week ending Apr 2

Federal Reserve's Balance Sheet Hits Record High As Bank Buys More Bonds - The Federal Reserve's balance sheet grew to another record size in the latest week as the central bank bought more bonds in an effort to support the economy, Fed data released on Thursday showed. The purchases were part of its $600 billion quantitative easing program, dubbed QE2, with the goal to stimulate investments and economic activity. The balance sheet expanded to $2.606 trillion in the week ended March 30 from $2.585 trillion the prior week. The central bank's holding of U.S. government securities grew to $1.333 trillion on Wednesday from last week's $1.305 trillion total.The Fed's ownership of mortgage bonds guaranteed by Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and the Government National Mortgage Association (Ginnie Mae) declined to $937.16 billion from $943.85 billion in the latest week. The Fed's holdings of debt issued by Fannie, Freddie and the Federal Home Loan Bank system totaled $132.50 billion, unchanged on the prior week.

Fed Balance Sheet Rises to $2.627 Trillion‎ - The Fed's asset holdings in the week ended March 30 climbed to $2.627 trillion, from $2.605 trillion a week earlier, it said in a weekly report released Thursday. It was the eighth consecutive week in which assets were above $2.5 trillion. The Fed's holdings of U.S. Treasury securities rose to $1.333 trillion on Wednesday from $1.305 trillion the previous week. With inflation seen staying low and unemployment high, Fed officials decided to keep in place their easy-money policies, including buying government bonds, at a meeting of the Federal Open Market Committee this month. The bond purchases began in November. Thursday's report showed total borrowing from the Fed's discount window fell to $19.25 billion Wednesday, from $19.51 billion a week earlier. Borrowing by commercial banks rose to $27 million Wednesday from $7 million a week earlier. Thursday's report showed U.S. government securities held in custody on behalf of foreign official accounts fell to $3.404 trillion from $3.410 trillion. U.S. Treasurys held in custody on behalf of foreign official accounts also fell to $2.637 trillion from $2.648 trillion. Holdings of agency securities, however, rose to $766.87 billion from the previous week's $761.60 billion.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--March 31, 2011 

Longer TIPS and Shorter Nominal Notes -  QE2 — for the most part, the Fed has bought shorter nominal (non-inflation protected) Treasury notes.  Now, we knew from the beginning that the Federal Reserve would buy the grand majority (94%) of its nominal bonds 10-years and shorter.  Also, 97% of the bonds would be nominal, and only 3% TIPS.  That makes some sense, because the Treasury bond market has an average maturity of around 5 years, and the Fed’s intended purchases of nominal bonds work out a little longer than that, at 6.5 years. With TIPS the Fed left itself free to do whatever it wanted with respect to maturity.  So far, the NY Fed has done ten purchases of TIPS — $16.1 billion worth, which would indicate they are 89.5% of the way to their (perhaps approximate) $18 billion dollar target.  Let me summarize in a graph the purchases of TIPS to date, together with the targets for nominal Treasury purchases:

NY Fed to AIG: thanks, but no - So that’s that. Looks like $15.7bn just doesn’t go as far as it used to:The Federal Reserve today announced that it has declined American International Group’s (AIG) offer to purchase all of the assets in Maiden Lane II LLC (MLII). After careful review, the Federal Reserve Bank of New York (New York Fed) and the Board of Governors of the Federal Reserve System (Board) judged that the public interest in maximizing returns from any sale and promoting financial stability would be better served by an alternative approach to realizing value that is also more consistent with normal market practice. The New York Fed, through its investment manager, BlackRock Solutions will dispose of the securities in the ML II portfolio individually and in segments over time as market conditions warrant through a competitive sales process. There will be no fixed timeframe for the sales and at each stage the Federal Reserve will only transact if the best available bid represents good value for the public.

Fed Official Suggests Quantitative Easing Could End Early - The Federal Reserve should review the current stimulus effort and consider whether to end it early, said James Bullard, president of the St. Louis Fed. The effort, a second round of so-called quantitative easing, in which the government buys Treasury securities to put downward pressure on long-term interest rates, was announced in November and is scheduled to end in June.  “The economy is looking pretty good,” Mr. Bullard told reporters. “It is still reasonable to review Q.E. 2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short.”  He said that although the economy was clearly stronger than last summer and fall, uncertainties remained, including the effects of the nuclear crisis in Japan, the unrest in the Middle East and the European sovereign debt crisis. Surging oil prices pushed by turmoil in the Middle East may erode consumers’ purchasing power, and supply constraints caused by the Japan earthquake may slow the pace of the recovery this quarter.  “We have to weigh those in the decision” on whether to stop the stimulus effort earlier than planned, Mr. Bullard said.

Fed Should Consider Curtailing Stimulus Program, Bullard Says -- St. Louis Federal Reserve Bank President James Bullard said policy makers should review whether to curtail a plan to buy $600 billion in Treasury securities, noting that the U.S. recovery may not need that much stimulus.“The economy is looking pretty good,” Bullard said to reporters in Marseille, France, on March 26. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” he said, referring to the second round of so-called quantitative easing. Chairman Ben S. Bernanke has given no indication the central bank will deviate from its plan to buy bonds through June to spur economic growth and reduce 8.9 percent unemployment. Bullard, who in July became the first policy maker to call for Fed purchases of Treasuries, has said the Federal Open Market Committee should review the plan at every meeting and, if necessary, continue it indefinitely.

Fed's Lockhart: Monetary Policy 'Appropriately Gauged' For Current Economy - The Federal Reserve's monetary policy is "appropriately gauged" for the current economy, Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday. Largely reiterating comments he made Friday, Lockhart said during a speech that the U.S. economy is likely to grow moderately, unemployment is gradually declining and inflation is moving toward a level that is consistent with the Fed's objective.  Lockhart did, however, acknowledge he would support tightening policy if there was evidence that the pace of inflation was rising too quickly. An annual inflation rate around 2% over three or four years would be consistent with the Fed's price stability mandate, Lockhart said

Fed’s Pianalto: Treasury Purchase Plan Likely to End on Schedule - The Federal Reserve is likely to be able to complete its $600 billion program of buying Treasury securities in June as scheduled, Federal Reserve Bank of Cleveland President Sandra Pianalto said.Ending that extraordinary economic-stimulus program on time depends “on how the economic outlook evolves,” she said during a question period after a speech to the Association for Corporate Growth, a business group. But Pianalto depicted the current economic outlook as encouraging during her remarks in Pittsburgh. She doesn’t currently have a vote on the rate-setting Federal Open Market Committee.

Fed Presidents Support Completion of $600 Billion Bond Program -Two Federal Reserve regional bank presidents voiced support for the completion of the central bank’s $600 billion Treasury securities-purchase program through June, saying it’s too soon to remove stimulus from the economy.Boston Fed President Eric Rosengren said yesterday that high unemployment and low core inflation mean record monetary support is still necessary. Chicago Fed President Charles Evans said he believes data suggesting a more sustainable recovery won’t prompt an alteration in the bond-purchase program.“It could be that $600 billion is just about the right number,” Evans told reporters before a speech in Columbia, South Carolina. “I won’t be surprised if that in fact is the decision. I still think it is a high hurdle to stop short of $600 billion. So far I haven’t seen it.”Their remarks highlight the difference of views that has emerged since the Fed’s March 15 meeting, when policy makers kept in place the plan to buy bonds while concluding the recovery is on “a firmer footing” and the labor market is “improving gradually.”

Hoenig urges Fed to shrink holdings, raise rates - An inveterate Federal Reserve advocate of tighter financial conditions on Wednesday renewed his call for higher benchmark interest rates and shrinking the Fed's balance sheet to pre-financial crisis levels."With the United States and many world economies experiencing ... growth and with the U.S. financial crisis over, I would expect to see a change in policy in which stimulus put in place at the height of the crisis would be throttled back," Kansas City Federal Reserve Bank President Thomas Hoenig said in a speech to the London School of Economics. Hoenig is not a voter on the Fed's policy-setting Federal Open Market Committee this year.The Kansas City Fed chief has previously called for a modest increase in borrowing costs and expressed his opposition to the Fed's $600 billion bond buying program. His questioning of Fed policy adds to the voices of several other Fed officials who have in recent days called for the program to be scaled back or for the U.S. central bank to tighten financial conditions soon.

Fed may tighten before global risks fixed: Bullard (Reuters) - St. Louis Federal Reserve chief James Bullard urged the U.S. central bank on Tuesday to begin reversing its campaign of monetary easing, saying it could trim its $600 billion bond-buying program by $100 billion. Bullard, who does not have a vote on Fed policy this year, added that U.S. policymakers may not be willing or able to wait for all global uncertainties to be resolved before they begin normalizing their very loose monetary policy. "One of the things that I'm concerned about is that policy is so easy right now that we have to get started on the process of getting back to normal because it will take a long time," Bullard told reporters on the sidelines of an economic conference in Prague on Tuesday. When asked if he thought that process should begin now, he said: "Yes, we're still buying treasuries. We're feeding the fire at this moment."Bullard, seen as a centrist on the policy-setting committee, said the Fed could start tapering off its asset purchases and then pause for several policy meetings before taking further tightening steps. His comments contrasted with comments from other senior Fed officials who have said this week only that they did not see a need for another round of asset buying.

A Good Exit Strategy Proposed by Philadelphia Fed President Plosser - Last Friday in New York, Charles Plosser, President of the Philadelphia Fed, proposed an exit strategy for the Fed. It’s the first explicit exit strategy to be put forth by a member of the FOMC, so it deserves careful consideration and discussion.  Previous statements about exits by Fed officials simply listed the tools that could be used in an exit strategy, but did not actually put forth an exit strategy. In contrast, President Plosser describes a specific strategy.  Two things are very attractive about the strategy. First, it aims to return monetary policy to one in which the federal funds rate is determined by the supply and demand for reserves. This of course requires that the Fed bring down the enormous supply of reserve balances on its balance sheet to a level closer to a quantity demanded by banks at a positive interest rate.  The second attractive feature of the exit strategy is that the path of reduction in reserve balances is tied to future movements of the federal funds rate. It is thus much like an exit rule, or a contingency plan, which both preserves flexibility and creates predictability. The exit rule would reduce reserves by $125 billion for each 25 basis point increase in the funds rate plus another $50 billion at each FOMC meeting.

The New SuperHawks of the FED - We have seen the Federal Reserve purchase the Maiden Lane assets from Bear Stearns.  For an encore, they returned to do it again with AIG….twice. The Fed also started a series of special liquidity facilities, including one with that exact name.  These facilities, like the Term Auction Facility, Primary Dealer Credit Facility, & the Term Securities Lending Faculties to name a few, were intended to enhance system liquidity. We have seen the Federal Reserve roll out Quantitative Easing 1.0 (buying of MBS), Quantiitative Easing “Lite” (the MBS roll off, and replacement with US Treasuries), & Quantitative Easing 2.0 (direct POMO operations to support treasury prices as needed anywhere in the curve).The sum of these actions are that the US Federal Reserve has generated credits on its own balance sheet, which have been used to buy up US assets at no *Actual* cost to the Federal Reserve.  Their balance sheet has more than doubled in size during this short time frame as the Bank has injected liquidity into its member banks.The US dollar has experienced significant pain during this process, dropping against both other fiat currencies, but also against most commodities. Very recently, the market has been expecting some kind of comment on the continuation of Quantitative Easing, now expected to be called Q.E. 3.0.However, it now appears that the end of this cycle could be arriving. 

An exit strategy for the Fed - Friday’s decent jobs report and accompanying hawkish cacophony have encouraged further talk about when the Fed will raise rates and revert to a place called normalcy. But what of the how? In a research note out Thursday, Credit Suisse’s Neal Soss and Dana Saporta look at the tools the Fed can use as it totters along “a long and winding road” back to “normalisation”. (If anyone remembers what that looks like, please let us know.) First, cast your mind back to February 2010, when QE1 was nearing its end. The Fed raised the discount rate 25bps to 0.75 per cent, increasing the spread over the fed funds target rate to 50bps. It floated further increases but was soon overwhelmed by the eurozone crisis and, then, QE2.

Fed's Next Moves Spark Debate - As the U.S. economy slowly improves, battle lines are being drawn at the Federal Reserve for the coming debate about when and how to tighten the central bank's easy monetary policy. A slew of regional Federal Reserve bank presidents have taken to the public speaking circuit in recent weeks to begin staking out positions on the economy and the Fed's next moves. A vocal minority is pushing for an early and aggressive shift to push interest rates higher, possibly later this year. But New York Fed President William Dudley sent a clear sign Friday that the Fed's most powerful decision makers don't necessarily share that view.  "Economic conditions have improved in the past year. Yet the recovery is still tenuous," Mr. Dudley said in a speech in Puerto Rico. "And we are still far from the mark with regard to the Fed's dual mandate. In particular, the unemployment rate is much too high." Mr. Dudley's view: This is no time for the Fed to reverse course. It has held interest rates near zero since December 2008. The New York Fed president has emerged in the past year as an important part of Fed Chairman Ben Bernanke's inner circle of decision makers at the Fed, with Vice Chairman Janet Yellen.

Fed Continues to Prepare for Exit - The Federal Reserve, using an old tool designed to drain excess reserves from the financial system, says it will offer $5.0 billion in 28-day term deposits next Monday.The sale is one in a series of auctions held by the central bank, a measure taken to unwind the liquidity pumped into the system to counter the financial crisis. The Fed’s portfolio of loans and securities expanded when it battled the crisis, which flared in 2008.With term deposits, banks set up interest-bearing deposits at the central bank, similar to certificates of deposits that banks offer to retail customers. The facility gives banks an extra incentive to keep their money at the Fed instead of lending it out.The Fed injected a lot of cash into the financial system as it battled the recession and financial crisis. Banks accumulated excess reserves. Too much money in the system can excite inflation. The economic recovery has been speeding up, yet unemployment remains high. Food and energy prices have increased, but underlying inflation remains tame.

Fed’s Dudley Warns Against Prematurely Tightening Policy - A key Federal Reserve official warned Friday against moving prematurely to tighten monetary policy, saying as far as the U.S. economy has come, the recovery process remains “tenuous.”“A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking” and have been expecting at the central bank, Federal Reserve Bank of New York President William Dudley said. “This is welcome and not a reason to reverse course.” Dudley’s comments came from the text of a speech. He spoke in the wake of the release of solid hiring data for March, and as a number of other Fed officials have been arguing the Fed is getting close to the time it will need to tighten monetary policy. Dudley is the vice chairman of the monetary-policy-setting Federal Open Market Committee, and shares with Fed Chairman Ben Bernanke the belief that the economy still needs considerable support from the Fed. He has been a staunch advocate of the central bank’s $600 billion bond-buying program. Other Fed officials have been worried by rising food and energy prices, and believe with a recovering economy, it may soon be time for the Fed to move toward tighter policy.

A comment on Regional Fed Talk - Much has been made about recent comments by St Louis Fed President James Bullard and Philly Fed President Charles Plosser. Kansas City Fed president Thomas Hoenig added his voice today: Fed should head for the exit, Hoenig says A few comments: When Plosser gave his EXIT speech last week, he started by saying: "As always, and perhaps particularly so today, the views I express are my own and do not necessarily represent those of the Federal Reserve System or my colleagues on the Federal Open Market Committee." Notice that he emphasized these are his views.And that is the point: these comments are the opinions of a few regional presidents - some non-voting - and do not represent the views of the majority on the FOMC.  The "big three", Fed Chairman Bernanke, Vice Chair Janet Yellen, and NY Fed President William Dudley will all speak over the next two weeks, starting with Dudley this Friday, Bernanke on April 4th, and Yellen on April 11th. I expect they will speak with one voice and stand behind the current QE2 policy stance and the "exceptionally low levels for the federal funds rate for an extended period"

Fed Presidents Talking - There has been a flurry of news reports in the last few days concerning public remarks by regional Fed Presidents, and what that may or may not signal about future policy. There was a presentation by Jim Bullard (St. Louis Fed, a speech by Charles Plosser (Philadelphia Fed) an interview with Jeff Lacker (Richmond Fed), another interview with Narayana Kocherlakota (Minneapolis Fed), and speech by William Dudley (New York Fed). Some people seem to be complaining about all this public discussion, for example Tim Duy (blogger) objects to it. I think Plosser has a good retort to this, which is: Because we find ourselves in unfamiliar territory, it is understandable that there is less of a consensus among economists about the right actions to take to promote sustainable growth and price stability. As a result, debates about policy have been robust, with bright and talented people on every side. And it should not be surprising — indeed, it should be reassuring — that debates within the FOMC are similar to many that are carried out in more public forums.

Dudley Signals More ‘Healing’ for Economy Needed Before Fed Pulls Stimulus - Faster-than-expected payroll growth last month shouldn’t alter the U.S. central bank’s plans to buy $600 billion in Treasuries through June to prop up the recovery, said William C. Dudley, president of the Federal Reserve Bank of New York.  “I don’t see any reason to pull back from that yet,” Dudley said to reporters after a speech yesterday in San Juan, Puerto Rico. Market expectations are for the Fed to complete its planned bond purchases in June and not to announce additional buying, he said. “I don’t view those expectations as unreasonable in any significant way.”  U.S. Treasuries reversed losses after Dudley’s remarks countered investor speculation the Fed is poised to withdraw stimulus. His comments countered suggestions by other policy makers, including Federal Reserve Bank of Philadelphia President Charles Plosser, that the central bank should consider raising interest rates this year.

Where Is QE2 Taking Us? - Five months into the second round of quantitative easing — "QE2" — it is useful to take stock of what it has, and has not, accomplished. In short, the monetary base is way, way up, price inflation is up, long-term interest rates are up, and bank lending is down. QE2 has thus begun to deliver on all the dangers of which the critics warned, but not the alleged benefits. On November 3 last year, the Fed satisfied the expectations of many analysts by promising another round of asset purchases: To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. Five months later, we can assess some of the major results so far. Of course, just because something occurred after QE2 doesn't mean it was the result of it, but it will be instructive to test the claims of the Fed's apologists.

China's Dagong Sees No Threat Of Fed Monetization Ending, Believes "World Credit War" Is About To Escalate - Starting to get doubts about QE3? Don't tell that to the official Chinese rating agency Dagong, who in traditional uber-pragmatic fashion, has the following summary observation on US monetary policy, and any imaginary changes thereto: "The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011." What does this mean for China and the rest of the world: "The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system."

Misunderstanding Prescriptive Versus Descriptive Monetary Policy Rules - John B Taylor - Misunderstandings about whether a particular rule is meant to be descriptive or prescriptive can thus lead to policy mistakes. Consider this passage from the March 18, 2011 issue of JP Morgan’s Global Data Watch (p 16): “The original Taylor rule was descriptive and meant to match how Fed policy was set in the 1987-1992 period. Subsequently, some researchers found that variants of Taylor rules were optimal in certain economic models, and so could also be prescriptive. However, those classes of models were usually quite restrictive, such as assuming policy was not at the zero bound, or that the central bank only tried to influence the short end of the curve. In fact, very few optimal policy models even incorporate multi-period interest rates."  But the Taylor rule was not meant to be descriptive as I made clear in my original paper. Rather it was very explicitly meant to be prescriptive. I derived it by experimenting with different types of rules in stochastic simulations of different monetary models, including my multi-country model at Stanford, and by studying the results of other people’s simulations. This pinned down the left-hand side variable and the right-hand side variables, and led to simple functional forms and coefficients.

Why Do Central Banks Have Discount Windows? » NY Fed - Though not literally a window any longer, the “discount window” refers to the facilities that central banks, acting as lender of last resort, use to provide liquidity to commercial banks. While the need for a discount window and lender of last resort has been debated, the basic rationale for their existence is that circumstances can arise, such as bank runs and panics, when even fundamentally sound banks cannot raise liquidity on short notice. Massive discount window borrowing in the immediate aftermath of the September 11 terrorist attack on the United States clearly illustrates the importance of a discount window even in a modern economy. In this post, we discuss the classical rationale for the discount window, some debate surrounding it, and the challenges that the “stigma” associated with borrowing at the discount window poses for the effectiveness of the discount window.

As Economy Sputters, a Timid Fed - Whenever officials at the Federal Reserve confront a big decision, they have to weigh two competing risks. Are they doing too much to speed up economic growth and touching off inflation? Or are they doing too little and allowing unemployment to stay high? It’s clear which way the Fed has erred recently. It has done too little. It stopped trying to bring down long-term interest rates early last year under the wishful assumption that a recovery had taken hold, only to be forced to reverse course by the end of year.  Given this recent history, you might think Fed officials would now be doing everything possible to ensure a solid recovery. But they’re not. Once again, many of them are worried that the Fed is doing too much. And once again, the odds are rising that it’s doing too little.  Higher oil prices, government layoffs, Japan’s devastation and Europe’s debt woes are all working against the recovery. Already, a prominent research firm founded by a former Fed governor, Macroeconomic Advisers, has downgraded its estimate of economic growth in the current quarter to a paltry 2.3 percent, from 4 percent. Why is this happening? Above all, blame our unbalanced approach to monetary policy.

Has the Fed Done Too Little or Too Much? - David Leonhardt of the New York Times says too little: Yes, the Fed fell asleep on the job last year and yes, QE2 was a weak version of what could have been a more effective monetary stimulus program where the price level or nominal GDP level  was targeted. What is not true is that a successful monetary stimulus program will be defined by sustained low long-term interest rates.  A successful monetary stimulus by definition would lead to a robust recovery.  Though this would be initially associated with lower interest rates, the robust recovery should ultimately lead to higher interest rates.  Given the forward looking nature of markets, just the expectation of  an increase in economic activity should put upward pressure on current interest rates.  Initially, this seemed to be happening with QE2: long-term interest rates dropped and then started to increase as growth expectations picked up.  Bernanke, of course, took credit for this development.  Now, long-term rates are nudging down again as growth expectations stall. One could call this a passive tightening of monetary policy.

What more can the Fed do ? - This post is long, vague, sloppy and after the jump. The one sentence version is that the Fed can affect the real economy by buying assets which private investors consider risky. Before discussing useful things which I think the Fed can do to stimulate the economy, I will explain at length why I think that some proposed interventions would not be effective. I won't argue this (here or in comments) but I think that last years massive purchases of treasury securities (aka QE2) had very little effect on anything.

Is More Bond-Buying the Answer? - Pedro da Costa of Reuters asks, “Is more bond-buying really the solution to the U.S. jobless crisis?” Two thoughts: First, the Federal Reserve’s two recent rounds of long-term bond-buying — known as QE1 and QE2 — are not nearly as mysterious as they’re often made out to be. They are simply an attempt to bring down long-term interest rates using similar mechanisms that the Fed uses to bring down short-term rates, as Ben S. Bernanke, the Fed chairman, has tried to explain. And these attempts have been at least moderately successful.  There are two main reasons to criticize the Fed’s actions over the last year — either as too aggressive or too timid. The two often get conflated. So-called inflation hawks believe that QE2 was a mistake because it was too aggressive and risked overheating the economy. I don’t see much evidence for that.

Rebalancing Monetary Policy and the G20 Agenda - Yesterday’s meeting of the G20 finance ministers in China broadened the ongoing “rebalancing current accounts” agenda to consider international monetary policy reform. But few central bank governors came so an important monetary policy issue could not be discussed: the international rebalancing of monetary policy.  The Central Bank Watch Table released today by the economic forecasters at JPMorgan Chase illustrates this imbalance. The table gives the policy interest rate at the major central banks around the world and a forecast of future rates based on a combination of formal economic analysis and listening to central bankers. The table is quite long so I show a small section here for the western hemisphere countries. The shaded part of the table is the quarterly forecast from June 2011 to June 2012.

Fed Releases Documents Detailing Which Banks Used The Emergency Discount Window During The Crisis - The Fed just released another batch of documents detailing which banks used the emergency discount window at the height of the financial crisis. We don't have them yet. Why? They were released to a select group of reporters via disk in Washington DC. The disk contains 895 pdfs. Seriously. We'll be updating this post shortly as details come in. In the meantime, we can tell you..." Officials at the Reserve resisted naming which lenders made use of the overnight loan facility, because they say that if there's another crisis, the banks "won't seek help when needed." And the only reason they're releasing the trove now is because a federal court is forcing the disclosure. "Federal judges ruled in separate court suits by Bloomberg LP's Bloomberg News and Fox News Network LLC's Fox Business Network that the Fed did not have a legal basis for withholding the information from the public," according to the WSJ. 25,000 emergency-lending documents from August 2007 to March 1, 2010 will be published. Significantly, the documents will detail lending during October 2008, the month after Lehman imploded and "discount-window loans soared to $111 billion.

Foreign Banks Tapped Fed’s Lifeline Most as Bernanke Kept Borrowers Secret - U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.  Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion. The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

Fed Accepted More Defaulted Debt Than Treasuries - The Federal Reserve accepted more defaulted debt than U.S. Treasuries as collateral to back $155.7 billion on the largest day of borrowing from the Primary Dealer Credit Facility, according to documents released today. The U.S. central bank allowed borrowers to use $929 million in market-valued debt rated D as collateral on Sept. 29, 2008, more than the $905.5 million in Treasuries that were pledged, according to Fed documents released today. The documents included the most detailed view of collateral for the facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed."The fact that the Fed was willing to accept that collateral was indicative that collateral was very hard to come by at the time," said Craig Pirrong, a finance professor at the University of Houston. It also highlights "the seriousness with which the Fed viewed the situation," he said.Fed spokesman David Skidmore declined to comment today. No public money was lost in the Fed's emergency lending programs, Chairman Ben S. Bernanke testified to the Senate Banking Committee in July, 2010.

Fed's Rules Let Brokers Turn Junk Into Cash at Height of Financial Crisis - At the height of the financial crisis, the Federal Reserve allowed the world’s largest banks to turn more than $118 billion in junk bonds, defaulted debt, securities of unknown ratings and stocks into cash. Collateral of those asset types made up 72 percent of the total $164.3 billion in market-rate securities pledged to the Fed on Sept. 29, 2008, two weeks after the bankruptcy of Lehman Brothers Holdings Inc., according to documents released yesterday. The collateral backed $155.7 billion in loans on the largest day of borrowing from the Primary Dealer Credit Facility, which was created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed. “The fact that the Fed was willing to accept that collateral was indicative that collateral was very hard to come by at the time,” said Craig Pirrong, a finance professor at the University of Houston. It also highlights “the seriousness with which the Fed viewed the situation,” he said.

Quelle Surprise! Fed Lent Over $110 Billion Against Junk Collateral During Crisis - Yves Smith - Former central banker Willem Buiter once remarked that the Federal Reserve’s “unusual and exigent circumstances” clause, which enables it to lend to “any individual, partnership or corporation” if it can’t get the dough from other banks, allows the Fed to lend against a dead dog if it so chooses. It looks like the US central bank did precisely that. Readers no doubt know that Bloomberg entered into a hard-fought battle over its Freedom of Information Act request to compel the Fed to release the details of its various lending programs during the crisis to the public. The banking regulator used the patently bogus excuse that revealing that information could damage the competitive positions of firms that had received the loans.  The only party at risk at this juncture was the Fed, since it would have its decisions scrutinized. The information was released yesterday and Bloomberg has provided a first cut on a small but juicy portion of it, the Primary Dealer Credit Facility. From a risk standpoint, the loans mace under this program violated the central bank guideline known as the Bagehot rule: “Lend freely, against good collateral, at penalty rates”. That is the prescription if the borrower is facing a bank run, meaning a liquidity crisis. The fact that 72% of the Fed’s loans on September 29 from the Primary Dealer Credit Facility were junk or equivalent (defaulted and unrated securities or equity) is further proof that many financial firms were facing a solvency, not a liquidity, crisis. The breakdown:

Fed Seat Stalemate Leaves Diamond in the Rough - If a modern-day Aesop were to write a fable that illustrates the essential character of the American government, he could model it on the story of Peter Diamond.  Of the 67 winners of the Nobel Prize in economics, only a handful could be considered giants, thinkers whose names will echo in the halls of academia centuries from now. Diamond, a professor at the Massachusetts Institute of Technology, is one of them.  Which makes it surpassingly odd that he finds himself in an appalling Senate confirmation purgatory. His nomination to the Federal Reserve Board of Governors has been mired in the approval process for 11 months.  The gruesome sight is instructive. Anyone who wants to fix Washington needs to start with an understanding of Diamond’s case.

Fed Watch: Running the Fed Like an Economics Department - My central complaint with Federal Reserve Chairman Ben Bernanke is his penchant for what is often described as running the Fed like a university economics department. Internally, I do not see this as a challenge, and for the Fed’s culture may be an effective management style. Externally, I see this a potential communications disaster always in the making. The recent uptick in inflation heightens my unease at this approach, and I think Ryan Avent hits the nail squarely on the head: …An increase in inflation is only worrying to the extent that it undermines the Fed's efforts to satisfy those mandates, and the above clearly doesn't count. Yet the simple fact of increasing inflation sends writers running to speculate on and, in many cases, demand central bank action. And central bankers often play along. You have a number of regional Fed presidents warning that they may be ready to end the latest round of asset purchases ahead of schedule. I don't know whether there's any communications strategy within the Fed—whether Ben Bernanke is tacitly approving of these comments or upset by them—but it's fairly certain that the comments themselves represent a tightening of monetary to the extent that they shape actual market expectations.

More on Real Interest Rates - Mark Sadowski noted that short term real interest rates have fallen a lot since Ben Bernanke began announcing QE2. In earlier posts, I had considered only the 7 year constant maturity and the 5 year constant maturity series. I think that medium term real interest rates matter most for investment and that real interest rates have a negligible effect on consumption, government consumption, and net exports (except via exchange rates). I am also interested in the fact. So I generated an absurdly crowded Fred Graph.  The red, blue, green are real interest rates measured with TIPS prices -- the red line is the real interest rate paid over the next year and 15 days, blue average over the next 2 years and 9 months and green average over the next 3 years and three months. The grey line is the 5 year real interest rate calculated by the Fed by interpolating yields on TIPS maturing at different times. The orange line is CPI inflation in the preceding year and the purple line is CPI minus food and energy (core) inflation in the preceding year.

Bernanke On The Effects Of Oil Price Shocks, And Why The Fed Will Never Tighten In Response To Oil At Any Price - Curious what Bernanke thinks of ongoing oil price shocks? Wondering how long before the great Chairsatan will tighten in response to $120 Brent? The shorts answer - never. But don't take our word for it. Here is a paper titled by the eponymous nemesis of printer cartridge conservation, titled "Systematic Monetary Policy and the Effects of Oil Price Shocks" written when the urge for genocide was just a germ, a seedling if you will, back in the good old 1997. In it, Bernanke, who was yet to make his epochal statement about paradropping crisp Benjamins, makes it all too clear why neither oil at $120 nor oil at $1,120 will be enough to push the FOMC to hike: "an important part of the effect of oil price shocks on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy.” And there you have it: it is not the natural price response to a period of extensively loose monetary policy that is the issue, it is the Fed doing the right thing and ending the spigot that will be the end of the economy, sayeth the Bernank. And somehow this man runs the world...

Fed’s Hoenig: Policy Providing Tinder for Asset Bubbles - Mounting signs of higher inflation and financial market imbalances mean the Federal Reserve needs to get on with the process of tightening policy, a veteran official said Wednesday.“If current policy remains in place, we almost certainly will stimulate the growth of asset values and inflation,” Federal Reserve Bank of Kansas City President Thomas Hoenig said. “There are signs that the world is building new economic imbalances and inflationary impulses,” he said, explaining “the longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.” Hoenig made his comments in the text of a speech that was prepared for delivery at the London School of Economics. The official isn’t currently a voting member on the interest-rate setting Federal Open Market Committee. The central banker, who is due to retire in October, has been a persistent critic of the policies the Fed has been pursuing.

Waiting Too Long To Tighten Could Fuel Inflation: Bullard (Reuters) - Waiting too long to tighten monetary policy may produce "a lot of inflation" in the United States and around the world, St. Louis Federal Reserve President James Bullard said on Tuesday. Bullard added that now, around 18 months after the end of the U.S. recession, was around the time he expected the economy to pick up and start growing "fairly rapidly"."Because we are so accommodative right now, the (policy setting) FOMC may not be willing or able to wait until every single global uncertainty is resolved before we can begin normalising policy," Bullard said in a speech at an economic conference in Prague. "If we wait too long we will get a lot of inflation in the United States and around the world."

Plosser Says Inflation May Prompt Fed to Raise Rates in 2011 - Federal Reserve Bank of Philadelphia President Charles Plosser said an increase in growth or inflation could require the Fed to begin withdrawing record monetary stimulus and possibly raise its main interest rate by the end of this year.  “Signs that inflation expectations are beginning to rise or that growth rates are accelerating significantly would suggest that it is time to begin taking our foot off the accelerator and start heading for the exit ramp,” Plosser said today in a speech in Harrisburg, Pennsylvania.  “It’s certainly a possibility” that the Fed will need to raise rates before the end of 2011, Plosser told reporters after the speech. “In my mind it’s definitely on the table but it will depend on how things play out over the next few months.”

Why We Need NGDP Level Targeting - Mark Thoma has an interesting article on the dilemma facing the Fed: does it respond to rising inflation or the anemic economic recovery?  On the one hand, the Fed is concerned about maintaining its inflation fighting credibility and its independence from Congress.  Thus, it wants to be seen as vigilant on the inflation front. On the other hand, it does not want to undermine the economic recovery, as sluggish as it is.  What will it do?  For a number of reasons, Thoma believes the Fed will err on the side of fighting inflation.  What is needed then is a monetary policy rule that is systematic and predictable, but at the same time flexible enough to allow nominal spending to return to its trend when it falls off it.  There is a name for this: NGDP level targeting.  Note that this approach, if widely understood, would make it easy for the Fed to have some higher inflation during the catch-up stage while keeping long-run inflation expectations anchored.  Not only that, but because such a rule would also anchor nominal spending expectations it would be less likely to have the type of collapse in nominal spending that occurred in late 2008, early 2009. This is such a no-brainer!  If Congress really wants to reform the Fed this is how it should be done.

12 Warning Signs Of Hyperinflation - The National Inflation Association (NIA) - http://inflation.us - today released its top 12 warning signs of U.S. hyperinflation. One of the most frequently asked questions we receive at the National Inflation Association (NIA) is what warning signs will there be when hyperinflation is imminent. In our opinion, the majority of the warning signs that hyperinflation is imminent are already here today, but most Americans are failing to properly recognize them. NIA believes that there is a serious risk of hyperinflation breaking out as soon as the second half of this calendar year and that hyperinflation is almost guaranteed to occur by the end of this decade. In our estimation, the most likely time frame for a full-fledged outbreak of hyperinflation is between the years 2013 and 2015. Americans who wait until 2013 to prepare, will most likely see the majority of their purchasing power wiped out. It is essential that all Americans begin preparing for hyperinflation immediately. Here are NIA's top 12 warning signs that hyperinflation is about to occur:

New York Fed Survey Takes a Stab at Measuring Inflation, Wage Expectations - Inflation expectations are among the more squirrely concepts in economics.Economists say expectations about the future are critically important in shaping the economic environment in the present. Federal Reserve officials say household and business expectations for future inflation play a critical role in driving their interest-rate decisions. Yet nobody has a good way of measuring it. So the Federal Reserve Bank of New York is jumping into the fray. For five years, it has been working with Carnegie Mellon University psychologists, RAND Corp., academic economists and others to come up with a new study of household inflation expectations, which it calls the Household Inflation Expectations Project, or HIEP.The New York Fed-led survey asks its questions a little differently than a comparable University of Michigan survey. Rather than ask people about their expectations for price changes (which the Fed economists believe people overweight toward food and gasoline price changes) the Fed’s alternate survey asks about the general inflation rate. It also asks people about their expectations for wages and tries to uncover how uncertain people are about the projections they’re making.

Is It Inflation, or Are Relative Prices Increasing? - Skeptics of the Federal Reserve's intervention have already begun raising their voices about inflation. They point to commodities, as food and energy prices have soared in recent months. Is it time for the Fed to clamp down and prevent additional inflation? Not if these relative price changes are just that -- relative price changes due to normal growth. If they aren't caused by additional money creation, should the Fed attempt to reduce prices by cutting the money supply? Food and energy prices are generally volatile, which is why they are excluded by the Fed when it considers inflation...it seems sensible to exclude these factors if they swing upwards due to a temporary economic shock only to fall downwards when the shock subsides.  On Friday, however, I wrote a post arguing that food and energy prices can result in a more general rise in prices if they are the result of permanent supply or demand shifts. So in cases where food and energy price shifts appear permanent, economists might want to take them more seriously.  University of Oregon economist Mark Thoma commented on the post.  He wrote: A rise in the price of food and energy due to rising demand relative to supply changes relative prices, and increases the cost of living, but it is not technically inflation.

Not Inflation - Andy Harless - I’m sick of hearing people complain about inflation. Unless your income comes from long-duration fixed-income investments, inflation has nothing to do with how much groceries and gasoline you can afford. Inflation is a pattern of increase in the general price level. What matters for affording stuff is a relative price, not the general price level. Specifically in this case it is the price of groceries and gasoline relative to the price of labor. And whether or not you like to eat iPads, the broader problem (for people with jobs) is not that the nominal price of groceries and gasoline is going up but that the real price of labor is going down. In fact, when measured in terms of how much that labor can produce, even the nominal price of labor is going down, as illustrated by the last part of this chart from the Bureau of Labor Statistics: Look at the last two years compared to the rest of the chart. As someone who thinks people are more important than gasoline, I’d say this looks a heck of a lot more like deflation than inflation.

The Alternative To Deflation Is Inflation - America is just too big to adjust primarily through the currency channel. So one possible route is nominal deflation. You cut nominal public sector salaries, lay off public sector workers, and reduce nominal transfer payments (Security Security, SNAP, etc.). This ought to drive down wages in the private sector, too, and eventually everyone is making sufficiently little money that it makes sense to start hiring more people. But there are major problems with this beyond the messaging challenge associated with “our agenda is to make you take a pay cut.” The key thing is that the economy is full of nominally denominated debts. That’s everything from your cell phone contract to your mortgage. So when you drive nominal wages down, you’re driving debt burdens up and leaving people with less and less money to do anything new. This is a huge problem for any possibly expanding businesses, since all your potential clients will have their money tied up with existing commitments.  The coherent alternative to this, which Democrats don’t seem to be able to focus on, involves inflation. Not falling-sky 37 percent inflation, but somewhat higher than usual inflation so that wages and debts can rebalance.

Does The US Economy Need Inflation? - So it now is official. Officials at the Federal Reserve System claim the United States is mired in a “liquidity trap,” so the government must engage in inflationary policies to end the recession and bring the U.S. economy into recovery. The Financial Times reported: Charles Evans, president of the Chicago Fed, said that “in my opinion, much more policy accommodation is appropriate today” because “the US economy is best described as being in a bona fide liquidity trap”, a point where ultra-low interest rates and high savings rates conspire to make monetary policy ineffective.It gets even worse:…[H]e said the Fed should consider using a temporary target for the level of prices instead of the rate of inflation in order to drag the economy out the trap by convincing businesses and consumers to stop saving and start investing and spending. When combined with Fed Chairman Ben Bernanke’s recent pledge to raise the rate of inflation, these statements are a declaration of war on sound money, and they also appeal to an utter ignorance of money, interest, and the nature of inflation itself.

WalMart Says “Serious Inflation” Cometh - Last week we wrote you better “prepare for sticker shock at WalMart, the Gap, and Costco in the near future.”  In our post,  Inflation Cometh: The End of Cheap Chinese Goods, we cited Li Fung, which sources goods for WalMart,  declaring the end of Chinese led deflationary pressures as wages in that country are increasing at a 20 percent per  annum clip. In today’s USA Today, WalMart CEO, Bill Simon, see “serious inflation” on the horizon, U.S. consumers face “serious” inflation in the months ahead for clothing, food and other products, the head of Wal-Mart’s U.S. operations warned Wednesday. The world’s largest retailer is working with suppliers to minimize the effect of cost increases and believes its low-cost business model will position it better than its competitors. Still, inflation is “going to be serious,” Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY’s editorial board. “We’re seeing cost increases starting to come through at a pretty rapid rate.” Anyone surprised?

Treasury Market's Inflation Forecast: 2.5% - The Treasury market's inflation forecast has recently risen to the levels that prevailed before Lehman Brothers collapsed in September 2008, which triggered a financial crisis and fears of a deflationary spiral. Using the yield spread between the nominal and inflation-indexed 10-year Treasuries, the market's outlook has come full circle since the dark days of late-2008. As of yesterday, 10-year Treasuries expect inflation on the order of roughly 2.5% in the years ahead. The question is whether that outlook will remain stable? This is the second time since the financial crisis that the market priced Treasuries for 2.5% inflation. A year ago, something similar was built into prices, only to give way as heightened fears of recession risk, triggered by troubles in Europe, changed the crowd's sentiment

Why use core inflation? - THERE is a bit of split among the central banks of the rich world over whether it is better to focus policy choices on headline inflation or "core", that is, broad inflation stripped of volatile components like energy and food prices. It seems intuitively right to use headline inflation; after all, people spend money on petrol and bread just as they do on computers and tax preparation services. The use of the core measure may seem opportunistic to laypeople—like playing games with the numbers to get the figures that justify preferred policy choices. But that's not the reason central banks like the Federal Reserve tend to focus on core inflation. Larry Meyer comments:Why do we, as forecasters, and the FOMC in its own forecasts, focus on core inflation? . As forecasters, we want to know not only what (headline) inflation is today, but also, and much more importantly, where headline inflation is likely to be tomorrow (the medium term). Identifying a measure of underlying inflation gives us a good head start...

Does Core Inflation Predict Overall Inflation? - In his recent op-ed in The Times, Laurence Meyer, a former Federal Reserve governor, argued that core inflation — excluding oil and food prices — was a better predictor of future inflation than overall inflation was. In other words, if overall inflation is rising rapidly but core inflation is not, as is happening now, we should assume that overall inflation will soon drop. That makes some logical sense. Oil and food prices are strongly influenced by forces outside the United States, like Mideast politics, South American crop yields and global economic growth. Unless American workers have enough leverage to demand raises that help their wages keep pace with inflation, their wages won’t keep pace. And the economy won’t then fall into the dreaded wage-price spiral, in which price increases lead to wage increases, wage increases cause companies to increase prices further and so on. To see if reality matched this theory, I plugged the numbers on overall inflation and core inflation since 1980 into a spreadsheet.

