists, has warned that Greece may need another bailout by 2013 at the latest. Greece's current savings program won't suffice to cope with its debt problems, the EEAG said in a new report which was published Tuesday. Greece is unlikely to be in a position to refinance itself via the financial markets once the current rescue package runs out, the economists said.

Portugal urges bigger European debt crisis effort - Portugal's prime minister has urged fellow European leaders to improve their joint response to the continent's sovereign debt crisis and deepen coordination of their economic policies. Jose Socrates says debt-laden Portugal, which is widely expected to need a bailout soon like Greece and Ireland, will take whatever steps are needed to restore its fiscal health but needs European support. "This is a European sovereign debt crisis, it is a euro (currency) crisis and it needs a Europe-wide response," Socrates said in a speech Monday.Socrates did not elaborate, but EU leaders are due to discuss new measures to contain the financial crisis at summits later this month.

Bernanke Expects Europe to Solve Debt Problems - U.S. Federal Reserve Chairman Ben Bernanke said Wednesday he’s confident that the European Union will successfully handle its continuing sovereign debt crisis. “We’re watching it very carefully, but at the moment .. my expectation is that Europe will solve the problems because they are very committed to preserving the euro and the European unification project,” Bernanke told the House financial services committee. Europe, with the help of the International Monetary Fund, has temporarily stemmed contagion of the debt and government budget crisis in the periphery of the European Union. But markets worry that if E.U. officials don’t resolve their political differences on the longer-term debt and budget crisis, the problem could worsen. The uncertainty and riskiness is pushing the cost of borrowing the hundreds of billions of euros necessary to fund government budgets near to unsustainable levels.Bernanke said the U.S. wasn’t highly exposed to the European crisis.

Speculators Not Wagering Much Against Periphery Country Eurobonds - Yves Smith - Given how many commentators believe that Greece is destined to default on its bonds (particularly since they are subordinate to any new money from the IMF and EU), you’d think they’d be putting their money where their mouth is. But the old saw in the US is “don’t fight the Fed”. And the same logic appears to apply with the ECB. John Dizard of the Financial Times reports that perilous little in the way of CDS contracts is being written on everyone’s favorite sovereign default candidate (although the leader of Fine Gael, which will be leading the new coalition in Ireland, fired a shot of sorts across the bow of the eurozone officialdom). From Dizard’s article: The truth is that the outstanding net CDS volume on, for example, Greek sovereign risk is less than 2 per cent of the outstanding state debt. That’s less than $6bn on about $490bn, for the dollar denominated contracts. There is more liquidity in the dollar contracts, which, given the location of many hedge funds and relative lack of official hostility to the instrument, makes sense. Even so, the derivatives tail, far from wagging the dog, is really vestigial.

'Europe's Banks Are in Far Greater Danger Than People Realize' - Interview With US Economist Eichengreen: Spiegel - The European Union is hoping that aid to Greece and Ireland combined with closer economic policy coordination will be enough to put an end to the euro crisis. But that's not likely, warns US economist Barry Eichengreen. First and foremost, he says in an interview with SPIEGEL, Europe needs to help out its ailing banks.

The details of Van Rompuy’s new “pact for competitiveness” - The new competitiveness pact is essential the old one, minus the corporation tax, and the inter-governmentalism. The FT has the details of the new “pact for competitiveness”, to be unveiled shortage by Herman van Rompuy and Jose Manuel Barroso. The most important element, unchanged from Ms Merkel’s orginal six-point plan, is a German-imposed debt brake. But it includes an important procedural change. The European Commission would be involved in the evaluation, the idea being that an arrangement anchored solely in the European Council would not be acceptable to all member states. The proposal followed consultations with all 17 member states, and is to be agreed at the March 11 eurozone summit. The plan consists of three clusters – competitiveness, employment and public finances .The FT writes that among the competitiveness proposals, there is a monitoring system for wage and productivity levels that would force countries to lower employment costs if they rose to quickly. Gone are the proposals on wage indexi ng, and the harmonisation of corporate taxes.