If Home Prices Counted in Inflation - Until 1983, the Consumer Price Index² included housing costs. But then the index was changed. No longer would home prices directly affect the index. Instead, the Bureau of Labor Statistics³ makes a calculation of “owners’ equivalent rent,” which is based on the trend of costs to rent a home, not to buy one. The current approach, the B.L.S. says⁴, “measures the value of shelter to owner-occupants as the amount they forgo by not renting out their homes.” Whatever the reasonableness of that approach, the practical effect of the change was to keep the housing bubble from affecting reported inflation rates in the years leading up to the peak in home prices. It is at least possible that the Federal Reserve would have acted differently had the change never been made.  The accompanying charts represent an effort to put together an alternate index of inflation, one that includes home prices rather than the owner’s equivalent rate. The effort is far from precise, in large part because the old index was based not just on purchase prices but also on changing mortgage interest rates and on changing property taxes, while this one is based solely on an index of home prices. But it nonetheless gives an approximation of what inflation would have looked like had home prices remained in the index.

Is Inflation Causing Americans to Stop Spending? - Perhaps frugality is back. The American consumer, after seemingly brushing off the Great Recession far faster than expected, seems to be headed back into retreat. And it appears this time not to be the job market that is doing it or the state of the economy, but inflation. So will inflation cause Americans to finally embrace the "new normal," stop spending and derail the recovery?On Monday morning, the Bureau of Economic Analysis announced it's monthly totals for February for personal income and expenditures. Both numbers were up and looked good. That was until you factored in inflation. The BEA releases its own measure of inflation called the Personal Consumption Expenditures Index. It is less well known than the popular Consumer Price Index, but some members of the Federal Reserve think it is a more accurate measure of inflation than the CPI. Well the PCE index rose 0.4% in February, that was the largest monthly increase for that figure in two and a half years. The result is that when you adjust for inflation, personal income appears to be falling, down 1%.

Fed Watch: Quick PCE Notes - The February Personal Income and Outlays report revealed the drag of higher food and energy costs as a 0.3 percent gain in nominal disposable personal income was knocked back to a 0.1 percent loss in real terms. Similarly, the 0.7 percent gain in nominal spending turned into a just 0.3 percent real gain. While better than the flat reading in January, the relatively weak performance of PCE this quarter will lead analysyst to knock down Q1 growth forecasts. I try not to read too much into any one quarter, and tend to view the consumer slowdown in light of the acceleration at the end of last year. Overall, the trend in PCE growth since the middle of last year is consistent with annual gains of around 3% a year. The footing is firming, and it is sustainable, but it is still far short of what is needed to rapidly return consumption to its pre-recession trend. Since the recession ended, real PCE gained at a rate of 0.18 percent per month:

Inflation vs. Jobs: Fed’s Move Can Seal Its Fate - After several tumultuous years of being second-guessed by Congress, the markets and public for its response to the financial crisis, the Fed is worried about further deterioration in its credibility and, ultimately, loss of its independence and authority.  The Fed has a difficult task ahead of it. Once the economy begins recovering robustly, the Fed must unwind the measures it has taken to stimulate the economy at just the right pace. If it tightens policy too soon, it will slow the recovery of output and labor markets – meaning unemployment will be higher than it needs to be. And if it waits too long to tighten, the result will be inflation. To make things worse, if inflation becomes a problem while unemployment is still high, the Fed will have to decide which problem to fight. The Fed is well aware of these dangers, and its decision to hold press conferences at the conclusion of four of the Fed’s eight rate setting meetings each year gives it the opportunity to explain its policy decisions and hopefully avoid the wrath of Congress and the public.

No pent up demand around here -- EVEN as Fed officials tout this year's economic pick-up, forecasters are furiously marking down their first quarter growth numbers. Julia Coronado of BNP Paribas has some charts nicely illustrating why the economy stubborningly refuses to exhibit a recovery-like bounce.   As Ms Coronado nicely puts it: While consumers are spending, as shown in the chart above, there has been no sign of pent up demand. Real consumer spending on goods fell off its pre-2008 trend line during the recession and has since resumed its former pace with no indications that a surge in spending to make up for lost time is imminent. The burst of spending in Q4 was bound to be followed by some moderation with or without higher food and energy prices. The tax of higher inflation robbed consumers of the benefits of the payroll tax cut and has left their confidence shaken, which appears to be producing a greater than anticipated moderation. If firms keep adding jobs, this will prove to be a nothing more than a slow patch.

Fed Expert Network Lowers Q1 GDP Expectation From 4% To 2.3% - And so the GDP revisions start coming fast and furious. Following repeated warnings from Goldman (which also modestly cut its GDP forecast), implying that the only firm that matters is about to cut GDP across the board, Fed "Expert Network" Macroeconomic Advisers, headed by the inimitable Larry Meyer, has decided to provide value to its client(s) and slash Q1 GDP from 4% to 2.3%. This means that Joe LaVorgna is furiously coming up with scenarios that blame everything from snow to gamma rays to the dog eating his excel spreadsheets for why he is about to trim his permabullish outlook. The NYT's Leonhardt reports (this may well be behind a paywall).Given this recent history, you might think Fed officials would now be doing everything possible to ensure a solid recovery. But they’re not. Once again, many of them are worried that the Fed is doing too much. And once again, the odds are rising that it’s doing too little.

Exports, Growth Prospects and Rebalancing - Anybody who follows forecasts of GDP growth for 2011Q1 will notice that over time, estimates have been revised down (this is true for Macroeconomic Advisers, for instance). The dimmed prospects for GDP growth throws in high relief the importance of net exports. From the WSJ, "Foreign Shocks Temper America's Export-Led Rebound": To an extent unique in post-World War II history, the U.S. economy's climb out of recession has been led by selling crops, natural resources and manufactured goods to the rest of the world. Now that important engine for U.S. growth—the rest of the world—is damping the improving outlook. The world's No. 3 economy, Japan, is reeling from an earthquake and nuclear crisis. Unrest in the Middle East has sent oil prices—and global anxiety—soaring. Fast-growing China, anxious about inflation, and other emerging markets are trying to tap the brakes. And fiscal strain looms over Europe.

Fed Watch: Something to Chew On - Something to chew over while you wait for the employment report. From the Wall Street Journal's bit on Cleveland Fed President Sandra Pianalto's speech: With the economy on “a firmer footing,” she said, U.S. corporate leaders seem inclined to continue investing in equipment and software despite such worries as turmoil in the Middle East, the Japanese earthquake and the sovereign debt crisis in Europe. “On this firmer footing, these shocks are hitting us, but it seems like we’re more resilient and able to absorb these shocks,” she said.I am not sure that we should find this resiliency surprising, despite the seemingly perpetual fears of market participants. I believe that all US recessions, at least post-WWII, are attributable directly to domestic disturbances - monetary policy and/or domestic financial crisis - or oil price shocks.Hence, I have been hesitant to put much economic concern on Japan and Europe - the transmission mechansims appear too weak to appreciably change the US outlook.

GDP Growth Doesn't Mean We're On The Right Road - Dr. B. Posted this on Marketwatch last week: America's recent GDP growth reflects population growth, the resurgence of the financial sector (speculation), the impact of QE2, the growth of national debt, and "real inflation" in services (meaning the same prices in many cases but reduced quality, thus necessitating the creation of "remedial" and supplemental service work that adds to GDP, but not constructively). These are not indicators of societal progress. GDP growth in these circumstances reflects how far astray we're going from a sustainable model and from real justice. Its nothing to celebrate unless one wishes to applaud the increased concentration of power in the hands of elites. I especially appreciate the notion that GDP growth isn't necessarily an indicator that our country is moving in a positive direction. We can be so programmed by news reports to think that all "growth" is good, but it's really time to think differently.

The Truth About the Economy that Nobody In Washington Or On Wall Street Will Admit: We’re Heading Back Toward a Double Dip - Robert Reich -Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession. The Reuters/University of Michigan survey shows a 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.What about the 192,000 jobs added in February? It’s peanuts compared to what’s needed. But isn’t the economy growing again – by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts.

You money is no good here - TIM PAWLENTY, former Minnesota governor and potential Republican presidential candidate, has thoughts on money: The former Minnesota governor said the administration has devalued the dollar by injecting "fiat money" into the economy. Former Minnesota Gov. Tim Pawlenty (R) predicted Tuesday that the U.S. will face a double-dip recession that could last all the way until the 2012 elections.- "Fiat money" is another way of saying "money". Fiat money—that is, dollars—is what people use to obtain goods and services in America. I'm assuming this is Mr Pawlenty's way of suggesting that everything would be better if America were on the gold standard. Everything would be terrible on the gold standard. Once upon a time, conservatives understood this. - If Mr Pawlenty is talking about monetary policy here, and it seems as though he is, he's got his organisational charts all wrong. The administration does not control monetary policy; the Federal Reserve does. Barack Obama did reappoint (Republican appointee) Ben Bernanke, but once Mr Bernanke was confirmed the administration had little say over the Fed's policy decisions.

Between the Devil and the Deep Red Idiocy - Krugman - So, on one side, you have David Leonhardt pointing out, completely correctly, that the Fed is being far too timid. And on the other hand (via Yglesias), we have Tim Pawlenty — who’s supposed to be the non-crazy non-Romney — saying things like this:The likely presidential candidate said the government, under President Obama, has devalued the dollar by injecting “fiat money” into the economy in an attempt to boost it — a plan he said will be damaging in the long-run.  Now, it’s perfectly clear, even from that small bit, that Pawlenty has absolutely no idea what he’s talking about — that he doesn’t know that we’ve had fiat money since 1933, when FDR took us off the gold standard, and that he also doesn’t know that Ben Bernanke, not Obama, controls the monetary base.  My guess is that Pawlenty was just repeating some phrases he’s heard from the Paulistas, and doesn’t even know the difference between monetary and fiscal policy. After all, he’s done this sort of thing before, going national with some false claims about government employment that he picked up from some right-wing document. And this is what passes for presidential material.

The Gold-Standard Hustle: Does Anyone Here Speak Paul-tard? - Does anyone here in this house speak goldbug-babble? Anyone who can make sense of Dr. Paul’s logic in the clip below, I’m curious what the fuck this man is trying to hawk to  his 1988 C-SPAN viewers. I mean I know it’s snake-oil, but even snake-oil pitches have a logic to them. This one just sounds like bat-shit blather. As far as I can tell, the reason why the Koch brothers hire tools to promote the gold standard is the same reason that robber barons of the 19th century loved the gold standard so much: Gold locks in the power and wealth of those who have all the power and wealth; and gold locks out everyone else who’s not so lucky, condemning them to serfdom. Which leads to Populist uprisings, labor unrest, and all that century-old misery. That would explain why Koch fronts like Ron Paul hustle the gold standard to us suckers as the equivalent to “freedom”–just like coal companies pitching the public the lie about “clean coal”–you want the suckers to believe that a gold standard will offer them the very opposite of the misery it delivers. That part of the scam I get. Fair enough. But this 1988 gold standard pitch? Makes no sense.

Yuan Falls Most in Five Weeks on Calls for US to End Purchases - China’s yuan declined the most in five weeks against the greenback as calls for the Federal Reserve to rein in its purchases of U.S. Treasuries bolstered demand for dollars. The Fed should review whether to complete its $600 billion second round of so-called quantitative easing, due to end in June, because of strong U.S. economic data, St. Louis Fed President James Bullard said March 26. Philadelphia Fed President Charles Plosser and Richmond Fed President Jeffrey Lacker also urged a review of the debt purchases. Asian stocks dropped for the first time in three days as radiation hampered efforts to cool crippled nuclear reactors in Japan. “Investors expect the U.S. will stop printing money sooner than expected given the Fed officials’ comments,” said Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong. “Asian currencies, including the yuan, were also weighed on by poor sentiment due to the Japan nuclear crisis.”

China economist blasts dollar dominance on eve of G20 (Reuters) - Dollar dominance is sowing the seeds of financial turmoil, and the solution is to promote new reserve currencies, a Chinese government economist said in a paper published on the eve of a G20 meeting about how to reform the global monetary system. Although not an official policy statement, the paper by Xu Hongcai, a department deputy director at the China Center for International Economic Exchanges, offered a window onto the domestic pressures bearing on Beijing to move away from a dollar-centric global economy. The China Center, a top government think tank, has represented the Chinese government in organizing a forum on Thursday in Nanjing that will bring together finance ministers, central bankers and academics from the Group of 20 wealthy and developing economies. Xu's paper, "Reform of the international monetary system under the G20 framework," was published in Chinese on the center's website this week (www.cciee.org.cn).

Nanjing and the New International Monetary System - IMFdirect; Dominique Strauss-Kahn - I am delighted to be back in China this week for a high-level seminar in Nanjing on the international monetary system. Every time I come to this part of the world, I am impressed by the dynamism of the economies and the optimism of the people. The future is here. The region’s economic performance over the past few decades has been nothing short of remarkable. Asia now accounts for about a third of the global economy, up from under just a fifth in 1980. This trend has been reinforced by the crisis, with the emerging market powerhouses leading the global recovery.Asia has also made tremendous progress with poverty reduction. China alone has pulled hundreds of millions of people out of poverty over the past few decades. Such a feat has never before been accomplished in the history of human civilization. But to sustain this progress, Asia needs to grapple with numerous challenges today, among them the need to deal with overheating pressures and volatile capital inflows.

The best alternative to a new global currency -  Stiglitz - The international monetary system needs fundamental reform. It is not the cause of the recent imbalances and current instability in the global economy, but it certainly has been ineffective in addressing them. So a broad set of reforms is required, beginning with an immediate expansion of the current system of special drawing rights or money that can be issued by the International Monetary Fund. And here the Group of 20 leading nations must take the lead. Keynes once proposed a global currency, the Bancor, to be placed at the centre of the international monetary system. The idea never caught on. Instead, we now have a system dominated by holdings of US dollars. This has several disadvantages. The first is it creates a global recessionary bias during and after financial crises – because it places the burden of adjusting to payments imbalances on nations which run a deficit. The second is the tension it creates, due to the use of a national currency, the dollar, as the global currency. This can lead to global volatility as a result of growing US current account deficits. These deficits are necessary, for creating sufficient global liquidity, but they also generate excessive indebtedness, both external and internal. So if the US were to shrink its deficit too quickly, a deficiency of supply of the global reserve currency could result. Responses to global financial instability creates the third problem, where developing countries have accumulated large reserves as “self-insurance” against a future balance of payments crisis. These protect them during crises, but also add to global imbalances.

Why The Dollar May Make A Comeback - The ace card for dollar bears is the Federal Reserve's easy monetary policy. This will get tougher to maintain if the U.S. economy continues to show strength, something St. Louis Fed President Bullard alluded to in talking about curtailing QE2. This Friday is the March jobs report and the ISM Manufacturing survey. If both come in strong, it could start to change the Fed's calculus and shift the mood about the buck. Those are big ifs, however, especially since inflationary measures, as the Fed likes to look at them (no food, no energy), remain quiescent. The dollar can't fall forever. And maybe the Fed is starting to espy inflation even as it talks it down. "What might have raised some eyebrows were signs that inflation expectations from the well-regarded University of Michigan survey, are on the rise," said Jim O'Neill, chairman of Goldman Sachs Asset Management, in a research note this week. "This has to be watched carefully, especially as the more reliable coincident and lead sector real economy data remains more buoyant. I still think the dollar could snap back easily in the event of the Fed shifting its stance against both the euro and yen."

Fiscal vs. Monetary policy; a fiscal suggestion - If you’ve been reading for the past 6 months, it should be quite obvious by now that I’m not in favour of monetary easing. To me, belief in its efficacy is like belief in the morality of the gold standard. Together, they just put a collar around the entrepreneurial spirits of the real economy. The gold standard puts a ceiling to the level of real economy demand a free market can achieve on its own, while monetary easing puts a floor to any real adjustments the economy needs to make in order to rejuvenate itself again. If you’ve been with me some time on this blog, you’d probably notice that my prescription leanings for restoring aggregate demand tend to be on the fiscal side, as long as it’s coupled with capital controls. I would be more open to monetary policy action, as long as its coupled with strong, dynamic macroprudential policies (My belief is that easing can be useful, for as long as there is no concurrent balance sheet recession going on to offset it). Monetary easing in and by itself is pro-speculator, and anti-poor. And while monetary easing by a default currency issuer may not be hyper-inflationary to the issuer, it is for all others who use that currency.

Bill Gross Says U.S. Is 'Out-Greeking the Greeks' on Debt (Bloomberg) -- Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said Treasuries "have little value" because of the growing U.S. debt burden. The amounts the U.S. owes on its bonds, combined with obligations for Social Security, Medicare and Medicaid total about $75 trillion, Gross said in his monthly investment outlook, published on the Pimco website. The U.S. will experience inflation, currency devaluation and low-to-negative interest rates relative to consumer-price gains if it doesn't reform its entitlement programs, Gross said in the report. Gross "has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden," he said. "This country appears to have an off- balance-sheet, unrecorded debt burden of close to 500 percent of GDP. We are out-Greeking the Greeks."

Bill Gross on fiscal profligacy and dumping the negative real yields of treasuries - I was talking about the sovereign debt crisis and how to get rid of all the debt developed economy governments have been accumulating. Regardless of whether you believe sovereign currency nations like the U.S. or the U.K. can finance huge deficits indefinitely while users of currency like Portugal and Ireland are facing the music, you have to think that these debt burdens will reduce long-term growth.So how do you deal with that as a government?  Option #1 is an excruciating slow-growth semi-depressionary path. No politician wants that. Options 3 and 4, default, will also be avoided because that's the last refuge of banana republics and failed states. Look at how the euro zone countries resist this outcome. So that leaves one with option #2, inflation and currency depreciation. In America that has meant negative real yields on T-bills. You are paying government to borrow from you. Gross is so concerned with the negative real yields of Treasury debt that he has dumped treasuries entirely from his portfolio. He is now running with the bulls and chasing yield in emerging markets, where he believes fiscal discipline is superior. Gross' view is that Central Banks are robbing bond holders and fuelling Inflation

There is no US federal debt crisis - Our arguments about the US federal budget are now all about deficits and debt: the effect of the budget on the budget. We are cutting government spending with little thought to the value of the public services forgone, and no thought at all to the effect on production, jobs and incomes. Fiscal prudence matters. But the helter skelter rush to cut this year’s and next year’s budget deficits is high-priced folly. For want of enough spending overall by households, businesses and government taken together, i.e., for want of enough buying, a huge amount of production capacity is standing idle, producing nothing. 13.7m unemployed workers — four for every job that is vacant — are searching for jobs instead of working and earning income. At the same time, states and local governments, forced by shrunken revenues and shrinking federal subsidies to curtail their spending, are shutting health centres, allowing roads and bridges to crumble, and laying off nurses, firemen and teachers.

The Day When the Debt Comes Due - Mankiw -The following is a presidential address to the nation — to be delivered in March 2026. MY fellow Americans, I come to you today with a heavy heart. We have a crisis on our hands. It is one of our own making. And it is one that leaves us with no good choices.  For many years, our nation’s government has lived beyond its means. We have promised ourselves both low taxes and a generous social safety net. But we have not faced the hard reality of budget arithmetic. The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families.  But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income.

Budget Arsonist Screaming for a Firehose... -This is what Greg Mankiw had to say in 2004 about one of the principal sources of our long-run fiscal imbalance--the fact that the Republican-created Medicare Part D was a spending program, a very large spending program, that made no provision at all for covering its costs: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, enacted in December, adds a prescription drug benefit to the Medicare program. The new drug benefit will give more Medicare beneficiaries access to prescription drug coverage and will provide benefits for individuals with limited means and low incomes. A prescription drug discount card will be available for beneficiaries until the full drug benefit is available nationwide.... The passage of the Medicare bill was a major accomplishment, but much remains to be done..... [President Bush's] proposed policies will help preserve the strengths of the U.S. market and will improve the efficiency and affordability of health care. That is all that Greg Mankiw had to say in 2004 about Medicare Part D. Not even a subordinate clause stating that the expansion of Medicare through the creation of Part D increases our long-run fiscal problems.

GOP sens. vow to vote against, maybe filibuster, raising the debt ceiling - In the latest iteration of the ongoing budget battle in Washington, a handful of conservative senators are threatening to vote against - if not filibuster a vote for - raising the national debt limit, just weeks before the national Treasury is expected to hit its limit.  In an op-ed for the Wall Street Journal on Wednesday, Sen. Marco Rubio, a prominent Florida Tea Party freshman, came out against authorizing an increase to the limit, arguing that doing so would be "putting off the tough decisions until after the next election." "We cannot afford to continue waiting. This may be our last chance to force Washington to tackle the central economic issue of our time," wrote Rubio. "I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid."

Dimon: Hitting Debt Ceiling Would Be ‘Catastrophic’-J.P. Morgan Chase & Co. Chief Executive Jamie Dimon warned lawmakers against playing chicken with the U.S. debt ceiling during a U.S. Chamber of Commerce event Wednesday. The U.S debt ceiling, set by Congress, is about $14.3 trillion. And as of Tuesday, the U.S. debt subject to the limit was $14.16 trillion. The White House has said the U.S. could hit the ceiling as soon as April 15 if Congress doesn’t raise it soon. Once it hits the debt ceiling, the government essentially can’t issue more debt. The federal government wouldn’t be able to pay basic bills and would eventually be forced to default.  “If the United States actually defaults on our debt it would be catastrophic… and unpredictable. If anyone wants to push that button… they’re crazy.”Mr. Dimon said the consequences of failing to raise the ceiling would “start snowballing” in the months and weeks before the Treasury actually defaulted on the U.S. debt, as companies took action, such as selling the U.S. Treasuries they hold.  Mr. Dimon did not specify what steps his company would take. But in general, the growing possibility the federal government could default would throw U.S. Treasuries, the life-blood of corporate financing, into disarray.“All short-term funding would disappear,” Mr. Dimon said.

The stench of US default (Bill Gross, PIMCO) Perhaps they don’t have black and white stripes with bushy tails. Perhaps there’s just a stink bomb that the Congressional sergeant-at-arms sets off every time they convene and the gavel falls to signify the beginning of the “people’s business.” Perhaps. But, in all cases, hold your noses. You ain’t smelled nothin’ yet. I speak, of course, to the budget deficit and Washington’s inability to recognise the intractable: 75 per cent of the budget is non-discretionary and entitlement based. Without attacking entitlements – Medicare, Medicaid and Social Security – we are smelling $1 trillion deficits as far as the nose can sniff. Once dominated by defence spending, these three categories now account for 44 per cent of total federal spending and are steadily rising. As Chart 1 points out, after defence and interest payments on the national debt are excluded, remaining discretionary expenses for education, infrastructure, agriculture and housing constitute at most 25 per cent of the 2011 fiscal year federal spending budget of $4 trillion. You could eliminate it all and still wind up with a deficit of nearly $700 billion! So come on you stinkers; enough of the Pepé Le Pew romance and promises. Entitlement spending is where the money is and you need to reform it.

Dear Leaders: Would You Please Lead Already? - Here’s a letter that a bunch of budget-world VIPs and otherwise very “Honorable” people–oh, and my “non-honorable” self snuck in somehow–sent to President Obama and Congressional leaders today.  Kind of a simple plea: would you please start leading on fiscal responsibility instead of just standing there, fighting over which side or corner is the more fiscally irresponsible?  Or instead of just sitting there, feeling helpless about what to do because the problem is so large and your political selves so entrenched?  Here’s the text of the letter:

The Latest, Greatest Letter on Debt Reduction - You may have noticed a flurry of letters lately calling on our elected leaders to do something about America’s growing debt. First up were 64 senators. Then 10 former chairs of the Council of Economic Advisers. And today, 68 budget experts including yours truly. Our message to President Obama and congressional leaders Boehner, Pelosi, Reid, and McConnell: “As you know, a bipartisan group of Senators has been working to craft a comprehensive deficit reduction package based upon the recommendations of the Fiscal Commission. While we may not agree with every aspect of the Commission’s recommendations, we believe that its work represents an important foundation to achieve meaningful progress on our debt. Beyond FY2011 funding decisions, we urge you to engage in a broader discussion about a comprehensive deficit reduction package. Specifically, we hope that the discussion will include discretionary spending cuts, entitlement changes and tax reform.” You may also have noticed that final phrase is decidedly non-specific. As my TPC colleague Howard Gleckman noted, there’s a lot of euphemizing going on.

Why I didn't sign deficit letter, by Joseph E. Stiglitz: I was asked to sign the letter from a bipartisan group of former chairmen and chairwomen of the Council of Economic Advisers that stresses the importance of deficit reduction and urges the use of the Bowles Simpson Deficit Commission’s recommendations as the basis for compromise. ... I did not sign.I believe the Bowles Simpson recommendations represent, to too large an extent, a set of unprincipled political compromises that would lead to a weaker America — with slower growth and a more divided society.  Deficit reduction is important. But it is a means to an end — not an end in itself. We need to think about what kind of economy, and what kind of society, we want to create; and how tax and expenditure programs can help achieve those goals.  Bowles-Simpson confuses means with ends, and would take us off in directions which would likely be counterproductive. Fortunately, there are alternatives that could do more for deficit reduction, more for putting America back to work now and more for creating the kind of economy and society we should be striving for in the future

Proposal: A National Commission on Fiscal Responsibility and Reform - Most prominent economists and the sensible political middle ground in Washington agree that the federal government must eventually address its long run fiscal problem; but they also know that it is not possible to begin to eliminate the budget deficit if tax increases and entitlements cuts are ruled out. The Bowles-Simpson Commission in December made specific proposals, many of which are the sort that we are going to need — all of them highly unpopular….proposals like raising the retirement age and limiting tax expenditures. I have a proposal. President Obama should send to Congress a bill to establish a bipartisan National Commission on Fiscal Responsibility and Reform. The body would be chaired again by Bowles and Simpson, who would be able to move much more quickly this time, refining their previous proposals. (Ideally they would drop the tax cuts for the rich, the inadequate detail on medical costs, and the pipe dream that spending can be brought down to a lower level of GDP than where Reagan had it.)  One hopes that a majority of the Commission members, from both parties, would agree to join hands and come out together in support of a good package of fiscal measures.  (Of course, grandstanders like Paul Ryan will again vote no.)

A Further Note On Deficits and the Printing Press - Paul Krugman - A followup on my printing press post: I think one way to clarify my difference with, say, Jamie Galbraith is this: imagine that at some future date, say in 2017, we’re more or less at full employment and have a federal deficit equal to 6 percent of GDP. Does it matter whether the United States can still sell bonds on international markets? As I understand the MMT position, it is that the only thing we need to consider is whether the deficit creates excess demand to such an extent to be inflationary. The perceived future solvency of the government is not an issue. I disagree. A 6 percent deficit would, under normal conditions, be very expansionary; but it could be offset with tight monetary policy, so that it need not be inflationary. But if the U.S. government has lost access to the bond market, the Fed can’t pursue a tight-money policy — on the contrary, it has to increase the monetary base fast enough to finance the revenue hole. And so a deficit that would be manageable with capital-market access becomes disastrous without.

Paul Takes Another Swipe at MMT - The Modern Monetary Theory (MMT) approach to economics must be starting to make some waves, because today, Paul Krugman, followed his earlier attack on it and his debate with Jamie Galbraith and others last summer, with another swing at MMT. The debate last summer was an extensive one at Paul's blog site at the New York Times, and, in addition, there were a number of posts at other sites replying to Paul. The debate was a classic in the developing conflict of views between the “deficit doves” (represented by Paul) and the “deficit owls” (represented by Jamie Galbraith and other MMT writers). Given the earlier debate, you'd expect that Paul's second try at MMT would reflect a bit of learning on his part, and also a characterization of the views of MMT practitioners that is a little more fair than he provided in his first attempt. This post will analyze Paul's new attack and assess how much he's learned. But first, I'll review the earlier debate.

Krugman, Galbraith, and others debate MMT - Paul Krugman slugs it out with our colleague Jamie Galbraith and many other “modern monetary theory” partisans at Krugman’s New York Times blog website. Jamie’s most recent retort is at the top of this page of the blog site. Many of the points raised in the discussion there are central to our work here at the Levy Institute and to the views of Galbraith and others in our macro research group.

The Euro Straitjacket - Paul Krugman - I think Dean Baker and I are converging on deficits and independent currencies. He asserts that having your own currency makes a big difference — you can still end up like Zimbabwe, but not like Greece right now. I’m fine with that. Specifically, the reason Greece (and Ireland, and Portugal, and to some extent Spain) are in so much trouble is that by adopting the euro they’ve left themselves with no good way out of the aftereffects of the pre-2008 bubble. To regain competitiveness, they need massive deflation; but that deflation, in addition to involving an extended period of very high unemployment, worsens the real burden of their outstanding debt. Countries that still have their own currencies don’t face the same problems. I like to use this picture, showing deficits and debt as of the end of 2010: Source. I’ve used the 2009 deficit for Ireland, so as not to include the one-time costs of the bank bailout.What you can see here is that the US and the UK look as if they should be in a similar category with the troubled European peripherals; and Japan is literally off the chart. But having our own currencies makes a big difference. All I’m saying is that dollar or no dollar, fiscal solvency is still an issue — not now, not for some time to come, but not something we can always ignore.

Dear Paul Krugman, You Do Not Understand MMT - Paul Krugman is out with another misrepresentation of MMT.  For some reason, he has come to the false conclusion that MMTers believe deficits don’t matter.  He says:“Right now, deficits don’t matter — a point borne out by all the evidence. But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency. I wish I could agree with that view — and it’s not a fight I especially want, since the clear and present policy danger is from the deficit peacocks of the right. But for the record, it’s just not right.”This is an absurd misrepresentation of the MMT position and proves that he has not taken the time to fully understand MMT.  In my treatise on the subject I specifically say this is not the case:“Some people claim that MMTers say deficits don’t matter. That is a vast misrepresentation of MMT. No MMTer would ever say such a thing. Deficits most certainly do matter. Maintaining the correct level of deficit spending is, in many ways, a balancing act performed by the government.  It is best to think of the government’s maintenance of the deficit like a thermostat for the economy.

The MMT solvency constraint -Steve Randy Waldman - It is good to see Paul Krugman prominently discussing “modern monetary theory”, although I don’t think his characterization is quite fair. I am an MMT dilettante, so I’ll apologize in advance for my own mischaracterizations. But I think the MMT view of stabilization policy can be summed up pretty quickly: ...I think this is a clever and coherent view of the world. I do not fully subscribe to it — in my next post, I’ll offer point-by-point critiques. But first, let’s see where I think Paul Krugman is a bit off in his characterization: A 6 percent deficit would, under normal conditions, be very expansionary; but it could be offset with tight monetary policy, so that it need not be inflationary. But if the U.S. government has lost access to the bond market, the Fed can’t pursue a tight-money policy — on the contrary, it has to increase the monetary base fast enough to finance the revenue hole. And so a deficit that would be manageable with capital-market access becomes disastrous without. (a

More on Modern Monetary Theory - I view this debate as another round of “deficits don’t matter,” which was the hue and cry from both the left and the right a decade or so back as we were digging the hole we’re now in. Let me say at the outset that I sympathize with the goals of Jamie Galbraith and others who would like to see the Fed finance Great Depression-type jobs programs, education, and other investments in human and physical capital.  It is what the country needs.However, I view the problem not as insufficient aggregate demand but as our broken social contract, our broken government, our broken American dream.  Printing more money will just go into the pockets of the plutocracy if the banking bailouts and the Stimulus are any indication.  MMT is a joke in the present monetary historical context.  The American income distribution is like a Detroit V8 firing on one cylinder:  it doesn’t matter how much you step on the gas, only one cylinder going to fire. Until we address the distribution directly, debating the issues in terms of distribution-blind standard macroeconomics is just obfuscation of the real issue, which gives the plutocracy no end of pleasure, I’m sure.

Paul Krugman gets it wrong…. Again. - I’d say the deficit debates were heating up again, but I don’t think they’ve let up since before last year’s Peterson Foundation Fiscal Summit (orthodoxy for neoliberal deficit hawks) and the grass roots Fiscal Sustainability Teach-In and Counter-Conference, both held on April 28, 2010. The Teach-In provided an important corrective, known as Modern Monetary Theory (MMT), to the false narratives of both deficit hawks and deficit doves. Yesterday, Paul Krugman’s blog post Deficits and the Printing Press (Somewhat Wonkish), once again showed his ignorance of MMT, and in the process misinformed his readers (my emphasis): Right now, deficits don’t matter.. But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency. I wish I could agree with that view. But for the record, it’s just not right. The bolded statement, as I’ll show below, is completely false.

James-Galbraith-responds-to-Paul-Krugman - There are many excellent comments on the recent Paul Krugman vs. MMT story (see an excellent summary of the comments here), but I wanted to highlight the comment by James Galbraith, which really cuts to the chase: What do you mean, exactly, by the phrase, “solvency of the government”? According to my dictionary (Webster’s Third New International) an entity is “solvent” when it is “able… to pay all legal debts.” If you will look in your wallet, you will find, on any Federal Reserve Note: “This Note is Legal Tender for All Debts Public and Private.” Can we agree that the United States government, of which the Federal Reserve is a part, can always produce the Federal Reserve Notes required to pay its public debts? It follows, without any possibility of misunderstanding or error, that the United States Government is always going to be solvent.

billy blog » Letter to Paul Krugman - Dear Paul..We are both academics and have been trained to PhD level in economics. We should therefore understand the difference between good scholarship and bad scholarship whether the final outcome is a peer-reviewed journal article, published book or Op-Ed piece for a popular media publication (such as the New York Times). Examples of poor scholarship:

• 1. Representing an argument by relying on statements by critics of the argument as a reliable construction of the argument.
• 2. Creating a stylisation of an argument that is could not be constructed from a thorough reading of the primary sources in the field. This is the, straw person tactic.
• 3. Presenting analytical arguments to support an attack on a school of thought which are erroneous.
• 4. Making stuff up – this embraces the previous three examples. I refer to your two articles in the New York Times:
• (a) Deficits and the Printing Press (Somewhat Wonkish) – March 25, 2011 and then what seems to be a qualifying article –
• (b) A Further Note On Deficits and the Printing Press – March 26, 2011.

Paul Doubles Down On Ignorance, Misconstrual, and Vague Scenarios - After the scorching he received in many of the comments on his printing press post Paul Krugman decided to dig his MMT blogging hole even deeper.  He says: “. . . I think one way to clarify my difference with, say, Jamie Galbraith is this: imagine that at some future date, say in 2017, we’re more or less at full employment and have a federal deficit equal to 6 percent of GDP. Does it matter whether the United States can still sell bonds on international markets?  The most important thing to note about this scenario illustrates Paul's penchant for simplistic examples that mean nothing without further context. There are many ways in which Paul's scenario can be fulfilled, and they would make a big difference in the reactions of the bond markets, even if the Government chose not to manage bond interest rates to drive them down to zero. For example, let's say that the world still desires to send the United States more goods and services than it receives from us, about 3% of US GDP more, and let's also say that the US private sector wants to run a surplus of 3% of GDP; then the Government will be running a deficit of 6% because its deficit must equal the sum of the absolute value of the negative current account balance, and the private sector savings surplus. In that realization of Paul's scenario, would the US have any trouble selling bonds? It's very doubtful, since what would those who exported to us do with USD they received in payment for their goods and services, except to buy our bonds?

If you like large error bounds - And lousy correlation coefficients, then the Modern Money Theorists are right.  We can regulate money with printing and taxes.  Unfortunately, 90% of the economy has much better estimates of taxes and printing then the MMT folks.  The economy figures this stuff out before taxes go haywire.  The economy is much more accurate about itself than Martin Wolf, Paul Krugman or the MMTs.  If you want to be a good economist, I suggest you would have at least the same accuracy as the economy. How can we have an economic theory that depends on economic agents reading our columns? I get that entanglement is part of economics, the same as in physics. But it is too far fetched to go from a NYT op ed to the demand for eggs. The economy lives on information, suggest the economists keep up.

US Employment and Wages, Modern Monetary Theory, Trade, and Financial Reform - Jesse - On another note, there is renewed discussion of 'Modern Monetary Theory,' and some have asked me again to address this, as I have done previously.  I have only this to add. I see no inherent problem with the direct issuance of non-debt backed currency as there is sufficient evidence that it can 'work.' Indeed, my own Jacksonian bias toward central banking would suggest that.I think the notion that the Fed is some objective judge of what is best for the public welfare without effective oversight or restraint is anti-democratic and probably un-Constitutional, at least in spirit, as it has been implemented. And this notion that the FED and the discipline of the interest markets could reliably emulate an external restraint on excessive money creation is deeply flawed.The problem becomes then how to implement a fiat currency without the discipline of issuing debt through private markets. This is the important point that most MMT adherents seem to ignore, but it is their greatest area of strength.

A Modest Proposal for Ending Debt Limit Gridlock –L Randall Wray - Washington's deficit hysteria has morphed into gridlock over expansion of federal government debt limits. It is as if that stupid “debt clock” on Times Square had run out of electrons to keep the numbers racing ever higher. As we all know, the debt clock is actually tracking the growth of nongovernment net financial wealth—so if Washington really were able to stop the clock, it would also prevent private sector net financial wealth from growing. I presume that this is well-understood even inside the Washington Beltway, hence, the debate has more to do with politics than anything else. Still, it might be worthwhile to see how we can untie Uncle Sam's purse strings while living with current debt limits. It is actually a relatively easy thing to do, requiring only a modest change of procedure. First we need to see how things usually work.

What’s the difference between government bonds and bank notes? - In light of a recent post by Randy Wray, I’d love to have some readers here answer my question.  The Treasury doesn’t have to issue [government] bonds at all. In fact, since the Treasury does control the electronic printing press, it could legitimately buy stuff with money it prints out of thin air. Sounds a bit like counterfeiting, doesn’t it? But, let’s step back for a second: what is the functional difference for the federal government between Treasury securities and bank notes? Both are liabilities of the federal government. But liabilities of what? The only obligation they enforce on the government is the promise to repay with more paper (or electronic bank credits, if you will). For all intents and purposes, bank notes, reserve deposits, and Treasury securities are fungible: they are obligations to be repaid in the same fiat currency.

Start paying for war - Let’s get one thing straight: Wars cost money. Even the small ones. Already, the United States has spent hundreds of millions of dollars firing Tomahawk missiles into Libya. Analysts say that the total price tag for the operation, if everything goes well and there’s no escalation, could easily exceed $1 billion. That’s peanuts compared with our $3.8 trillion budget. But it’s not nothing.  A billion dollars, for instance, is more than 40 times the total NPR subsidies that inspired House Republicans to convene an emergency session of the Rules Committee to speed cuts along to the floor of Congress. That’s not to say saving the lives of Libyans isn’t a better investment than supporting “All Things Considered,” but it’s real money, and because it’s going to Tomahawk missiles in Libya, it can’t go to something else. But for more than a decade now, we’ve waged war as if it were free, keeping our wars off the budget and, rather than paying for them as they were fought, slapping them on the national credit card.

Ezra Klein: Without Paying for Our Wars, How Do We Know They’re Worth It? -- Ezra Klein has a really excellent column on war costs in today’s Washington Post (Business section).  His essential point is pretty much a central philosophy here on EconomistMom.com:  if we behave as if there are no budget constraints (yet there really are underlying tradeoffs among scarce resources that we just choose to ignore), we’re almost certainly going to make poor choices where marginal benefits fall short of marginal (and true) costs. Some of my favorite parts of what Ezra has to say (emphasis added): [F]or more than a decade now, we’ve waged war as if it were free, keeping our wars off the budget and, rather than paying for them as they were fought, slapping them on the national credit card. Paying as you go, after all, is hard. It forces you to make decisions about competing priorities. When you don’t pay up front, those decisions become easy. And war should never be easy... Honest budgeting serves a purpose beyond making sure revenue matches spending… The numbers on the page — and the trade-offs they demand — are as close to rational as the political process can get.

Republicans Prepare To Reject Final White House Budget - It's been almost a week since House Republicans, Senate Democrats and the White House last sat down to hammer out a budget agreement, and the schedule's still blank. Accusations of bad faith are now flying from both sides. Republicans are poised to reject a White House offer, TPM has learned, that would cut over $30 billion in current spending because of disagreements over whether the package should include cuts to mandatory spending programs. Democrats are pushing for such cuts, which include the big entitlement programs, though the specific cuts they're proposing remain unclear. In an ironic twist, Republicans oppose those cuts and want to limit the negotiations to non-defense discretionary spending, a smaller subset of the federal budget. Taken together, the last several days' worth of developments bode very poorly for the goal of reaching a six-month agreement on spending. The parties have until April 8 to reach agreement, and the odds of a government shutdown are higher now than they've been since this process began.

Cantor: No More Emergency Measures To Fund The Government - Late next week, if Democrats and Republicans haven't agreed on a long-term spending bill, Congress can still avoid a government shutdown if they pass yet another stop gap plan to keep the lights on. House Majority Leader Eric Cantor (R-VA) says that's not going to happen.  "I can't see how we can do anything with folks on the other side of the Capitol and other side of the aisle who now think this is a political game," Pressed further, he took the idea of another emergency measure off the table. "I mean I want to see a long term CR here. We've got bigger things to deal with. Time is up here," Cantor said. "A short-term CR without long-term commitment is unacceptable." To translate -- Congress will not pass a stopgap again unless there's an agreement in place for a solution that funds the government through September. If next week, that deal has been hammered out, but there's not enough time, procedurally, to pass it before the April 8 deadline, or if the details of the bill still need to be put on paper by bill writers, we could see a very short-term measure to buy those few days.

Very serious Republican ‘compromise’ on budget. Now with pixie dust! -- Er, okaaaaayyyy.... House Republicans will take another symbolic shot at forcing the Senate’s hand in the budget battle by passing a bill Friday that they characterized as another attempt to avert a government shutdown.  Majority Leader Eric Cantor (R-Va.) said Wednesday Republicans would pass legislation decreeing that, absent Senate passage of a budget bill by the April 8 deadline, the measure approved by the House in February would become “the law of the land.” Ah, no. That's sort of not how government works. You see, the problem with passing legislation in the House decreeing that, absent Senate passage of a budget bill (and no, it's not really a budget bill, it's an appropriations bill, but everybody's using that shorthand) by the April 8 deadline, the measure approved by the House in February would become "the law of the land" is that the legislation decreeing that would have to be... passed by the Senate. And that's what makes the legislation "symbolic." Although I don't think it was supposed to be symbolic of the fact that Republicans don't know how this stuff works. But what do I know? Maybe the plan is to have the law "published" at a Kinko's in Wisconsin.

A Federal Government Shutdown Nears. Who Wins? - Wednesday, at the monthly breakfast series for the Next American Economy project, Joe Minarik, senior VP of the CED and former chief economist for OMB, spoke on the federal budget in a tremendous session. Joe Stiglitz, who is a member of the series, joined us and was a central part of the discussion. As I have said repeatedly, we are headed toward a cliff: the right wants to jump off it; the left wants to deny it is there. I will write a couple of longer pieces, but this is solely about the impending government shutdown.During the session, I asked Joe Minarik the odds he puts on a shutdown this year and on the side wrote down my own estimate. Joe puts the odds at 85%, I put them at 80%. The most explicit reason we put the odds this high is that the House Republican leadership — specifically Speaker Boehner and Congressman Cantor — have lost control of their caucus.The Republican caucus is now largely driven by the 87 freshman members who are part of the Tea Party movement. This may be the single largest and most inexperienced group of congresspeople ever elected at the same time. It’s pretty clear that they do not understand the government or the budget, but by god, they are resolved to cut it to shreds.

What Happens To The Social Safety Net If The Government Shuts Down? -- What happens to the social safety net if the government shuts down on April 8? The Obama administration won’t say whether beneficiaries of programs like Social Security, unemployment insurance, or food stamps will continue to receive checks in the event of a shutdown. Moira Mack, a spokeswoman for the Office of Management and Budget, said all agencies have had contingency plans since 1980 and noted that members of Congress and the president want to avoid a shutdown. But Mack declined to discuss what would happen if the government does close for business. “We're not getting into hypotheticals," she said. In a recent memo (pdf) to federal agency directors, OMB advised: "During an absence of appropriations, agency heads must limit obligations to those needed to maintain the minimum level of essential activities necessary to protect life and property." Agencies queried by HuffPost declined to specify what their "essential activities" would include. Retirement and disability benefits? The Social Security Administration did not respond to requests for comment. Unemployment insurance? The Department of Labor declined to say what might happen. Food Stamps? A USDA official said it would be premature to speculate.

“Three Stooges”-Style Budgeting - My boss at the Concord Coalition, Bob Bixby, offers a very unique perspective on how the budget process is going, suggesting it goes beyond “childish.”  (In fact, Bob and I have often remarked to each other that we’re sure that real kids could outdo the adults in providing some pretty common-sense–and not just cute–suggestions on how to solve our budget woes.)  Bob’s set-up for the “Stooges” analogy (check out the video that goes with the blog post for Bob’s further explanation):Moe, Larry and Curly are fighting in the back seat of the car. No one is in the driver’s seat. As the boys settle down, Curly looks up and says, “Hey, don’t look now but we’re about to be killed.”Leave it to The Three Stooges to provide the perfect metaphor for what passes as a budget debate in Washington these days.It appears that we’re headed for a government shutdown in April and a possible default in May all because politicians can’t stop squabbling over a few billion dollars from a small slice of the budget while our overall fiscal policy is headed for a cliff.

Pissing and Moaning Over 1.875% of the Budget - Democrats and Republicans are horn-locked in a debate about whether budget cuts should be $30 billion or $60 billion. Senate Majority Leader Harry Reid, says President Barack Obama’s offer to accept a total of $30 billion in spending cuts for 2011 is “clearly in the same ballpark” with what House Republican leaders asked for.The pathetic debate lingers on. Please consider Budget Negotiations Stall Amid Charges of Inaction as U.S. Shutdown Looms...Republicans and Democrats in Congress traded charges over which party is stifling agreement on budget cuts needed to avert the first U.S. government shutdown in 15 years. With no accord in sight on legislation to extend government spending past April 8, Senate Majority Leader Harry Reid, a Nevada Democrat, accused Republican leaders of trying to placate an “extreme minority” of their party by spurning an offer to reach a deal.

"Top Republican Aide" is Wrong on Budget Debate - Over at TPM, Brian Buetler has this gem of a story about how House Republicans are "Preparing to Reject Final White House Budget Offer." The post is worth reading in its entirety if for no other reason than to confirm that the House GOP isn't interested in doing anything if it can't be characterized as total capitulation by House Democrats, Senate Democrats, and the White House. As Ezra Klein says over at his blog at The Washington Post, Reading this, you really wouldn’t know that Democrats, who control both the White House and the Senate, technically have a lot more power than Republicans, who only control the House. But the most interesting part of Buetler's story is a quote from a "top Republican aide" about the latest White House offer on the budget that apparently included some reductions in entitlements.  The aide, who obviously refused to be identified by name, is quoted saying, "This debate has always been about discretionary spending -- not autopilot 'mandatory' spending or tax hikes." Except that he's wrong in every way.

Dopiest Constitutional Amendment of All Time? - Today, all 47 Senate Republicans introduced a constitutional amendment to balance the federal budget. Full text available here. Presumably, this is the amendment that Republicans plan to demand as their price for increasing the federal debt limit. Of course, simply refusing the raise the debt limit would balance the budget overnight -- the nation would default on its debt and we would be plunged into the worst fiscal crisis in history, but the budget would be balanced. I have previously explained the idiocy of right wing advocates of debt default (here and here) and the idiocy of a balanced budget amendment (here and here). However, the new Republican balanced budget proposal is especially dimwitted. Let me focus on just one provision, Section 2:

An 18% spending cap is not just bad policy, it’s simply not feasible - Senate Republicans are lining up behind what they call a Consensus Balanced Budget Amendment. It would limit federal spending to 18% of gross domestic product and require a two-thirds supermajority vote of both chambers to pass any tax increase or run a budget deficit (with lower parliamentary hurdles set for times of war and military conflict, but not recessions). The proposal is deeply flawed. Parliamentary restrictions on tax increases and budget deficits would amplify political gridlock, handicap fiscal policy, and undoubtedly intensify economic downturns by ruling out effective responses to both cyclical events and unforeseen emergencies. And notions of reducing government spending to 18% of the economy under the amendment’s global spending cap are in the realm of the delusional.The United States faces an aging population, spiraling health care costs, and the legacy of two unfunded foreign wars and a decade’s worth of sweeping tax cuts. What would a balanced budget amendment that constrains federal spending to its lowest level since 1966 (just after Medicare was enacted) mean in this environment?

What can we do about spending as a percent of GDP? - Ezra Klein has a post where he calls the balanced budged constitutional amendment Republicans are pushing and calls it both terrible policy and dangerous.  I want to disagree with this statement of his: But the problem isn’t simply that the proposed amendment is extreme. It’s also unworkable. The baby boomers are retiring and health costs are rising. Unless you have a way to stop one or the other from happening — and no one does — spending as a percentage of GDP is going to have to rise. While economists may disagree about the fiscal impacts of past immigration, there is a general agreement that higher skilled immigrants have a positive impact on government budgets.  Part of our long-term budget problem is demographic, so, as Rick Santorum so usefully implied, we should be letting in more immigrants who are on average younger in order to counteract our country’s aging. Also, more immigrants also allow us to spread the fixed defense costs over a more people, and lower defense spending as a percent of GDP. Illegal immigrants are even better from a budgetary standpoint, since they frequently contribute to social security but don’t take out of it, and have thus put around $120 to $240 billion into the system. So what we really need is a massive influx of highly skilled illegal immigrants.

Tax Like the South? Why Not? - Ezra Klein has been covering fairly thoroughly the proposal in the Senate (?), signed by every GOP member, for a balanced budget amendment to the Constitution. Unfortunately, it is not just a balanced budget amendment — and end in and of itself, and one that I would consider if done properly — but an amendment to a) limit Federal spending to 18% of GDP and b) make raising future revenue extremely difficult. This isn’t just a Balanced Budget Amendment. It also includes a provision saying that tax increases would require a two-thirds majority in both houses of Congress — so, it includes a provision making it harder to balance the budget — and another saying that total spending couldn’t exceed 18 percent of GDP. No allowances are made for recessions, though allowances are made for wars. Not a single year of the Bush administration would qualify as constitutional under this amendment.  However! Ezra has a follow-up post in which he ties California, taxation in the south, and the likely effects of the GOP’s amendment together, noting that by blocking the ability to directly raise revenue, the government would be forced into regulatory and budgetary tricks to fund itself. Tricks that would likely be more inefficient and economically damaging than simple direct taxation itself.

When Spending Cuts Raise the Deficit - Proposed Republican cuts to the Internal Revenue Service‘s budget would be “potentially devastating” to the country’s tax system that could increase the federal deficit and lead to fewer taxes being paid, the commissioner of the agency told a House panel Thursday.Testifying at a hearing of the House Ways & Means Committee, IRS Commissioner Douglas Shulman said the proposed $603 million cut to the agency’s budget could impact the deficit many times worse than that. Shulman said the proposed cuts would lead immediately to the IRS collecting $4 billion less in taxes. He also warned that it could lower longer term compliance by Americans. “I’m hopeful we don’t have those cuts,” Shulman said.Like virtually every other federal agency, the IRS would face steep budget cuts under the proposed House GOP spending plan for the remaining months of the fiscal year.

A Cure for Fiscal Failure? - Kenneth Rogoff - Should more countries create independent fiscal advisory councils to infuse greater objectivity into national budget debates? In a new paper, “A Decade of Debt,” Carmen M. Reinhart and I show that general government debt in the United States, including federal, state, and local debt, has now surpassed the record 120% of GDP reached at the end of World War II. Japan, of course, is in even worse shape, with government debt totaling more than 200% of GDP. Though this is partially offset by foreign-exchange reserves, Japan now faces massive disaster-relief costs – and this on top of its depressing demographic trends. Many other rich countries’ debt levels are also uncomfortably close to 150-year highs, despite relative peace in much of the world.  There is a no easy way out. For now, low world interest rates are restraining debt-service costs, but debt levels can be reduced only very gradually over long periods, whereas real (inflation-adjusted) interest rates can rise far more quickly, even for rich countries. Debt crises tend to come out of the blue, hitting countries whose debt trajectories simply have no room for error or unplanned adversity.

House votes to cut NPR funding - The House on Thursday voted to strip National Public Radio's federal funding, a move that followed the release of a "sting" video showing an NPR executive criticizing the Republican Party and saying the station didn't need millions of dollars in federal money. The measure passed 228-192, mostly along party lines, after a vigorous debate over the merits of public radio and the need for the government to reduce spending in the wake of a $1.3 trillion debt and $14 trillion deficit that threaten the economy. "The object of this bill is to get NPR out of the taxpayer's pocket," said Rep. Marsha Blackburn, R-Tenn. "It is time for us to be good stewards and save the money of the American taxpayer." NPR receives about $90 million in federal funding annually, but the Congressional Budget Office calculated that the net savings from defunding the network would be zero.

ABC: First Week in Libya Costs At Least $600 Million -Over at ABC News, Devin Dwyer and Luis Martinez report that the first week of the U.S. intervention in Libya has cost at least $600 million. According to their sources, the most costly items include

• 191 Tomahawk cruise missiles – $269 million
• F-15E fighter – $60 million+
• Fuel for jets and ships
• Other munitions

Our Billion Dollar Turd Sandwich - So President Obama has been quoted calling his war in Libya a turd sandwich, while Juan Cole calls it philanthropy, and Ed Schultz praises it as vengeance against this month's Adolph Hitler. The last time we bombed this particular Hitler we took out his daughter, among other people. How is Schultz's spitting mad hatred as war justification squared with Cole's humanitarian generosity? The answer is easy. They prefer different condiments on their turd sandwiches. Which is why wars are always packaged in multiple and mutually contradictory propaganda campaigns.  Obama's advisors are almost certainly telling him that LBJ and Nixon were right to be terrified of "losing" a war. Of course refusing to "lose" a war cost both of them the presidency. Bush refused to "lose" in Iraq for years, handed that function to Obama, and credit for it is about all Obama has to ride on now. Two-thirds of Americans are demanding that we hurry up and "lose" in Afghanistan. Pollsters say Americans have turned against the Libya war faster than any previous war. And all Obama wants to know is whether he can supersize his turd sandwich.

GOP Prescription: Spending Cuts and Lower Wages Equal More Jobs -- In a little-noticed economic report distributed by the office House Speaker John Boehner last week, the Republican staff of the Joint Economic Committee attempted to refute criticisms that the GOP’s economic agenda would deliver too much pain too fast. The paper makes the party’s anti-Keynesian case that fiscal consolidation (read: spending cuts) can spur immediate economic growth and reduce unemployment. But in making that case, the Republicans may also have given Democrats some political ammunition. For example, the paper predicts that cutting the number of public employees would send highly skilled workers job hunting in the private sector, which in turn would lead to lower labor costs and increased employment. But “lowering labor costs” is economist-speak for lowering wages — does the GOP want to be in the position of advocating for lower wages for voters who work in the private sector?

The Broken Mousetrap Board Game of Growth Through Austerity Deficit Reduction  -Ezra Klein notes that the Tea Party and austerity-now wing of the conservative party has won a huge victory, and the Democrats a huge loss. Now that Obama and the Democrats are owners of the argument that we need to cut the short-term deficit immediately, and implicitly that can get growth through austerity, it’s worth a second to go through how this is supposed to work, and how it will fail.Tim Fernholz and Jim Tankersley have a great article, GOP Prescription: Spending Cuts and Lower Wages Equal More Jobs, where they dig into the current economic rationality behind the push for short-term spending cuts. Fernholz/Tankersley link to a GOP report, Spend Less, Owe Less, Grow the Economy. That report is based on an AEI study, A Guide for Deficit Reduction in the United States Based on Historical Consolidations That Worked. And that study is based on a 2009 study by Alberto Alesina and Silvia Ardagna of Harvard, titled Large changes in fiscal policy: taxes versus spending. This last study has a bit of a history in the economic blogosphere.

Wages and Employment, Yet Again – Krugman - Oh, my. Even Matt Yglesias doesn’t quite get it. Writing about Republican plans to raise employment by reducing it, he writes America is just too big to adjust primarily through the currency channel. So one possible route is nominal deflation. You cut nominal public sector salaries, lay off public sector workers, and reduce nominal transfer payments (Security Security, SNAP, etc.). This ought to drive down wages in the private sector, too, and eventually everyone is making sufficiently little money that it makes sense to start hiring more people.  Then he turns, rightly, to the problem of nominally denominated debt. But look: even if we didn’t have that problem, there would be no reason to expect a general fall in wages to raise employment. Why? Don’t demand curves usually slope downward? Yes, but that’s because when you cut the price of something, it normally gets cheaper relative to other things, leading people to redistribute their spending toward the cheaper good. But when you cut the price of everything — which is more or less what happens when wages fall across the board — there’s nothing else to substitute away from.

Contraction is Contractionary -– Krugman - Mike Konczal has been blogging about the continuing conservative insistence that slashing government spending is actually expansionary, as embodied in the recent JEC report (pdf). As he says, it’s a remarkable thing: the empirical case for expansionary austerity has collapsed on examination, but the doctrine lives on regardless.  One thing Mike fails to note is that the recent AEI paper on deficit reduction, which is cited by that JEC study in a way that might make you think that it supports the case for expansionary austerity, actually never provides any evidence to that effect; it focuses only on deficit reduction as an end in itself. In fact, it comes close to conceding defeat on the issue: Not that this will make any difference to the GOP position, of course.

The wage-slashing route to recovery - REPUBLICANS, some of them at least, seem to have put together a plan to generate economy recovery that isn't likely to endear them to the American public. The strategy, in a nutshell, seems to be to 1) sack a bunch of public sector workers to force them into the private sector so that, 2) private sector wages will fall, leading to 3) an increase in hiring. Matt Yglesias writes: You cut nominal public sector salaries, lay off public sector workers, and reduce nominal transfer payments (Security Security, SNAP, etc.). This ought to drive down wages in the private sector, too, and eventually everyone is making sufficiently little money that it makes sense to start hiring more people. Mr Yglesias isn't advocating this; he's simply suggesting that this is one way adjustment might work. Paul Krugman chides him: [W]hen you cut the price of everything — which is more or less what happens when wages fall across the board — there’s nothing else to substitute away from.I think Tyler Cowen has a good series of responses on this. The question would seem to be whether a general deflation results; the Fed may be able to maintain inflation expectations. If wages fall relative to output, hiring should increase.

The Mellon Doctrine - Paul Krugman - "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression.  Mellon-style liquidationism is now the official doctrine of the G.O.P.  Two weeks ago, Republican staff at the Congressional Joint Economic Committee released a report, “Spend Less, Owe Less, Grow the Economy,” that argued that slashing government spending and employment in the face of a deeply depressed economy would actually create jobs. In part, they invoked the aid of the confidence fairy; more on that in a minute. But the leading argument was pure Mellon.  Here’s the report’s explanation of how layoffs would create jobs: “A smaller government work force increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.” Dropping the euphemisms, what this says is that by increasing unemployment, particularly of “educated, skilled workers” — in case you’re wondering, that mainly means schoolteachers — we can drive down wages, which would encourage hiring.  There is, if you think about it, an immediate logical problem here: Republicans are saying that job destruction leads to lower wages, which leads to job creation. But won’t this job creation lead to higher wages, which leads to job destruction, which leads to ...? I need some aspirin.

57% Okay With Government Shutdown If It Leads to Deeper Budget Cuts - A majority of voters are fine with a partial shutdown of the federal government if that’s what it takes to get deeper cuts in federal government spending. A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters think making deeper spending cuts in the federal budget for 2011 is more important than avoiding a partial government shutdown. Thirty-one percent (31%) disagree and say avoiding a shutdown is more important. Twelve percent (12%) are not sure.  In the event of a shutdown, payments for things like Social Security, Medicare and unemployment benefits would continue. Still, a plurality (44%) of voters thinks a partial shutdown of the federal government would be bad for the economy, down four points from February. Twenty-three percent (23%) say a shutdown would be good for the economy, while a similar number (22%) say it would have no impact, a seven-point increase from the previous survey

People in the USA are confused about the Federal Budget - The results of a new CNN poll are still very interesting, since the poll is much more thorough than the many other polls which showed, more or less, the same thing. CNN has a write up where they note that the median respondent seems to think that much more money could be saved by cutting programs which he-she wants to cut. Those programs are foreign aid (as always) and, by a plurality, pensions and benefits for retired government workers.The median respondent thinks that 10% of the budget is spent on "Aid to foreign countries for international development and humanitarian assistance." 11% of respondents think that more than 50% of the federal budget is spent on such aid (more than the 5% who correctly answer "less than 1%").  My guess looking at the poll however, is that the context matters more than the precise budget item in question. If the questions were asked in the order the results are presented, respondents were asked about Medicare, Medicaid, Social Security and Military spending before they were asked about foreign development and humanitarian aid. The sum of the median answers to those questions is 85%. This makes the median answer to share on foreign aid of 10% sound very high indeed. The median respondent (a purely theoretical construct which doesn't correspond to a human being) thinks that 95% of the budget is spent on those programs.  Rather alarmingly the sum of median shares on the programs about which the pollster asked is 137%. Those programs did not include interest on the national debt, farm subsidies, NASA or the NIH.

Most Of What Americans “Know” About The Federal Budget Is Wrong -  It’s going to be impossible to have a rational discussion about federal spending when it’s clear that the American people have no idea what the facts are: If you think cutting the government’s budget is as easy as taking the ax to some unpopular federal programs, a new national poll suggests that you should think again. According to a CNN/Opinion Research Corporation survey released Friday, most Americans think that the government spends a lot more money than it actually does on such unpopular programs as foreign aid and public broadcasting. The poll’s release comes one week before current funding for the government runs out. If there is no budget agreement between congressional lawmakers by next Friday, some government programs and offices may shut down.

The Deficit, Euphemisms, and Hard Choices - If we are going to make real progress on deficit reduction, politicians will, sooner or later, have to stop talking in code. The “adult conversation” they pine for will have to be candid and explicit.  So far, it is not.Two weeks ago, a bipartisan group of 64 senators signed a letter urging President Obama to “engage in a broader discussion about a comprehensive deficit reduction package.”  This conversation, said the lawmakers, should include “discretionary spending cuts, entitlement changes, and tax reform.”No it shouldn’t. It should include discretionary spending cuts, reductions in the growth of social insurance programs, and tax increases coupled with broad-based reform. At the same time, House Ways & Means Committee Chairman Dave Camp (R-MI) told the Wall Street Journal that he wants to lower the top tax rate for individuals and corporations to 25 percent. Well, don’t we all. What he didn’t say was in order to get there without adding to the deficit , we are going to have to slash cherished tax deductions, credits, and exclusions by about $2 trillion over a decade.

The President Is A Lousy Negotiator - Krugman  - Steve Benen and Ezra Klein both point out that by negotiating with himself, Obama seems to have ensured that the eventual budget “compromise” will give Republicans more than they ever imagined in the way of harsh cuts.Maybe this is just political realism. But the way I see it, Obama adopted Republican framing of the budget debate — including the rhetoric about how families are tightening their belts so the government should too — as early as the 2010 State of the Union, back when Democrats had 59 Senate seats and control of the House. If that genuflection to the right was supposed to help Dems in the midterms, well, it didn’t; and it has meant that there is no effective counter-argument to the cut cut cut people. So, can we now count on Obama, at least, not to preemptively surrender to the right by proposing Social Security cuts — cuts that we know will be a starting point, not an end to the discussion? No, we can’t.

Obama Administration: GOP Cuts Would Kill 70,000 Kids - That's what would happen if Congress pares back appropriations for USAID, says Rajiv Shah:"We estimate, and I believe these are very conservative estimates, that H.R. 1 would lead to 70,000 kids dying," USAID Administrator Rajiv Shah testified before the House Appropriations State and Foreign Ops subcommittee."Of that 70,000, 30,000 would come from malaria control programs that would have to be scaled back specifically. The other 40,000 is broken out as 24,000 would die because of a lack of support for immunizations and other investments and 16,000 would be because of a lack of skilled attendants at birth," he said. It's worth noting that non-military foreign aid is just about the only category of spending a majority of Americans consistently favor cutting. But they also vastly overestimate how much we spend. One recent survey found Americans thought 25% of the budget went to foreign aid. The real number is in the neighborhood of 1%.

Giving to the rich and taking from the poor - Republican leaders in Congress are seeking immediate spending cuts that would hurt the economic recovery and cost at least hundreds of thousands of jobs. The cuts, which would affect everything from child nutrition and early childhood education to college tuition assistance and food safety inspections, aim to reduce the deficit.  But Congress intentionally increased the deficit last December by extending Bush-era tax cuts for families making more than $250,000 and passing an estate tax cut that benefits only the top quarter of one percent of earners. The figure compares the amount of money that would be saved by the proposed budget cuts with the one-year cost of the tax cuts for the wealthy that were approved late last year. As shown, tax cuts for the wealthy have added more to the deficit than would be shaved from the deficit by the proposed spending cuts to important social programs.

Dems: Potential Cuts to Medicaid Outlined by Administration "Cruel"… An Obama administration letter outlining potential Medicaid cuts to help states balance their budgets was "cruel" and "disappointing," according to several prominent Democrats. The lawmakers are concerned the letter will encourage states to clip health coverage for some of the country's poorest people amid a poor economy when they could use the benefits most. "It's cruel," said Rep. Dennis Kucinich (D-Ohio), "and it's nothing you would expect from a Democratic administration." The potential for cuts highlights the pickle facing federal lawmakers as they try to expand healthcare coverage while simultaneously reining in soaring healthcare costs. It underscores the pressures on state leaders to balance budgets during a period of high unemployment and deflated revenues. It accentuates the structural flaw plaguing Medicaid, which often sees enrollment spike during bad economies when states can least absorb the extra costs. And it foreshadows potential troubles with the new health reform law, which leans heavily on an enormous Medicaid expansion to cover millions of uninsured Americans in the years to come.

Why We're Fasting - I stopped eating on Monday and joined around 4,000 other people in a fast to call attention to Congressional budget proposals that would make huge cuts in programs for the poor and hungry. By doing so, I surprised myself; after all, I eat for a living. But the decision was easy after I spoke last week with David Beckmann, a reverend who is this year’s World Food Prize laureate. Our conversation turned, as so many about food do these days, to the poor.Who are — once again — under attack, this time in the House budget bill, H.R. 1. The budget proposes cuts in the WIC program (which supports women, infants and children), in international food and health aid (18 million people would be immediately cut off from a much-needed food stream, and 4 million would lose access to malaria medicine) and in programs that aid farmers in underdeveloped countries. Food stamps are also being attacked, in the twisted “Welfare Reform 2011” bill.  These supposedly deficit-reducing cuts — they’d barely make a dent — will quite literally cause more people to starve to death, go to bed hungry or live more miserably than are doing so now. And: The bill would increase defense spending.

Come Saturday Morning: The Washington Post Wants You to Starve to Death - Support on Capitol Hill for saving Social Security must be stronger than I thought: Pete Peterson’s flying monkeys are working overtime dropping dungbombs on anyone who opposes gutting the government program that lifted elderly Americans out of the grinding poverty that was their standard fate before 1935. On Wednesday we saw the New York Times’ David “Mr. Peterson’s a great guy, really” Leonhardt favorably citing a WaPo piece by Robert Pozen that was a half-baked Sachertorte of anti-Social-Security myths, all of which CEPR’s Dean Baker had effortlessly punctured when Pozen had circulated them via the Boston Globe back in December. Friday, we see Charles Blahous, co-author of a “kill it to save it” report on Social Security that was (surprise!) funded in part by Pete Peterson, telling Americans yet again that anyone who defends Social Security from Peterson stooges like him is actually hurting America

 Macho men are wrong on Social Security - Dean Baker - With debates swirling about a deal to fund the US government for the rest of the fiscal year, the accepted wisdom in Washington policy circles is that the country must also make cuts to its Social Security system if it is serious about dealing with a growing budget deficit. But before anyone rushes to shave these benefits for retirees, it is worth asking why.  Back in February, Barack Obama’s budget promised cuts of about $1,000bn in the next decade. The US president’s proposals largely ignored Social Security. But the co-chairs of a fiscal commission, set up by Mr Obama, had earlier demanded deficit reduction of four times this amount. Deficit hawks now like to show off charts in which the costs of Social Security – along with Medicare and Medicaid, which provide healthcare to the elderly and poor – are projected to go through the roof in the decades ahead. These charts show the cost of everything else more or less under control. This looks ominous. But it is also a trick.  The sleight of hand is that if Social Security is pulled out from the group with Medicare and Medicaid, and instead placed in the category with everything else, the charts look almost exactly the same. Indeed, any number of valuable social programmes disliked by the right – be they benefits for veterans, support for early years education, or foreign aid – could be lumped together with Medicare and Medicaid, to show that the growth in cost of the three programmes combined is also out of control.

Convenient Arguments - Here’s my solution to our national debt. We have a one-time, 100 percent tax on all wealth (net worth) of all United States residents, with a $10 million per-person exemption. With household wealth at around $60 trillion, that should be plenty to pay off the accumulated debt and shore up Social Security and Medicare for the next century.* The government promises never to do it again. Don’t like that idea? How about this one. The Federal Reserve creates $20 trillion in money but, instead of crediting it to large banks’ accounts at the Fed, it credits it to Treasury’s account. Again, no more debt. Again, the Fed promises never to do it again. Yes, those are stupid ideas. They are stupid because no one would believe that the Treasury or the Fed would never do it again. So if no one could propose a one-time wealth tax with a straight face, how come people can propose a “one-time” corporate tax amnesty with a straight face?

Should We Cut Corporate Taxes By Raising Rates on Investors? - While there seems to be growing agreement in Washington that the U.S. needs to cut its tax rate on corporations, there is (surprise) no consensus at all on how to pay for this. One way: Raise taxes on capital gains and dividends.    This idea was one element of the broad tax reforms proposed last year by the chairs of President Obama’s deficit reduction commission, Alan Simpson and Erskine Bowles, and by the Bipartisan Policy Center’s deficit panel, chaired by Alice Rivlin and Pete Domenici. Both panels relied in part on analysis in a paper by my Tax Policy Center colleagues Eric Toder, Ben Harris, and Rosanne Altshuler.  The plan has so far received little attention. It deserves more. The plan would tax dividends and long-term capital gains at ordinary income rates, with a maximum rate on gains of 28 percent–compared to 15 percent today–and use the revenue to cut corporate tax rates. Those of you with long memories may remember these investment rates were the law back in 1997.

GE tax affairs put Immelt in political spotlight - On the day that he announced that Jeff Immelt would chair a new White House advisory committee on jobs and competitiveness, Barack Obama said that General Electric and its chief executive had “something to teach business all across America” about competing in the global economy. But today, about two months later, the White House has been forced on the defensive about the choice after reports about GE’s aggressive tax planning strategies and accusations that the group – which made $14.2bn in profits last year – did not pay a cent of tax in 2010. Indeed, the picture of GE painted by a recent article in the New York Times seemed to exemplify critical remarks by Mr Obama in his State of the Union address this year, when he derided the “parade of lobbyists” who had “rigged the tax code to benefit particular companies and industries”. “Those with accountants or lawyers to work the system can end up paying no tax at all,” Mr Obama said. “But all the rest are hit with one of the highest corporate tax rates in the world.”

Tax the Super Rich now or face a revolution— Yes, tax the Super Rich. Tax them now. Before the other 99% rise up, trigger a new American Revolution, a meltdown and the Great Depression 2. Revolutions build over long periods — to critical mass, a flash point. Then they ignite suddenly, unpredictably. Like Egypt, started on a young Google executive’s Facebook page. Then it goes viral, raging uncontrollably. Can’t be stopped. Here in America the set-up is our nation’s pervasive “Super-Rich Delusion.”  We know the Super Rich don’t care. Not about you. Nor the American public. They can’t see. Can’t hear. Stay trapped in their Forbes-400 bubble. An echo chamber that isolates them. They see the public as faceless workers, customers, taxpayers. See GOP power on the ascent. Reaganomics is back. Unions on the run. Clueless masses are easily manipulated.  Even Obama is secretly working with the GOP, will never touch his Super Rich donors. Yes, the Super-Rich Delusion is that powerful, infecting all America.  Here’s how one savvy insider who knows described this Super-Rich Delusion: “The top 1% live privileged lives, aren’t worried about much. Families vacation at the best resorts. Their big concerns are finding the best Pilates teacher, best masseuse, best surgeons, best private schools. They aren’t concerned with the underlying deterioration of America or the world, except in the abstract, because they aren’t directly affected by it. That’s not to say they aren’t sympathetic, aware, or don’t talk about the issues you bring up. They are largely concerned with protecting and enhancing their socio-economic positions, ensuring their families live well. And nothing you write about will change things.”

Seeing Where the Money Went - We believe that society has a price, and it’s one we’re willing to pay. But no matter how tempting it may be, we can’t stubbornly hold fast to our position without acknowledging that there is something to the anti-taxers’ critique. The tax system is arcane and needlessly complex, a Byzantine maze that even the Treasury secretary had trouble navigating. As a result, government has become akin to a distant relative—one whom you hardly know, who shows up routinely with his hand outstretched, asking for a donation.But while the anti-taxers have diagnosed the correct problem, they’ve prescribed the wrong solution. Rather than simply demanding tax cuts—or hikes, for that matter—we can work to open the tax system up, to show taxpayers how it works and where their money goes. In the process, we might be able to change the discussion around taxing and spending, making it less ideological and more relevant to the challenges of our day. Presumably, Americans will never like paying their taxes. But with the right policy proposals—and with their implementation—they might not despise doing so.

Testimony on the Dodd-Frank Wall Street Reform and Consumer Protection Act - CBO Director's Blog - This afternoon, I testified before the House Financial Services Subcommittee on Oversight and Regulation about CBO’s cost estimate for the Dodd-Frank Wall Street Reform and Consumer Protection Act. My statement summarizes CBO’s estimate for the legislation as enacted last July.The Dodd-Frank Act made significant changes to the regulatory environment for banking and thrift institutions as well as for financial markets and their participants. The act expanded existing regulatory powers, granted new regulatory powers, and reallocated regulatory authority among several federal agencies—with the aim of reducing the likelihood and severity of future financial crises. The act also established new agencies and programs and provided grants to help communities address high foreclosure rates and subsidies to assist homeowners facing foreclosure.The figure below summarizes CBO’s estimate of the budgetary effects of the legislation during the 2010-2020 period. CBO estimated that the act would increase both direct spending and revenues between 2010 and 2020, reducing deficits, on net, by $3.2 billion. (Direct spending is that which is not governed by appropriation acts.) In addition, CBO estimates that the Dodd-Frank Act will lead to an increase of $2.6 billion in discretionary spending over the five-year period ending in fiscal year 2015 (and additional sums in subsequent years), assuming that lawmakers

GAO: Implementing Dodd-Frank Could Cost $2.9 Billion - Implementing last year’s financial overhaul law could cost the federal government as much as $2.9 billion over five years, according to a summary of a coming Government Accountability Office report obtained by the Journal.Not all of that would come from taxpayer pockets. Six of the 11 agencies charged with implementing the law are fully or partly funded by assessments on the entities they oversee, one fully by revenues collected, and only three fully or partly by Congressional appropriations. The Consumer Financial Protection Bureau receives all its funding from the Federal Reserve, which in turn gets 100% of its budget from assessments and other revenues — not from taxpayers. But financial firms will see their bills to the government go up, and critics say too steep a burden could hurt the industry’s competitiveness. Nonetheless, House Republicans plan to use the numbers in the forthcoming GAO study to bolster their argument that the new law, known as Dodd-Frank, will be a drag on the economy.

Senate GOP Leaders: Repeal Dodd-Frank - The entire Senate GOP leadership has endorsed a bill to repeal last year’s financial overhaul, rejecting Democrats’ political calculation that voters see the law — known as Dodd-Frank — as a solid step toward reining in greedy Wall Street bankers and protecting average Americans. Tea party favorite Sen. Jim DeMint (R., S.C.), the bill’s author, is calling his measure “the Financial Takeover Repeal Act.” He says it will stop “burdensome regulations, spur job growth and ensure that ‘too big to fail’ bailout policies are not permanent.” Eighteen of his GOP colleagues signed on as co-sponsors, including all the party’s major figures in the Senate: Minority Leader Mitch McConnell of Kentucky, Minority Whip Jon Kyl of Arizona, Republican Conference Chairman Lamar Alexander of Tennessee, Republican Policy Committee Chairman John Thune of South Dakota and National Republican Senatorial Committee John Cornyn of Texas. The  Dodd-Frank financial overhaul, of course, got little Republican support to begin with.

How Were the Basel 3 Minimum Capital Requirements Calibrated? -NYFed - One way to reduce the likelihood of bank failures is to require banks to hold more and better capital. But how much capital is enough? An international committee of regulators recently reached a new agreement (called Basel 3) to impose new, higher standards for capital on globally active banks. The Basel 3 common equity minimum capital requirement will be 4.5 percent plus an additional buffer of at least 2.5 percent of risk-weighted assets (RWA). Are these numbers big or small—and where did they come from? In this post, I describe how the new Basel capital standards were calibrated.

Hooray! Jamie Dimon Says New Capital Rules Will Kill Zombie Banks! - Yves Smith - It really is a sign of how complete a victory that the banks have won over the rest of us that Jamie Dimon has the nerve to complain about banking regulations. Even worse, he is egging on a effort by Republican bank-owned Congresscritters to roll weak bank capital rules back.  His position is pure, simple, unadulterated bank propaganda: what is good for banks is good for America, when the converse is true. Simon Johnson warned in his May 2009 article “The Quiet Coup” that the financial crisis had turned American into a banana republic with a few more zeros attached, a country in the hands of oligarchs, in this instance, the financiers: The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions. It will, in other words, need to squeeze at least some of its oligarchs. Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government.  And if you doubt the idea that squeezing the bankers will be bad for the rest of us, pretty much everyone who has looked at this question who is not a bank-paid shill begs to differ. The IMF warned against coddling banks in a study of 124 banking crises:

In Debate Over Bank Capital Regulation, a Trans-Atlantic Gulf  Since the crisis, Anat Admati and her colleagues have been arguing² for higher bank capital standards to make the financial system safer. In this country, Professor Admati, who teaches economics and finance at the Stanford business school, has been a voice in the wilderness. In London, she finds a more receptive audience.  Over there, major government figures speak openly about requiring substantially higher bank capital. The governor of the Bank of England, the head of the Financial Services Authority (the equivalent of the Securities and Exchange Commission) and even the conservative chancellor of the Exchequer have backed a bigger crackdown on the banking sector. While the international banking rules, called Basel III, settled on 7 percent as the minimum standard for a certain kind of capital, it's acceptable in Britain to talk about having significantly higher standards. A recent Bank of England paper contemplated capital on the order of 15 to 20 percent.  Here, that thought is restricted to cranks and university professors. Though the big three -- Ben S. Bernanke, the Federal Reserve chairman; Treasury Secretary Timothy F. Geithner; and Mary L. Schapiro, the Securities and Exchange Commission chairwoman have not come close to advocating something that radical and substantial. Here, when the Federal Reserve Bank of New York writes a paper on capital requirements, the economists focus on the costs and exclude any examination of the benefits.

Josh Rosner: Dodd Frank is a Farce on Too Big to Fail - This testimony has been entered into the Congressional Record and will be available on the House Oversight Committee website in the near future. The text appears below..  Almost three years have passed since the United States financial system shook, began to seize up, and threatened to bring the global economy crashing down. The seismic event followed a long period of neglect in bank supervision led by lobbyist-influenced legislators, “a chicken in every pot” administrations, and neutered bank examiners. While the current cultural mythology suggests the underlying causes of the crisis were unobservable and unforeseeable, the reality is quite different. Structural changes in the mortgage finance system and the risks they posed were visible as early as 2001. Even as late as 2007 warnings of the misapplications of ratings in securitized assets such as collateralized debt obligations and the risks these errors posed to investors, to markets, and to the greater economy were either unseen or ignored by regulators who believed financial innovation meant that risk was “less concentrated in the banking system” and “made the economy less vulnerable to shocks that start in the financial system.” Borrowers, these regulators argued, had “a greater variety of credit sources and (had become) less vulnerable to the disruption of any one credit channel.”

The Myth of Resolution Authority - Simon Johnson - Back when it really mattered – last spring, during the debate over the Dodd-Frank financial regulation – Senator Ted Kaufman, Democrat of Delaware, emphasized repeatedly on the Senate floor that the proposed “resolution authority” (the power to shut banks) was an illusion.His point was that extending the established Federal Deposit Insurance Corporation powers for “resolving” financial institutions to include global megabanks simply could not work.At the time, Senator Kaufman’s objections were dismissed by “experts” from both the official sector and the private sector. Now these same people (or their close colleagues) are falling over themselves to argue that resolution cannot work for the country’s giant bank holding companies. The implication, which these officials and bankers still cannot grasp, is that we need much higher capital requirements for systemically important financial institutions.

David Apgar: Is That a Horse’s Head Under the Sheets or Are You Just Happy to Fleece Me? - The TARP Subcommittee of the House Committee on Oversight and Government Reform spent two hours on Wednesday asking whether the Dodd-Frank bill has ended the scourge of banks that are too big to fail. The real question is whether anyone has tried to end the scourge of bankers who are too rich for the government to fail them.The Buttonwood column in this week’s Economist asks the key question why living standards have declined – and well it should, as this is the central economic and political question in the rich world today. The column dismisses several alternative economic explanations and concludes by asking whether international banks are running the financial equivalent of a protection racket right out of The Godfather to keep their bonuses high. It suggests they’re threatening to move offshore if central bankers stop subsidizing them with low, destabilizing interest rates. The Economist is right about the racket but wrong about the reason, in my view. And if we don’t understand the reason for stagnation and decline in median living standards and the closely related growth in inequality, we won’t be able to do anything about it.

Financial Market Utilities, Dodd-Frank, and JPMorgan -- Cate Long and FinanceObserver have asked me to do a post on Title VIII of Dodd-Frank, so here goes. Title VIII is something of a wildcard in financial reform. It establishes a regulatory and supervisory regime for what it calls “financial market utilities” (FMUs), which are basically entities that clear and settle payments, securities, or other financial transactions between financial institutions. This is the critical infrastructure of the financial system. However, Title VIII doesn’t apply to every single electronic payments system that fits the definition of an FMU; it only applies to “systemically important” FMUs. Naturally, the Financial Stability Oversight Council (FSOC) determines which FMUs are systemically important. The Fed, however, is the one ultimately charged with developing and enforcing the prudential standards for systemically important FMUs. Title VIII also gives systemically important FMUs access to the discount window, which is a no-brainer — but which I’m sure the usual suspects, who like to appear to be “savvy commentators” by feigning outrage over everything, will object to nonetheless (bailouts!). There are two main issues in Title VIII. First, which FMUs will be deemed “systemically important”? Second, what will the prudential standards for systemically important FMUs be?

OMG, Greenspan Claims Financial Rent Seeking Promotes Prosperity! - Yves Smith - I was already mundo unhappy with an Alan Greenspan op-ed in the Financial Times, which takes issue with Dodd Frank for ultimately one and only one disingenuous and boneheaded reason: interfering with the rent seeking of the financial sector is a Bad Idea. It might lead those wonderful financial firms to go overseas! US companies and investors might not be able to get their debt fix as regularly or in an many convenient colors and flavors as they’ve become accustomed to! But the Maestro managed to outdo himself in the category of tarting up the destructive behaviors of our new financial overlords. What about those regulators? Never never can they keep up with those clever bankers. Greenspan airbrushes out the fact that he is the single person most responsible for the need for massive catch-up. Not only due was he actively hostile to supervision (and if you breed for incompetence, you are certain to get it), but he also gave banks a green light to go hog wild in derivatives land. And on top of that, he allowed banks to develop their own risk models and metrics, which also insured the regulators would not be able to oversee effectively. And the most important omission is that the we just had a global economic near-death experience thanks to the recklessness of the financial best and brightest. You’d never know that if you read the Greenspan piece, which merely argues against the idea of restricting financial activity under the guise of objecting to certain provisions of Dodd Frank.

Greenspan Calls for New Economic Thinking - But not by him. “Unredeemably opaque”, so Alan Greenspan terms the operation of the invisible hand that guides international financial markets. He means this literally. “The problem is that regulators, and for that matter everyone else, can never get more than a glimpse at the internal workings of the simplest of modern financial systems.” If he had said “hardly ever get” rather than “can never get”, I think we could all agree.Indeed pretty much every economist I know thinks that a big part of the road forward is a much enhanced effort at data collection, so that in future we do get more than a glimpse. That is the whole point of the Financial Stability Oversight Council and the Office of Financial Research. But Greenspan also thinks that, even if we do manage to get a glimpse, it would not help us much, because the system is “more complex” than we contemplate, on account of “the degree of global interconnectedness of recent decades.” Why collect data, if you will never be able to understand it?