Merkel says No to Ireland - We have been wondering for some time what the concrete manifestations of Merkel’s political difficulties would be. The consensus was that her room for manoeuvre in the eurozone crisis negotiations would be much reduced. And so it is. Yesterday, she came out firmly against proposals for a significant cut in Irish interest rates, noting that the Irish package was only a few months old, according to Reuters. And she erected an entirely new benchmark, saying that Ireland could not expect to pay a lower rate on its EFSF loan compared with the rate at which Portugal currently refinances itself. (This actually makes sense – but it could imply that Portugal must also come under the umbrella. If this is the benchmark, then the scope for interest rate reduction is small to non-existent.)  The SPD leader in the Bundestag, Frank Walter Steinmeier, gave a scathing criticism of Angela Merkel’s crisis resolution strategy in an interview with the FT. “It may be a crisis programme, but if it is, then it is for another crisis than the one we have . . . Not a single element is appropriate to end this European crisis, which is not so much a currency crisis, but rather one caused by economic instability in big parts of Europe.” He said that the EU should focus on relieving the ECB of its bond purchasing obligations, and he promised that the SPD would back a courageous pan-European solution to the crisis, that would include first steps on the way to a European bond

Say no to Germany’s competitiveness pact - It is time to stop pretending that we are about to see a “grand bargain” for the eurozone in March. Last week, the political developments in Germany shifted dramatically in the wrong direction. The Bundesbank, the parliament, the small business community and influential academics have all come out openly against an extension of the various support mechanisms. German society as a whole is in open revolt against the eurozone. The single most important event was the decision by the three coalition parties in the Bundestag to reject, categorically, bond purchases by the European stability mechanism. The ESM will be the permanent anti-crisis institution from 2013. The Bundesbank came to a similar conclusion in its monthly report. On Thursday, 189 German economists wrote a letter to a newspaper denouncing the ESM, calling for immediate bankruptcy proceedings of insolvent eurozone states. It is no longer just the constitutional court that puts a break on the process. In last week’s column, I tried to explain the origins of that sentiment. Today, I will focus on the consequences. The best outcome, in my view, would be a failure of the current crisis resolution strategy, followed by a complete rebooting. The worst would be a never-ending stand-off, followed by a financial cardiac arrest. The most likely outcome is a very small compromise of the kind that resolves nothing.

Rehn signals compromise on EFSF/EFSM interest rates - Olli Rehn signalled that a reduction in the interest rate will be part of a comprehensive package to be discussed by the two summits in March, but he did not indicated how big the room for manoeuvre was. Rehn categorically rejected any renegotiation of the package itself.  So far the commission has been largely silent on this matter, but Rehn admitted on Monday that, if the switch were to benefit the country, it would have to be considered. Reuters quotes Rehn saying that  "we have a common goal for Ireland to revive its growth dynamics and succeed in ensuring debt sustainability". GFS News also writes that Rehn was hinting that a change might only be considered in exchange for Ireland agreeing with the competitiveness pact.  The Irish Independent writes that the Commission’s support to discuss the interest rates gave a boost to coalition talks between Fine Gael and Labour  Frankfurter Allgemeine reports that the other EU member states would almost certainly demand an increase in Irish corporation taxes as a quid pro quo (which would be insane, given that this would destroy Ireland’s only chance into solvency.) The article also said the other countries were fundamentally opposed to bondholder bail-ins.  The FT reports from Brussels that among EU capitals, sentiment has turned against a renegotiation of the Irish bailout, citing unnamed diplomats.

More details on Barroso/van Rompuy proposals: Debt brake not really serious - We reported the first leaks of the Barroso/van Rompuy quick fix of Merkel’s competitiveness pact in Monday’s brief. Reuters has further details of the four-page long "Enhanced Economic Policy Coordination in the Euro Area, Main Features and Concepts" to be presented to the March 11 eurozone summit. Here are the main points:

  • 1. Debt brake, but no forced changes in member states’ constitutions. Member states can implemented the way they like it, but ”should make sure that it has a sufficiently strong binding nature”.