Is There Anyone in the World Who Is Demonstrably Less Competent Than Alan Greenspan to Pass Judgment on Financial Reform? - The Financial Times featured a column from former Federal Reserve Board Chairman Alan Greenspan arguing that the reforms in the Dodd-Frank bill will make financial markets less stable. Just in case you have forgotten, we have 25 million people who are unemployed, under-employed or have given up looking for work altogether because Alan Greenspan did not understand financial markets and the economy. Perhaps the FT will have a column offering advice on disaster management from Michael Brown.

The Exceptional Mr. Greenspan - Krugman - Alan Greenspan continues his efforts to cement his reputation as the worst ex-Fed chairman in history; in today’s FT, he comes out for a repeal of financial regulations designed to prevent a repeat of the crisis for which he, more than any other individual, bears personal responsibility. To be honest, I didn’t know quite how to respond; I was, very nearly, left speechless by the lack of self-awareness on display. But Henry Farrell shows us the way, pointing out that Greenspan’s piece contains this remarkable passage:  Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.  Henry then asks readers to chime in with other uses of the “with notably rare exceptions” phrase.

Fighting the Enemy Within - The wholesale deregulation of Wall Street, the financial crisis, the economic collapse, the multi-billion dollar bailout, and the subsequent GROWTH of the Too Big To Fail institutions at the center of the crisis indicate a system gone seriously wrong. Many of our elected officials leave office only to serve the corporations they used to oversee. More than 125 former congressional aides and former elected officials now work for financial firms. The 70+ former members of Congress who lobbied for Wall Street during the re-regulation debate include: two former Senate Majority Leaders (Trent Lott and Bob Dole), a former House Speaker (Dennis Hastert), and not one but two Dicks (Gephardt and Armey), both former House Majority Leaders. Perhaps this trend helps explain why the $13 trillion hole in GDP caused by the financial crisis has led to exactly NO criminal convictions. To add insult to injury, the President’s former head of the Office of Management and Budget just left the White House to join Citigroup, one of the banks at the heart of the crisis. Of course his multi-million dollar salary is likely just a fraction of that paid to Bob Rubin who joined Citigroup just days after ensuring the repeal of Glass-Steagall. How problematic could it be, really? Not nearly as problematic now-Treasury Secretary, then-head of the NY Fed Tim Geithner ensuring a 100 cents on the dollar payout to the banks during the AIG bailout.

Has the Growth of the Financial Sector Harmed the Economy? - A new study by the Kaufmann Foundation purports that the growth of the financial sector in the United States in recent decades has signficant economic costs over and above those costs of the current recession. The first problem, according to the study, is that the complexity of financial instruments has cannibalized employees who are otherwise the types of people who start businesses based on innovation: The financial sector, which includes lending, stock brokerage, complex securities and insurance, among many other services, derives enormous profits from collateralized debt obligations. These new products require such sophisticated engineering that the industry now focuses its recruiting on new master’s- and doctoral-level graduates of science, engineering, math and physics, and pays them starting wages that are five times or more what they would have earned had they remained in their own fields.

Who Will Rescue Financial Reform? - In what passes for self-restraint these days, House Republicans have been insisting that they do not intend to repeal last year’s Dodd-Frank financial reform law. Not in one fell swoop, anyway. A direct assault on Dodd-Frank would be so blatantly biased toward banks that it would be sure to provoke a public backlash. So the Republican plan is to delay and disrupt reform. The effort is partly ideological — an insistence that regulation is unnecessary, no matter the evidence to the contrary. It is also a campaign fund-raising ploy, because Wall Street will reward the opponents of reform. Of course, Democrats are themselves not indifferent to Wall Street campaign cash, which raises the question of how effectively they will counter the Republicans’ aims. Here are areas to watch.  DERIVATIVES Budget cuts could cripple the Securities and Exchange Commission¹ and the Commodity Futures Trading Commission² — which share the vital task of regulating the multitrillion-dollar derivatives market. The budget impasse in Washington has already frozen the agencies’ budgets, even as their rule-writing duties have exploded. Worse, prevailing Republican rhetoric, adopted in part by Democrats, portends more budget cuts, which would leave the agencies unable to enforce current rules, let alone new ones.

Why Banks Shouldn’t Turn Back the Derivatives Clock - NOSTALGIA is running high on Wall Street for the days when junk mortgage underwriting and opaque derivatives¹ trading juiced bank profits. As regulators continue to devise the machinery of the Dodd-Frank regulatory reform² law, major financial institutions are working overtime in Washington to bring the good times back again.  Unfortunately for taxpayers, some of these efforts are gaining traction, particularly regarding the regulation of derivatives and mortgages. Currency trading is enormous: on average, about $4 trillion of these contracts change hands each day. Major banks are huge in this market. According to the Comptroller of the Currency⁴, trading in foreign-exchange contracts generated revenue of $9 billion in 2010 at the nation’s top five banks. That’s more than was produced by any other type of derivative.  As you may recall, Dodd-Frank was supposed to shed light on derivatives trading so that the risks and costs of these instruments would be clear to regulators and market participants. To this end, the law required derivatives to be cleared and traded on exchanges or through other approved facilities. But Dodd-Frank contained a big loophole: the Treasury³ secretary can exempt foreign-exchange swaps from the regulation.

On financial regulation, it’s Warren vs. Dimon (Reuters) - Elizabeth Warren, the Obama administration's defender of financial consumers, will venture into the corporate lion's den this week, along with Jamie Dimon, CEO of banking giant JPMorgan Chase & Co. The two will be speakers at an event set for Wednesday at the U.S. Chamber of Commerce, the country's largest business lobbying group, in its Corinthian-columned headquarters situated within view of the White House.Warren, 61, is an earnest Harvard Law School professor brought up in Oklahoma, while Dimon, 55, is a consummate New York City insider and one of Wall Street's richest CEOs. He was once a close adviser to President Barack Obama on financial regulation policy, but has become a vocal critic of the administration's efforts, especially since passage in 2010 of the Dodd-Frank Wall Street reforms. She is helping the administration set up the Consumer Financial Protection Bureau (CFPB), a watchdog called for by Dodd-Frank to shield consumers from abusive practices in the mortgage and credit card businesses.

The Wall Street Journal's CFPB Smear Campaign Continues - The Wall Street Journal editorial page has its fourth hit job in two weeks attacking Elizabeth Warren. It's hard to think of the last time the WSJ editorial page assaulted any individual government official for such extended and personalized animus. (Maybe President Clinton or Elliot Spitzer?) And as I've noted before (here and here), the WSJ keeps stretching the facts in these percussive pieces. The WSJ's attacks are also way out of line with the mainstream media. You might say they're tone-deaf. Here's a litany of recent pieces supporting the CFPB: SFChronicle, Californian, Las Vegas Sun, Philadelphia Inquirer (and again here), Bangor Daily News, Miami Herald. It would seem that everyone except Wall Street understands the need for the CFPB and that Elizabeth Warren is the person for the directorship.  The WSJ raises three criticisms of Warren and the CFPB: The WSJ's real issue, however, isn't the level of the CFPB's accountability or funding or even its role in the servicing settlement. It's the CFPB's very existence.Congress ought to put Ms. Warren's unaccountable bureau under Treasury with an annual budget—or, better, put it entirely out of business.

The Elizabeth Warren Witch Hunt Continues - The latest chapter in the Republicans' Elizabeth Warren witchhunt would be farcical, if it didn't have such potentially serious consequences. Congressional Republicans are now demanding that Elizabeth Warren recant her Congressional testimony about her role in the non-existent mortgage servicing settlement.  The problem?  Professor Warren stated that she "advised" the Treasury Secretary on the settlement, whereas Republicans allege that: according to the CFPB Settlement Presentation, the CFPB did more than provide advice:  it recommended the goals and provided a detailed framework for the structure of the settlement....rather than merely dispensing advice to those involved in negotiating the settlement, the CFPB was actually its primary architect.  In other words, the Republicans are insinuating that Professor Warren misled Congress in her testimony because she said she "advised" when in fact she "recommended." This charge is truly laughable and shows what a desperate witchhunt the Congressional Republicans are conducting as part of their rear-guard action for the banks.

Bachus: Warren Overstepped Her Authority - Top Republicans on the House Financial Services Committee said Wednesday that they’ve uncovered new evidence that White House adviser Elizabeth Warren has “actually been deeply involved” in ongoing negotiations over alleged mortgage servicing abuses — not simply offering advice, as she has testified.Committee Chairman Spencer Bachus (R., Ala.) and Rep. Shelley Moore Capito (R., W.V.), chairman of the Financial Institutions and Consumer Credit panel, sent a letter to Ms. Warren, asking her if she wants to correct her recent testimony regarding the consumer bureau’s role in settlement negotiations with some of the nation’s largest mortgage servicers. The negotiations seek to address concerns that banks used flawed practices to process foreclosures. Ms. Warren, who is in charge of preparing the Consumer Financial Protection Bureau for its July launch, has faced criticism from congressional Republicans who say the bureau doesn’t have authority over mortgage servicing matters until it is formally launched.

What Is Spencer Bachus’s Game? - Simon Johnson - Representative Spencer Bachus, Republican chair of the House Financial Services Committee, famously remarked in December,“in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.” Specifically, Mr. Bachus is wrongly accusing Elizabeth Warren of misleading Congress with regard to the role of the CFPB in the negotiations over how to settle allegations that mortgage foreclosure practices have been abusive (see also this news coverage).  Ms. Warren told the House subcommittee on Financial Institutions and Consumer Credit that the CFPB provided advice in these negotiations.  Mr. Bachus and his colleagues have just discovered some specific slides that were apparently used as part of this advice. Impressed by the lucidity of these seven (7) slides, Mr. Bachus and Ms. Shelley Moore Capito (chair of that subcommittee) have jumped to the conclusion that the CFPB must be the primary architect of the government’s position. This is patently ludicrous. First, there is no settlement agreement yet firmly on the table.

The GOP's Pathetic Attack on Elizabeth Warren - Republicans in Congress love to attack Elizabeth Warren, the White House aide overseeing the start-up of the new Consumer Financial Protection Bureau (CFPB). At a March 16 hearing, House GOPers used Warren as a "punching bag," as one columnist put it, questioning her authority as the CFPB's for-the-time-being leader and predicting the bureau's imminent demise. None of those criticisms, however, compares to the pathetic accusation leveled by Reps. Spencer Bachus (R-Ala.) and Shelley Moore Capito (R-WV) in a letter (PDF) sent to Warren on Wednesday. Bachus and Moore Capito accuse Warren of misleading Congress about the CFPB's role in the negotiations over a proposed settlement for the mortgage servicing industry. The settlement—which has been savaged by Republicans, the Wall Street Journal's editorial page, and other conservatives—will likely demand that servicers fix their dysfunctional operations so that homeowners aren't ripped off and improperly foreclosed on, an all-too-common occurrence. Warren told Congress that the CFPB offered advice on what the settlement should contain. But in their letter, Bachus and Moore Capito say Warren's agency "did more than provide advice: it recommended the goals and provided a detailed framework for the structure of the settlement." It's a clear insinuation: you lied to us.

Elizabeth Warren All Smiles in the Lion’s Den - For the supposed bane of Wall Street, an ex-professor whose critics like to cast as an overzealous regulator champing at the bit of Big Government, Elizabeth Warren is actually quite fluent in the language of Big Business. "Rules should be focused, and those that are not useful should be revised or eliminated," she told the U.S Chamber of Commerce's Capital Markets Summit on Wednesday, pledging that the newfangled Consumer Financial Protection Bureau she's setting up for the Obama administration would heed the corporate lobbying group's call to "prevent duplicative and inconsistent regulation of Main Street business." That friendly appeal to big biz chiefs isn't really new — it's exactly what Warren has been doing for months as she tours the country, meeting with bankers to try to convince them the CFPB is a worthy pursuit. She's also made several high-profile hires of ex-Wall Streeters, including former Deutsche Bank managing director Raj Date, now the bureau's associate director for research, markets and regulations, and community bank liaison Elizabeth Vale, formerly of Morgan Stanley. But Warren's insistence that all she wants is "a regulator with limited powers and the independence necessary to execute its authorities effectively" was a tough pill for the Chamber crowd to swallow.

How credit card companies want to debit you, by Dean Baker: Would you like to increase the sales tax in order to pay the banks another $12bn a year in profits? That is the issue that is being debated in Washington, these days. In case you missed it, this is because the issue is usually not discussed in these terms. The immediate issue is the fee that credit card companies are allowed to charge on debit card transactions.We have two credit companies, Visa and MasterCard, who comprise almost the entire market. This gives them substantial bargaining power.  Visa and MasterCard have taken advantage of their position to mark up their fees far above their costs. This is true with both their debit and their credit cards, but the issue is much simpler with a debit card. While costs are quite small, the credit companies take advantage of their bargaining power to charge debit cards fees in the range of 1-2% of the sale price. They share this money with the banks that are part of their networks.This fee is, in effect, a sales tax. Since the credit companies generally do not allow retailers to offer cash discounts, they must mark up the sales price for all customers by enough to cover the cost of the fee. This seems especially unfair to the cash customers. Those paying in cash tend to be poorer than customers with debit or credit cards, which means that this is a transfer from low- and moderate-income customers to the banks.

Interchange Under Attack - In general, I'm not concerned about the GOP's efforts to roll back financial reform. House Republicans can pass all the bills they want; they're not going to get a vote in the Senate. However, the one aspect of financial reform that I think could legitimately be rolled back is interchange (a.k.a., the Durbin amendment), which is unfortunate, because I still haven't heard a single legitimate argument against it. The problem is that the Durbin amendment has a ridiculously powerful coalition lined up against it — the community banks, credit unions, and, apparently, the teachers' unions. And yes, the big commercial banks too, although (a) it's the community banks who are driving the anti-Durbin movement, and who could put it over the top, and (b) the big banks' power in Congress is wildly, absurdly overrated anyway. As Barney Frank said recently regarding the fight over rolling back the Durbin amendment: "The lobbying power doesn't come from the big banks. The community banks beat the big banks." Of course, the opposition from JPMorgan/Wells Fargo/BofA is certainly still a factor — mostly what they can bring is a certain professionalization to the lobbying effort.

More Bogus Lobbying Numbers from the Banks: Debit Interchange Rates - You gotta love the American Bankers Association. These guys just don't stop trying. They're the Hamburgler of the lobbying world. The ABA now has a little piece out now entitled "Merchant Interchange Rates are Steady—Transaction Volumes Are Rising". This piece is incredibly dishonest; they couldn't even get any academic or even hired-gun econosultant to sign on to it. All that's missing is a claim about death panels or al-Qaeda.  The ABA claims that interchange rates have remained basically static since 2000, and that the real issue is just that merchants are doing more transactions: Consumers are using their debit cards more and more with each passing year.  Yet the interchange rate that merchants pay when they choose to accept debit cards for payment has remained relatively steady.  Simply put, since interchange fees are a relatively small and constant percent of transactions, the rise in total interchange fees paid is a sign of the success of retailers in selling more products, not a sign that merchants are being charged more.  (Emphasis in original.) The evidence?  This graph, sourced to the Nilson Reports.

Complexity and War or How Financial Firms Wreck Economies for Fun and Profit - Yves Smith - There’s a great post up, “Human Complexity: The Strategic Game of ? and ?,” by Richard Bookstaber, former risk manager, author of the book A Demon of Our Own Design and currently an advisor to the Financial Stability Oversight Council. As insightful as it is, Bookstaber does not draw out some obvious implications, perhaps because they might not be well received by his current clients: that the current preferred profit path for the major capital markets firms is inherently destructive.  I suggest you read the post in its entirety. Bookstaber sets out to define what sort of complexity is relevant in financial markets: Information theory takes the concept of “entropy” as a starting point: essentially, the minimal amount of information required to describe a system. Related to this is a measure called thermodynamic depth, which looks at the energy or informational resources required to construct the systemic. The idea is that a more complex system will be harder to describe or to reconstruct, though this is problematic because it will look at random processes as complex; for example, by these sorts of measures a shattered crystal is complex….

Make No Mistake - Taking in Charles Ferguson's excellent documentary, Inside Job, about the dark doings of Wall Street in our time, I confess I was awestruck all over again at the complete surrender of Obama to the very characters who embodied the corruption that rotted our system from the heart outward. Summers, Rubin, Geithner, and a host of other revolving door grifters who did everything possible to set up the implosion of banking, defeat the rule of law in money matters, and ruin millions who wanted nothing more than something useful to do in this society for a living wage.  Most impressive of all in this brave film were the shameless academic mandarins caught on camera trying to weasel out of their greed-driven misdeeds - Glenn Hubbard, chair of the Columbia University Econ department, a perfectly programmed polished WASP (like out of a "Ken" doll box) on the outside, slithering corruption inside, who played a major role in removing all restraints on Wall Street, then served as a director on the boards of several predatory financial giants, including the biggest, Black Rock, and pretended not to remember if he got paid for it; Martin Feldstein of the Harvard Econ department, in-and-out of government like a rat in a cheese-box, who sat on the board of AIG in the months before it blew itself up on credit default swaps, and who saw nothing about the company's operations that gave off a bad odor after it entered the most massive government receivership the world has ever seen; and most memorably Fred Mishkin, former Federal Reserve governor, now an academic rover, who wrote a cheerleading report for the Icelandic banking system about five minutes before it collapsed, then changed the report's title from Financial Stability in Iceland to Financial Instability in Iceland, then denied it on camera in the face of obvious evidence, then forgot whether he got paid six-figures to write the glowing report, then dissolved on camera into a maundering puddle of indignity and humiliation. How do these rogues survive the disclosure of their turpitudes? Is there no one at places like Harvard and Columbia who has any sense of shame or even an inkling of disappointment that they employ such odious hustlers? Apparently not. This is a system with no mechanism of self-regulation left. And there's Obama at the tippy-top of it serving like a department store mannequin with a Department of Justice that someone has hung a "gone fishin'" sign on. I voted for him in 2008, and I want to start a movement in whatever's left of the Progressive core to get rid of him. Being a decent, presentable fellow with a nice family is just not enough. Even his vaunted speech-making abilities have gotten on my nerves. If I hear him say "make no mistake" one more time, someone will have to restrain me from kicking in the flat screen TV. Obama, it turns out, is the mistake.

Friends Don’t Let Friends Get Into Finance - After having been a tech executive for many years, I needed to take a break, and I wanted to give back to society. Duke University engineering dean Kristina Johnson gave me a great spiel about how the school’s Masters of Engineering Management program churns out great engineers, and how engineers solve the world’s problems. She said that I could make a big impact by teaching engineering students about the real world and encouraging them to become entrepreneurs. I felt so excited that I joined the university without even asking for a proper salary. That was in 2005.I was shocked—and upset—when the majority of my students became investment bankers or management consultants after they graduated.  Hardly any became engineers. Why would they, when they had huge student loans, and Goldman Sachs was offering them twice as much as engineering companies did?So when the investment banks tanked in 2008, I cheered because engineering had become sexy again for engineering grads (read my BusinessWeek column). But thanks to the hundred-billion-dollar taxpayer bailouts, investment banks recovered and went back to their old, greedy ways.  And they began offering even more money to engineering grads (and themselves).

Magnetar Strikes Again: JP Morgan Negotiating Settlement with SEC on Toxic CDO -- Yves Smith - Magnetar constructed a strategy that was a trader’s wet dream, enabling it to show a thin profit even as it amassed ever larger short bets (the cost of maintaining the position was a vexing problem for all the other shorts, from John Paulson on down) and profit impressively when the market finally imploded. Both market participant estimates and repeated, conservative analyses indicate that Magnetar’s CDO program drove the demand for between 35% and 60% of toxic subprime bond demand. And this trade was lauded and copied by proprietary trading desks in 2006. As a source who worked in the structured credit area of a firm that did Magnetar trades explained in ECONNED:At their peak, Magnetar was *THE* driver of RMBS [residential mortgage backed security] CDO issuance. The size of their “Constellation” program was the most amazing thing I’ve seen in my entire career. . . .Magnetar’s idea was that CDOs were destined for long term failure—that the leverage on leverage based on cr*p assets made the BBB tranches long-term zeros. And, they realized that while most other hedge funds were content shorting the BBB tranches from subprime RMBS, shorting BBB tranches from RMBS CDOs was a much more slam dunk of a trade.

It’s SOS for the S.E.C.! Polite Mary Schapiro Polices the Plutocrats - Few cops are as well liked as Securities and Exchange Commission Chairman Mary Schapiro. "Oh, Mary is just a really nice, good person," former S.E.C. commissioner Isaac Hunt told The Observer. "I don't think anyone doesn't love Mary." Niceness and an open mind aren't usually the first qualities one looks for in a sheriff, someone who would rarely be able to maintain her integrity and be universally beloved at the same time. Perhaps that's why some outside Washington look at Ms. Schapiro and see someone a little less fearsome than Wyatt Earp, Eliot Ness or Theo Kojak."Well, you've got to think she's at least extraordinarily incompetent," said Tom Ferguson, a political science professor at the University of Massachusetts who specializes in financial regulation, referring to the recent scandal around Ms. Schapiro's general counsel, David Becker.

Gov’t emails: Political reviews over requests for US records ‘meddling,’ ‘crazy’ and ‘bananas’ - Insiders at the Homeland Security Department warned for months that senior Obama administration appointees were improperly delaying the releases of government files on politically sensitive topics as sought by citizens, journalists and watchdog groups under the Freedom of Information Act, according to uncensored emails newly obtained by The Associated Press.The highly unusual political vetting was described as “meddling,” “crazy” and “bananas!” It is the subject of a congressional hearing later this week and an ongoing inquiry by the department’s inspector general. Concerns came even from the official put in charge of submitting files to the political staff of Homeland Security Secretary Janet Napolitano for the secretive reviews. Chief Privacy Officer Mary Ellen Callahan, who was appointed by Napolitano, complained in late 2009 that the vetting process was burdensome and said she wanted to change it.Callahan is expected to be a central witness during an oversight hearing Thursday by the House Government Reform and Oversight Committee. In emails, she warned that the Homeland Security Department might be sued over delays the political reviews were causing, and she hinted that a reporter might find out about the political scrutiny.

Not bad work if you can get it - LAST year, 25 hedge fund managers earned a combined $22 billion. That's a lot of money! But of course they deserved the pay, right? David Shaw of D. E. Shaw, a firm that uses complex algorithms to determine its investments, made the list with income of $275 million, even though his biggest fund returned a paltry 2.45 percent and over all the firm lost 40 percent of its assets, the magazine said. AR Magazine said Mr. Shaw, who gave up day-to-day oversight of the funds in 2002, made the list because the firm charged a 3 percent management fee and took 30 percent of the investment gains. Should any investors be interested, I'd be happy to lose 40% of their money for, say, $100m.

Banks Still Earning Interest on $1 Trillion Reserves Thanks to Federal Reserve - The nation’s largest financial institutions continue to sit on more than $1 trillion in excess reserves, a fact that has stymied economic growth during the recovery and that now poses a serious dilemma for the Federal Reserve. These are reserves beyond those that the financial institutions are required to hold. It was the Fed that allowed banks to accumulate such an enormous amount of money, after loaning hundreds of billions of dollars at near zero interest rates to teetering institutions during the financial crisis. The public was told that this was necessary so that the banks could start lending, but instead of lending, they kept the bulk of the money. On September 1, 2008, the banks’ excess reserves totaled $1.9 billion. By February 2, 2011, their hoard had grown to $1.2 trillion. And, since October 2008, the banks have been allowed to collect interest on the excess reserves. At a rate of 0.25%, they gained $2.7 billion from taxpayers in 2010. Now Federal Reserve chairman Ben Bernanke is advocating raising the interest rate on reserves.

Financial Profits - As the chart below shows, profits at financial companies accounted for 28.72% of all corporate profits at the end of 2010.  The rise in financial profitability relative to all other corporate profits should not shock anyone considering the Federal Reserve’s mission to keep the yield curve artificially steep.  As we said in 2009: As the yield curve rises, financial sector companies make more money relative to non-financial companies.  As the yield curve falls the financial companies lag behind.  The exception to this rule is the latest period which shows a big divergence between financial sector profitability and the shape of the yield curve.  This can be explained by the huge write-downs by financial companies over the last two years.  But notice the record steep yield curve has caused financial sector profitability to bounce back sharply in the last three quarters.Sum it up and the most important driver of all American corporate profitability could be the shape of the yield curve.  The biggest driver of the yield curve is government manipulation of the front-end Federal Reserve Policy.

Record corporate profits: Why aren't they good for the U.S. economy? - On Friday the federal government released the latest chapter of a year-old economic mystery: If you're a corporation, the economy is great. If you're a worker, the economy is still pretty horrible. According to the Bureau of Economic Analysis, real corporate profits neared an all-time high in the last three months of 2010, with companies raking in an annualized $1.68 trillion in pre-tax operating profits. (After tax, that comes to $1.25 trillion, about equal to the GDP of India.) The Federal Reserve estimates that companies are sitting on about $1.9 trillion. At the same time, unemployment remains at 8.9 percent, and job growth is still anemic. How can the corporate economy be so profitable while the jobs economy remains so weak? Part of the answer lies in improved productivity. When the recession hit, businesses fired millions of workers then asked the rest to make up the difference—and, in many cases, they did. Productivity increased 3.9 percent in 2010, while labor costs fell. To simplify: Businesses paid fewer workers to do more. In addition, big corporations found customers overseas. Americans might not be ready to spend just yet, but consumers in Asia and elsewhere are—exports climbed 21 percent to $1.28 trillion in 2010.

How Wall Street Crooks Get Out of Jail Free - When Charles Ferguson received an Oscar for his documentary on the financial crisis, Inside Job, he reminded the audience that “not a single financial executive has gone to jail, and that’s wrong.” Given the abundant evidence of massive fraud, Americans everywhere have asked the same question: Why haven’t any of those bankers gone to jail? If federal investigators could not establish criminal intent for any top-flight executives, didn’t they have enough evidence to prosecute banks or financial houses as law-breaking corporations?Evidently not. Except for occasional civil complaints by the Securities and Exchange Commission, the nation is left to face a disturbing spectacle: crime without punishment. Massive injuries were done to millions of people by reckless bankers, and vast wealth was destroyed by elaborate financial deceptions. Yet there are no culprits to be held responsible

The Costs of the Toubled Asset Relief Program - Today CBO released the fifth of its statutory reports on transactions undertaken as part of the Troubled Asset Relief Program (TARP)—the program established in October 2008 to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of “troubled assets.” The estimate of the cost of the TARP’s transactions provided in this report is the same as that provided in CBO’s most recent baseline budget projections issued on March 18. CBO’s analysis reflects transactions completed, outstanding, and anticipated under the TARP as of March 3, 2011. In sum:

• CBO estimates that the cost to the federal government of the TARP’s transactions, including grants for mortgage programs that have not been made yet, will amount to $19 billion.  
• That cost stems largely from assistance to American International Group, aid to the automotive industry, and grant programs aimed at avoiding foreclosures
• CBO’s current estimate of the cost of the TARP’s transactions is $6 billion less than the $25 billion estimate shown in the agency’s November 2010 report on the TARP and in its January 2011 baseline projections.
• CBO’s estimate is well below OMB’s latest estimate of $64 billion, largely because of different assessments of the cost of the Treasury’s housing programs under the TARP.

Robert Samuelson’s Troubled TARP Arithmetic - We know that arithmetic is not the strong suit of the Washington Post and Robert Samuelson drives this point home again today with his discussion of the TARP. Samuelson tells us that TARP is now projected to cost just $19 billion and that the final cost may actually be lower. He also tells us that the alternative to TARP, bank nationalization would have been far more costly. And, he said that without TARP the unemployment rate would be, "would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent." Okay, let's take these in turn. First, the idea that the TARP cost almost nothing is based on some very shoddy accounting.  In the Robert Samuleson world, the government is earning a $100 billion profit on this investment ($10 billion a year for 10 years). Economists familiar with opportunity costs would instead see this as a huge loss to the government, since it is giving me an enormous loan at an interest rate that is several percentage points below the market rate.

TARP: Success or failure? Depends on who you think it was supposed to help. - The entire economy teetered on the brink, with bank failures, business shutdowns, and massive unemployment looming. To keep that disaster at bay, the Federal Reserve and Congress needed to fix finance first. The bill became known as the "bailout bill," and its most famous provision was the Troubled Asset Relief Program, or TARP. Now, 30 months later, TARP is in the process of winding down. Depending on who's assessing it, it is either one of the most successful government responses to an economic crisis or one of the least. "It isn't often that the government launches a major program that achieves its main goals at a tiny fraction of its estimated costs. That's the story of TARP," Washington Post columnist Robert Samuelson wrote this week, calling the program a "success story." Yet Neil Barofsky, the special inspector general for the program, wrote just the opposite in the New York Times, calling portions of the program a "colossal failure" and saying the Treasury Department refused to acknowledge or fix its mistakes.

Where the Bank Bailout Went Wrong - Neil Barofsky - TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.  From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”  Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured.  These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

Former TARP Official on TARP: A Big Fat Failure, Mostly - Neil Barofsky, the soon-to-be-former Special Inspector General of the Troubled Asset Relief Program - the government's $700 billion fund to bailout the banks - was never well liked at the Treasury Department, even though that is technically where he worked. Timothy Geithner reportedly repeatedly tried to have him fired, or at least have Barofsky's role downsized. Now it appears the feelings were mutual. Barofsky was confirmed by the Senate back in December 2008 to be one of two watchdogs who monitored how the Treasury Department doled out the $700 billion fund that Congress approved at the height of the financial crisis to bailout the banks and save the economy. (The other was Elizabeth Warren who for a while ran the Congressional Oversight Panel for the bailout.) Today is his last day. To mark the occasion Barofsky has an Op-Ed in the New York Times on his final assessment on whether the Treasury Department and Geithner in particular went about spending those funds wisely. Barofsky's take: Heck No.

Not with a Bang - In the Times, Neil Barofsky, Special Inspector General for TARP, performed the admirable feat of fitting a clear, comprehensive, sober critique of how TARP was implemented and what its long-term impact will be in fewer than 1,000 words. It’s a perspective I mainly agree with,* and it highlights the different priorities that the administration put on aid to large banks and aid to homeowners, even though both were goals of the bill.Back in late 2008 and early 2009, there was a lot of talk about how a true solution for the problems of the banking system would require a solution for the problems of homeowners, since the banks’ losses were largely the result of mortgage defaults. One of the major technical achievements of the administration was showing that it was possible to stabilize the financial system and restore the banks to short-term profitability without doing much for homeowners. As Barofsky says, and as the Times reports in yet another article today, the administration’s programs to help homeowners obtain loan modifications had little impact on the behavior of the banks that service mortgages and foreclosures continue unabated. Real housing prices have fallen below the previous lows of 2009 and now look likely to overcorrect on the downside.**

Fed to Name Banks That Sought Funding During Crisis - The Federal Reserve is set to release a new trove of documents detailing which banks came to it hat-in-hand during and in the aftermath of the financial crisis. Fed officials have warned that naming the recipients of borrowers from its traditional discount window — which typically makes overnight loans to banks that are short of funds — could make firms more vulnerable in a crisis by making them reluctant to seek help when needed.The agency resisted making the disclosures until federal courts demanded it, scheduling the document release only after the U.S. Supreme Court declined to intervene.The Fed will on Thursday release about 25,000 emergency-lending documents spanning a period from Aug. 7, 2007 until March 1, 2010. The data includes details for the peak month of October 2008, a month after Lehman Brothers filed for bankruptcy during the depth of the crisis, when discount-window loans soared to $111 billion.

Extend And Pretend Is Wall Street's Friend - The storyline that has been sold to the public by the Federal government, Wall Street, and the corporate mainstream media over the last two years is the economy is recovering and the banking system has recovered from its near death experience in 2008. Wall Street profits in 2009 & 2010 totaled approximately $80 billion. The stock market has risen almost 100% since the March 2009 lows. Wall Street CEOs were so impressed by this fantastic performance they dished out $43 billion in bonuses over the two year period to their thousands of Harvard MBA paper pushers. It is amazing that an industry that was effectively insolvent in October 2008 has made such a spectacular miraculous recovery. The truth is recovery is simple when you control the politicians and regulators, and own the organization that prints the money. A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate.

FDIC and SEC: Suing banks over offenses government ignored. - A couple of weeks ago, the government started signaling, at long last, that it was ready to get tough on the bankers who caused the 2008 financial crisis. On March 16 the Federal Deposit Insurance Corporation, or FDIC, sued three former top executives of Washington Mutual, or WaMu, for taking "extreme and historically unprecedented risks," thereby causing the bank to lose "billions of dollars." That same day, the New York Times reported that the Securities and Exchange Commission had sent so-called Wells notices—often a sign that civil charges are imminent—to a handful of former executives at mortgage-securitization giants Fannie Mae and Freddie Mac. The targets seem well-chosen. The collapse of WaMu, acquired by JPMorgan Chase at a fire-sale price in the fall of 2008 was, according to the FDIC, the biggest bank failure in U.S. history. The FDIC is seeking to recover $900 million from the three bankers. Fannie and Freddie were taken over by the government in the fall of 2008. So far, they have cost taxpayers about $130 billion.

Unofficial Problem Bank List at 985 Institutions, Correction for Capitol Bancorp -- Note: this is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for Apr 1, 2011. Changes and comments from surferdude808:  All enforcement actions against the banks on the Unofficial Problem Bank List were terminated this week leaving us nothing to publish. April Fools! In reality, however, it was a fairly safe & sound week as no new banks were added to the list nor were there any failures. The only change was the OTS issuing a Cease & Desist Order against Brooklyn Federal Savings Bank, Brooklyn, NY ($489 million Ticker: BFSB), which was already operating under a Supervisory Agreement.

Emergency Unlimited FDIC Coverage Extended to Clearing Accounts Until 2013 - Someone brought this to my attention, as I had not heard of it. It is not so much what they are doing, but why now?  Temporary Unlimited Coverage for Noninterest-bearing Transaction Accounts - FDIC. With recovery supposedly at hand, and the financial crisis over thanks to Ben and Timmy, I wonder why they would enact unlimited FDIC coverage for what sounds like checking accounts and commercial clearing accounts.  The only thing that occurred to me was that in the event of a bank run, it might be intended to prevent another short term credit seizure such as was experienced in the financial crisis.  But why now? And why use FDIC to do take on this unlimited liability, far in excess of what it was intended to do? I doubt very much that this is designed to protect individuals per se, given the exclusions.Curious. Perhaps I am missing something here

Moody's Downgrades Most Of $4.1 Billion In Alt-A RMBS From Countrywide - Moody's Investors Service downgraded most of a $4.1 billion batch of Alt-A residential-mortgage backed securities issued by Countrywide Financial, as the agency continues to lower its expectations on underlying loans.The firm has downgraded billions of the RMBS because of loss expectations on them as home prices have remained weak and unemployment stays elevated. Moody's most recently cut the ratings on 159 tranches and confirmed the ratings on five tranches from 20 Alt-A deals issued by Countrywide, which was bought by Bank of America Corp. (BAC). The collateral backing these deals primarily consists of first-lien, adjustable-rate Alt-A residential mortgages.The agency said the downgrades reflected its updated loss expectations on Alt- A pools issued before 2005. It said although most of those pools have been paid down significantly, the remaining loans are under pressure from housing and wider economic stress.

Regulators to Set Rules on Mortgage Securities - Banks will be forced to retain some risk when they securitize all but the most conservative mortgages under rules that regulators are expected to vote on Tuesday. But the banks are likely to be given wide leeway in determining what risks to keep. Major banks, hoping to revive the mortgage securitization market that crumbled when many securitizations proved to be anything but safe, had asked regulators to define almost any mortgage — except for the most extreme types no longer being written anyway — as a “qualified residential mortgage.” But a summary of the proposal, provided to The New York Times on Monday night by a person briefed on the decision, showed that the regulators rejected that advice and decided that only the most conservative mortgages would qualify. Securitizations of any other mortgages would require the banks to retain “skin in the game” of at least 5 percent of the risk.

New Rule: Banks Exempt from New Mortgage Rules - Long awaited FDIC "skin-in-the-game" mortgage rules are out. Amusingly, banks are largely exempt from the new rules. On one hand it's hard to make this stuff up, on the other hand it seems laughably easy to believe. My ears say the proposal sounds like it came straight from "The Onion". Please consider FDIC’s plan for ‘skin-in-the-game’ loans Federal regulators drafting tighter underwriting standards for mortgages are planning to exempt banks from a key rule if they sell loans to two seized mortgage-buying giants. The long-awaited proposal is due to be publicly released by the Federal Deposit Insurance Corp. Tuesday, and the proposal was obtained ahead of that by MarketWatch. At issue is a provision in the Dodd-Frank Act that requires banks to have “skin in the game” — namely, by retaining 5% of the risk of loans they package and sell.

Who Speaks for a CDO ? - It has been asserted that many mortgage servicing contracts are inefficient, because they give the servicer incentives to foreclose even when re-negotiation would be better for the owner of the mortgage. An inefficiency is a profit opportunity. If there are such contracts, then a different contract can generate higher revenue for both the servicer and the final owner. If this is a problem, then it is especially tricky in the case of mortgages owned by special purpose entities which issued various debt like tranches and an equity tranche (owned by the sponsor). In such cases, for all I know, any renegotiation of the service contract might be forbidden, but I think it is more likely that the sponsor as equity holder could renegotiate the contract with the mortgage servicer. The problem is that, for many CDOs the equity stake is worthless and would remain worthless even if the mortgage servicing contract were improved.

Skin in the game, or skin-deep? - THE idea of forcing issuers of securitised assets to keep some “skin in the game”, by holding on to a chunk of the risk in those assets, has been floating for ages now. It moves a large step closer to reality in America today, with a planned vote by the Federal Deposit Insurance Corporation (FDIC) to adopt a proposal on how to implement this risk-retention rule. The proposal, which is being put forward jointly with other agencies, covers plenty of asset classes but the one that matters is mortgages. The new rules codify the underwriting criteria for “qualified residential mortgages” (QRMs), mortgages that are deemed safe enough to eschew a risk-retention requirement. These criteria are conservative: they include a maximum loan-to-value ratio of 80% for new loans, and do not allow for any benefit from taking out mortgage insurance. For loans that do not meet these criteria, securitisers have to hold an unhedged interest of not less than 5% of the risk. Here the proposal offers more flexibility. Securitisation sponsors can split the risk with originators of the loans in question; they can choose to take a “first-loss” position, so they get hit first in the event of defaults, or 5% slices of each of the tranches in a securitisation structure; and they can hold risk in assets that are equivalent to those that have been securitised.

Lawler: The “Shrill Cry” from Lobbyists on QRM - In the following long post, housing economist Tom Lawler clears up some misunderstandings and misinformation regarding the new proposed mortgage rules: The “Shrill Cry” from Lobbyists on QRM Yesterday the Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); U.S. Securities and Exchange Commission (Commission); Federal Housing Finance Agency (FHFA); and Department of Housing and Urban Development (HUD) jointly issued their proposed rule on “credit risk retention” for assets collateralizing asset-backed securities pursuant to the Dodd-Frank Act, and the proposed rule included a proposed definition of a “qualified residential mortgage (QRM)” For ABS backed by QRMs, the DFA provides for an exemption of the risk-retention rule. For folks who don’t remember, the “inclusion” of an exemption for QRMs was in the act because of heavy lobbying by financial institutions and housing-related trade groups, and it put regulators in the uncomfortable position of trying to decide what types of mortgages were so inherently “low risk” that they should/could be excluded from the rule designed to ensure that ABS issuers had “skin in the game.”

Frank: New Mortgage-Securities Rules Should Apply to Fannie, Freddie - A key House Democrat said Wednesday he will work to pass legislation mandating that new rules for mortgage-backed securities apply to federally controlled mortgage giants Fannie Mae and Freddie Mac. The move by Rep. Barney Frank (D., Mass.), the top Democrat on the House Financial Services Committee, represents an effort to reverse a decision announced by bank regulators earlier this week. It also is a rare area of agreement with House Republicans on a potential change to the Dodd-Frank financial overhaul that bears his name. The financial-overhaul law passed last summer requires banks to hold 5% of the credit risk for mortgages and other loans bundled together and sold as securities. The law requires issuers of those securities to retain 5% of the credit risk on the theory that they will adopt more prudent lending standards because they will have “skin in the game.”

The Next Big Housing Crisis? - With millions of American homes in immediate danger of foreclosure and bank solvency still an issue, time is running out to resolve two incompatible agendas that the Obama administration has pursued since it took office. On the one hand, regulators are allowing “too big to fail” banks to conceal losses, which might reveal that they are insolvent, by allowing these institutions to keep large portfolios of second-lien mortgages on their books at close to pre-bubble values. (Second-lien loans include home equity lines of credit as well as piggyback mortgages—the high-interest loans that were typically used to finance 15–20 percent of a home’s cost.) On the other hand, the administration is trying to save homeowners from foreclosure through its troubled Home Affordable Modification Program (HAMP), which has focused almost exclusively on first-lien loans—more than 90 percent of which are owned by Fannie Mae and Freddie Mac (and thus backed by taxpayers) and by smaller banks and investors in mortgage-backed securities.

GOP lawmakers to unveil own plan to wind down Fannie Mae, Freddie Mac - A month-and-a-half after the White House announced its plan to wind down Fannie Mae and Freddie Mac¹, House Republicans on Tuesday plan to introduce their own. According to congressional sources familiar with the matter, a series of eight bills by Republicans will call for hiking fees charged to borrowers in two years and taking other steps to shrink the companies’ footprint in the housing market. The bills will call on Fannie and Freddie to begin to sell their massive portfolios of mortgage investments, which keep rates low, and would take away other advantages enjoyed by the companies that banks and private-sector firms don’t have.They would also formally end requirements that Fannie and Freddie direct a portion of their business to low- and moderate-income housing (these have been suspended for several years) and pay the employees of the companies only what counterparts in the federal government earn.

The Failures of Fannie: Responsibility for the Mortgage Servicing Mess - Fannie and Freddie, whatever one thinks of them in their role as guarantors, are a serious part of the problem in the mortgage servicing world--and they long have been. As an initial matter, consider that Fisher and Shapiro, the Illinois firm that admitted to altering affidavits to add fees, is an approved Fannie Mae firm to foreclose on homeowners in Illinois. You can verify this for yourself on Fannie's publicly available "retained attorney list." Fannie pulled a couple of Florida firms off its list following allegations of misbehavior according to Housing Wire, but this type of "oops, a bad one slid by" reaction from Fannie is exactly part of the problem. It is still treating mortgage servicing as a "bad apple" problem and not a "rotten barrel" problem. Of course, Fannie built the barrel to a large extent through its servicing guidelines, so perhaps Fannie is incapable of rethinking mortgage servicing.

Made-Up Definitions - Many commentators who want to blame Fannie and Freddie for the financial crisis base their arguments on analysis done by Edward Pinto. (Peter Wallison bases some of his dissent from the FCIC report on Pinto; even Raghuram Rajan cites Pinto on this point.) According to Pinto’s numbers, about half of all mortgages in the U.S. were “subprime” or “high risk,” and about two-thirds of those were owned by Fannie or Freddie. Last year I pointed out that Pinto’s definition of “subprime” was one he made up himself on the somewhat obscure 13 Bankers blog that was mainly explaining what went wrong with a footnote in that book.Fortunately, there’s a much more comprehensive treatment of the issue by David Min. One issue I was agnostic about was whether prime loans to people with low (<660) FICO scores should have been called “subprime,” following Pinto, or not, following the common definition. Min shows (p. 8) that prime loans to <660 borrowers had a delinquency rate of 10 percent, compared to 7 percent for conforming loans and 28 percent for subprime loans, implying that calling them the moral equivalent of subprime is a bit of a stretch. Min also shows that most of the Fannie/Freddie loans that Pinto classifies as subprime or high-risk didn’t meet the Fannie/Freddie affordable housing goals anyway — so to the extent that Fannie/Freddie were investing in riskier mortgages, it was because of the profit motive, not because of the affordable housing mandate imposed by the government.

FHA slow to flag problem lenders, stop them - When the Federal Housing Administration¹ stopped a New York² mortgage company from making FHA loans in June, the move came nearly three years after agency records flagged the company’s lending practices as potentially fraudulent. The FHA, the government agency created to help increase homeownership, knew since at least October 2007 that Cambridge Home Capital posed a danger to home buyers and repeatedly violated the agency’s safe-lending standards. Even so, a USA TODAY investigation found, the agency continued to approve mortgages issued by the company.

How will the AGs enforce the mortgage settlement? -- Alex Ulam has a must-read article in American Banker which shows the biggest pitfall likely to face the mortgage servicers’ settlement with state attorneys general: enforcement. AGs in general are much better at prosecutions and at negotiating settlements than they are at keeping close tabs on banks to make sure they’re doing what they agreed to do. On top of that, banks find it much easier and cheaper to simply deny allegations that they’re violating the terms of a settlement, and to fight those allegations in court, than they do to actually fix what’s broken. The problem seems to be that banks are not entering into these settlements in good faith — as is evidenced by the banks’ behavior following a smaller settlement in 2008.

The Sandbagging of Elizabeth Warren (and 49 State Attorneys General) - Yves Smith - I don’t know who is pulling the strings, but any objective look at the so called mortgage settlement negotiations shows that a lot of people are being played for fools. Precisely because Elizabeth Warren is being attacked so forcefully by the Wall Street Journal and other banking industry loyalists, too many of her erstwhile defenders are giving a free pass to the fact that the Administration itself is undermining her, and with her, any attorneys general who sign up for the settlement, assuming it ever sees the light of day.  Recall the Team Obama modus operandi: getting something done, no matter how lame, compromised, or even counterproductive it is, is considered to progress because it presumably can be swaddled in enough propaganda to be made attractive to a presumed to be chump public. Never mind that Obama’s flagging poll ratings and the abysmal mid-term Congressional results, where the Blue Dogs, the Democrats philosophically most aligned with Obama, were mowed down, show that that strategy is becoming less and less effective. Recall in the runup to the mid-terms how many Democratic Congressional candidates were straining to distance themselves from Obama.  The Democratic state attorneys general have even less to gain by playing nice with this Administration. Some are from states that are solidly liberal and/or so hard hit by the mortgage meltdown that being seen to be soft on banks would be political suicide.

The Consumer Financial Protection Bureau’s Bogus Mortgage Settlement Math - Yves Smith - A new article by Shahien Nasiripour of Huffington Post, “Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds,” includes a presentation from the Consumer Financial Protection Bureau dated February 14 prepared for Tom Miller, the Iowa Attorney who is leading the 50 state attorneys general foreclosure fraud settlement negotiations. If I were a betting person, I’d wager this document was leaked to show that the Administration and the AGs did not just make up the $20 to $30 billion settlement figure that has been bandied about as their ask, but have a sound, reasoned basis for their demand.Unfortunately, the document simply proves that they did make up the $20 to $30 billion figure. Not only is the analysis effectively fabricated, it’s the wrong analysis. But I have to say, having been at McKinsey, it’s impressive how the use of McKinsey firm format makes a story look much more credible than it really is. CFPB Settlement Presentation(scribd)The critical part comes on the third page, “Calibrating the Size of Potential Penalties”. You’ll note it assumes that the cost of special servicing of delinquent loans would have cost 75 basis points a year more than actual costs incurred. That drives the entire analysis.

Are Banks Scheming to Gut the Role of the Courts in Foreclosures? -  Yves Smith - I may be overreacting but given the sorry behavior of banks throughout the crisis and its aftermath, better to be vigilant than sorry. The Wall Street Journal provided a very sketchy summary of the counterproposal that the banks will put on the table in the foreclosure fraud settlements this week: The 15-page bank proposal, dubbed the Draft Alternative Uniform Servicing Standards, includes time lines for processing modifications, a third-party review of foreclosures and a single point of contact for financially troubled borrowers. It also outlines a so-called “borrower portal” that would allow customers to check the status of their loan modifications online.But the document doesn’t include any discussion of principal reductions. Nor does it include a potential amount banks could pay for borrower relief or penalties.This seems innocuous, right?Think twice. It depends on what they mean by “third party review of foreclosures”. I strongly suspect that the intent is to pull as many contested foreclosures as possible out of the court process, particularly those that involve chain of title issues, since enough adverse rulings have the potential to blow up the entire mortgage industrial complex.

Matt Stoller: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal --Acting OCC head John Walsh is standing in the way of information that could help desperate homeowners.  I was rereading some testimony by Mark Kaufman, the Maryland Commissioner of Financial Regulation, on mortgage servicer behavior. He testified this month before the House Oversight Committee on something quite scandalous. Together with banking commissioners in four other states, our Office of Financial Regulation joined twelve state Attorneys General in the State Foreclosure Prevention Working Group launched under the leadership of Iowa Attorney General Tom Miller in 2007. This group sought to work collaboratively with the mortgage servicing industry and other parties to identify solutions to the myriad of problems we were seeing in addressing the crisis. The group gathered data submitted voluntarily from the largest subprime servicers and published five reports during 2008 to 2010 providing analysis on foreclosure issues and the servicing response. Unfortunately, this data and the related dialogue fell short of its potential as the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states.

Banksters’ Mortgage Counteroffer Makes a Further Mockery of Fraudclosure Settlement Negotiations - Yves Smith - It should really be no surprise that the banksters have the temerity to take a weak mortgage fraud settlement proposal, advanced by the 50 state attorneys general and various Federal agencies, and water it down to drivel. Since March 2009, when the Obama administration cast its lot with them, major financial firms have become increasingly intransigent. And this has proven to be a winning strategy, since Obama’s pattern over his entire political career has been to offer proposals that don’t live up to their billing, then eagerly trade away what little substance was there in the interest of having bragging rights for yet another “achievement”. The degree of exaggeration involved is roughly equivalent to him claiming he’d bedded every woman he had ever met for coffee. To recap the state of play: early in March, American Banker published a leaked copy of a 27 page term sheet presented by the 50 state attorneys general (more accurately, Iowa state AG Tom Miller representing the Administration and negotiating against the AGs on its behalf), the Department of Justice, and various Federal regulators. Yours truly, Karl Denninger, and various other quickly derided it. All it did was require servicers to obey existing law plus two additional requirements: end the so-called “dual track”, in which banks keep the foreclosure process moving forward in parallel with the modification process, and establish single point of contact, which means that homeowners in mod discussion would deal with a single person at the servicer, or if that person was not available, a supervisor. Tom Adams also pointed out that the various “obey the law” demands in this settlement proposal less stringent than the terms of a 2003 consent decree with miscreant servicer Fairbanks, which other in the industry understood to represent the new standard for conduct. So now it appears the exercise is defining deviancy down to the bare minimum level and waiting for the industry to ignore it as before.

Banks to AGs on Servicing Fraud: Drop Dead -- Here's the banks' counterproposal for a servicing fraud settlement. I can sum it up in two words: drop dead.  Or two letters:  F.U. This proposals is so pathetically thin that it's not a good faith counterproposal. This document only deals with servicing standards--nothing in it whatsoever about penalties, modification quotas, etc. But even on servicing standards it is a bunch of empty promises to have internal controls and try harder.  The first point about this counterproposal is simply to note what's absent from it:

• (1) nothing about principal reductions
• (2) nothing about second liens and conflicts of interest
• (3) nothing about MERS (reserved for later)
• (4) nothing about in-sourced vendor fees or force-placed insurance to affiliates. This makes the fees and force-place insurance sections pretty meaningless.
• (5) nothing about pyramiding of fees.

Lender Processing Services Behind More Record-Keeping and Foreclosure Forgeries - Yves Smith - Lender Processing Services has played a singularly destructive role in the mortgage servicing industry. The firm not only offered document fabrication services through DocX, a company it acquired and was forced to shut down after the Department of Justice started sniffing about, but is being revealed to be involved in more abuses as far as borrower records and legal process are concerned. Readers may recall that it is also the target of two national class action suits on illegal legal fee sharing which if successful will produce multi-billion-dollar damages. This abuses matter due to the role that LPS has come to play. It is the biggest player in default services, meaning it acts as the de facto selector and supervisor of foreclosure mills via its system, LPS Desktop, which manages and oversees the work of local law firms on behalf of its bank servicer clients. It also provides the servicing platform for more than half of the servicing industry. And as our two latest examples show, the company clearly places its profits over integrity of records and due process. The first, per Abigail Field of Daily Finance, comes out of a affidavit by former LPS employee Adrian Lofton, who worked at its subsidiary Fidelity, the mortgage servicing platform that was acquired by LPS. Lofton describes an environment where cost cutting pressures led to widespread abuse of basic security protocols. Employees of his unit had the ability to access the mortgage records of borrowers and alter them; an important control was that each employee had his own login and password and was per corporate policy allowed only to utilize only his own account. Employees were graded and rewarded on speed and on not asking their bosses for help in resolving problems. This devolved into an out of control environment:

U.S. Treasury to Grade Mortgage Servicers on Loan Modifications - The U.S. Treasury Department plans to publicly grade mortgage servicers on how well they respond to homeowners seeking reductions in payments as the government encourages loan modifications to stem foreclosures.  Timothy G. Massad, acting assistant secretary at the U.S. Treasury Department, said the agency will publicize servicer compliance beginning next month, according to the text of a speech prepared for delivery today at Harvard University in Cambridge, Massachusetts. He said companies will be graded on how they evaluate homeowners’ eligibility for aid and how quickly they respond to customers.  “This is a voluntary program based on a contract,” Massad said in his prepared remarks. “We do not regulate the servicers and we cannot fine them.” Transparency, he said, is the best way to improve servicer behavior.

Principal Reduction Mods--Greatly Exaggerated? - There's an interesting piece in the news section of the Wall Street Journal about bank the extent of principal reduction loan mods banks are doing. I think the take-away from the piece is supposed to be that banks are actually doing a fair amount of principal reduction already. I'm not sure what way that cuts in terms of the AG settlement negotiations. On the one hand it would seem to imply that there's no need to goad the banks into doing principal redution mods, while on the other it would seem to take the wind out of the sails of arguments that it's unfair to do principal reduction mods. (Is Brian Moynihan admitting that Bank of America is engaged in unfair acts and practices by engaging in principal reduction mods?) The news story omitted two significant points that make it very difficult to judge the extent of bank principal reduction mods and make it likely that the number of meaningful principal forgiveness mods is much lower than that cited in the story. 

JPMorgan’s Dimon: No mortgage writedowns -- The head of JPMorgan Chase said Wednesday that banks would not consider writing down mortgages for homeowners who can make payments, an idea at the center of talks aimed at fixing the mortgage mess. "Principal writedown for people who could pay their mortgages? Yeah, that's off the table," JPMorgan Chase CEO Jamie Dimon said when asked about the idea after an appearance before a U.S. Chamber of Commerce forum in Washington.Regulators and state attorneys general have been trying to get the banks to include mortgage principal writedowns as part of a proposed settlement of allegations that banks wrongly foreclosed on thousands of homeowners. The writedown proposal has been a key sticking point in the negotiations.

Moral Hazard and Mortgage Modifications - Bring out the Vice Squad--we've got a Moral Hazard.  Yup, some of the reluctant AGs have now expressed concerns over principal write-downs in a servicing fraud settlement because it might create....moral hazard. Some bank CEOs and other predictable voices jumped on the moral hazard bandwagon.Yes, there's some moral hazard in doing principal reduction mods if you only offer them to defaulted borrowers and the borrowers no that. That's hardly surprising. But so what? Just because something creates a moral hazard doesn't mean it's the wrong thing to do. There's more to that equation.  Larry Summers showed pretty handily why too much belly aching over moral hazard is silly. As Summers argued, when there's a fire next door, you help put out the fire; you don't first ask if the fire was caused by lightning or by your neighbor smoking in bed. Yet putting out the fire irrespective of cause creates a moral hazard by bailing out in-bed smokers. The reason why we do this (and why we have fire departments) is that concerns over externalities can trump moral hazard concerns--if my neighbor's house catches fire, mine is at risk.

Foreclosure Aid Fell Short, and Is Fading - Last summer, as President Obama’s premier plan to save millions of Americans from foreclosure foundered, the administration tossed a new life preserver to homeowners.  Officials unveiled a $1 billion program to offer loans to help the jobless pay their mortgages until they could find work again. It was supposed to take effect before the end of the year, but as of today, the program has yet to accept any applications.  “We wait and wait, and they keep saying it’s coming,” said James Tyson, 50, a Philadelphia homeowner who lost his job a year ago.  That could be an epitaph for the administration’s broader foreclosure prevention effort, as tens of billions of dollars remain unspent and hundreds of thousands of homeowners have been rejected. Now the existence of the main program, the Home Assistance Modification Program, is in doubt.  Saying it is a waste of money, the Republican-controlled House voted on Tuesday night to kill the foreclosure relief program.

Foreclosure-Prevention Plans Show Limited Impact -Two pieces of the Obama administration's foreclosure-prevention plan have assisted fewer than 30,000 borrowers, according to data released for the first time Friday, adding to mounting evidence that the program has done little to turn around the foreclosure crisis.  The Treasury Department said Friday that only 17,000 homeowners have received modifications for second mortgages such as home-equity loans.  That compares with 557,000 borrowers that have received permanent modifications of first mortgages through February. Treasury didn't say how many of those borrowers have second mortgages.  At the same time, about 10,000 borrowers entered into agreements with servicers in a related program that provides banks with incentives to allow consumers to sell their homes for less than the total mortgage amount to avoid foreclosure.  Only about 4,500 homeowners have completed that program, Treasury said.

As Obama and Congress fiddle, America liquidates housing sector - Republicans in the House of Representatives are busily assembling several legislative proposals to reform the housing sector and reduce government support for the secondary market in home loans used by banks to manage their liquidity.“House Republicans are considering an ambitious series of standalone legislative initiatives to reduce the role of Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) over the next five years.” Meanwhile, President Barack Obama has started another war in the Middle East with his political soul mates in the EU.  The President has also embarked upon an ambitious schedule of foreign tourism and domestic campaign stops, but nothing of substance. Obama is compared by some to Louis XIV (and Mrs Obama to Marie-Antoinette)  in terms of his detachment from the nation’s priorities, particularly the ongoing meltdown in the housing sector.

What Is to be Done ? - The USA is in a tough spot with high unemployment, a sluggish recovery and an insane majority in the House of Representatives. This situation has caused many people to argue that the Federal Reserve Board and and should do more to stimulate the economy. I don't think they are our best hope.  I think we should look to publicity hungry TV camera chasing ambitious prosecutors who want to obtain higher elective office (think Eliot Spitzer and Rudolf Giulaini). My "logic" follows.. I think it is necessary to convince the bankers that they want to renegotiate mortgages and write down debts. This would liberate people with underwater mortgages to move to look for jobs (if they were rational they would just walk away from the debt but people aren't). It would stop the flow of foreclosed homes on to the market which has helped cause record low rates of new Home sales and declines in housing prices (which were inevitable but now they are fine and without a change in mortgage servicer behavior they will overshoot).  I also think it should be possible to convince bankers to do this.

Sleaze Watch: Florida Attorney General Cavils About “Moral Hazard” While Letting Foreclosure Mill Off the Hook - Yves Smith - It’s becoming increasingly clear that morality applies only to little people, especially the sort that are cannon fodder for our mortgage industrial complex.The Florida attorney general, Pam Bondi, joined three other Republican attorneys general in arguing against the principal reductions called for in the so-called mortgage settlement on the basis of “moral hazard”. Their argument? That it would reward those who “simply choose not to pay their mortgage”.  Boy, am I naive. The term “strategic default” appeared out of nowhere and had a pre-packaged sound about it.  And my DC sources were very clear that right wing think tank dollars were being thrown at it. But there has never been any evidence to support the idea that strategic defaults are happening at anything other than trivial levels (the logical candidates is a second home), and all the “academic” studies arguing for it happening at meaningful levels are very shoddy to complete BS. Some have argued, for instance, that people who suddenly default after a history of being current on all their bills must be strategic defaulters. Without further detailed investigation of that group, this conclusion is unfounded.

Altered documents halt some Cook County foreclosures - A Cook County Circuit Court judge has taken the unusual step of temporarily halting at least 1,700 mortgage foreclosures after a law firm told the court that the cases contained altered documents, the Tribune has learned. Fisher and Shapiro LLC, one of the top three law firms used by mortgage servicers to handle their local foreclosure actions, reported to the court that, in a breach of protocol, affidavits in the cases were changed. Among other things, fees were added after the documents were signed by servicers. As a result, Moshe Jacobius, presiding judge of the Circuit Court's Chancery Division, has stayed the cases. The delay will not necessarily prevent delinquent borrowers in Cook County from losing their homes to foreclosure, but it likely will give some homeowners time to seek assistance or to make arrangements to live elsewhere.

Alabama Judge Accepts New York Trust Theory, Dismisses Foreclosure Action for Failure to Comply With Pooling and Servicing Agreement - Yves Smith - A judge in Alabama in a case called Horace v. LaSalle overturned a foreclosure action based on the failure of the trust to comply with the terms of the pooling & servicing agreement. As you see, the judge ruled that the borrower can assert rights under the Pooling and Servicing agreement as a third party beneficiary and that he was “surprised to the point of astonishment” that the trust had not complied with the terms of its PSA. The ruling in favor of the borrower endorses an argument we have made since last year on this blog, that the pooling and servicing agreement stipulated a specific set of transfers be undertaken to convey the borrower note (the IOU) to the securitization trust within a specified time frame. New York trust law was chosen to govern the trusts precisely because it is unforgiving; any act not specifically stipulated by the governing documents is deemed to be a “void act” and has no legal force. So if a the parties to a securitization failed to convey a note to the trust within the stipulated timetable, retroactive fixes don’t work. In this case, the note had been endorsed by the originator, Encore, but not by the later parties in the securitization chain as required in the pooling and servicing agreement. See the order below:

ForeclosureHamlet.org aka Lisa Epstein Under Attack by Nationwide Title Clearing - We have wondered when a day like this would come. Now it has arrived and it is time to fight. It will be an interesting fight if NTC chooses to proceed with their threats. It is hard to take someone down when they have nothing to lose. Below is a cease and desist letter with exhibits from Nationwide Tile Clearing Attorney Michael B. Colgan with GLENN RASMUSSEN FOGARTY & HOOKER to Lisa Epstein and Lisa’s response through her attorney. The letter and the response speak for themselves but here are some excerpts.From Nationwide’s cease and desist letter… Dear Ms. Epstein: We are counsel to Nationwide Title Clearing, Inc. ["NTC"). I am notifying you that your firm's website, www.foreclosurehamlet.org. contains materially false statements regarding NTC, Bryan Bly, and Crystal Moore, claiming that NTC creates false documents for financial institutions that are subsequently submitted to courts in mortgage foreclosure proceedings. More specifically, your website contains the following postings which are materially false and misleading:

LPS: Overall mortgage delinquencies declined slightly in February -LPS Applied Analytics recently released their February Mortgage Performance data. From LPS:

•Delinquency rates resumed their decline after an increase in January and foreclosure inventories remain stable, slightly below historic highs.
• Delinquencies continue to improve as new problem loan rates decline and cure rates increase.
• Foreclosure start declines and foreclosure suspensions are reducing the upward pressure on inventories caused by foreclosure sale moratoria.
• An enormous backlog of foreclosures still exists with overhang at every level:

–There are three times the number of loans deteriorating greater than 90+ days delinquent as compared to foreclosure starts.
–There are also three times the number foreclosure starts vs. foreclosure sales.
–Foreclosure inventory levels are over 30 times monthly foreclosure sale volume.

According to LPS, 8.80% of mortgages are delinquent (down from 8.90% in January), and another 4.15% are in the foreclosure process (about the same as 4.16% in January) for a total of 12.96%. It breaks down as:
• 2.49 million loans less than 90 days delinquent.
• 2.16 million loans 90+ days delinquent.
• 2.2 million loans in foreclosure process.

March LPS Mortgage Monitor Report: 30% of Loans in Foreclosure have not made a Payment in Over 2 Years - Inquiring minds are reading the March 2011 LPS Mortgage Monitor. There is a bit of good news in the report. Delinquent and Non-Current Rates are improving. However, the rates are still exceptionally high historically. Also, some of the foreclosure data is skewed by moratoriums and reworked loans. On the other hand, option ARM foreclosures have increased dramatically over the last six months and 30% of loans in foreclosure have not made a payment for at least two years. 47% of those in foreclosure have not made a payment for at least 18 months. Charts and Comments from the LPS Report Delinquencies remain about twice the 1995-2005 average, foreclosure inventories are 7.8 times historical “norms”. 30% of loans in foreclosure have not made a payment in over 2 years.

Foreclosure inventory volume outpacing actual foreclosure sales: LPS…Delinquencies on home loans declined in February as foreclosure inventory levels shot up, suggesting it will take more time to move distressed properties off the market, Lender Processing Services Inc. said in its February Mortgage Monitor.The nation's foreclosure inventory levels are now about 30 times greater than the monthly foreclosure sales volume, LPS concluded. "Ultimately, these foreclosures will most likely reenter the market as REO properties, putting even more downward pressure on U.S. home sales," LPS said. The report on falling delinquencies confirms LPS reports from earlier this month. Another significant shift occurred in February with data showing a 23% hike in Option ARM foreclosures in the past six months. Option ARM foreclosures now make up 18.8% of the foreclosure inventory, outpacing subprime foreclosures.LPS added that deterioration continues in the non-agency prime segment, jumbo and non-agency prime loans.

Home Prices in 20 U.S. Cities Declined 3.1% From Year Earlier - Residential real estate prices dropped in January by the most in more than a year, raising the risk that U.S. home sales will keep slowing. The S&P/Case-Shiller index of property values in 20 cities fell 3.1 percent from January 2010, the biggest year-over-year decrease since December 2009, the group said today in New York. The decline was in line with the 3.2 percent median forecast by economists in a Bloomberg News survey. Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. At the same time, a further decline in home values may keep potential buyers on the sidelines as they foresee better deals, hurting construction and consumer spending as owners’ equity evaporates

Case Shiller: Home Prices Off to a Dismal Start in 2011 - S&P/Case-Shiller released the monthly Home Price Indices for January (actually a 3 month average of November, December and January). This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities). From S&P:Home Prices Off to a Dismal Start in 2011. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 31.4% from the peak, and down 0.2% in January (SA). The Composite 10 is still 2.2% above the May 2009 post-bubble bottom. The Composite 20 index is also off 31.3% from the peak, and down 0.2% in January (SA). The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.The second graph shows the Year over year change in both indices.The Composite 10 SA is down 2.0% compared to January 2010. The Composite 20 SA is down 3.1% compared to January 2010. The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Better times ahead - THE first S&P/Case-Shiller housing index data for 2011 are now out, and the headlines are likely to ring with gloom—urged on by S&P itself: Data through January 2011, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show further deceleration in the annual growth rates in 13 of the 20 MSAs and the 10- and 20-City Composites compared to the December 2010 report. The 10-City Composite was down 2.0% and the 20-City Composite fell 3.1% from their January 2010 levels. San Diego and Washington D.C. were the only two markets to record positive year-over-year changes. However, San Diego was up a scant 0.1%, while Washington DC posted a healthier +3.6% annual growth rate. The same 11 cities that had posted recent index level lows in December 2010, posted new lows in January...“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee.

Housing Prices--It's Worse than It Looks - The latest housing price index numbers from the S&P/Case-Shiller Index were bad.  But no one has quite recognized that the index is at its lowest point post-bubble.  The S&P/Case-Shiller Index reflects differences in repeat sale prices on the same property. That means it doesn't account for inflation. If one adjusts the S&P/Case-Shiller Index for inflation (I used the CPI for All Urban Consumers, as S&P/C-S is an metro area price index), you'll see that the January 2011 numbers (there's a 3-month lag) were slightly lower than the previous post-bubble low in June 2009.  On an inflation-adjusted basis, we're back to where prices were in January 2002.  Now while it might make sense to look at housing prices on an inflation-adjusted basis for examining trends over time, inflation does have a major impact on debt burdens and ultimately on whether homes are underwater. Inflation--the debtor's friend and the creditor's foe.

A Look at Case-Shiller, by Metro Area (March Update) - The S&P/Case-Shiller Composite 20-city home price index, a broad gauge of U.S. home prices, posted a 1% drop in January from a month earlier and fell 3.1% from a year earlier, as the housing market faced a new round of trouble. Nineteen of 20 cities in the index posted month-to-month declines in November — just Washington, D.C. notched an increase. On a seasonally adjusted basis, which aims to take into account the slower winter selling season, eight cities — Atlanta, Boston, Cleveland, Dallas, Denver, Las Vegas, Los Angeles and Washington — posted monthly increases. Eleven markets — Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa — hit their lowest points since home values started dropping more than four years ago, pushing prices in those areas below the lows seen in most regions in spring 2009. Average home prices in Atlanta, Cleveland, Detroit and Las Vegas are now below January 2000 levels. See a sortable table of home prices in the 20 cities in the Case-Shiller index.

• Read the full story.
• Read the full S&P/Case-Shiller release.

Real House Prices and Price-to-Rent - The following graph shows the quarterly Case-Shiller National Index (through Q4 2010), and the monthly Case-Shiller Composite 20 and CoreLogic House Price Indexes through January 2011 in real terms (adjusted for inflation using CPI less shelter). In real terms, the National index is back to Q1 2000 levels, the Composite 20 index is back to January 2001, and the CoreLogic index back to May 2000.  A few key points:
• The real price indexes are all at new post-bubble lows.
• I don't expect national real prices to fall to '98 levels. In many areas - if the population is increasing - house prices increase slightly faster than inflation over time, so there is an upward slope for real prices.
• Real prices are still too high, but they are much closer to the eventual bottom than the top in 2005. This isn't like in 2005 when prices were way out of the normal range.
• Nominal prices will probably fall some more and my forecast is for a decline of 5% to 10% from the October 2010 levels for the national price indexes.

Massive Foreclosure Inventory Overwhelms Sales - An enormous backlog of foreclosures dominates the foreclosure picture at every level, outpacing the monthly sales volume by a factor of thirty and promising to continue the Foreclosure Era for months and years to come.Ultimately, these foreclosures will most likely reenter the market as REO properties, putting even more downward pressure on U.S. home values. The February Mortgage Monitor report by Lender Processing Services, Inc. shows that in spite of the backlog, delinquencies continue to decline and banks’ modification efforts have begun to pay off, as 22 percent of loans that were 90+ days delinquent 12 months ago are now current. Option ARM foreclosures increased 23 percent increase over the last six months, far more than any other product type. In terms of absolute numbers, Option ARM foreclosures stand at 18.8 percent, a higher level than Subprime foreclosures ever reached. In addition, deterioration continues in the Non-Agency Prime segment. Both Jumbo and Conforming Non-Agency Prime loans showed increases in foreclosures and were the only product areas with increases in delinquencies.

Lawler: Census 2010 and Excess Vacant Housing Units - CR Note: This long and detailed note on the 2010 Census data is from economist Tom Lawler. Here is a spreadsheet for the 50 states (and D.C.) including the 2000 and 1990 Census data.  This starts with a brief excerpt (click read more for the full post). For those not interested in why some data drives demographers to drink, here is the Summary for Week ending March 25th. Census 2010: Households, Housing Stock, and Vacant Housing Units: Understanding Why Demographers Drink: Census has now released the final Census 2010 counts for state and local population and housing units – occupied and vacant. Here are some national totals, as well as a comparison to the “official” Census 2000 counts – which are “known” to be off, but by uncertain amounts.

CoreLogic: Shadow Inventory Declines Slightly - From CoreLogic: CoreLogic Reports Shadow Inventory Declines Slightly, However, Nine Months’ Worth of Supply Remains. This graph from CoreLogic shows the breakdown of "shadow inventory" by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the "visible supply" and cannot be counted as shadow inventory. CoreLogic ... reported today that the current residential shadow inventory as of January 2011 declined to 1.8 million units, representing a nine months’ supply. This is down slightly from 2.0 million units, also a nine months’ supply, from a year ago. The second graph shows the same information as "months-of-supply". This is in addition to the visible months-of-supply (inventory listed for sale). Note: It is the visible inventory that mostly impacts prices, but this suggests the visible inventory will stay elevated for some time (no surprise).

U.S. ‘Shadow Inventory’ of Homes Totals Nine Months of Supply - About 1.8 million homes that are delinquent or in foreclosure loom as additional supply for the struggling U.S. housing market, according to CoreLogic Inc. (CLGX) The so-called shadow inventory amounted to a nine-month supply of properties as of January, about the same as a year earlier, the Santa Ana, California-based real estate data service said in a report today. The company measured homes ranging from 90 days delinquent on mortgages to properties seized by lenders in foreclosure proceedings. Rising inventory threatens to further depress home values as sales slump. There was an 8.6-month supply of homes for sale on the open market in February, the National Association of Realtors reported March 21. A healthy market has about a six- month supply, according to the Realtors group. The shadow inventory “illustrates the distressed pipeline that has to filter through the market before the market is normalized,”

Housing market: 13% of all U.S. homes are vacant - High residential vacancies are killing many housing markets, as foreclosed homes sit on the market and depress sale prices and property values. And it's only getting worse: The national vacancy rate crept up to just over 13% according to last week's decennial census report. That's up from 12.1% in 2007. "More vacant homes equal more downward pressure on home prices," said Brad Hunter, chief economist for Metrostudy, a real estate information provider."  Maine had the highest proportion of empty housing stock, at 22.8%. Other states with gluts of empty houses included Vermont (20.5%), Florida (17.5%), Arizona (16.3%) and Alaska (15.9%).

Vacant Homes In South Florida Nearly Double Over Past 10 Years - The number of vacant homes in Broward and Palm Beach counties nearly doubled during the past decade, as the devastating housing collapse led to record foreclosures. Broward had 124,341 vacant homes last year, up 44 percent from 2000, according to U.S. census figures released this month. Palm Beach County's vacancies rose 46 percent to 120,367.The vacancies far outpaced the increases in housing stock across the two counties. While the countywide vacancy rates are in the mid-teens and rose only a few percentage points, that still represented tens of thousands of housing units. "A substantial number of these are foreclosure homes that the banks haven't yet put back on the market to sell or they've listed them at unrealistic prices,"  Some real estate agents say they're surprised there aren't even more empty homes in South Florida. In 2000, bank-owned properties were nowhere near as prevalent.

Nevada's Boom Ends In Record Number Of Empty Homes - There were 167,564 empty houses in the state last year, according to newly released U.S. Census data, more than double the number in 2000. The number of vacant homes represents about one out of every seven houses across Nevada. The figures are another striking example of how the housing crisis has pummeled Nevada, casting a new light on the severely weakened market after years of boom.  One result is an increase in code violations. In Clark County, home to Las Vegas, such complaints nearly doubled from 2008 to 2009 and the median price of resale homes dropped to $115,000 in January.  Neighbors call to complain of abandoned houses, stagnant pools, wild yards and unsecured doors, said Joe Boteilho, the county’s code enforcement chief. But the neighborhoods of newly constructed homes are not facing the same blatant signs of disrepair seen in other foreclosure-ravaged states such as Florida, Michigan and California.

In Sacramento, Lots of Empty Homes -- It’s a natural trend after California’s housing bust - housing vacancies. Numbers from the 2010 Census show there are about 55,000 vacant housing units in the Sacramento region. Even though the report doesn’t say if the units are rentals or privately owned homes, just driving around the area the numbers are easy to believe. “It’s depressing to see the community see so much growth and see a lot of turn over and closures,” said Glen Park resident Barbara Marcotte.Daniel Robinson has lived in Oak Park for 10 years and has seen the changes first hand. ”Property sales were going up,” he said, “Now all of a sudden you see there’s a lot more vacancies and less activity.” In fact Oak Park’s vacancy rate goes anywhere from 12.5% to almost 50% in some neighborhoods. While those numbers seem bleak they can be an opportunity.

Vacant homes a clue to Santa Ana's census drop -A big jump in the number of vacant homes could be a key to understanding this city's surprising drop in population as recorded by the 2010 census. Santa Ana's drop, in raw numbers, was the largest of any California city. The census counted 76,896 housing units in Santa Ana and determined that 3,722 of them were vacant. [CR Note: the 2000 Census showed 74,588 housing units in Santa Ana and 1,586 vacant. So the vacancy rate more than doubled] Among cities in Orange County, Santa Ana had among the highest concentrations of mortgage defaults in 2009, which could explain why the census found so many vacant homes in 2010.... it's unclear where the people who left behind vacant homes went, since other states didn't show big influxes of people from California, [John Malson, acting chief of the demographic research unit at the Department of Finance] said. ... "We assumed a lot of people were moving back home or doubling up," he said. "It just seems that there might be a missed population from the census."

Are There Too Many Homes in America Part III: Its May Soon Be Cheaper to Buy Than To Rent - Economists like to say that buying a house is basically like becoming a landlord and then renting the home to yourself. This makes sense because landlords and tenants don’t always see eye-to-eye, but if you are your own landlord this problem goes away. Consequently, in my mind,  the most important price in the housing market has always in my mind has always be then price-to-rent ratio. When I first started fretting about CDOs – and yes if you have forgotten it really was all about CDOs – was when the price-to-rent started to climb above 1.4.  My case at the time is that there was no way we could have faith that the models would hold in a world that no one had ever seen. The models only operate on data that they have, going to far out of sample, and you just don’t know what might happen.

3 Reasons Why The American Dream Isn't Coming Back Anytime Soon - In a note today, BofA/ML analyst Michelle Meyer looks at the state of The American Dream, home-ownership, where it stands now, and where it's going. Since the housing bust, Americans have begun a shift towards renting, and Meyer predicts a continuation of that trend for three big reasons.

• First, there is still a large backlog of foreclosures – as of the end of 2010, there were 4.3 million homeowners in foreclosure or seriously delinquent – which will naturally become renters. And, this is not the end of the pipeline. There are about 3.5 million mortgages that have received a modification, of which at least half are likely to re-default and enter foreclosure. In addition, there are 1.3 million mortgages 60 days delinquent, and although the pace of new delinquencies has slowed, it is still elevated. We believe it is reasonable to expect nearly 8 million foreclosures to enter the market over the next three years.
• Second, young adults forming new households are not good candidates for homeownership in this market of incredibly tight lending standards and high unemployment. Not only is in difficult to qualify for a mortgage but the down- payment requirement is higher, which means young adults will need to be liquid and willing to lock-up cash. In addition, purchasing a home reduces labor mobility,
• Third, the recession has greatly impaired household net worth and lowered income, making it more difficult for current renters to transition to homeowners..."

Housing Will Recover. But When? - What passes for optimism on the housing market these days is a pale reflection of the glory days of five years ago. "Housing is dead," writes MarketWatch's Rex Nutting. "There is no doubt about that. Housing is as dead as a door nail." The good news, such as it is, is that "housing is just too small to do any real damage to the economy any more," he adds. Perhaps, but housing's not likely to help any time soon either. Even after five years of a nonstop housing recession, there's little confidence that the sector is poised for a rebound. And after last week's dismal news on sales of new single-family homes last month, some analysts wonder if a new round of trouble is coming for residential real estate. Part of the problem is the glut of homes on the market, a byproduct of the Great Recession. The surfeit of supply is exacerbated by weakness in traditional sources of new demand to soak up the excess.

An Unsustainable Decline in Home Building - A point I want to keep emphasizing is that while the rapid increase in housing construction during the 2000s was not unprecedented, the collapse in home construction is. This is just raw number of new units coming online. Its not adjusted for anything. So there are a lot of factors: population growth, age distribution, second-home ownership, apartments vs. single family, etc. However, just in terms of units the peak of the boom was not way off. If there was way too much construction it has to be because the fundamentals were way different. This might well be, but understand that now the “this time is different” argument is being pushed by those who say there was a dramatic overinvestment in terms of the number of units.  Now, that’s not to say the units themselves weren’t too nice or that people were doing too much remodeling. Here is Private Fixed Residential Investment as a percent of GDP.

Fed Survey: We’re 45% Poorer - You didn’t need the Federal Reserve for this news flash: Americans are poorer as a result of the financial crisis. The central bank’s survey of 4,000 households occurred between 2007-2009 and found that 63 percent of Americans experienced a decline in total wealth in that period. How much? A staggering median 45 percent decline, due primarily to the falling values of homes and investment/retirement accounts. Although the majority of Americans lost wealth, those at the bottom lost less than the wealthiest. Yes, you read that correctly–the bottom did better than the top. About 77 percent of the richest families suffered declines and the figure was about 50 percent for those with the smallest wealth.

One Consumer Bankruptcy System, or Many? - As Principal Investigator of the Consumer Bankruptcy Fee Study, I've been gathering "qualitative data" from attorneys, trustees and judges about how the consumer bankruptcy system is working. I have conducted over a dozen focus groups, many, many one-on-one interviews, and have been privy to myriad list-serve threads discussing the costs of BAPCPA generally and more specifically, consumer bankruptcy attorney fees. Here is one preliminary observation: there is a huge disparity with respect to how and how much attorneys are paid, depending upon where in the country they practice. This is not a shocking revelation on its face, given the disparities in the cost of living from city to city. The data reveal, however, variations that go beyond big city=expensive, small town=cheap.

Allocating Scarce Dollars: Payment Hierachy - When Americans have fewer dollars, creditors need to position themselves at the top of the pile to get paid each month. This is called payment hierarchy, and traditionally mortgage creditors have been at the top and unsecured creditors, and perhaps ubiquitous credit card creditors, near the bottom. At the Consumer Financial Protection Bureau conference on the anniversary of the CARD Act, I learned that the payment hierarchy has been upended. In 2010, consumers are paying their credit cards ahead of their mortgages. (Click on CFPB conference link above, then click on "Credit Card Profitability" by Credit Suisse and go to slide 7 to see the full data). Two key explanations for this change: 1) people may be more willing to risk losing their home when its value is plummeting and they are not certain they can hang onto it, and 2) credit card companies reduced the amount of credit lines and closed old accounts, making people more concerned about "preserving" their good standing with their credit card company. Another way to think about this is that homes used to be families' piggy banks, tapped when it is time to send a child off to college or do a home renovation. With no equity, Americans need to rely more on the credit card as their safety net.

Personal Income and Outlays Report for February - The BEA released the Personal Income and Outlays report for January:  Personal income increased $38.1 billion, or 0.3 percent ... Personal consumption expenditures (PCE) increased $69.1 billion, or 0.7 percent...The following graph shows real Personal Consumption Expenditures (PCE) through January (2005 dollars). PCE increased 0.7% in February, but real PCE only increased 0.3% as the price index for PCE increased 0.4 percent in February. Personal income growth was slightly below expectations. Note: Core PCE - PCE excluding food and energy - increased 0.2 percent in February. Even though PCE growth was at expectations, real PCE was low - and this suggests analysts will downgrade their forecasts for Q1 GDP. Using the two month estimate for PCE growth (averaging the growth of January and February over the first two months of the previous quarter) suggests PCE growth of around 1.4% in Q1 (down sharply from 4.0% in Q4).

Consumer Spending & Income Rise In February As Inflation Bubbles - Personal income and spending rose again last month, the U.S. Bureau of Economic Analysis reports, although the numbers are tainted somewhat by the fact that inflation ticked up as well. Meantime, there’s no denying the trend in spending and income. Personal consumption expenditures rose for the eighth consecutive month, posting their biggest rise in February since last October. Disposable personal income advanced for five straight months through February. “The rise in food and energy prices is not derailing consumer spending, it’s just taking a little bit of steam out of it,” Julia Coronado, chief economist at BNP Paribas, tells Bloomberg.

Personal Saving Rate and Income less Transfer Payments - This first graph shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover - and real personal income less transfer payments declined slightly in February. This remains 3.2% below the previous peak. The personal saving rate decreased to 5.8% in January.Personal saving -- DPI less personal outlays -- was $676.7 billion in February, compared with $710.5 billion in January. Personal saving as a percentage of disposable personal income was 5.8 percent in February, compared with 6.1 percent in January. This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the February Personal Income report.

Consumption spending slowing down - Guess what: rising energy prices are taking a toll on consumers. On Monday the Bureau of Economic Analysis released details on personal consumption expenditures for February, allowing us to update our graph of how big a share energy is in American budgets. A 6% expenditure share marked the point at which we started to see significant consumption responses a few years ago. The share in February is essentially there (5.98%, to be exact), the highest it's been since October 2008. For poorer households, energy's budget bite is a significantly larger percentage.  Not surprisingly, overall spending on other items is slowing down. Real personal consumption expenditures grew at a 3% annual rate in February after falling slightly in January. Bill McBride (and you know I don't like to argue with him) thinks this means real consumption spending for 2011:Q1 may only grow at a 1.4% annual rate. That's less than half the rate that many analysts had been anticipating prior to Monday's data.