  • 2. No numeric targets for retirement age, only stressing the need for pension and social benefits to be sustainable;

  • 3. No rules for wage indexation;

  • 4. A common tax base, yes, but not necessarily for all countries: If not all euro zone countries would accept such common tax base -- a hint at Ireland which is fiercely opposed to any talks on its relatively low corporate tax -- it could be introduced by a smaller group;

  • And finally, not all reforms have to happen now: "Each year members states of the euro area will agree at the highest level on a set of concrete deliverables to be achieved within 12 months. The selection of the specific policy measures to be implemented will remain the responsibility of each country."

European Inflation Quickens, Increasing Pressure on ECB  -- European inflation accelerated in February, increasing pressure on the European Central Bank to raise interest rates later this year. Inflation in the 17-nation euro region quickened to 2.4 percent from 2.3 percent in January, the European Union’s statistics office in Luxembourg said today in a preliminary estimate. That’s the fastest since October 2008 and the third straight month inflation has exceeded the ECB’s 2 percent limit. Economists expected a reading of 2.4 percent, according to the median of 31 estimates in a Bloomberg News survey. ECB officials have toughened their inflation-fighting rhetoric over the past two weeks, indicating they’re moving closer to raising rates from a record low even as Europe grapples with a sovereign debt crisis. Policy makers are concerned companies will raise prices and workers will demand higher wages to compensate for surging oil and food costs, entrenching faster inflation.

Geithner Highlights EU’s Political Hurdles in Debt Crisis - U.S. Treasury Secretary Timothy Geithner didn’t exactly exude optimism when asked Thursday to assess Europe’s chances of resolving its sovereign-debt crisis. Geithner stressed Europe’s plans are “very difficult politically, very difficult technically.” Underlining the risks, he appeared to be trying to manage expectations. “When you dig yourself that deep a hole, there is no path ahead that doesn’t require a long multi-year program,” he said. “There’s no easy way out.”Markets have pushed up the price of government borrowing in the euro zone, fearing political differences will continue to prevent a decisive solution to the long-term debt and budget crisis by the end of March, when officials have targeted a final deal to be done. But instead of a “grand compromise,” many expect officials will rather simply buy time with a temporary deal to boost the firepower of the current emergency bailout package. That could disappoint markets, sending borrowing prices even higher, potentially forcing some countries such as Portugal to ask for a bailout and perpetuate the sovereign-debt crisis.

Update on European Financial Crisis and Bond Yields - The European financial crisis has been simmering in the background, but will probably become front page news again this month. There are several meetings schedule in March, starting tomorrow in Helsinki, and then a special eurozone debt crisis summit on March 11th.Also the European Banking Authority has now launched the next round of bank stress tests. And I should mention that European Central Bank President Jean-Claude Trichet said today "Strong vigilance is warranted with a view to contain upside risks to price stability." and many view that wording as suggesting a rate hike is coming at the next meeting.Here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of March 2nd):

The "separation principle" and the euro - The European Central bank can afford to ignore the likes of Greece and the Republic of Ireland when it sets interest rates - for the same reason that the eurozone can afford to bail them out. They're small. Between them, the crisis economies on the periphery account for about 18% of eurozone GDP. Germany alone accounts for 30%, and it grew by 3.6% in 2010. Strong hints yesterday from Jean-Claude Trichet that the ECB would raise rates next month will not have gone down well in Portugal and Athens. They need higher interest rates like a hole in the head. But as these governments will have learned by now, that is how the eurozone works. One interest rate very rarely fits all. For most of the single currency's first decade, the ECB's policy rate was probably too high for Germany - and too low for the booming periphery. Germany's domestic consumption grew by just 1% a year, on average, for the first eight years of the euro. Consumption growth in Spain, Portugal and the Irish Republic was many times that. And we all know what happened to house prices and the level of private debt.