Consumer Spending Climbs More Than Forecast as Incomes Gain - Americans increased spending more than forecast in February as incomes climbed, easing concern that rising food and fuel costs might derail the consumer demand that makes up 70 percent of the U.S. economy.  Purchases increased 0.7 percent, the most since October, after advancing 0.3 percent the prior month, Commerce Department figures showed today in Washington. Another report showed the number of contracts to buy previously owned homes advanced for the first time in three months. More than half the gain in spending last month reflected higher prices, one reason it will be difficult for households to contribute as much to economic growth this quarter as last. At the same time, the U.S. added jobs for the sixth consecutive month in February and the unemployment rate fell to the lowest level since April 2009, helping cushion the blow from a pickup in inflation.

Consumers More Upbeat on Economy, Expect Higher Prices - U.S. consumers are more upbeat about the economy, but they expect higher prices and think finding a new job is still difficult, according to data released Thursday.The Royal Bank of Canada‘s consumer outlook index increased to 44.8 in April, from 42.5 in March, reversing a three-month decline. The RBC current conditions index also reversed its three-month slide and moved up to 35.9 in April, from 32.4 in March, while the expectations index rose to 54.5 from 53.6.“It was encouraging to see the current conditions index rise to the highest since January 2010,” says Tom Porcelli, chief U.S. economist at RBC. “Of all the underlying metrics, this has the strongest predictive power when it comes to consumer spending.” But consumers continue to expect higher prices. The April inflation index stood at 77.2, down slightly from 77.4 in March, but up from 70.3 in December 2010.

Gas prices push consumer spending up in February -  Consumer spending rose in February at the fastest pace in four months, but a big part of the increase went to higher gasoline prices. The Commerce Department said Monday that consumer spending jumped 0.7% in February. Personal incomes rose 0.3%. That was after a 1.2% January rise in incomes — biggest in nearly two years. Both gains reflected a Social Security tax cut that boosted workers’ take-home pay.High gas prices were a big reason for the spending gains. Economists are concerned that if energy costs keep rising, it will leave consumers with less money to spend on other items. Consumer spending is closely watched because it accounts for 70% of economic activity. It grew at an annual rate of 4% in the October-December quarter, fastest pace in four years. But higher oil prices are threatening to sap that momentum this year.

Food Prices Rising, Few Items Immune -  It seems we are paying more for just about everything these days. First it was the pain at the pump and now, more than ever, we are paying more for food. Last month, shoppers saw the greatest jump at their grocery stores in four decades.  The reasons for the hike ranges from cold winter weather, which put a damper on many fruit and vegetable crops, to high gas prices, which increased shipping costs. Whatever the cause, expect to pay more on almost anything you buy at the store. "We've had to raise our catering, our hot deli line, our cafeteria line, salad bar everything. We're praying this is the last raise so we won't have to go any higher," Higher food costs are forcing grocers to raise their prices. At Rincon Market, the price tags read 10 to 25 percent more than just months ago. With gas prices on the rise it could get worse.

The “Shrinkage” Factor: 10 Signs That Food Inflation Is Alive And Well - After yesterday's report from the U.S. Department of Agriculture predicted tight corn supplies, prices spiked almost 5%. In a blink.  Why should you care? Because rising corn prices all but guarantee you'll be paying more to put food on your table. (Aside from being a summer BBQ favorite, corn is a critical input for livestock producers and food makers).  And as the analyst from Farm Futures Magazine said Thursday, "We could see double-digit corn prices if a legitimate weather scare makes headlines on Wall Street this summer."  But don't mistake this as a warning of food inflation to come. Truth is, it's already here!  And for consumers, food producers are merely masking the uptick in prices with a concept that Seinfeld's George Costanza knows all too well: Shrinkage!  You see, food companies don't need to raise their prices to charge more for a product. All they need to do is camouflage the increases by selling less food for the same amount, often in the same package.  Here are 10 examples to prove that this is exactly what's happening…

Gas Prices Are Out Of Control - The Nymex oil price closed at $108.31 yesterday. Fundamentals don't justify that price, but there it is. I'll discuss this in next Saturday's oil report. Oil prices are the chief determinant of gas prices, and as we've learned through painful experience, gas price increases get passed through immediately when the price of oil rises. So we can certainly expect higher gas prices in the coming week. AAA Fuel Gauge reports that the average national price for regular unleaded is $3.633, which is 20 cents higher than a month ago. The current price is an 82 cents higher than it was a year ago. Gas prices are out of control. Robert Rapier, a colleague of mine in the early days of The Oil Drum, recently published 5 Myths About Gas Prices in the Op/Ed section of the Washington Post. Here are the relevant bits.

The Pinch of Food and Gas - Anyone who shops at the grocery store or fills up at the gas station has felt the pinch for several weeks now, and confirmation came earlier this week in the Commerce Department’s personal-income figures. They showed that real disposable income fell 0.1 percent, largely because of food and gas inflation. David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff & Associates, ran the numbers another way and found that more than 22 percent of wages and salaries were being spent on food or gas. That, he writes in his daily newsletter, is a level seen only twice in the last two decades. “Both ultimately landed the economy into recessions that ensnared discretionary household spending,” he writes. Certainly, with real incomes falling and the prices of basic goods rising, this might not bode well for consumer spending and in turn, the fragile recovery.

Pain at the Pump: Running on Empty, Americans Cut Spending… America's discretionary income is under siege and it's only getting worse.  According to Census data analyzed by Patchwork Nation, 140 million Americans live in counties where the average family income has decreased in the last 30 years. That's being exacerbated as pump prices rise, leading to consumer resolve to cut discretionary spending. Just don't take away our toasters. Earlier this month the U.S. Energy Information Administration predicted gas prices will average 77¢ a gallon higher than in 2010. That forecast is already up 40¢ a gallon over its February prediction as oil prices react to the unrest in Libya and its neighbors. The prediction was made before the U.N. passed the no-fly zone and the conflict escalated. Some analysts are now looking at $5 a gallon gas prices by summer. In this month's Ad Age/Ipsos Observer survey of American consumers, 91% said they were already feeling the difference in the cost of filling the tank. Of those, more than half plan to immediately cut back on discretionary driving. Nearly half plan to cut back on other discretionary spending immediately. When asked about their spending if high gas prices persist for more than a month, those figures approach 75%.

The Real Reason Gas Prices Are Soaring - Have you ever wondered why when you go to the gas station to fill up the family car, the price of gas at the pump has just jumped 25 cents a gallon over the past three days? Perhaps you thought the oil companies were just being greedy. Or you believed the nightly news pundit who said that gas prices went up because the crisis in Libya was affecting supplies of oil. One professional oil trader says that you'd be wrong on both counts. Dan Dicker, who has spent nearly three decades in the oil market, has a profoundly disturbing explanation of why the price of oil, and the gasoline that comes from the crude product, has risen so dramatically in recent months. It turns out, Dicker says, that the price has nothing to do with supply and demand for oil. It's the financial market for oil, filled with both professional speculators and amateur investors betting on poorly understood oil exchange-traded funds, who have ratcheted up the price of gas to such sky high levels. 'There is no supply issue going on here - what you have is the perception of the possibility of a supply issue,' Dicker says. 'A whole bunch of people are pouring money into an oil market trying to take advantage of what they perceive to be a real risk in supply. It's a marketplace that I argue should not be allowed to be wagered on like a stock or bond.'

Study: Rising Gas Prices Don’t Impact Consumption -- According to a new study, increases in the price of gas actually have very little impact on consumption: According to research by UC Davis [PDF] Americans are now less responsive to increases in gas prices. In the late 1970s, a ten percent rise in the cost of gas would lead to about a three percent decline in the amount of gas consumed. In the early 2000s, on the other hand, gas prices would have to rise about 60 percent to provoke a similar decline in gas consumption. The researchers theorized that this might be because spending on gas is now a smaller fraction of total monthly income or because cars get better mileage now, meaning that cutting back on driving saves less gas than it would have in the 1970s. But either way, their research suggests that even if gas prices go higher, we’re unlikely to see Americans buying less gas. One possible explanation for the change in consumer behavior is the simple fact that, for many people, driving is quite simply a necessity. For the average suburban resident, for example, public transportation simple isn’t a viable option for the daily work commute.

Billion Price Preview - Krugman - One indicator I’ve been tracking lately is the MIT Billion Price Index; it basically tracks the goods component of the CPI, but of course has higher frequency, so it’s kind of an early warning indicator. And the BPI has, of course, showed a bump in short-term inflation lately. My prediction was that this bump would prove largely temporary, just as previous blips — both positive and negative — have. (Funny how all the people screaming about runaway inflation after a few months of rising commodity prices didn’t scream about runaway deflation when those prices were falling.) So, how’s it going? Well, the blip does in fact seem to be fading away:

What's Good for Wal-Mart Isn't Necessarily What's Good for America - I can’t resist responding to Wal-Mart CEO Bill Simon’s dire warning about inflation. Let me make three quick points:

• 1. Labor costs are 70% of production costs. Until we see wage inflation, and we aren’t seeing this yet, there’s little likelihood that prices will be forced upward rapidly.
• 2. Wal-Mart has an interest in a strong dollar (i.e. anything but inflation). They import most of what they sell, so labor costs here aren’t an issue – but the exchange rate is. However, the road to recovery is not through maximizing what we bring in from other countries, but rather what we export.
• 3. The other thing to note as that to the extent that this is being driven by a change in the world demand for commodities (and almost all the credible analyses I’ve seen places the blame for rising commodity prices on this), there’s very little the Fed can do about it. For example, one of the concerns of Wal-Mart is rising labor costs in China, but the Fed has no control over labor costs in there, so the Fed cannot fix the problem for Wal-mart.

The Deflation Factor & Real Wages - Economist Bob Dieli of NoSpinForecast.com writes in to point out that the chart posted earlier today (reproduced below) that compares real (inflation-adjusted) wages with personal consumption expenditures was dramatically skewed in late-2008 and 2009 by the brief but potent round of deflation that hit the U.S. economy. In fact, quite a bit of it was simply the statistical blowback from the financial crisis. At one point in late-2008, deflation was roaring. The worst of it came during November of that year, when the consumer price index swooned by 1.8% in that month alone on a seasonally adjusted basis. Deflation has since given way to mild inflation, and the annual pace in real wages has since returned to something approaching "normal" levels. But the question remains: Is the trend in real wages headed down? If so, there's a case for expecting a decline in the pace of real consumer purchases, which may raise fresh concerns about the economic outlook.

U.S. Economy Growing Faster Than Rivals, But Creating Far Fewer Jobs - The United States is out of step with the rest of the world's richest industrialized nations: Its economy is growing faster than theirs but creating far fewer jobs. The reason is U.S. workers have become so productive that it's harder for anyone without a job to get one. Companies are producing and profiting more than when the recession began, despite fewer workers. They're hiring again, but not fast enough to replace most of the 7.5 million jobs lost since the recession began. Measured in growth, the American economy has outperformed those of Britain, France, Germany, Italy and Japan – every Group of 7 developed nation except Canada, according to The Associated Press' new Global Economy Tracker, a quarterly analysis of 22 countries representing more than 80 percent of global output. Yet the U.S. job market remains the group's weakest. U.S. employment bottomed and started growing again a year ago, but there are still 5.4 percent fewer American jobs than in December 2007. That's a much sharper drop than in any other G-7 country. The U.S. had the G-7's highest unemployment rate as of December.

Payrolls May Not Be Growing Much, but Profits Are - As we’ve noted before, today’s job market woes are no longer because of layoffs. Layoffs, in fact, are at a record low. The problem today is that no one is hiring those people who were already laid off.A case in point from the Associated Press:— A Massachusetts employment organization has canceled its annual job fair because not enough companies have come forward to offer jobs.Richard Shafer, chairman of the Taunton Employment Task Force, says 20 to 25 employers are needed for the fair scheduled for April 6, but just 10 tables had been reserved. One table was reserved by a nonprofit that offers human services to job seekers, and three by temporary employment agencies.Shafer tells the Taunton Daily Gazette the lack of employers means the task force won’t have enough money to properly advertise the fair.

A disturbing trend: No growth in total business establishments - Atlanta Fed's macroblog - The last Atlanta Fed poll of small businesses in the Southeast suggested an uptick in confidence late last year. A similar upturn has been noted in the National Federation of Independent Business's survey of its members conducted in February of this year and released in March.  It's also good news, given the continuation of unimpressive readings from last week's release of the Quarterly Census of Employment and Wages (QCEW) for the second quarter of 2010. As we have noted previously and highlighted in this recent Wall Street Journal blog post, "The recession caused a sharp decline in new business start-ups, intensifying job market losses and potentially putting future economic growth at risk."The QCEW data also showed that the number of business establishments with payrolls in the United States has remained stuck at around 9 million since late 2007. By comparison, in the early 1990s there were about 6.5 million establishments, a number that rose to close to 8 million in 2000 before peaking at 9 million 2007.

A Decline in American Entrepreneurship - American workers weren’t the only ones sacrificed by the Great Recession. Start-ups suffered, too. A new paper from the Federal Reserve Bank of Cleveland tracks various measures of entrepreneurship over the last few years. It found that the number of businesses with employees — one indicator of entrepreneurial activity, like self-employment — took a nosedive. The chart below shows the number of businesses in the United States, adjusted for population growth. As you can see, the population-adjusted number of businesses began falling even before the recession officially began in December 2007. But once the downturn hit, the number of businesses began falling precipitously. Some of that decline was because of business failures. But it was primarily tied to the lack of new business formation.

More on Unemployment and Investment - Paul Krugman - To follow up on John Taylor: suppose we look only at nonresidential investment, and suppose that we think (as we should) that the causation runs mainly from unemployment — a proxy for excess capacity — to business investment, rather than the other way around. Then the data since 1990 look like this: BEA, BLS  Investment is low as a share of GDP; well, that’s no surprise given how depressed the economy is. And if anything investment is a bit stronger than you might have expected from past behavior.

John Taylor draws a Phillips Curve - The obvious conclusion is that investment is very important for the business cycle. Should we be surprised? No! It's common knowledge that although investment and consumption are both correlated with GDP, investment is far more volatile - in other words, investment makes up a very outsized portion of business cycle swings. And in fact, this is exactly what theory would predict - since capital goods are durable, it's relatively easy to shift purchases of capital goods (i.e. investment) into the future or into the present. So Taylor is pointing out something that everyone already knows. But here's the conclusion he draws:Encouraging the creation and expansion of businesses should be the focus on government efforts to reduce unemployment. The recent compromise agreement to prevent the increase in tax rates on small businesses and the move to lighten up on the anti-business sentiment coming out of Washington are two steps in the right direction.  Sorry, but this just doesn't follow. Taylor seems to have in mind an RBC-type model, in which the business cycle is driven by supply shocks. But his graph in no way implies that we are living in a supply-driven world, because demand-based models also imply that investment and unemployment are inversely correlated!

Investment and Unemployment: A Reply - John Taylor - Paul Krugman wrote a post yesterday afternoon and another one last evening on a January 14 post of mine. In the Janaury post I pointed out the strong correlation between total fixed investment as a share of GDP and the unemployment rate during the past two decades; total fixed investment equals business fixed investment plus residential investment. In his afternoon post, he argued that it’s misleading to look at total fixed investment because most of the recent swing has been in residential investment. “It’s mostly the housing bust!” he argued, continuing that “The rest”—the business fixed investment part—“is just politically motivated mythology.”  But the correlation I pointed out is not just due to housing. There is a close relationship during the past two decades between business fixed investment and unemployment. In fact it’s closer than for residential investment and unemployment. Here are the time series charts for business fixed investment and residential investment.

Two Slumps in Business Investment - Krugman - Oh, my. I think John Taylor is being deliberately dense here: he professes himself baffled by my two posts criticizing his assertion that the investment-unemployment correlation says that anti-business rhetoric and policies are the problem. Maybe this will help: let’s look at two slumps in nonresidential fixed investment as a share of GDP, one beginning in 2000 (peak in the third quarter) and one beginning in 2007 (peak in the fourth quarter). Here’s how they compare, quarter by quarter: The slump in business investment was actually deeper and longer in the Bush-era recession and aftermath than this time around. Yet the economic slump this time has, of course, been much deeper. Why? Mainly because housing slumped this time; indeed, you can think of the 2001 recession as a recession basically led by business investment, while the 2007 recession was basically led by housing, with business investment a lagging indicator.So where, in all this, is there any reason to think that anti-business rhetoric or policies are at fault? I mean, if weak business investment says that you have an anti-business administration, then of the last two presidents Bush looks like the more anti-business guy.

Determinants of Business Investment Spending – Krugman - This used to be a big topic of empirical research, but seems to have largely faded out since the mid-1990s — probably because macro had shifted away from structural estimates in general, and also possibly because of the rise of real business cycle stuff. But what the old literature found was a very clear effect of demand growth on investment — the so-called “accelerator” — and not much else very clear. Here’s a useful example from the Boston Fed (pdf), in 1993, during an earlier slump in business investment.And what that paper concluded applies perfectly to our current circumstances, too:The disappointing volume of capital spending by businesses during the early 1990s appears to be a symptom of the slow rate of growth of economic activity in recent years rather than the consequence of exceptional impediments to investment spending. It’s not the socialist atheist Islamic Kenyans; it’s the economy, stupid.

Investment, Unemployment and Government Spending - I think Paul Krugman is being a little touchy in his criticism of John Taylor.  Taylor may feel that Obama’s antibusiness stance is the problem – I don’t know his personal views – but his posts didn’t say that. On the other hand I think Taylor’s points are somewhat empty. First, lets consider the relationship between Business Investment and Unemployment. I like the time series better than the scatter plot. You lose information in the scatter plot. This is a nice relationship. But, is it any different from what anyone would expect?  Suppose that you though the animal spirits of investors had took a turn for the worse and that they stop building factories and hiring new workers. Then you would see a rise in unemployment along with a decline in investment. Suppose you thought the economy was suffering from poor sales as a result of the hording of cash. Then businesses have both more workers and more capital than they can use

CEOs Expect to Boost Sales, Hiring, Spending - A growing portion of chief executives at America’s largest companies anticipate higher sales during the next six months and plan to increase both hiring and capital spending during that period, according to a new survey.The Business Roundtable‘s CEO economic outlook survey increased to 113 in the first quarter of the year, up from 101 in the fourth quarter of 2010, the business group announced Wednesday. “Our CEOs see momentum in the economy over the next six months, with increased demand fueling greater investment and job creation,” said Ivan G. Seidenberg, chairman of Business Roundtable and chairman and CEO of Verizon Communications Inc. “This shift continues a trend as reflected in recent employment data, with the private sector leading the way in creating more jobs.”In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.9% in 2011, an increase from the 2.5% expected in the fourth quarter.

Kansas City Manufacturing Survey at Record High, Chicago PMI Strong in March - From the Kansas City Fed: Survey of Tenth District Manufacturing Growth in Tenth District manufacturing activity accelerated rapidly in March, posting a record high for the second straight month. Expectations moderated slightly from last month, but still remained solid. Price indexes for raw materials reached historically high levels, and more firms indicated plans to pass cost increases on to customers. The month-over-month composite index was 27 in March, up from 19 in February and 7 in January. This reading set a new all time survey high. ... The employment index inched higher from 23 to 25, also a new survey record.  This is the last of the regional Fed surveys for January. The regional surveys provide a hint about the ISM manufacturing index, as the following graph shows.  The New York and Philly Fed surveys are averaged together (dashed green, through March), and averaged five Fed surveys (blue, through March) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through February (right axis).

U.S. Light Vehicle Sales 13.1 million SAAR in March - Based on an estimate from Autodata Corp, light vehicle sales were at a 13.1 million SAAR in March. That is up 12% from March 2010, and down 1.2% from the sales rate last month (Feb 2011). This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for March (red, light vehicle sales of 13.1 million SAAR from Autodata Corp). 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 slightly below the consensus estimate of 13.2 million SAAR, possibly because of rising oil prices. I don't think the Japanese supply disruptions have impacted sales much yet.

Orders Placed With U.S. Factories Declined 0.1% in February -  Orders placed with U.S. factories unexpectedly fell in February for the first time in four months, reflecting weaker demand for capital goods and military aircraft. Bookings for manufacturers’ goods decreased 0.1 after a revised 3.3 percent gain in January that was larger than previously reported, the Commerce Department said today in Washington. Orders excluding transportation equipment rose, boosted by demand for non-durable goods. Companies may be tempering spending on new equipment until further signs emerge that the recovery is broadening out and will generate faster job growth.

February Factory Orders Miss Expectations By A Mile, As Economy In Q1 Looks Worse And Worse - Factory orders in February missed expectations big time. Estimates were for growth 3%.  Instead: -0.1%. From the Census Department; New orders for manufactured goods in February, down following three consecutive monthly increases, decreased $0.4 billion or 0.1 percent to $446.0 billion, the U.S. Census Bureau reported today. This followed a 3.3 percent January increase. Excluding transportation, new orders increased 0.1 percent. Shipments, up six consecutive months, increased $1.4 billion or 0.3 percent to $448.3 billion. This followed a 1.7 percent January increase. This keeps with a trend of steadily disappointing data on Q1.

The future of manufacturing - Think manufacturing, and most likely your brain defaults to abandoned factories, outsourcing and economically devastated regions like the Rust Belt. So strong is our tendency to focus on American manufacturing as something that’s been lost that a chorus has risen up to decry the prevalence of “ruin porn” — those aestheticized versions of the decidedly un-pretty, with a particular focus on the once-triumphant automotive center of the universe, Detroit.  But there are many parts of this country where manufacturing is very much alive, albeit in a different form. The monolithic industry model — steel, oil, lumber, cars — has evolved into something more nimble and diversified. As this country continues to figure out how to crawl out of its economic despair, we could benefit from focusing on the shift.

Japan Quake Ravaging Auto? -The twin disaster and the nuclear crisis in Japan have thrown the global automotive industry out of gear. The auto parts supply chains have paralyzed, triggering production shutdowns, work shift reductions and cancellation of orders. However, analysts and experts fear that the worst is yet to come! Japan accounts for about 13% of the worldwide automobile production with U.S. being its largest market. Production of as many as 40 auto parts manufacturer in the country has been jeopardized due to plant outages and power shortages following the earthquake. Another crisis that the auto parts supplied from Japan poses is their uniqueness. Most of the auto parts sourced from Japan are unbelievably complex and specifically tailored. As a result, finding substitutes for such customized components becomes very difficult. Moreover, it is extremely painful to shift the production of these parts to unaffected areas, where Japan has excess auto parts supplying capacities. Let us see how the world’s largest markets are affected

Top 10 Dying Industries -The U.S. economy is recovering from a severe recession, but some industries are unlikely to ever fully bounce back.A new analysis by research firm IBIS World looks at 10 industries that appear to be dying. The list isn’t exactly shocking, but it represents a mix of sectors that are being left behind by technology or have been hurt by cheaper overseas competition. The biggest industry profiled by IBISWorld is wired telecom carriers, largely being supplanted by cellphones and the Internet. The dominance of the Web and digital media also puts Newspaper publishers, record stores and video-rental companies on the list. Meanwhile, photofinishing also takes its place among the top 10 dying industries thanks to the growing influence of digital photography. The only clear recession casualty that makes the list is manufactured home dealers. The housing boom led to a surge in the industry, but now years after the bubble burst the sector has continued to struggle.The full list is below:

ADP: Private Nonfarm Payrolls Rise In March - U.S. private sector employment rose by a net 201,000 (seasonally adjusted) last month, according to this morning’s release of the ADP Employment Report. That’s slightly down from February’s 208,000 gain, although the message is clear: job growth rolls on, albeit at modest levels relative to what the economy needs to bring about a large and relatively quick drop in the still-elevated jobless rate. Modest, perhaps, but persistent. For the 14th consecutive month, the labor market expanded, according to ADP. The rise suggests that Friday’s release of the Labor Department’s payrolls update for March will also report a similar gain. The crowd is expecting no less. The consensus forecast (according to Briefing.com) among economists anticipates that the government’s estimate of private payrolls for March will jump by a net 203,000. If so, that would be slightly lower than February’s 222,000 gain, although basically in line with what today's ADP report is telling us.

ADP: Private Employment increased by 201,000 in March - ADP reports:  Private-sector employment increased by 201,000 from February to March on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from January 2011 to February 2011 was revised down to 208,000 from the previously reported increase of 217,000....The average monthly increase in employment over the last four months – December through March – has been 211,000, consistent with a gradual if uneven decline in the unemployment rate. This is almost three times the average monthly gain of 74,000 over the preceding four months of August through November.Note: ADP is private nonfarm employment only (no government jobs).  This was about at the consensus forecast of an increase of about 205,000 private sector jobs in March.

March Employment Report: 216,000 Jobs, 8.8% Unemployment Rate -- From the BLS:  Nonfarm payroll employment increased by 216,000 in March, and the unemployment rate was little changed at 8.8 percent, the U.S. Bureau of Labor Statistics reported today. The following graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate decreased to 8.8% (red line).  The Labor Force Participation Rate was unchanged at 64.2% in March (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 Employment-Population ratio was increased slightly to 58.5% in March (black line).  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.  The current employment recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

EMPLOYMENT SITUATION (5 charts) The employment report was the strongest this cycle as total payroll employment expanded some 216,000. This consisted of a 230,000 gain in private payrolls and a 14,000 drop in government jobs as state and local governments are still shedding jobs. Moreover, the household survey reported a 291,000 gain in employment. The last two months private employment gains have been the strongest this cycle, exceeding the 229,000 gain in April 2010. Last months gains now appears to be the start of a new stronger trend rather than just an offset to the weak numbers in January. The unemployment rate fell 0.1 percentage points to 8.8%. Earlier this year it looked like signs of a stronger economy was showing up almost everywhere but the employment data. The improvement was also reflected in stronger hours worked as the index of aggregate hours worked rose 0.6% -- the largest monthly gain this cycle. But average hourly earnings were unchanged at $22.87 and the annual growth rate continues to slow.The combination of expanding hours and very weak wage gains generated an increase in average weekly earnings. But the year over year increase in average weekly earnings is only 2.87% this month versus 2.98% in February. With weekly earnings only growing at under a 3% rate it is hard to see how firms can pass higher commodity prices through to consumers.

Unemployment Rate Falls To 8.8%, A Two-Year Low - For the second month in a row, we’ve got a strong  jobs report and signs that the economy really has turned a corner: The unemployment rate fell to a two-year low of 8.8 percent in March and companies added workers at the fastest two-month pace since before the recession began. The Labor Department says the economy added 216,000 new jobs last month, offsetting layoffs of local governments. Factories, retailers, education, health care and an array of professional and financial services expanded payrolls. Private employers, the backbone of the economy, drove nearly all of the gains. They added 230,000 jobs last month, on top of 240,000 in February. It was the first time private hiring topped 200,000 in back-to-back months since 2006 — more than a year before the recession started. Since November, the Unemployment Rate has fallen a full percentage point, a sign that this is more than just a minor recovery. More important, U-6, the broadest measure of unemployment, has fallen along with the overall rate over the past four months and is now below 16%, not good but a heck of a lot better than it was even six months ago.

The March Employment Situation Release - From Reuters:U.S. employment recorded a second straight month of solid gains in March and the jobless rate fell to a two-year low of 8.8 percent, underscoring a decisive shift in the labor market that should help to underpin the economic recovery. Nonfarm payrolls rose 216,000 last month, the largest increase since May, the Labor Department said on Friday. The gain built on the 194,000 new positions added in February.  BLS report here. As noted elsewhere, even with these solid gains, the pace of net job creation is far below that necessary to rapidly reduce the unemployment rate. Figure 1 depicts the trend in the standard nonfarm payroll employment series, the same series excluding temporary census workers, and the household series adjusted to conform to the nonfarm payroll concept.

Good but not great job growth continues - JUST a brief note: the American economy added 216,000 jobs in March, according to the latest BLS data. The unemployment rate dropped a tad, from 8.9% to 8.8%. On the one hand, this is yet another solid report. Private payrolls have risen by 470,000 over the past two months (government employment at all levels declined by 60,000 over the same period). Over the last year, private employment has risen by nearly 1.7m. But the economy lost nearly that many jobs in January and February of 2009 alone. Here, from Calculated Risk, is the broader perspective: At this pace, it will take a long time to recover this lost ground.

Private Sector Jobs Rise by 230k In March - In line with expectations, private-industry nonfarm payrolls rose 230,000 in March, down slightly from the 240,000 net gain posted in February, the Labor Department reports. A respectable rise, to be sure. All the more so since the job growth for March represents the 13th straight month of improvement for the private sector. In addition, last month's advance is near the highest level since the labor market started growing again in early 2010. But while those are all encouraging signs, we're still left with the fact that job growth of 200,000-plus a month isn't helping lower the still-elevated jobless rate. Unemployment was virtually unchanged in March, inching down to 8.8% from 8.9% in February. Otherwise, job growth was fairly widespread across the private sector. Within the cyclically sensitive goods-producing sector, only construction slipped, shedding 1,000 jobs in March. Meantime, the services industries, which constitutes the bulk of the employment in the U.S., had a strong month, adding 199,000 jobs in March—the highest monthly gain since the Great Recession ended.

The pieces are falling into place - TURN off the alarms. After several weeks when the data pointed to a recovery still struggling to achieve escape velocity, the March employment report provided reassuring evidence that, at a minimum, it is still gaining altitude. Total payrolls excluding agriculture rose a hefty 216,000, or 0.2%, the biggest monthly gain since last May. Private payrolls advanced 230,000, and by 470,000 over the last two months, the biggest such gain in five years. Government employment continued to slide. The unemployment rate, meanwhile, edged lower, to 8.8%, its fourth straight drop. It has now fallen a full percentage point since November. That’s a surprisingly fast drop, given the unimpressive pace of concurrent GDP growth of about 2% to 3% annualised. Two factors can explain the unusually rapid decline in unemployment. One is that the household survey used to calculate the unemployment rate shows much more rapid employment growth since November (1.4m) than the separate survey of establishments that yields payroll employment (630,000). Exactly why is a mystery.

The Drop in the Unemployment Rate: A Bad Sign For the Economy? - More jobs plus a lower unemployment rate equals -- more to worry about. Really? On Friday, the government reported that the job market grew faster in March than it has in that month for more than 5 years.  And it was the third month in row that the economy created more jobs than the month before. The last time that happened, excluding government jobs added for the Census, was back in November 2005. But the thing that surprised most economists and forecasters was this: The unemployment rate dropped, again, to 8.8%.  You have to understand why economists have been expecting a jump in the unemployment rate, even as many continue to expect the economy to improve. That's because the unemployment rate is a weird figure as this blog has written about in the past. It tracks not just the number of people without jobs but the number of people looking for jobs. If a growing number of people give up looking for work, even if the number of jobs doesn't rise, the unemployment rate will drop. One of the things that observers have found curious about this recovery is that the number of people looking for a job even after the economy has improved has not spiked up. It rose this month, up 160,000, but over the past year it has basically been flat, even though the economy has improved.

Hidden Bad Signs in a Good Jobs Report - There was lots of good news in Friday’s jobs report, but there are still some caveats to keep in mind. One potential area of difficulty is disruptions in manufacturing supply chains caused by the Japanese earthquake, the ripple effects of which might not be felt for weeks or months. Manufacturing added jobs in March, but there might be some difficulties ahead. Meanwhile, prices of food and oil have been increasing, sparking worries about consumer spending. If more people have jobs, that mutes those fears a bit. But today’s report notes that wages were unchanged. If prices are going up but workers aren’t getting paid more, it spells good news for companies who can keep labor costs low, but suggests continued struggles for consumers. The other overarching issue is the number of people who remain unemployed. Though the rate is dropping, there are still 13.5 million people who would like to work, but can’t get a job and that doesn’t include those who dropped out of the labor force. The broader U-6 unemployment rate that includes people marginally attached to the labor force continued to decline but still remains at 15.7%. So much slack in the job market means that employers don’t feel as much pressure to increase wages.

Employment Summary and Part Time Workers, Unemployed over 26 Weeks - 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. The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) increased slightly to 8.43 million in March from 8.34 million in February. These workers are included in the alternate measure of labor underutilization (U-6) that declined to 15.7% in March from 15.9% in February. Still very high, but improving. This graph shows the number of workers unemployed for 27 weeks or more.  According to the BLS, there are 6.122 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 5.993 million in February. This remains very high, and is one of the defining features of this employment recession.

Average Length of Unemployment Rises Again - As we’ve noted before, the length of time the typical unemployed person has been out of work has been getting longer and longer. And in March, the duration of unemployment again rose, to an average of 39 weeks: That’s the longest on record, even when you account for the fact that the Labor Department changed its methodology for calculating average unemployment duration at the start of this year. (The numbers produced by the department’s old methodology are shown in very light blue in the chart above; as you can see, they’re still higher than they were at any previous month on record.) So what accounts for the interminable length of unemployment?Layoffs during the Great Recession were unusually concentrated. Whereas in previous recessions a large swatch of American workers churned in and out of unemployment, this time around the ax fell on relatively few Americans. And as the economy has marched onward, this smaller group of workers has been left further and further behind.Some of those people had been structurally displaced — that is, they were in occupations or industries that were disappearing more permanently, or they were less productive workers to begin with — and that’s why it’s so hard for them to get new work. But for many Americans, unemployment begets unemployment. The longer a person is out of work, the less likely he is to find new work in the coming few weeks, whether because of stigma, less intensive searching, skill deterioration or other factors.

Comparing Recoveries: Job Changes - The United States added 216,000 jobs on net in March, the Labor Department reported today, slightly faster growth than the February gain, which was revised slightly to 194,000. March also represented the 13th straight month of net job gains in the private sector.Job gains were relatively widespread — nearly ever major sector added employees, or at least kept payrolls flat — but the industries with the biggest gains were professional and business services, health care, leisure and hospitality, and mining. The biggest loser was local government, which has lost 416,000 jobs since its payrolls peaked in September 2008. Even most of the winners, though, have a long way to go before returning to their prerecession levels, if they ever do.The chart above shows economywide job changes in this last recession and recovery compared with other recent ones, with the black line representing the current downturn. Since the downturn began in December 2007, the economy has shed, on net, about 5.3 percent of its nonfarm payroll jobs. And that doesn’t even account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the recession.

Female Gains Dominate Today's Jobs Report - Here are a couple of interesting items in today's Employment Report: 1. From the household survey, there was an increase of 291,000 jobs in March, because of an increase in female employment of 305,000 jobs last month, which was offset slightly by a decrease of 14,000 household jobs for men. 2. The March jobless rate for men remained the same as February at 9.3%, while the unemployment rate for women fell from 8.5% to 8.3%.   Therefore, all of the employment gains in March were female jobs, and all of the overall reduction in the March jobless rate from 8.9% to 8.8% was because of job gains for women.  Looking through the report, I didn't find any obvious sources of the job gains for women, e.g. there was a gain of 45,000 jobs for the education and health care sector, where about 70% of the jobs are held by women. But that doesn't come close to explaining 305,000 job increase for women, so I'm somewhat puzzled.

That Big March Jobs Number - It seems that the current contingent of economics reporters are too young to remember a healthy economy. This is the only way to explain the extraordinary celebration of the gain of 216,000 jobs reported for March. While this news is certainly in the "could have been worse" category, this is hardly an impressive rate of job growth, especially for an economy recovering from a severe recession. Remember, job growth averaged 250,000 a month for the 4 years from 1996 to 2000, and that was starting from an unemployment rate that was already under 6 percent. For those folks too young to remember how an economy is supposed to grow, I constructed a simple chart showing monthly job growth in the two years following the 74-75 recession, the 81-82 recession, and the 91-92 recession and compared them to the 216,000 job growth reported for March. The numbers shown are labor force adjusted which means that I multiplied the number of jobs created each month by the ratio of the March 2011 labor force to the labor force in the month given.

More Jobs Doesn’t Necessarily Mean More Good Jobs - Of the 230,000 private-sector jobs created in March, 199,000 of those were in the service sector. A large chunk of those jobs are in fields that are likely to provide a stable livelihood for those lucky enough to snag them – like some of the 78,000 added in professional and business services. But that’s less certain for, say, the 37,000 new workers in the leisure and hospitality industry. To be sure, having a job is better than not having one, both for the individual and for economic output. But this recovery seems to be going hand-in-hand with workers taking lower-paying jobs. More than half of those full-time workers who lost jobs between 2007 and 2009 and then found full-time work by early last year said their new jobs came with lower wages. Some 36% saw a pay cut of 20% or more. That can be good news for companies, who are able to keep their labor costs low and hire talented workers, which can increase productivity. The flipside: it can downshift Americans’ spending and their standard of living.

5 Answers From Today's Jobs Report - The latest jobs report was a solid one, as I mentioned in an earlier post. Job growth is picking up speed, reaching 216,000 in March. Rising oil prices don’t seem to be spooking companies, at least not by the week of March 12, when the Labor Department conducted its survey. All that is very good news. Unlike last year’s recovery — which petered out in the spring — this year’s remains alive. But today’s report was not great, either. Wages did not grow at all in March and have trailed inflation over the last year. The workweek didn’t get any longer; it typically does get longer before a big boom in hiring. And an employment increase of 216,000 is not exactly blistering. At that pace, the unemployment rate would not return to 5 percent for about five more years.  The economy is making progress, but the progress is slow and uncertain. Last night, I posed five questions to ask about today’s report. I offer some answers below.

A Long, Slow Slog Back to Normal - While the 216,000 net jobs that the economy added last month were certainly welcome, the growth wasn’t nearly fast enough to get the country back on the path to full employment anytime soon. The Great Recession dug the country’s job market into a very deep hole. As I mentioned in an earlier post, the economy today still has 5.3 percent fewer nonfarm payroll jobs than it had when the recession began in December 2007. If payroll growth continues apace with the gains experienced in March, it will take nearly three years for the economy to recover the jobs lost during the recession. The chart below shows what this long, slow slog would look like. The solid blue line shows the change in employment since the recession started over three years ago. As you can see, the line stops in March 2011, which is the most recent employment data point we have. The dashed blue line shows what employment would look like if the economy added exactly 216,000 jobs each month:

The Anatomy of Slow Recovery - Unfortunately, none of the net reduction in the US unemployment rate over the past year came from increases in the employment-to-population ratio; all of it came from declining labor-force participation. Unemployment has fallen from 10.1% over the course of the past 18 months, but the employment-to-population ratio has remained stuck at 58.4%. Perhaps it would be better if unemployed people who could have jobs – and who at full employment would have them – were actively looking for work rather than out of the labor force completely. If you take that view, between 1950 and 1990, the US employment-to-population ratio would rise an extra 0.227% annually on average for each year that the unemployment rate was above its natural rate. If the US employment-to-population ratio had started to follow such a path after its 2009 peak, the current ratio would be 59.7%, rather than 58.4%. (In that case, we would be experiencing “morning in America,” rather than the current state of economic malaise.) This is, I think, the best metric to use to quantify the decidedly sub-par pace of today’s jobless recovery in the US. It is not out of line with other American yardsticks: since the output trough, real GDP has grown at an average rate of 2.86%/year, barely above the rate of growth of the US economy’s productive potential. And it is not out of line with the experience of other rich economies, whether Japan or in Europe.

Eight Years to Get Back to Full Employment? - The payroll gains in March were good. But we’d need eight years of consistent monthly gains just like that — taking us to the year 2019 — to bring the economy back to full employment.The labor market lost almost 8.8 million jobs from the peak for payrolls in January 2008 (138 million payroll jobs, when the unemployment rate was 5%) to the trough in February 2010 (129.2 million). Since then, the U.S. has added 1.5 million jobs.If the March gain of 216,000 jobs were to continue, payrolls would return to their peak in 34 months — early 2014. But the economy also needs to add at least 100,000 jobs a month just to keep pace with long-run growth in the labor force. That brings us to early 2019 under March’s pace for payroll gains. The bottom line: the labor market needs to be producing far more jobs — 300,000 to 400,000 a month — to put the labor market on a trajectory that most Americans would find acceptable. Even adding 300,000 jobs a month would take almost five years to get back to full employment.

The Difficulty of Separating Cyclical from Structural Unemployment - I wish I'd remembered point three when I wrote recently about the difficulty of separating cyclical and structural unemployment. I was saying, essentially, the same thing that Peter Diamnond says here (via):  Current estimates I have seen of how much of the increase in unemployment from a few years ago is “structural,” rather than due to inadequate aggregate demand, still leaves enough need for aggregate demand stimulation that it is clear what direction is needed for further policies. I am skeptical of the value of attempting to separate cyclical from structural unemployment over a business cycle.... The tighter the labor market and the more valuable the filling of a vacancy, the more a firm is willing to hire a worker who is a less good match, who may need more training....Thus, no matter how you slice it or how you define it -- and even with a very generous interpretation of the structural estimates -- there is still plenty of cyclical unemployment (or, perhaps more precisely, employment that will respond to an increase in demand) to worry about, and plenty for policy to do.

'Brain waste' thwarts immigrants' career dreams - After finishing medical school in Bogota, Colombia, Maria Anjelica Montenegro did it all — obstetrics, pediatrics, emergency medicine, even surgery. By her estimate, she worked with thousands of patients.  None of that prepared her for the jobs she's had since she moved to the United States: Sales clerk. Babysitter. Medical assistant. "I know I was working in my field," the 34-year-old New York resident said. "But that is medical assistant. I'm a doctor." Montenegro is hardly unique, given the high U.S. unemployment rate these days. Her situation reflects a trend that some researchers call "brain waste" — a term applied to immigrants who were skilled professionals in their home countries, yet are stymied in their efforts to find work in the U.S. that makes full use of their education or training.

Tyler Cowen buys straddles on humanity's future - Cowen links to a piece by Mike Mandel, which claims to show that most of the reported "productivity growth" of this recession was actually just a mistake. The idea is that productivity has been mismeasured, and has actually stagnated or fallen in the last few years; that would make this recession more in line with previous episodes, and less of a weird "jobless recovery." For a critique of Mandel's piece, see Karl Smith. But my point is of considerably less import, and regards Tyler Cowen's reaction to Mandel's piece. Cowen writes:By the way, this is the most effective critique of [my] ZMP [Zero Marginal Product] hypothesis, since the implied decline in true output now comes much closer to matching the measured decline of employment...The Zero Marginal Product hypothesis is that technological change has rendered many workers completely useless, while the Great Stagnation theory holds that technological change has slowed down dramatically. As I have noted before, these two theses are mutually exclusive. Technology can only make humans obsolete if it produces a lot of stuff very cheaply. But if this is happening, then productive technology has not stagnated.