It's pretty simple: the ECB's now in hiking mode - Rebecca Wilder - I WAY underestimated the simplicity of ECB policy. I think that the terse monetary policy objective explains quite well the ECB's announced stance on policy today:The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. Today the ECB announced that it would keep the refi rate unchanged at 1%, however, Trichet made it quite clear that rate hikes at the next meeting cannot be ruled out (rather should be ruled in). The market response was pretty strong: bond markets are now pricing in 75 basis points of rate hikes this year, which would take the refi rate to 1.75% by the end of 2011; the euro's close to breaking the 1.40 mark; and the 2-year yield is 13 basis points higher on the day. The trigger, in my view, was the ECB's increased inflation projection: The March 2011 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.0% and 2.6% for 2011 and between 1.0% and 2.4% for 2012. The fact that the ECB is now projecting 2012 inflation upwards of 2.4% , which exceeds by leaps and bounds their 2% target in 'ECB talk', implies that the committee sees the medium-term outlook on inflation as seriously biased toward the upside. For the ECB, this means policy is way too accommodative.

Back to “strong vigilance”, but note: Trichet is also playing politics - The financial markets yesterday feigned surprise, even shock, at Jean-Claude Trichet’s preannouncement of a quarter point interest rate increase in April. Trichet said a rate rise was possible but not certain – though he did not commit to a series of rate increases from then onwards. He said price pressured had been increasing, and that the risks have shifted to the upside. Here is the full statement.   Until yesterday, the consensus had been for a rate rise in the second half of the year.  The ECB board has realised, and agrees, that a nominal interest rate of 1% is no longer consistent with an inflation target of 2% at a time when nominal growth is forecast to reach 4% (1.7% real growth, and 1.3% inflation for 2011, the average points in the ECB staff’s forecasting range for 2011). With increased evidence of second-round effects from higher oil and commodity prices, the ECB wanted to set an early signal.  The euro/dollar exchange rose swiftly after the statement, approaching $1.40, before falling back slightly in later trading.  (It is our interpretation that the ECB is very keen to drive up the euro’s exchange rate against the dollar to reduce the commodity price shocks, and to reduce the overheating in the export sector. This is why the ECB was keen to signal this interest rate as early as possible, to underline the transatlantic policy gap. We don’t think the ECB intends to hike interest rates to very high absolute levels, though we consider a 2% year-end rate realistic.)

The Madness of Jean-Claude Trichet - Krugman  - The European Central Bank is strongly hinting that it will raise interest rates at its next meeting, in response to rising headline inflation — even though this rise is the result of rising food and oil prices, which are not the results of ECB policy. Let me try a different take on why this is such a bad idea. Suppose that we focus on wage rates, which are often seen as the stickiest, most inertia-driven prices. The eurozone, like the United States, has seen wage growth slump in the face of high unemployment: So what the ECB is saying, in effect, is that Europe should drive down nominal wages — which can only be done by raising the unemployment rate — in order to offset the effect of oil and food on headline inflation. (Real wages will fall in any case.) Is this really a policy that the ECB would defend in so many words? I doubt it. But however sober and dignified talk of price stability may sound, that’s what the proposed policy amounts to.

Roubini Says Slow Growth May Mean Debt Restructuring - Advanced countries with high levels of debt will have to consider debt restructuring as anemic growth won’t enable them to tackle their liabilities, U.S. economist Nouriel Roubini said in Paris Friday.Roubini, known as “Dr. Doom” for his prescient warnings about the 2008 financial crisis, urged policy makers to include the issue of debt restructuring in global talks on the reform of the international monetary system, stressing that weak growth aside, all other options to tackle debt mountains in developed economies are closed to them. “If growth is not going to solve this problem, if saving more and consuming less is going to lead to a double dip, if inflation is a bad idea…the only other solution is debt restructuring, debt reduction, debt conversion into equity,” Roubini told a central banking event organized by the Bank of France in Paris.

A three-part plan to tackle the Eurozone debt crisis It is well over a year since concerns over debt sustainability in Greece began spilling out to the rest of the Eurozone. The crisis continues. This column presents a three-part plan aiming to clean up the banks, reduce Greece’s public debt, and foster growth in the peripheral economies.