Gotta Love That Worker Productivity! - According to the Gallup polling, unemployment is 10.2%, but more importantly, worker productivity is on the rise.Another explanation for strong corporate profits has been growth in productivity, or hourly output per worker. The Labor Department reported on March 3 that annual average productivity rose by 3.9 percent in 2010. Aside from that strong productivity growth, unit labor costs fell during the same period by 1.5 percent. That reflects that worker compensation didn't keep pace with rising output. Put another way, businesses produced more than compensation rose.Normally, companies can squeeze only so much out of workers before they must hire more of them or fall behind competitors. Many economists thought hiring would have picked up by now as productivity rose, yet job creation continues to lag. Yout gotta' love it! Why hire more workers or properly compensate current workers when you can squeeze more work out the poor bastards, who probably feel lucky to have a job at all. Don't you love capitalism when it's firing on all eight cylinders? When profits are high and workers have no bargaining power? It's like a wet dream for grossly overpaid corporate CEOS

Inflation? Not in Wages - One of the big questions facing the Federal Reserve is whether the recent rise in oil and food prices will turn into an inflationary spiral. Today’s jobs report suggests that the answer, at least so far, is that there is little reason to worry about such a spiral. The average hourly wage across the economy — including salaried employees — did not grow at all in March. It was $22.87, just as it had been in February. And from January to February, it rose only a single cent.  Over the past year, hourly wages have grown 1.7 percent. That matches the smallest annual increase since the recession began, in late 2007. In the middle of 2009 — when the economy was still shedding hundreds of thousands of jobs a month — the annual increase was significantly larger: about 2.5 percent. It’s all but impossible to have an inflationary spiral if wages are not rising rapidly. Companies may want to increase prices because their energy costs are rising, but if customers don’t have the buying power to pay higher prices, most price increases won’t stick.

Jobs don't pay what they used to - VIA Tyler Cowen, here is a look at instances where the going wage rate appears to be zero:With nearly 14 million unemployed workers in America, many have gotten so desperate that they're willing to work for free. "People who work for free are far hungrier than anybody who has a salary, so they're going to outperform, they're going to try to please, they're going to be creative," "From a cost savings perspective, to get something off the ground, it's huge. Especially if you're a small business."In the last three years, Fallis has used about 50 unpaid interns for duties in marketing, editorial, advertising, sales, account management and public relations.  She's convinced it's the wave of the future in human resources. "Ten years from now, this is going to be the norm," she says. In the current labour market, it isn't too difficult to understand why a worker would do this. When long spells of unemployment are common, temporary unpaid work provides a means to maintain and improve skills while building contacts. Given stiff competition for new positions, unpaid labour allows a worker to signal his or her fitness for the job relative to applicants.

Men's Earnings Have not Declined by 28 Percent Since 1969! - Tyler Cowen, of whom I'm generally a big fan, summarizes an interesting post by Michael Mandel on recent productivity growth (the lack thereof).  But he ends by trumpeting Hamilton Project analyses claiming to show that men's earnings declined by 28 percent between 1969 and 2009.  This claim, like the Mandel analyses, reinforces Cowen's argument that we are in a Great Stagnation, but it's not true!  Stop this meme!  Here's the basic problem: the analyses assign all nonworking men annual earnings of $0, and since labor force participation among men has declined, the result is a big drop in median earnings over time.  But a lot of that decline in labor force participation is attributable to earlier retirement (they include men as old as 64), later and longer school enrollment (they include men as young as 25), rising "disability" rates (which do not correspond in any obvious way with changes in health or job demands but which do correspond with increasing generosity in disability benefits), and other factors having nothing to do with the strength of labor markets. I re-crunched the numbers as follows.  I included all men age 20 to 59 except for those who said they worked only part of the year or not at all because they were retired, going to school, in the Armed Forces, sick or disabled, or taking care of home and family.  Using the inflation adjustment that the Hamilton guys likely used, I find a decline in median earnings of 9 percent, not 28.

Many Low-Wage Jobs Seen as Failing to Meet Basic Needs - A separate report being released Friday tries to go beyond traditional measurements like the poverty line and minimum wage to show what people need to earn to achieve a basic standard of living.  The study¹, commissioned by Wider Opportunities for Women, a nonprofit group, builds on an analysis the group and some state and local partners have been conducting since 1995 on how much income it takes to meet basic needs without relying on public subsidies. The new study aims to set thresholds for economic stability rather than mere survival, and takes into account saving for retirement and emergencies.  According to the report, a single worker needs an income of $30,012 a year — or just above $14 an hour — to cover basic expenses and save for retirement and emergencies. That is close to three times the 2010 national poverty level of $10,830 for a single person, and nearly twice the federal minimum wage of $7.25 an hour.  A single worker with two young children needs an annual income of $57,756, or just over $27 an hour, to attain economic stability, and a family with two working parents and two young children needs to earn $67,920 a year, or about $16 an hour per worker.

Workers in Bad Jobs Have Worse Wellbeing Than Jobless - Gallup  - American workers who are emotionally disconnected from their work and workplace -- known as "actively disengaged" workers -- rate their lives more poorly than do those who are unemployed. Forty-two percent of actively disengaged workers are thriving in their lives, compared with 48% of the unemployed. At the other end of the spectrum are "engaged" employees -- American workers who are involved in and enthusiastic about their work -- 71% of whom are thriving. These data were collected as part of a special Gallup Daily tracking series to explore in-depth American workers' engagement levels. Gallup's employee engagement index is based on worker responses to 12 workplace elements with proven linkages to performance outcomes, including productivity, customer service, quality, retention, safety, and profit.Gallup classifies Americans as either "thriving," "struggling," or "suffering" according to how they rate their current and future lives on a ladder scale based on the Cantril Self-Anchoring Striving Scale. The unemployed, as measured by Gallup, are those who are not employed, even for one hour a week, but are available and looking for work.

99 Weeks of Problems -The government estimates that 1.4 million Americans are in the same boat as Drescher -- what the Bureau of Labor Statistics calls the "very long-term unemployed." The National Employment Law Project puts the number far higher, at 3.9 million. "As long as the economy continues to be in bad shape," says Claire McKenna, a policy analyst at NELP, "I can't imagine the number is going to go down." There are also almost 6 million people who have been out of work for 27 weeks or more, some of whom are on their way to 99er status.  Yet despite their numbers -- and their potential as a swing voting bloc, given their political diversity and shared predicament -- the 99ers are oddly invisible. They have had no mass protests in state capitals, no marches on Washington, no storming of Wall Street. Why?  A lack of leadership is one factor. A lack of cash is another. They can't pony up funds for buses to D.C. or New York. And many can't afford Internet service, which hinders online organizing.

Share of Families With Unemployed Member Reaches 12.4% - Last year, nearly one in eight families included an unemployed person, the highest proportion since the Labor Department began keeping track in 1994. Of all families, 12.4 percent included an unemployed person, up from 12 percent in 2009, the department observed in a recent report. (Since this data set goes back to only 1994, though, we can’t compare how this trend compares to the last major recession, in the early 1980s, when unemployment was generally more widespread throughout the population. As my colleague David Leonhardt has noted, other measures have shown unemployment in this recession  to be unusually concentrated within a small group of workers.) The report also included updates on how the labor market is affecting family dynamics and gender roles.

Measuring Jobless Families - New data from the Census Bureau show that the frequency of families without employment was sharply higher during the recession — but still fairly rare. Many indicators of economic activity, like the poverty rate and consumer spending, are measured at the family level, but widely cited labor market statistics like the unemployment rate are measured at the level of individuals.  The unemployment rate, for example, is the fraction of people who are actively seeking work (or on layoff) and are not employed. It is the fraction of people working — not the fraction of families working — that is one of the primary indicators used by the National Bureau of Economic Research to declare a recession. These standard personal labor market indicators are incomplete and potentially misleading, because they do not put labor market activity in a family context. Among other things, a majority of working-age adults live with a spouse and apparently share their income. More than 85 percent of people live in families. Presumably, it’s less traumatic for a family to have one of its two employed members out of a job than to have all its employed members out of a job.

Maine Republicans seek to loosen child labor laws - Republican lawmakers are pushing a bill through the Maine Legislature that would rollback child labor laws enacted by the state in 1991. The bill, LD 1346, establishes a 'training wage' for employees under 20 years of age at $5.25 per hour for their first 180 days of employment and increases the amount of hours minors can legally work. The proposed 'training wage' is over two dollars less than the state's current minimum wage. The bill also would eliminate the maximum hours a minor over 16 can work during school days and allow minors to work over 50 hours a week when school is not in session. Another bill, LD 516, is headed to the Senate floor for a vote after being passed along party lines by a Senate committee, with Democrats voting against the measure. It would allow minors 16 years and older to work up to six hours a day and until 11pm on a school night. The new legislation comes after Maine's Republican Governor Paul LePage ordered a 36-foot mural depicting the history of labor movements in Maine to be removed from the state's Department of Labor building.

G O P Lawmaker Wants To Roll Back Child Labor Laws - Missouri State Sen. Jane Cunningham [R] has introduced a bill to minimize child labor laws. SB 222 – This act modifies the child labor laws. It eliminates the prohibition on employment of children under age fourteen. Restrictions on the number of hours and restrictions on when a child may work during the day are also removed. It also repeals the requirement that a child ages fourteen or fifteen obtain a work certificate or work permit in order to be employed. Children under sixteen will also be allowed to work in any capacity in a motel, resort or hotel where sleeping accommodations are furnished. It also removes the authority of the director of the Division of Labor Standards to inspect employers who employ children and to require them to keep certain records for children they employ. It also repeals the presumption that the presence of a child in a workplace is evidence of employment.

Of the 1%, by the 1%, for the 1% - Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.  Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses.  Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.

Who Screwed the Middle Class? -I've written several times before about Winner-Take-All Politics, in which Jacob Hacker and Paul Pierson argue that middle-class wage stagnation and growing income inequality are due as much to political decisions over the past 30 years as they are to broad economic trends. I find their arguments persuasive, but there's no question that it's a tough case to make. After all, exactly which political decisions are we talking about? Can we point to specific pieces of legislation or specific agency decisions that have retarded wage growth? In fact, we can—things like tax policy, financial deregulation, the decline of antitrust enforcement, and anti-union rulings by the NLRB all played a role. By themselves, though, these just aren't enough to account for what's happened. So what's the smoking gun when it comes to the impact of politics on wage stagnation and growing income inequality? I think Lane Kenworthy fingered the right culprit a few weeks ago: the abandonment in recent decades of full employment as even a rhetorical goal of American economic policy:

Inequality Is Most Extreme in Wealth, Not Income - Typically, comments about rising inequality refer to the stark disparities in incomes of the very highest-paid Americans and everyone. We have observed in several posts, for example, that most of the income gains over the last few decades have gone to the very richest Americans. That means the highest-paid Americans have been claiming a larger and larger share of earnings.Here’s a chart I put together showing what percentage of all of America’s income (including capital gains) is going to each of several income classes, today versus previous years: Pretty striking, right? As of 2008, about 21 percent of income was received by just 1 percent of earners. But economic inequality isn’t just about how much you make — it’s about how much you have. To that end, the Economic Policy Institute, a liberal research organization, has published a new report looking at disparities in wealth in the United States. It includes this chart, showing estimates of what share of wealth each class claims:

Disposed Towards Revolt? - Most Americans who see the upheaval occurring in the Middle East and in other places overseas probably think it won't (or can't) happen here. But as I noted almost three years ago in "Not Too Hard," one thing that leaves people feeling favorably disposed towards revolt is significant inequality. In "Losing Our Way," New York Times columnist Bob Herbert makes it clear that we have plenty of that: like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion. Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be.

Michigan governor Rick Snyder signs bill to cut unemployment benefits in 2012 -- As Gov. Rick Snyder and lawmakers struggle to erase a looming $1.4-billion state deficit, another deficit nearly three times as large hangs over the head of Michigan employers. They owe the federal government about $3.96 billion that the state borrowed to pay unemployment benefits during the worst economy since the Great Depression.That's on top of the regular unemployment tax businesses and other employers must pay.The growing cost is a reason the Republican-led Legislature approved a new law that extends unemployment benefits this year, but next year will reduce to 20 weeks the maximum the state will pay unemployment benefits -- down from 26. That means lower unemployment taxes for Michigan employers in the future.

Illinois makes little progress on repaying unemployment loan — Illinois has added half a billion dollars to its unemployment debt this year, but a solution to the loan’s looming due date remains elusive in the halls of both Congress and the Illinois Legislature. Illinois is one of 35 states to borrow money from the federal government to pay for the first 26 weeks of unemployment funds, which are funded by a special tax paid by state businesses. When those tax receipts aren’t enough, as they largely haven’t been through the Great Recession and beyond, the federal government provides a line of credit to states that need extra cash. But the borrowing doesn’t come free. Most states that still had a loan balance as of Jan. 1 started being charged interest on their outstanding debts, and the federal government is expecting payment in full, interest and all, by Sept. 30.

State and Local tax revenue increases in 2010 - The Census Bureau released the State and Local tax revenue data for Q4 2010 today. Here is the page. From the WSJ: Tax Revenue Snaps Back State and local tax revenue has nearly snapped back to the peak hit several years ago—a gain attributed to a reviving economy and tax increases implemented during the recession. But the improvement masks deeper problems for state and local governments that are likely to linger for years. To weather the recession, state governments relied on now-depleted federal stimulus funds ...Total tax receipts for state and local governments hit $1.29 trillion in 2010, just 2.3% shy of the $1.32 trillion taken in during 2008, not adjusted for inflation, according to Census Bureau data. Local governments are mostly funded by property taxes, and it usually takes some time for falling prices to show up in property taxes. Local property tax revenue is just starting to decline in the Census data.

U.S. Property Taxes Fall by Most Since Housing Market Crash - U.S. state and local property-tax collections dropped in the last three months of 2010 by the most since home prices peaked more than four years ago, slowing the overall growth in government revenue.  Real-estate-tax collections, a main source of income for cities, slid $5.3 billion, or 2.9 percent, from a year earlier to $177.1 billion, the Census Bureau reported today. The drop exceeded a 2.5 percent decline in the first quarter of 2010, the data show.  The slide in realty taxes restrained the growth of state and local revenue during the fourth quarter to 1.6 percent, less than in the previous two quarters, the Census Bureau said.  Moody’s Investors Service said March 17 it expects the taxable value of housing to drop through much of 2011. It said this year would be the toughest for local governments struggling to balance their budgets since the onset of the recession in 2007.

How the South taxes - A few weeks ago, Andy Kroll caught Mississippi Gov. Haley Barbour saying he’d “dug out of a $720 million budget hole in two years without raising anybody’s taxes.” The problem? Barbour had raised a couple of taxes. But give him his credit: He hadn’t raised income taxes. Rather, he’d raised cigarette taxes and taxes on facilities for the mentally disabled — taxes, in other words, that fall fairly regressively.  Turns out he’s working in a time-honored tradition in the South. This graph comes from a presentation I saw for the book “Taxing the Poor.” It shows how state and local tax revenue varies by region. Note the difference between the South and the Northeast:  As you can see, the South relies much more heavily on sales taxes and much less heavily on income taxes than the Northeast does. Sales taxes, of course, are regressive, while income taxes are progressive. Here’s what this means for a family of three at the poverty line:

American Thought Police, by Paul Krugman - Recently William Cronon, a historian who teaches at the University of Wisconsin, decided to weigh in on his state’s political turmoil. He started a blog... Then he published an opinion piece in The Times, suggesting that Wisconsin’s Republican governor has turned his back on the state’s long tradition of “neighborliness, decency and mutual respect.” So what was the G.O.P.’s response? A demand for copies of all e-mails sent to or from Mr. Cronon’s university mail account containing any of a wide range of terms, including the word “Republican” and the names of a number of Republican politicians. The hard right — which these days is more or less synonymous with the Republican Party — has a modus operandi when it comes to scholars expressing views it dislikes: never mind the substance, go for the smear. The Cronon affair, then, is one more indicator of just how reflexively vindictive, how un-American, one of our two great political parties has become.

Freedom of Choice (But Not if You're Poor) As we've seen, it's standard operating procedure for Republican governors to balance state budgets on the backs of the poor and working class. Insofar that there's anything to distinguish one governor from another, it's in the details: Wisconsin's Scott Walker wants to break unions and cut benefits, Florida's Rick Scott wants to flash Medicaid, and Michigan's Rick Snyder wants to impose martial law. Rinku Sen reports:Last week, Michigan Gov. Rick Snyder signed the Local Government and School District Fiscal Accountability Act. Now he can declare any city or district in financial emergency, appoint an emergency manager (at county, city, district or township level) and give that person the power to control budgets, sell off assets, bypass city councils and boards of education, take over school systems, de-certify pubic unions, and even to dissolve the city itself as an entity. This is corporate martial law—it won’t be the military taking over, but business interests that constitute an authoritarian regime.

Prosecutor Told Scott Walker to Stage Fake Attack on Himself, Including Using a Firearm to Discredit Unions -An Indiana prosecutor and Republican activist has resigned after emails show he suggested Wisconsin Governor Scott Walker stage a fake attack on himself to discredit unions protesting his budget repair bill. The Republican governor signed a bill on March 11 that eliminates most union rights for public employees. In an email from February 19, Indiana deputy prosecutor Carlos F. Lam told Walker the situation presented "a good opportunity for what’s called a ‘false flag’ operation."The Wisconsin Center for Investigative Journalism¹ discovered the email among tens of thousands released to the public last week following a lawsuit by the Isthmus and the Associated Press."If you could employ an associate who pretends to be sympathetic to the unions' cause to physically attack you (or even use a firearm against you), you could discredit the unions," Lam said in his email.

Ohio’s Anti-Union Law Is Tougher Than Wisconsin’s - After Wisconsin’s labor battle seized the nation’s attention, after nearly 100,000 people rallied in Madison to protest a bill to curb public-sector collective bargaining, the Ohio legislature has, with far less fanfare, enacted a bill perhaps even tougher on unions.  It is perhaps surprising that Ohio faced more limited public demonstrations considering that its bill, which Gov. John R. Kasich¹ signed Thursday, goes further than Wisconsin’s in several important ways.  While both laws severely limit public employees’ ability to bargain collectively — they both prohibit any bargaining over health coverage and pensions — the Ohio law largely eliminates bargaining for the police and firefighters. Wisconsin’s law leaves those two groups’ bargaining rights untouched. Ohio’s law also gives city councils and school boards a free hand to unilaterally impose their side’s final contract offer when management and union fail to reach a settlement.

Everyone Has a Stake in US Uncut’s Fight - This weekend, US Uncut chapters in Georgia, New York, Washington, Pennsylvania and California staged actions (a much larger nationwide protest is planned for March 26. Thus far, thirty cities have signed up [1]). I spoke with Kevin Shields, the founder of US Uncut Philadelphia about the protest.A senior in high school, Shields decided to start his own US Uncut chapter simply because the need to protest is in his DNA. “For me, protesting and getting involved in activism is just something you do. If you don’t do it, you’re really missing out, and you’re participating in your own exploitation. So when I saw this, I thought, okay, I’ll do that.” He tells me what happened at Saturday’s protest. It’s a familiar story for the newer branches of US Uncut: a small, peaceful protest during which the activists staged a “teach-in.”

Illustrating How Infrastructure Deals Result in High Fees and Diminished Service -  Yves Smith -- It isn’t hard to understand why infrastructure deals (the sale of government owned assets to private investors) are inherently a ripoff....it’s a pretty safe assumption that most assets now held by government bodies are the the sort of thing that it makes sense for the government to own: high cost to build, long lived, not terribly complex to maintain assets.  Infrastructure investors like to see returns in the mid to upper teens. The deals are complicated to put together, so the fees are high. The deal needs to generate enough to pay the fees and generate the required returns. Since it is pretty much impossible to run something like a parking meters “smarter”, the usual course of action is a combination of increasing charges to the users (taxpayers who in the past used it for free or much less) and cut maintenance costs. From the Sydney Morning Herald: Australian investors are being accused of highway robbery by motorists in Virginia who blame Macquarie Group for what they say are exorbitant road tolls…. The road, one of the most expensive in the US, charges up to $US5.25 for car journeys but has not paid a dividend to its owner for the past three years. Some residents and local companies have boycotted the road – choosing traffic jams on alternative routes – and week-day traffic volumes fell 3 per cent last year.

Does the Highway Patrol Keep Us Safe? - Most government programs have some sort of constituency that will fight to the bitter end to keep the money flowing. However, it is probably safe to say that few voters will take to the streets to defend their right to be arrested, fined, and temporarily blinded by a flashlight. So in these rough budgetary times, maybe the highway patrol would be a good place to start chopping. Virginia and Michigan have already done so, laying off substantial numbers of state troopers, and Illinois recently came very close. Might this be a win-win, saving us both money and aggravation?On the other hand, the highway patrol exists for a reason: theoretically, by deterring dangerous driving, it’s supposed to keep us safer on the roadways. Does it?Greg DeAngelo and Benjamin Hansen have written an interesting working paper on this subject that takes advantage of some nice data.

Long Beach's budget woes seem to have no end in sight. - Long Beach's budget woes seem to have no end in sight.  Dropping revenues, an annual $18 million general fund shortfall over the next three years and an employee pension liability that is underfunded by $1.2 billion are all causing headaches at City Hall. For example, the city isn't just paying for its current pension obligations, which alone will cost $55 million next year, about 15 percent of the general fund. It's also paying for $108.6 million in bonds that were issued in 1995 to help fund pension payments then. Because those bonds became unaffordable and had to be refinanced, Long Beach now must pay $7.1 million a year to pay off the bonds through 2021. Of that, $3.3 million annually comes out of the general fund, which covers basic costs such as police, firefighters, parks and libraries.

Minnesota Senate OKs cutting 15 percent of state workforce - Many state agencies would sustain budget cuts of up to 20 percent under a Senate-passed bill, which eliminates 15 percent of state workers and freezes wages for those remaining on the payroll. Surviving state workers would be required to pay more for their health insurance and they would lost their right to use unions to bargain. The bill, which passed 36-29, is one of several that lawmakers are considering this week and next as they write a $34 billion, two-year budget. Sen. Mike Parry, R-Waseca, said his bill “will reduce spending and bring those innovative ideas to state government.” Republicans say cuts are needed to plug a $5 billion budget deficit, but Democrats counter that those workers are needed.

La. plan to use prison sales to plug gaps doubted - Some Louisiana lawmakers on Wednesday chafed at Gov. Bobby Jindal's plan to use nearly $86 million from the planned sale of three state prisons -- as well as millions in federal matching cash that would be generated by the move -- to avoid deeper cuts in the Medicaid program. If lawmakers refuse to back the prison sales, that could lead to a reduction in what the state pays doctors, hospitals and nursing homes for taking care of Medicaid patients in the fiscal year that begins July 1, budget analysts told the House Appropriations Committee. Their rates would be cut by 2 percent without the money. The prison sales have generated criticism from House members and state senators who say the contracts could increase state costs in later years. Some disagree with the idea of using one-time money to pay for ongoing expenses and complain that private companies would pay the prison workers less money

Muni bonds: Set for worst quarter in a decade -As investors fear cash-strapped states and cities across the country are on the brink of default and local governments slow debt issuance, the municipal bond market is heading for its worst quarter in a decade. Only $44.4 billion worth of muni bonds have been issued in the first quarter of 2011. That's the lowest level since the first quarter of 2000, according to data from Thomson Reuters.Part of the drop in issuance comes as budget shortfalls plague state and local economies -- leading to a freeze in demand from investors worried that the municipalities may not be able to get their books in order. Another reason for the low level of issuance so far this year is that municipalities issued piles of debt at the end of 2010.

Dimon Says a Hundred Municipalities in U.S. Won’t ‘Make It’ Out of Debt -- JPMorgan Chase & Co. Chairman and Chief Executive Officer Jamie Dimon said some municipalities will need to renegotiate debt and a hundred may not “make it.”  “I wouldn’t panic about what I’m about to say,” Dimon, 55, said today at a U.S. Chamber of Commerce event in Washington. “You’re going to see some municipalities not make it. I don’t think it’s going to shatter America, I just think it’s a part of the credit cycle.”  Speculation about widespread municipal-bond defaults intensified in December when bank analyst Meredith Whitney predicted that “hundreds of billions” of dollars of municipal bonds may default in 2011 amid pressure to balance budgets.  JPMorgan, the second-biggest U.S. bank by assets, said in February its commercial bank’s municipal-debt holdings are diversified enough to handle a likely increase in defaults. The number of issuers that can’t manage debts may be about a hundred, Dimon said today.

State budget deficit to grow to $1.3 billion, panel predicts - The state Council on Revenues today lowered its forecast for this fiscal year, projecting a 1.6 percent decline in revenues, instead of the 0.5 percent growth that the council predicted earlier this month. The new forecast expands the state's budget deficit to about $200 million this fiscal year and to about $1.3 billion over the two-year budget cycle. Hawaii Gov. Neil Abercrombie asked the council to return for a special meeting to update its forecast after the Japan earthquake and tsunami, the unrest in Africa and the Middle East, and the anticipated loss of federal earmarks from Congress.

NC Faces Gap of $2.5B Due to End of Stimulus - Since 2008, North Carolina has benefitted from an additional $2.5 billion in federal Medicaid stimulus reimbursements. With the stimulus money going away, the state is left to pick up a larger portion of Medicaid tab that could top $13 billion in the coming year. How state lawmakers plan to pay for that is anyone’s guess.“That’s the three-billion-dollar question,” says Chris Mackey, a spokeswoman for Gov. Beverly Perdue.

Cuomo Reaches Deal With Top New York Legislators to Close $10 Billion Gap - New York Governor Andrew Cuomo and top lawmakers agreed on a budget that eliminates next year’s $10 billion deficit by sticking close to the governor’s proposals for spending cuts without new taxes, they said.  The agreement for the fiscal year that begins April 1 would add $250 million of spending to Cuomo’s proposed $132.5 billion plan. Even with the increase, total outlays would decline 2 percent, the first such drop since at least 1995. Lawmakers, who Cuomo said faced a choice between accepting his plan or shutting down government, may be on a path to achieve New York’s first early budget since 1983.

Cuomo uses a velvet-fist approach to state budget - Gov. Andrew Cuomo put on display the full power of the governor's office in reaching a deal with lawmakers this week on a 2011-12 state budget. By threatening a state government shutdown but also charming lawmakers along the way, Cuomo was able to get most of his budget proposal into the final plan, which is set to be adopted later this week, lawmakers said. For a state government accustomed to prolonged budget fights, some legislators marveled at Cuomo's swiftness in getting a deal in his first year in office. It would be the first time in five years that a budget was approved on time and only the third time since 1984. The budget that lawmakers are set to adopt includes Cuomo's agenda and what he laid out during the gubernatorial campaign last year — no broad-based taxes, a cut in state spending for the first time in 15 years and reforming how aid is distributed for education and health care.

What You Won't See In New York's Budget  - Governor Andrew Cuomo and New York's top legislators worked through the weekend to hammer out what they hope will be the state's first on-time budget in five years. After weeks of behind-closed-door debates, Cuomo and legislative leaders agreed to a $132.5 billion budget that cuts spending but doesn't add new taxes. The legislature has until March 31 to officially vote the budget into law. Since 1990, only three budgets have been on time.Yet, even though the budget in its current form would eliminate a $10 billion deficit, it still fails to address many of the issues near and dear to New Yorkers' hearts, including reforms on property taxes, rent control and teacher layoffs."Cuomo and the legislative leaders decided that a budget that was on time was so important, they took all the non-budget issues that are contentious out of the discussion,"  "They'll all now become hotly debated issues in the session."

New York’s Wisconsin Moment? - The assault on the working class packaged as “fiscal responsibility” by the likes of Scott Walker has gone viral.  Since Wisconsin, this tactic – force hard working Americans to accept the notion of “austerity”, while giving corporations and millionaires tax breaks – has reared its ugly head in Ohio, Indiana, and Florida.  This week, the virus has found a new host – New York.Over the weekend, New York Governor Andrew Cuomo and GOP Senate leadership agreed on a plan to slash the State Budget  by billions of dollars – including hundreds of millions in cuts to public school funding and to State and City universities, millions more in cuts to homeless services and senior centers.  In addition, the State will allow the Millionaires’ Tax to expire, and will not strengthen laws protecting rent regulation for residents of New York City.  All of this is being justified by lawmakers as necessary measures to close the State’s deficit.  So let’s look at the numbers: Total money being cut from the budget? About $3 billion. Total tax revenue NY will be losing by letting the millionaire’s tax expire?  $4.6 billion.

Bloomberg: State Budget Means More NYC Cuts - Mayor Michael Bloomberg called cutbacks in the state budget deal an outrage yesterday, warning that city residents should brace for a new round of reductions to services after the Albany budget agreement met some but not all of the mayor’s demands. “Proportionally, the cuts that are inflicted on New York City are an outrage,” Bloomberg said a day after Gov. Andrew Cuomo announced a tentative $132.5 billion state budget deal that is expected to restore more than $136 million of threatened education money to the metropolis.  The mayor said the state concessions were not enough to head off a new round of cutbacks to city agencies, and he did not rule out the possibility of additional teacher job reductions beyond the 6,166 already planned.  “The final budget still cuts New York City education aid more than ever before,” he said. But Cuomo spokesman Josh Vlasto argued that key city reductions contained in earlier versions of the budget had been removed from the final deal.

New Yorkers Rage Against the Cuts - In the shadow of towering colonial-style office buildings of the world's most powerful financial district, a crowd over 5,000-strong amassed outside Manhattan's City Hall Thursday, chanting "The people united will never be defeated!" As the contagious effects of democratic uprisings radiate from North Africa to North America, New York City's exploited workers and students are not about to let the opportunity for mass struggle pass them by. The "Day of Rage Against the Cuts" has been in the works for over four months, one of the protest's organizers told IPS, ever since New York's recently appointed Democrat Governor Andrew Cuomo openly declared his intention to slash spending on public education and healthcare and lacerate the budget previously allocated to state agencies by over half a billion dollars in order to close an estimated budget gap of $10 million. "I am fed up with Bloomberg and Cuomo taxing students and hiking tuition," "Passing a 100-dollar million budget cut on CUNY means less financial aid assistance, fewer professors, more decrepit buildings and no daycare services for student-parents," Anees said. "Working class students can no longer shoulder the brunt of a budget deficit that we didn't create," she added. "We didn't start this crisis – Wall Street did."

Rich District, Poor District - To balance New York State’s budget, Gov. Andrew Cuomo wants to cut a record $1.5 billion from the $23 billion budget for grades K-12.  The cuts would scarcely affect wealthy districts that rely primarily on local taxes to support lavishly appointed schools. But they would be catastrophic for impoverished rural districts that have been starved of state aid for decades and are still reeling from cuts levied last year when David Paterson was governor. Already struggling to furnish even basic course offerings, the poorest districts would need to cannibalize themselves to keep the doors open and the lights on. The fundamental inequity of the cuts, as currently proposed, can be seen in how they would affect two of the state’s school districts: Ilion in the economically depressed Mohawk Valley, and Syosset, a wealthy town in Long Island’s Nassau County.

Some Rochester parents set to fight school budget cuts - Even before city schools Superintendent Jean-Claude Brizard finalized his proposed budget to present to the school board, parents were lining up to protest what they feared would be steep cuts to their children's education. Now, armed with hard numbers released on Tuesday, parents citywide are analyzing figures and mobilizing to protest what could be some of the biggest budget cuts in Rochester School District history."There's going to be a deterioration in the services offered our children," . "I can appreciate that there are concerns about the budget getting out of hand. But our first obligation is to teach our children. That's my central concern. I think they've forgotten about the students." Brizard presented some of the details of his proposed $678 million plan to the school board on Tuesday. The plan calls for cutting 900 jobs — 15 percent of the district workforce — to bridge an $80 million budget gap being driven by revenue shortfalls and rising expenses.

Farmington Board of Education Makes Budget Cuts- Board of education members trimmed $494,103 Monday from the proposed education budget, including cuts to sports and reading programs, summer school, proposed facility improvements and transportation. The cuts were in response to reductions that the town council made during budget workshops last month. The proposed education budget is $53,978,296, which is 4.83 percent more than last year's budget. A budget referendum is planned for May 5. "After four years of reductions, we are at a point that if you make a reduction, it really begins to hit up against programs and class size," said Superintendent Kathleen Grieder. The meeting, held in the high school library, was lengthy, as board of education members agonized over how to protect student services while maintaining class sizes.

Norfolk school budget cuts 159 positions - The School Board voted 4-3 on Wednesday to approve a budget for next year that would eliminate 159 positions and ask the city for $822,000 more than the $104 million Norfolk currently provides. The approved budget, which is about $17 million less than this year's, restored 10 tradesmen and about 12 teachers in the talented/gifted program that had been proposed for cuts. It retained cuts including literacy teachers, school deans, media assistants, career/technical teachers and other positions, and closes Dreamkeepers and Oakwood elementary schools. Some board members noted that Norfolk's city government has a projected $32 million budget shortfall that could make the requested increase in school funding a hard sell. City Manager Marcus Jones has said municipal layoffs are likely.

Kansas school teachers brace for cuts - Kansas teachers and administrators say there is little reason for optimism from the 2011 Legislature where lawmakers are preparing to make deep cuts to public schools.Their concern is this won't be the last reduction as demands for educating students and meeting ever-increasing achievement mandates increase. "I think up here in the Capitol what we are expecting to see is the governor get his way," said Mark Desetti, lobbyist for the Kansas-National Education Association. "The House is willing to give him anything he wants, plus deeper cuts."  Republican Gov. Sam Brownback proposed cutting school spending by $232 per student in next year's budget. The House and Senate budget plans largely follow that recommendation, reflecting tight state revenues and the end of federal dollars sent to states to support education budgets.Brownback and legislators are making the cuts to close a projected $493 million shortfall in the 2012 fiscal year beginning July 1.

School budget cuts take a painful human toll - They are fixing up their house — a wedding present to each other four years ago — to put it up for sale. "We can't afford it anymore," said Byron Browne. The two were among seven teachers at the Liberal Arts and Science Academy, a magnet program at LBJ High School, who learned last month that their jobs are being eliminated as part of an Austin school district plan to cut 1,153 positions — 471 of them teaching jobs — to close a $94 million budget hole for 2011-12. Districts across Texas are contemplating similar actions as state lawmakers move forward with a proposed budget that would reduce aid by billions of dollars. On Friday, the Round Rock district announced it will terminate about 350 employees, including 234 classroom teachers. Tonight, the Austin school board is expected to vote to terminate or not renew employment contracts of those unable to find new positions within the district.

Schools potentially face tremendous cuts - With budget negotiations in Sacramento in tatters, the bloodletting is starting to come into focus. The state is facing the threat of a damaged credit rating and even more cuts to the poor, disabled and elderly. And now California schools are also grappling with a nightmare scenario: $1,000-per-student cuts, 30 days shaved off the school year and school districts falling into bankruptcy. On Wednesday, the budget crisis of 2011 entered Phase Two. Gov. Jerry Brown and Democratic lawmakers have said all along that they would have little option but to slash education spending if voters didn't extend sales, income and auto taxes in a June election. K-12 education had been protected in the $8.2 billion in cuts -- mostly affecting the state's most vulnerable populations -- signed by Brown last week.

The Republican ignorance agenda - Congressional Republicans have fought to reduce pre-kindergarten (Head Start) funding. Conservatives in various arenas have been whittling away at the prestige, authority and autonomy of elementary and high school teachers. The denial of the right to collective bargaining, the destruction of security of employment, demands to take classroom decisions out of teachers’ hands and create a national curriculum, forcing teachers to teach to tests whose subject matter bears no relation to what future generations of Americans will need to know, allowing school buildings to deteriorate in the interests of “no new taxes,” carrying banners at rallies identifying teachers as “glorified babysitters” — all these work to encourage contempt for those who teach in those who need to learn, and to make mediocrity the norm. At the university level, we have seen many disquieting moves over the last several years. After 9/11, Lynne Cheney’s ACTA (the American Council of Trustees and Alumni) tarred as “treasonous” any academic who had dared to suggest that the U.S. bore any responsibility for the acts of terrorism. Several conservative organizations have placed “student” spies in the classrooms of professors suspected of liberal sympathies to report on them and cause them embarrassment and, ideally, loss of employment. Tenure has come under attack at this level as well as at the primary and secondary levels.

Wisconsin’s Professors Unionize in Defiance of Walker’s Law - Lisa Theo cast her vote yesterday to join a union that may not be able to negotiate a contract for her and said, “That felt good.”  Theo, 51, a geography instructor, and her University of Wisconsin-Stevens Point colleagues voted in a two-day election to be represented by AFT-Wisconsin after the passage of a law championed by Republican Governor Scott Walker that would eliminate collective bargaining for faculty members.  It was the fourth state campus to vote in favor of representation since Walker introduced the bill Feb. 11, saying it is necessary to mend the recession-battered budget. The measure, which has been challenged in court, touched off weeks of protests. Professors say Republicans are using the budget crisis to attack education with the union bill, by proposing funding cuts and by seeking e-mails sent by a UW-Madison professor who wrote a blog posting and a New York Times opinion piece opposing Walker.  “We’re going to stand up for our rights, and we’re going to keep fighting until we get them,” Theo said in an interview.  The Stevens Point faculty voted 283-15 for the union

How Elite Colleges Still Aren’t Diverse -There’s an old joke that Harvard’s definition of diversity is having a rich kid from New York room with a rich kid from California. No doubt the joke has also been told about Yale or Duke and about kids from places other than New York and California.  I thought of the joke while looking through the Chronicle of Higher Education’s fascinating interactive graphic on the percentage of students at various elite colleges who are Pell Grant recipients. Pell Grants are easily the country’s largest financial-aid program and, as a rule of thumb, they tend to go to students who come from the bottom half of nation’s income distribution. In 2008, the most recent year in the Chronicle’s data, a mere 6.5 percent of Harvard students received Pell Grants. And Harvard wasn’t all that unusual among elite colleges.  I wouldn’t expect 50 percent of Harvard students — or even, say, 40 percent of Harvard students — to come from the bottom 50 percent of the income distribution. But 6.5 percent? To put it another way, do you believe that more than 93 percent of the students who are most deserving of attending the nation’s most prestigious, best financed college come from the top half of the income distribution?

California teacher pension shortfall grows to $56 billion - The pension system for California's teachers has $56 billion less than it needs to cover the benefits promised to its 852,000 members and their families, the fund reported Thursday, as big investment losses in 2008 continue to reverberate. The drop in value was enough to trigger an automatic increase in the amount the state must pay into the California State Teachers' Retirement System, which is the nation's second largest public pension fund. That will boost the payment from California's already strained general fund by 20 percent — from $573 million to $688 million — in the fiscal year starting July 1. The pension shortfall as of June 30, 2010, was $15.5 billion greater than it had been a year earlier, CalSTRS officials said. The fund had expected the shortfall to be even greater, but educators received smaller raises than projected, reducing the ultimate amount of their retirement benefits, and the fund's investments performed better than expected in the 2009-10 fiscal year.

Firefighters: Houston mayor would cut 300 jobs over pensions – The city’s pension feud is intensifying as firefighters say Mayor Annise Parker’s administration gave them an ultimatum: cut pension costs or hundreds of firefighters will be laid off. "It was totally an ultimatum,” said Todd Clark, the chairman of the Houston Firefighters' Relief and Retirement Fund. “(It is) trying to blackmail the firefighters." Parker said Wednesday that the request should not have been perceived as a threat. "I didn't say, ‘you have to,’” she said. “I didn't say, ‘you must.’ I didn't threaten. We just said, 'please would you?’" Clark said City Attorney David Feldman told the pension board last week that the Houston Fire Department is short $22 million and if the City doesn’t get that much in concessions, it would lay off 300 firefighters and close fire stations. No specific fire stations were mentioned, Clark said. Parker wants to lower the amount the city is obligated to pay the pension fund as the city tries to close a $130 million budget gap. The thinking is that market conditions will improve over time and be able to make up for the lower contributions.

California cities, counties face bigger pension bill - The bill is coming due this year for local governments struggling to fulfill generous pension promises they made in better economic times. Starting July 1, most cities and counties in the Sacramento region will need to step up their contributions to the California Public Employees' Retirement System, which administers benefits for their 14,000 employees. These cash-strapped local governments will see their combined contributions jump by $26 million to a total of $200 million, a Bee analysis shows.That's money that won't go to other services – such as police protection, recreation programs and senior centers. The increase won't stop at $26 million, either. Higher CalPERS contribution rates are being phased in over the next three years and will remain in place for 30 years.

Stop Telling Me to Work Until Seventy - You can’t open a newspaper lately without reading an article with a headline containing the words “work until 70”.  This past weekend, I saw a story with a photo of an elderly woman sitting at a sewing machine working on prom dresses and the article went on to say that she has to work in order to supplement her Social Security.  That story was the straw that broke the camel’s back for me and I started ranting at the newspaper in a tirade not unlike my husband, the avid sports fan, yelling at the TV when his team is losing. Taken individually these articles are benign enough but when that singular message becomes a constant stream, it makes it seem as if working is the only feasible retirement strategy thus missing the whole point of retirement.  Retirement should be a time in our lives when we can make more choices in life — when we can do more of what we want to do and fill our days with the things we love and enjoy and less of what we have to do as an obligation.  Working in retirement is an option but it is not the only option.The constant stream of negative messages is problematic—people give up and think, “retirement isn’t possible”, and it becomes a self-fulfilling prophesy.   This is a very real phenomenon called “learned helplessness” first studied by psychologist Martin Seligman in the 1960s.  In his study, a group of dogs were “taught” that no matter what they did they couldn’t escape the pain of an electric shock.  When this same group was given the opportunity to avoid the electric shock, most of them didn’t even try. 

The pro-Social Security case for Social Security reform - Nothing unites Democrats like Social Security. No program has worked so well, for so many, for so long. But what about making changes to Social Security? Well, that’s harder. On Thursday, my colleague Lori Montgomery reported that “Democrats are sharply divided over whether to tackle popular but increasingly expensive safety-net programs for the elderly, particularly Social Security.” They shouldn’t be. I’m on record saying Social Security is the last place in the federal government we should look for cuts. It’s a lean, efficient program that, if anything, is too spartan. In 2009, the average monthly benefit was slightly more than $1,000 — hardly lavish. That makes it one of the stingiest national-pension programs in the developed world, actually. And once we finish phasing in the cuts passed in the ’80s, it’ll only replace about 31 percent of the average beneficiary’s income. In a time of underfunded 401(k)s and high unemployment, that’s just not enough for many retirees. Saying Social Security is too generous is like saying a Mini Cooper is too roomy.