Lloyds will not pay corporation tax until profits hit £15bn - Lloyds Banking Group has risked heightening public anger towards the City after the state-backed lender admitted that it will have to make £15bn of profits before it pays any corporation tax in the UK. The admission came as Eric Daniels, the bank's outgoing chief executive, courted further controvery by saying he would only decide whether to accept a £1.45m bonus once the money was in his "hot little hands". Mr Daniels' comments, apparently in jest, were made ahead of his stepping down as Lloyds chief next week. He will be succeeded by António Horta-Osório, the former Santander UK boss. Lloyds, which is 41pc owned by the state, is able to avoid corporation tax as it has billions of pounds of deferred losses that it can write off against tax liabilities. The admission came as Eric Daniels, the bank's outgoing chief executive, courted further controvery by saying he would only decide whether to accept a £1.45m bonus once the money was in his "hot little hands". Mr Daniels' comments, apparently in jest, were made ahead of his stepping down as Lloyds chief next week. He will be succeeded by António Horta-Osório, the former Santander UK boss. Lloyds, which is 41pc owned by the state, is able to avoid corporation tax as it has billions of pounds of deferred losses that it can write off against tax liabilities.

A food price puzzle for the UK - We all eat food. So we should all be interested in what's happened to British food prices in the past year or so. The members of the Monetary Policy Committee who appeared before the Treasury Select Committee this morning also have what you might call a professional interest in the subject. Along with other commodity prices, rising food prices have been a key piece of the British inflation puzzle that the Bank of England has been getting wrong. There's a micro issue here, and a macro one. The "micro" puzzle, highlighted by recent research by UBS [160KB PDF], is whether and why UK food prices have been rising more quickly than in other countries. The "macro" puzzle, highlighted by deputy governor Charlie Bean in his answers to MPs, is why British companies - including food retailers - have been able to pass on higher input costs to consumers, despite the subdued state of domestic demand.

King says living standards may never recover from the crisis - The Governor of the Bank of England warned yesterday that living standards may never recover from the financial crisis and that households were only just starting to feel the full impact of bankers' mistakes. Mervyn King told MPs that ordinary people were not to blame for the pain ahead and that he was surprised there had not been more public fury.  "It is not like an ordinary recession where you lose output and get it back quickly," the Governor said when asked if the country would ever recover from a squeeze on living standards on a scale not seen since the 1920s.  "You may not get it back for many years, if ever, and that is a big long-run loss of living standards for all people in this country."

Why it makes sense to hope for a house price crash - Student debts are making it impossible for many young people to save - even before tuition fees rise to £9,000 a year - and could push the average age of first time buyers up to 44, according to Scottish Widows. Even if you suspect the insurer of self interest – because less saving is bad for its business -its forecast is disturbing; and not just for the housing market. While the Coalition Government emphasises that higher tuition fees will not need to be repaid until earnings exceed £21,000, anyone who imagines these liabilities are any less real for being deferred is heading for a horrible surprise.Just when their parents bought their first home, typically around the age of 27, the graduates of tomorrow will find that the Student Loans Company has first call on any spare cash they may scrape together. And, lest they forget who needs their money more than they do, HM Revenue & Customs will take it from their salary before they see it – just as happens now on pay above £15,000. When will these young couples be able to afford have children of their own? Never mind parenthood; what about pensions?

12 Countries Most Likely to go Belly Up - Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve countries rated as “extreme risk.” However, quite surprisingly, only one PIIGS country–Italy which takes the top spot–is in the top 12. The others include many big economies in Europe – Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below). While high national debt and public spending are two common denominators, the study finds it is the aging demographics that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments. Aging population also means high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, the dependency ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62%, and Japan at the very top with 74%, while the ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.


Dusty,Hells most vocal Bitch said...

Bernanke has a helluva set of nads to say the price of gas isn't a big deal yet. When is the last time that jackass filled his own tank?

Lithium will become the new gold if the supply is that tight. Just what we need...

rjs said...

you do know the bernank has a chauffeur, dont you, dusty? Fed economists must neither eat nor use gas because they believe they can ignore both in the measures of inflation they track when setting monetary policy...

Dusty,Hells most vocal Bitch said...

Of course that fuckwad has a driver. I would expect nothing less! ;p

Are they vampires? That would explain a lot RJ.