Santorum: Abortion is slowly killing Social Security - Long-shot Republican presidential hopeful Rick Santorum said Tuesday that America's "abortion culture" is harming Social Security, reviving an ages-old argument largely confined to the fringe."The Social Security system, in my opinion, is a flawed design, period," Santorum, a former Pennsylvania senator, told the New Hampshire station WEZS Radio. "But having said that, the design would work a lot better if we had stable demographic trends." The problem, Santorum explained, is that "we don't have enough workers to support the retirees," because "a third of all the young people in America are not in America today because of abortion." According to the Guttmacher Institute, 22 percent of all pregnancies in the U.S. end in abortion. "We have seven children, so we're doing our part to fund the Social Security system," Santourm said.

Solving a worker shortage - Rick Santorum says we need to cut Social Security because “there aren’t enough workers to support retirees.”  Dan Savage sensibly suggests that we get some more workers: If only there were a large country, maybe adjacent to ours, that was home to a lot of people who wanted to come to the United States to live and work. And if the people in this hypothetically adjacentish country tended to have large families, and tended to be religious, social conservatives would no doubt to create a path to citizenship for folks from this hypothetical country. Because American needs more people, right? Or we could even get workers from some country that’s not Mexico! Many Americans seem to have gotten it into their heads that Mexico is a cesspool of unimaginable poverty, but its per capita GDP is actually above average. The point is that it’s absurd for the country to be simultaneously suffering from an illegal immigration problem and a population growth shortfall. Let people come, and let them work, and let them pay taxes, and let everyone get their retirement payments

Mark McKinnon Plays How Many Things Can You Get Wrong About Social Security in One Column - The hottest sport these days in Washington is seeing how many incorrect or misleading statements about Social Security you can get in one column. All the major media outlets are fully on board, anxious to convey any misinformation that reflects badly on the program. And there are plenty of deep-pocketed funders like Wall Street investment banker Peter Peterson who are happy to finance the effort. The latest contestent to enter the fray is Republican political strategist Mark McKinnon with a column in the Daily Beast. Let's play along. Mckinnon starts by warning that the United States could end up like Greece or Portugal, abandoned by the credit markets and forced to beg international organizations to buy our debt. Very nice -- this one always gets lot of points with political pundits. Of course it is not true. The United States has its own currency, that means it can never be like Greece or Portugal. Next we are told that life expectancy has increased by 15 years since 1935 when the program was established. This is true, but mostly irrelevant. Most of this increase was due to a reduction in infant mortality. That means more retirees, but also more workers. Some of the increase was due to the fact that more people live to the point where they retiree. Only a small portion of the increase has been attributable to people living longer after they retire. And much of this gain has been eaten by the increase in the normal retirement age from 65 to 67 that is already in current law.

Social Security: Real People, Real Benefits - Henderson introduced speaker after speaker whose stories illustrated his point that the debate over Social Security is about "real people who live real lives," who would face very real consequences if the GOP succeeds in cutting Social Security benefits, raising the retirement age, or privatizing the program altogether. As I listened to their stories, I remembered those of people I've known — just as "real" as anyone else's — whose lives would have been far difference without Social Security, and will be much different if the GOP has its way. The facts, numbers and statistics about Social Security are readily available, and have been so well explained and analyzed by lots of people that I don't need repeat all that here. While those facts should be distributed and read far and while, after listening to the speakers at today's press conference, I think most Americans understand the importance of Social Security because of its impact in their own lives, and those of people they know and love. The numbers bear that out.

Women Under the Budget Knife - Remember “shared sacrifice”? Like the rain, the budget cuts were supposed to fall on all alike. But somehow men seem to be ending up with more than their share of umbrellas, and women are getting soaked. Attacks on reproductive healthcare are openly aimed at women and have gotten a lot of attention—like the House vote to defund Planned Parenthood and eliminate the Title X family planning program, which has fortunately been blocked in the Senate. Less visible are the ways federal, state and local government cutbacks, touted as neutral and necessary belt-tightening, will fall disproportionately on women.

The Economics of Privately Sponsored Social Insurance - Senator Ron Johnson, Republican of Wisconsin, marked the first anniversary of President Obama’s signing into law of the Affordable Care Act of 2010 by publishing a commentary in The Wall Street Journal, “ObamaCare and Carey’s Heart.” He began with a touching celebration of the life-saving operation that had been performed some 27 years ago by highly skilled surgeons on the senator’s young daughter, who was born with a serious heart defect. He noted that this undoubtedly expensive operation had been financed by a “run-of-the-mill plan available to every employee of an Oshkosh, Wis., plastics plant.”  His commentary suggests that he views this “free market” approach to financing health care as the foundation of our health system’s remarkable innovations and achievements. Senator Johnson’s commentary then veered into a sharp broadside aimed at the Affordable Care Act of 2010: Not surprisingly, this comment elicited much critical commentary, some of it needlessly vehement.

The Future of the CLASS Act and Long-Term Care - The Community Living Services and Supports (CLASS) Act is an extraordinary case study in both budget and health care politics, and in the toxic political environment in which those of us in Washington live. And it puts a critical question into stark focus:  Exactly how do we, as a society, want to provide for the care of people with disabilities or those in frail old age.   CLASS is a national, voluntary long-term care insurance program that was buried deep within the 2010 Affordable Care Act.  The big idea behind CLASS was to take a small step towards turning long-term care services and supports from a program funded largely by Medicaid into a self-funded insurance system.  Unfortunately, this extremely important reform was very poorly designed.    At the time CLASS passed, few paid much attention. But it has now become a prime target for those in Congress aiming to repeal “Obamacare.” The other day, Representative Phil Gingrey (R-GA) introduced legislation to abolish CLASS, calling it, “A Bernie Madoff- fraudulent investment scheme…run by the Secretary of the Department of Health and Human Services.”

'Tip of the iceberg': 42 clusters of different diseases identified in 13 U.S. states, but researchers say this is just the beginning - A worrying report claims there are 42 disease clusters across 13 states in the U.S. which include numerous types of cancer, birth defects and other chronic illnesses. The study by the Natural Resources Defense Council and the National Disease Clusters Alliance drew on research by federal, state and local officials and peer reviewed academic studies. They have warned that this is just the tip of the iceberg and that there are likely more in other states which will be revealed through further study. The states that are affected are Texas, California, Michigan, North Carolina, Pennsylvania, Florida, Ohio, Delaware, Louisiana, Montana, Tennessee, Missouri and Arkansas. They are now urging federal coordination and support to help confirm these clusters and determine their causes. The study looked at clusters that have occurred since 1976 when Congress passed the Toxic Substance Control Act, which was meant to regulate the use of toxic chemicals in industrial, commercial and consumer products.

Highly Contagious AIDS-Like Disease Spreading in China - In a small hotel across from the Beijing Center for Disease Control and Prevention, a reporter from New Express Daily, dressed in an isolation suit, interviewed a dozen “unusual” patients from different areas of China. Their symptoms are painful and debilitating, and AIDS-like, but repeated tests for HIV have come up negative. Lin Jun, one of the patients interviewed in the March 24 New Express Daily report, said he used to be chubby, but now he is skin and bones, and his joints have become all deformed. Lin said he went to every major hospital in Shanghai, but could not get a definite diagnosis. He has taken the HIV test eight times, and each time the test turned out negative.  Then he found an Internet blog called “The Negative Group,” which he learned stands for “HIV negative.” He realized that writing on this blog were all people like himself, with the same kinds of symptoms, desperate to find a cure.

US Thyroid Epidemic - The statistics on thyroid disease in the US also tell a disturbing tale.  Since 1990 SEER cancer statistics show that the overall thyroid cancer incidence, across all ages and races in the United States, has been subject to a statistically significant annual increase (1.4 % per annum).   That increase was highest amongst females (1.6 % per annum).  Also worth note is the fact that between 1975 and 1996 the incidence of thyroid cancer has risen 42.1% in the United States.  This increase was particularly notable in women and most recent figures (1996) show that the incidence of thyroid cancer has climbed to 8.0 per 100,000.

Radioactive material detected in air of 3 southern U.S. states - Trace amounts of radioactive material believed to have come from Japan's quake-hit Fukushima Daiichi nuclear power plant have been detected in the atmosphere in South Carolina, North Carolina and Florida, Reuters news service reported Monday, citing officials.There is no current threat to public safety, the report said, quoting Drew Elliot, a spokesman for Progress Energy Inc., which operates some of the power plants in the southern states. Monitors at several nuclear plants in the three states picked up low levels of radioactive iodine-131, the report said.''If there were radiation coming from one of our own sites, we would be seeing other types of radiation than iodine-131,'' Elliot was quoted as saying.In the United States, radioactive materials believed to have come from the Fukushima nuclear plant have also been detected in several other states, including Hawaii, California, Nevada and Massachusetts.

Elevated radiation found in rainwater - Low levels of radioactive iodine linked to the nuclear disaster in Japan were detected in a sample of rainwater in Massachusetts, state health officials announced yesterday. The concentration of radioiodine-131 found in the sample is very low and did not affect the health of the state’s drinking-water supplies, said John Auerbach, commissioner of the Department of Public Health. The rain sample was taken during the past week in Boston as part of regular monitoring by the US Environmental Protection Agency. No detectable increases in radiation were discovered in the air that was tested in the same location where the rainwater was collected, Auerbach said at a press conference yesterday at the William A. Hinton State Laboratory Institute in Jamaica Plain. “In Massachusetts, none of the cities and towns rely on rainwater as their primary source of water,’’ Auerbach said. “That’s why we’re so comfortable in saying that the drinking-water supplies throughout the state are pretty safe.’’

Radiation In Massachusetts Rainwater Likely From Japan - Trace amounts of radioactive iodine linked to Japan's crippled nuclear power station have turned up in rainwater samples as far away as Massachusetts during the past week, state officials said on Sunday. The low level of radioiodine-131 detected in precipitation at a sample location in Massachusetts is comparable to findings in California, Washington state and Pennsylvania and poses no impact to drinking supplies, public health officials said. Air samples from the same location in Massachusetts have shown no detectable radiation.The samples are being collected from more than 100 sites around the country that are part of the U.S. Environmental Protection Agency's Radiation Network monitoring system."The drinking water supply in Massachusetts is unaffected by this short-term, slight elevation in radiation," said Massachusetts Public Health Commissioner John Auerbach. "We will carefully monitor the drinking water as we exercise an abundance of caution." Officials said that at the concentrations found, the radioiodine-131 would likely become undetectable in a "relative short time."

Radioactive rainwater detected in Pennsylvania, CA, MA and Washington state… If you don’t want to read this, let me sum it up in a sentence. Radioactive Iodine-131  from Japan’s nuclear reactor meltdown has now reached the US rainwater in concentrations 3300% greater than allowed in drinking water but the government says its OK because no one drinks rainwater (except maybe your pets and plants, huh?). By the way, radiation is accumulative. Radioactive iodine has a short half life (8 days), but there are other components arriving from this disaster that will stick around a lot longer. So, in 16 days, the iodine-131 radiation in the rainwater will ONLY be 1650% about federal drinking water standards…unless of course it rains again.

EPA: Expect More Radiation in Rainwater - The Environmental Protection Agency yesterday reported finding elevated levels of iodine-131, a product of nuclear fission, in rainwater in Pennsylvania and Massachusetts. The levels exceed the maximum contaminant level (MCL) permitted in drinking water, but EPA continues to assure the public there is no need for alarm:“It is important to note that the corresponding MCL for iodine-131 was calculated based on long-term chronic exposures over the course of a lifetime – 70 years. The levels seen in rainwater are expected to be relatively short in duration,” the agency states in a FAQ that accompanied yesterday’s brief news release.“In both cases these are levels above the normal background levels historically reported in these areas.” EPA said it is receiving “verbal reports” of higher levels of radiation in rainwater samples from other states as well, and that Americans should continue to expect short-term contamination of rainwater.

Government Responds to Nuclear Accident by Trying to Raise Acceptable Radiation Levels and Pretending that Radiation is Good For Us - When the economy imploded in 2008, how did the government respond? Did it crack down on fraud?  Rein in the funny business?Of course not! The government just helped cover up how bad things were, used claims of national security to keep everything in the dark, and changed basic rules and definitions to allow the game to continue. See this, this, this and this. When BP – through criminal negligence – blew out the Deepwater Horizon oil well, the government helped cover it up (the cover up is ongoing). The government also changed the testing standards for seafood to pretend that higher levels of toxic PAHs in our food was business-as-usual. So now that Japan is suffering the worst nuclear accident since Chernobyl – if not of all time – is the government riding to the rescue to help fix the problem, or at least to provide accurate information to its citizens so they can make informed decisions? Of course not! The EPA is closing ranks with the nuclear power industry:EPA officials, however, refused to answer questions or make staff members available to explain the exact location and number of monitors, or the levels of radiation, if any, being recorded at existing monitors in California. “I have a strong suspicion that EPA is being silenced by those in the federal government who don’t want anything to stand in the way of a nuclear power expansion in this country, heavily subsidized by taxpayer money.” The EPA has pulled 8 of its 18 radiation monitors in California, Oregon and Washington because (by implication) they are giving readings which seem too high.

Low Level Radioactivity Found In US Milk, Despite Obama Promise That "Radiation Will Not Reach" America -- From the AP: The Environmental Protection Agency and the Food and Drug Administration say that very low levels of radiation have turned up in a sample of milk from Washington state. But federal officials say consumers should not worry. The FDA said such findings are to be expected in the coming days because of the nuclear crisis in Japan, and that the levels are expected to drop relatively quickly. Results from a March 25 milk sample taken from Spokane, Wash., show levels of radioactive Iodine-131 that are still 5,000 times below levels of concern set by the FDA, including levels set for infants and children. The EPA said it is increasing the level of nationwide monitoring of milk, precipitation and drinking water following the crisis at the Japanese nuclear power plant.

Despite Assurances on Milk, Radiation Fear Lingers - By scientific standards, the radiation found over the last week in batches of milk¹ on the West Coast was minuscule and, moreover, not dangerous to humans.  But the mere mention of any contamination in that most motherly of beverages still stirred concern in people like Marilyn Margulius, an interior designer from Berkeley, Calif., who called her daughter on Thursday and told her not to let her 10-year-old son drink milk. There have been repeated public assurances this week — officials said an adult would need to drink thousands of liters of the milk containing radiation at the levels found so far before it would be remotely dangerous. Officials also tried to tamp down anxiety from dairy farmers concerned about bad press.  “I’ve had members call to ask whether we’ve seen the media, and media calling to ask how this is impacting our members,” said Michael Marsh, the chief executive of Western United Dairymen.  Mr. Marsh said he had repeated the assurances given by officials, but he also understood the fears in the supermarket’s refrigerated aisle.

John Wesley Powell Was Right‎ - In 1893, John Wesley Powell of Grand Canyon fame, Director of the US Geological Survey, addressed an irrigation conference in Los Angeles about water in the American West. He flatly stated that there was insufficient water in the American West to support widespread irrigation agriculture. Powell was shouted down, forced by hostile interests in Congress to resign from the Geological Survey. But history has shown he was right, for our reckless consumption has taken us far beyond the point of sustainability.The Colorado River offers a sobering portrait of the western future. Data from the past presents a daunting picture of what may lie ahead. Colorado Plateau tree-ring records reveal severe droughts between 1564 and 1600 and again from 1868 to 1892. Further back in time, there was a prolonged and severe dry cycle between 1139 and 1154. Elsewhere, tree-stump rings in Owens Lake show a major drought from before 910 to 1100 and another long, intensely dry spell from before 1250 to about 1350. Until the last century, the West's population was small enough to swing with the punches. By 2050, millions more people will compete for Colorado water. If present trends continue, rising temperatures will reduce the flow of the already drought-depleted river by a further 10%.

Billion-plus people to lack water in 2050: study -More than one billion urban residents will face serious water shortages by 2050 as climate change worsens effects of urbanization, with Indian cities among the worst hit, a study said Monday. The shortage threatens sanitation in some of the world’s fastest-growing cities but also poses risks for wildlife if cities pump in water from outside, said the article in the Proceedings of the National Academy of Sciences. The study found that under current urbanization trends, by mid-century some 993 million city dwellers will live with less than 100 liters (26 gallons) each day of water each — roughly the amount that fills a personal bathtub — which authors considered the daily minimum. Adding on the impact of climate change, an additional 100 million people will lack what they need for drinking, cooking, cleaning, bathing and toilet use.

Amber Waves to Ivory Bolls - Tight supplies of corn, soybeans and wheat have sent prices skyrocketing in the last year, prompting worries of a looming global food crisis.  In other years, American farmers have responded to high prices by devoting more land to staple food crops. But this spring, many farmers in southern states will be planting cotton in ground where they used to grow corn, soybeans or wheat — spurred on by cotton prices that have soared as clothing makers clamor for more and poor harvests crimp supply. The result is an acreage war between rival commodities used to feed and clothe the world’s population.  “There’s a lot more money to be made in cotton right now,”  Around the first week of May, Mr. Vela, 37, will plant 1,100 acres of cotton, up from 210 acres a year ago. “The prices are the big thing,” he said. “That’s the driving force.”  Economists, agricultural experts and government officials are predicting that many farmers, both in the United States and abroad, will join Mr. Vela this year in chasing the higher profits to be made in cotton — with consequences that could ripple across the globe.

Next step for RR sugar beets - The U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) announced the agency's next steps in response to a recent court decision on Roundup Ready sugar beets. "USDA's Animal and Plant Health Inspection Service must chart a course for compliance with its statutory authorities and environmental statutes, such as NEPA, while USDA works to create the environment where all types of producers can and do produce all types of crops," said Agriculture Secretary Tom Vilsack. "The steps we have outlined today not only respond to the concerns of producers while complying with the court's ruling, but also further USDA's continuing efforts to enable coexistence among conventional, organic, and biotechnology production systems." APHIS announced the following steps:• APHIS has received applications from and is issuing permits to sugar beet seed producers to authorize "steckling" (i.e seedlings) production this fall under strict permit conditions that would not allow flowering of the stecklings. APHIS anticipates that issuance of such non-flowering permits can be completed in the next 2 weeks.

Farmers and Seed Producers Launch Preemptive Strike against Monsanto - On behalf of 60 family farmers, seed businesses and organic agricultural organizations, the Public Patent Foundation (PUBPAT) filed suit today against Monsanto Company challenging the chemical giant’s patents on genetically modified seed. The organic plaintiffs were forced to sue preemptively to protect themselves from being accused of patent infringement should their crops ever become contaminated by Monsanto’s genetically modified seed.Monsanto has sued farmers in the United States and Canada, in the past, when their patented genetic material has inadvertently contaminated their crops.A copy of the lawsuit can be found at:(http://www.pubpat.org/assets/files/seed/OSGATA-v-Monsanto-Complaint.pdf) “This case asks whether Monsanto has the right to sue organic farmers for patent infringement if Monsanto’s transgenic seed or pollen should land on their property,” said Dan Ravicher, PUBPAT’s Executive Director. “It seems quite perverse that an organic farmer contaminated by transgenic seed could be accused of patent infringement, but Monsanto has made such accusations before and is notorious for having sued hundreds of farmers for patent infringement, so we had to act to protect the interests of our clients.”

U.S. Queen Bees Work Overtime to Save Hives - Colony Collapse Disorder, a syndrome that since 2006 has increased bee deaths during the winter months, threatens this agricultural niche. Although scientists suspect that some combination of viruses, parasites, pesticides, nutrition, and contaminated water are working together to weaken the colonies, no one has found a solution. The number of bee colonies in the U.S. is down to about 2.6 million today, from 5 million in the 1940s, according to the ARS. Since it was first identified, the disorder has raised the late-year mortality rate from 15 percent to 20 percent of all hives to about a third.  There is a way to offset the scourge: Produce more bees than the disorder kills. This strategy depends on the queen bee, chosen for her reproductive role by the female workers, which are sterile. Until the onset of colony collapse, beekeepers had let the hives follow their natural habit of producing new bees in the spring and summer and going dormant in the fall and winter. Now beekeepers are breeding more bees in the summer and fall by dividing their hives. When the hives split, the worker bees nurture new queens and the population rises. That way, more bees survive colony collapse in the winter.

The Economic Cost Of Losing Bats - It can be hard to feel much sympathy for bats. But bats in the U.S. are in serious trouble, thanks largely to a catastrophic disease called white-nose syndrome (WNS). Named for a white fungus that appears on the muzzle and other body parts of hibernating bats, WNS has killed at least one million bats, mostly in the northeast, and death rates among some affected winter colonies can be as high as 70%. One species—the little brown bat or Myotis lucifugus—has declined so quickly that it is headed for extinction. And the disease keeps spreading, with wildlife experts helpless to stop it—after starting in upstate New York in 2006, the disease was just confirmed as far west as Ohio yesterday. You might say: so what? Other than chiroptologists—yes, people who study bats—would anyone miss them when they're gone? As it turns out, all of us would—at least if you like food. A new article in Science shows that bats have an important role to play in agriculture—one worth at least $3.7 billion a year, if not far more.  We may not like bats—but we definitely need them.

Grains, Soybeans Jump on USDA Data, Signaling Higher Food Costs Corn rose the most allowed by the Chicago Board of Trade as concerns mounted that food costs will climb after the latest U.S. government forecasts on supplies and acreage. Soybeans and wheat also jumped. U.S. corn stockpiles at the beginning of March dropped to 6.52 billion bushels, the lowest for the date since 2007, the Department of Agriculture said today. Last month, the prices of corn, soybeans, wheat and rice climbed to the highest since 2008, when surging food costs spurred riots from Haiti to Egypt. Today, cattle rose to a record for a second straight day, and cotton surged. “What’s unique about 2011, unlike 2008, is that corn and soybeans are equally tight, cotton is tight, and wheat isn’t comfortable either,” . “The takeaway is that prices are not high enough to ration demand.”

Global Crunch in Supplies of Key Fertilizer Could Threaten Food Supply and Raise Prices — Global production of phosphorus fertilizer could peak and decline later this century, causing shortages and price spikes that jeopardize world food production, five major scientific societies warned today. The crisis will come at a time when Earth’s population may surge past 9 billion.Rice, corn, wheat and other staple food crops require phosphorus, which along with nitrogen and potassium, is one of the three key fertilizer substances that sustain world food supply. Projections indicate that world population will rise from 6.8 billion today to 8.9 billion in 2050.Chemistry for a Sustainable Global Society warns not only about “peak phosphorus” — an echo of the more familiar concerns about “peak oil” — but raises red flags about the supply of other natural resources where monopolies or political instability could cut off supplies or inflate prices. They include rare earth elements (REEs) and precious metals like lithium, platinum and palladium that are needed to produce computers, mobile phones, rechargeable batteries, solar cells, fuel cells, medications, pollution control devices for cars and other key products.

Gas emissions reduced by changing farm animal diet says study - A change of diet could help flatulent farm animals reduce their greenhouse gas emissions, a study has said. Government funded research aimed at helping farmers cut their contribution to climate change shows how to reduce the amount of methane produced by cows and sheep belching and breaking wind. Researchers at Reading University and the Institute of Biological, Environmental and Rural Sciences found that dairy cows could emit 20% less methane for every litre of milk if fed crushed rapeseed. Increasing the proportion of maize silage in cows' diets from 25% to 75% could reduce methane emission by 6% per litre of milk, while high-sugar grasses could reduce an animal's methane emissions by 20% for every kilo of weight gain. And a diet including a particular variety of oat could cut sheep's methane emissions by a third, the researchers said.

Food Commodities Surge Seen Swamping Consumers With Inflation - Coffee, sugar and cocoa prices will rise five- to 10-fold by 2014 because of shortages that will mean consumers getting “swamped” by food inflation, according to Superfund Financial. A lack of farmland and rising costs means growers will fail to keep up with demand,   A United Nations index of world food prices jumped to a record last month, contributing to riots across northern Africa and the Middle East that already toppled leaders in Egypt and Tunisia. Global food security is threatened by “excessive price volatility and speculation,” farm ministers from 48 countries said in a joint statement after meeting in Berlin in January.  “There’s a tremendous shortage of food, there’s a tremendous shortage of arable land,” Smith said in interview in London. “Any kind of food products are going to increase.”

AGFLATION: Shocking food and commodity inflation could be coming soon - Coffee, sugar and cocoa prices will rise five-to ten-fold by 2014 because of shortages that will mean consumers getting "swamped" by food-price inflation, according to Superfund Financial.  A lack of farmland and rising costs means growers will fail to keep up with demand, said Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd. and Superfund USA Inc. Commodities account for about 40 percent of Superfund's $1.25 billion assets under management. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold.  A United Nations index of world food prices jumped to a record last month, contributing to riots across northern Africa and the Middle East that already toppled leaders in Egypt and Tunisia. Global food security is threatened by "excessive price volatility and speculation," farm ministers from 48 countries said in a joint statement after meeting in Berlin in January. "There's a tremendous shortage of food, there's a tremendous shortage of arable land," Smith said in interview in London. "Any kind of food products are going to increase."

Kudzu Vines Spreading North from US Southeast With Warming Climate - Kudzu, the plant scourge of the U.S. Southeast. The long tendrils of this woody vine, or liana, are on the move north with a warming climate. But kudzu may be no match for the lianas of the tropics, scientists have found. Data from sites in eight studies show that lianas are overgrowing trees in every instance. If the trend continues, these "stranglers-of-the-tropics" may suffocate equatorial forest ecosystems.. Tropical forests are indeed experiencing large-scale structural changes, the most obvious of which may be the increase in lianas, according to Robert Sanford, program director in the National Science Foundation's (NSF) Division of Environmental Biology, which funded the research.Lianas are found in most tropical lowland forests. The woody vines are "non-self-supporting structural parasites that use the architecture of trees to ascend to the forest canopy," says Schnitzer. In tropical forests, lianas can make up some 40% of the woody stems and more than 25% of the overall woody species.

Shift in Northern Forests Could Increase Global Warming - Boreal forests across the Northern hemisphere are undergoing rapid, transformative shifts as a result of a warming climate that, in some cases, is triggering feedback loops producing even more regional warming, according to several new studies.Russia's boreal forest - the largest continuous expanse of forest in the world - has seen a transformation in recent years from larch to conifer trees, according to new research by University of Virginia researchers. In Alaska, where the larch were largely devastated by a disease outbreak in the late '90s, vast swathes of forest are becoming inhospitable to the dominant white and black spruce."The climate has shifted. It's done, it's clear, and the climate has become unsuitable for the growth of the boreal forest across most of the area that it currently occupies," said Glenn Juday, a forestry professor at the University of Alaska, Fairbanks.

NASA detect extensive drought impact on Amazon forests - A new NASA-funded study has revealed widespread reductions in the greenness of the forests in the vast Amazon basin in South America caused by the record-breaking drought of 2010. "The greenness levels of Amazonian vegetation- a measure of its health decreased dramatically over an area more than three and one-half times the size of Texas and did not recover to normal levels, even after the drought ended in late October 2010," said Liang Xu, the study's lead author from Boston University.The drought sensitivity of Amazon rainforests is a subject of intense study. Scientists are concerned because computer models predict that in a changing climate with warmer temperatures and altered rainfall patterns the ensuing moisture stress could cause some of the rainforests to be replaced by grasslands or woody savannas. This would cause the carbon stored in the rotting wood to be released into the atmosphere, which could accelerate global warming. The United Nations' Intergovernmental Panel on Climate Change (IPCC) has warned that similar droughts could be more frequent in the Amazon region in the future.

Investigation Of Dolphin Deaths In Gulf Kept Confidential By U.S. Government -  The U.S. government is keeping a tight lid on its probe into scores of unexplained dolphin deaths along the Gulf Coast, possibly connected to last year's BP oil spill, causing tension with some independent marine scientists. Wildlife biologists contracted by the National Marine Fisheries Service to document spikes in dolphin mortality and to collect specimens and tissue samples for the agency were quietly ordered late last month to keep their findings confidential.The gag order was contained in an agency letter informing outside scientists that its review of the dolphin die-off, classified as an "unusual mortality event (UME)," had been folded into a federal criminal investigation launched last summer into the oil spill."Because of the seriousness of the legal case, no data or findings may be released, presented or discussed outside the UME investigative team without prior approval," the letter, obtained by Reuters, stated.

U.S. House of Representatives v. modern science - Nature, one of the two leading scientific journals in the world, has a strongly worded editorial about the recent House hearings on climate change: At a subcommittee hearing on 14 March, anger and distrust were directed at scientists and respected scientific societies. Misinformation was presented as fact, truth was twisted and nobody showed any inclination to listen to scientists, let alone learn from them. It has been an embarrassing display, not just for the Republican Party but also for Congress and the US citizens it represents. One lawmaker last week described scientists as “elitist” and “arrogant” creatures who hide behind “discredited” institutions.. . . Several scientists were on hand — at the behest of Democrats on the subcommittee — to answer questions and clear things up, but many lawmakers weren’t interested in answers, only in prejudice.

Republicans for Environmental Progress: An Endangered Species - For most of modern American history, the two major political parties in America have largely agreed on the desired long-term environmental outcomes for the country: there was a consensus among Republicans and Democrats that it was a good thing to press for cleaner air and water, less toxins in the environment, biodiversity preservation, and mitigation strategies for clean energy and, mostly recently, climate change. Nowadays, the arguments are no longer over the methods to achieve environmental progress, but whether we should support such progress in the first place. This situation is unprecedented. Those who believed that divided government would lead Republicans to take a more moderate and constructive role have so far been proven wrong. It is hard to imagine the situation being much worse for America’s environmental quality, which is directly linked to the quality of life for all Americans.

Democrats may compromise on EPA - Democrats indicated Tuesday they may be willing to accept Republican-backed curbs on the Environmental Protection Agency and other federal regulators as part of an overall deal on spending cuts, a rare hint of compromise in private negotiations marked by public rancor. There was no immediate reaction from the White House, although administration officials are working closely with Senate Majority Leader Harry Reid in the secretive three-way talks that include House Speaker John Boehner, R-Ohio. Any concession by Democrats on non-spending items would mark an attempt to persuade Republicans to accept smaller budget cuts than the $61 billion contained in legislation that passed the House last month.

International Linkage of Climate Change Policies -Despite the death in the U.S. Senate last year of serious consideration of an economy-wide cap-and-trade system for carbon dioxide (CO₂) emissions – and the apparent political hiatus of such consideration at least until after the November 2012 elections – a major cap-and-trade system for greenhouse gas (GHG) emissions is in place in the European Union; similar systems are in place or under development in New Zealand, California, and several Canadian provinces; systems are being considered at the national level in Australia, Canada, and Japan; and a global emission reduction credit scheme – the Clean Development Mechanism (CDM) – has an enthusiastic and important constituency of supporters in the form of the world’s developing countries.So, despite the fact that there has been an undeniable loss of momentum due to recent political developments in Australia, Japan, and the United States, it remains true that cap-and-trade is still the most likely domestic policy approach for CO₂ emissions reductions throughout the industrialized world, given the rather unattractive set of available alternative approaches.  This makes it important to think about the possibility of linking these national and regional cap-and-trade systems in the future.

Aircraft contrails stoke warming, cloud formation Aircraft condensation trails criss-crossing the sky may be warming the planet on a normal day more than the carbon dioxide emitted by all planes since the Wright Brothers' first flight in 1903, a study said on Tuesday. It indicated that contrails -- white lines of Vapor left by jet engines -- also have big knock-on effects by adding to the formation of high-altitude, heat-trapping cirrus clouds as the lines break up.The findings may help governments fix penalties on planes' greenhouse gas emissions in a U.N.-led assault on climate change. Or new engines might be designed to limit Vapor and instead spit out water drops or ice that fall from the sky. "Aircraft condensation trails and the clouds that form from them may be causing more warming today than all the aircraft-emitted carbon dioxide (CO2) that has accumulated in the atmosphere since the start of aviation," the journal Nature Climate Change said in a statement of the findings.

Average wind speeds and wave heights have been rising on the world’s oceans over the last quarter century, a trend that could portend more intense storms, hurricanes, and cyclones, more damage to infrastructure and shorelines - Average wind speeds and wave heights have been rising on the world’s oceans over the last quarter century, a trend that could portend more intense storms, hurricanes, and cyclones, according to a new study. Using satellite altimeter data from 1985 to 2008, Australian researchers calculated that wind speeds increased 0.25-0.5% per year, and overall had increased 5-10% during that time. The most pronounced increases were observed during extreme wind events — in comparison with mean conditions — which increased about 0.75% annually, according to the study, published in the journal Science. Ian Young, a professor at the Australian National University at Canberra and lead author of the study, said it is unclear whether it is a temporary phenomenon or the result of global climate change, although he added, “If we have oceans that are warming, that energy could feed storms, which increase wind speeds and wave heights.”

Freshwater Content of Upper Arctic Ocean Increased 20 Percent Since 1990s, Large-Scale Assessment Finds - The freshwater content of the upper Arctic Ocean has increased by about 20 percent since the 1990s, according to a new large-scale assessment. This corresponds to a rise of approximately 8,400 cubic kilometres and has the same magnitude as the volume of freshwater annually exported on average from this marine region in liquid or frozen form. The result is published by researchers of the Alfred Wegener Institute in the journal Deep-Sea Research. The freshwater content in the layer of the Arctic Ocean near the surface controls whether heat from the ocean is emitted into the atmosphere or to ice. In addition, it has an impact on global ocean circulation.Around ten percent of the global mainland runoff flows into the Arctic via the enormous Siberian and North American rivers in addition to relatively low-salt water from the Pacific. This freshwater lies as a light layer on top of the deeper salty and warm ocean layers and thus extensively cuts off heat flow to the ice and atmosphere. Changes in this layer are therefore major control parameters for the sensitive heat balance of the Arctic. We can expect that the additional amount of freshwater in the near-surface layer of the Arctic Ocean will flow out into the North Atlantic in the coming years. The amount of freshwater flowing out of the Arctic influences the formation of deep water in the Greenland Sea and Labrador Sea and thus has impacts on global ocean circulation.

NASA’s James Hansen: “One sure bet is that this decade will be the warmest” on record. New analysis asks "Can people recognize changing climate?" - The country’s leading climatologist has a fascinating analysis on “Perceptions of Climate Change:  Can people recognize changing climate?”  Hansen had predicted as part of his famous 1988 testimony “that the perceptive person would notice that climate was changing by the early 21st century.”  He revisits that subject in this paper with his coauthor, Makiko Sato. They also make a number of noteworthy predictions.  That the 2010s will be the warmest decade on record may be a surprise to the deniers and confusionists.  But it is obvious to anyone who follows the science.  Hansen and Sato also predict: … we believe that the system is moving toward a strong El Nino starting this summer. It’s not a sure bet, but it is probable.They don’t say so here, but that would very likely make 2012 the hottest year on record, one that is every bit as overwhelmed by extreme weather as 2010 was.

Renewing Support for Renewables - The biggest positive result of the accident at Fukushima Daiichi could be renewed public support for the development of renewable energy technologies. Many influential policy makers, including President Obama, continue to insist that we must expand nuclear power to help meet our energy needs. But plenty of experts disagree.As the chart below illustrates, renewable energy sources (including hydropower and biofuels) already account for almost the same share of total energy consumption in the United States as nuclear power. More important is the rate of change in the cost and utilization of these technologies, particularly those that rely on wind, water or solar power and will not contribute to global warming. The cost per kilowatt hour of generating electricity from wind and solar power has declined steadily in recent years and is projected to decline further. Energy Secretary Steven Chu predicted that they would be no more expensive than oil and gas by the end of the decade.

Wind and wave energies are not renewable after all - WITNESS a howling gale or an ocean storm, and it's hard to believe that humans could make a dent in the awesome natural forces that created them. Yet that is the provocative suggestion of one physicist who has done the sums. He concludes that it is a mistake to assume that energy sources like wind and waves are truly renewable. Build enough wind farms to replace fossil fuels, he says, and we could seriously deplete the energy available in the atmosphere, with consequences as dire as severe climate change. Axel Kleidon of the Max Planck Institute for Biogeochemistry in Jena, Germany, says that efforts to satisfy a large proportion of our energy needs from the wind and waves will sap a significant proportion of the usable energy available from the sun. In effect, he says, we will be depleting green energy sources. His logic rests on the laws of thermodynamics, which point inescapably to the fact that only a fraction of the solar energy reaching Earth can be exploited to generate energy we can use.

Senators Chart "Clean Energy Standard" That Includes Nuclear Coal… With love, luck and lollipops being in short supply on Capitol Hill these days, it's highly unlikely Congress will present Sen. Jeff Bingaman with the legacy of a parting gift of even a watered-down clean energy standard.Realizing that, the outgoing New Mexico Democrat — who has announced he won't seek a sixth term in 2012 — seems determined not to exit Washington empty-handed. In his usual diplomatic and straightforward fashion, the chairman of the Senate Energy and Natural Resources Committee joined with Sen. Lisa Murkowski of Alaska, the top Republican on the panel, this week to solicit ideas from one and all about how to fashion a clean energy standard. "The purpose of this document is to lay out some of the key questions and potential design elements of a CES," Bingaman and Murkowski wrote, "and to ascertain whether or not consensus can be achieved." Contributors have until April 11 to submit proposals via forms available on the committee's website.

Obama Unveils His Plan To Massively Cut US Oil Imports (And Yes, It Includes Nuclear) - Obama is giving a big speech right now on energy policy in which he'll push for a 1/3 cut in oil imports. The White House has posted a factsheet on what will be discussed and planned. Note that nuclear is mentioned as one of the alternative energies of the future. Other than that, a lot of talk about expanded use of domestic carbon resources and other energy technologies. What's not mentioned anywhere in the speech? Any new taxes on gasoline. In 2008, America imported 11 million barrels of oil a day.  By 2025 – a little over a decade from now – we will have cut that by one-third.

Obama's Version Of The Energy Speech - The President's oil speech yesterday gave us another example of what politics-as-usual means. Obama had never bothered to address America's outsized oil consumption until we experienced a mini-price shock after the revolts in Egypt and Libya. Only recently did it became necessary for him to give us the usual foreign oil dependency boilerplate. Like every president before him, he gave us a goal and a time frame. We will cut our imports by a third in "a little more than" 10 years by 2025, which is about 3.7 million barrels-per-day (based on our 2008 imports) if U.S. production were to remain constant over those 15 years. What do you think the chances of that are? How we will achieve this miracle is mostly irrelevant, although it is not obvious how we will produce more biofuels when we already use 40% of our corn crop to brew moonshine. And it not obvious how the new fuel mileage standards, which start in 2012, will make much of a dent in gasoline consumption when few Americans can afford to buy a new car. (This is called the light vehicle turnover rate.) And it is not obvious how we will increase our domestic production, which is due to decline over the next two years. But never mind all that.

Locating the US Oil Production Recovery - The White House's Blueprint for a Secure Energy Future, released yesterday in conjunction with the President's speech, places considerable stress on domestic production of oil, highlighting the fact that it has increased in the last couple of years, and arguing for further increases.This post has a few graphs analyzing where the increase is actually occurring (all data from the EIA).  This first one shows US field crude production broken down by the major producing regions:As you can see, the lion's share comes from the Gulf Coast, with the West Coast (including Alaska) in a secondary but declining role, and the Midwest recovering strongly.  Looking at the same thing as a line graph, we get this:You can see that the regions powering the recent recovery are mainly the Gulf Coast, and the Midwest.  Breaking the Gulf coast down further, we get this:

Reuters: Obama wants to curb U.S. oil imports by a third (Reuters) - President Barack Obama on Wednesday proposed to cut U.S. oil imports by a third over 10 years, setting an ambitious goal that eluded his predecessors as high gasoline prices threatened to undermine the economic recovery.Obama outlined his strategy after spending days explaining the U.S.-led military action in Libya, where fighting, accompanied by unrest elsewhere in the Arab world, has helped push U.S. gasoline prices toward $4 a gallon.In a speech that was short on details on how to curb U.S. energy demand, Obama did not pretend there were any speedy measures to lower fuel costs that he acknowledged were a "big concern" to Americans. "There are no quick fixes...And we will keep on being a victim to shifts in the oil market until we get serious about a long-term policy for secure, affordable energy," Obama said. As he rolled out a blueprint on energy security, Obama said the country must curb dependence on foreign oil that makes up roughly half of its daily fuel needs.

Obama's Pipe Dream: Cellulosic Ethanol - Let's look back and see how we did with our mandated cellulosic ethanol production last year. According to a January 2011 Reuters article, "Congress initially set 100 million gallons as the 2010 target for cellulosic biofuel, but the EPA cut that to 6.5 million gallons. It appears that the industry might have produced less than 1 million gallons last year." That's right. The EPA reduced the mandate by 94% for 2010. Then we produced about 15% of that greatly reduced amount, if that. You can't mandate technology. In the 2007 Energy Independence and Security Act, the goal was to produce 250 million gallons of cellulosic biofuels in 2011. That number, too, has since been reduced by the EPA to 6.6 million gallons. Earlier this year, we were told that Range Fuels was shuttered without ever producing the product. The technology wasn't there and they needed more money. Always more money. The Tennessee government got behind subsidizing a cellulosic ethanol plant that was producing 250,000 gallons of fuel a year instead of the expected 5 million

“All of the above” is no energy policy - Several times recently, we’ve heard this argument: When it comes to securing America’s energy future, we need “all of the above” – coal, oil, gas, nuclear, solar, wind, and so on.That is a not an energy policy; it’s a cop out. It’s how elected officials dodge hard choices about our energy security. It’s how they avoid political backlash from energy interests, especially those with money and clout such as coal, oil and nuclear. “All of the above” is how elected officials minimize their personal political risk by shifting it onto the shoulders of the American people, who have to live with the consequences.With the memory still fresh from the BP oil disaster in the Gulf of Mexico, with new oil slicks appearing in the Gulf from another spill this month, and with Japan’s nuclear disaster leaking radioactivity into the ocean and atmosphere, you’d think policy makers would be reconsidering “all of the above”.

Recycled: Platitudes From The President - Mr Obama’s plan has four main strands: increasing domestic production of oil, boosting the use of biofuels and natural gas as substitutes, encouraging the spread of electric cars and making petrol-powered vehicles more efficient. He also chucked into the mix his “clean energy standard”, a scheme to promote less polluting forms of electricity generation, even though it has nothing to do with oil imports. None of this is new. The clean-energy standard was first wheeled out in Mr Obama’s state-of-the-union speech in January, and is anyway only a rehashed version of a much older proposal to promote renewable energy, with nuclear power and natural gas bolted on to broaden its appeal. The administration was already working on a fresh series of ever more demanding fuel-efficiency standards for vehicles for when the current lot run out in 2016. Mr Obama had also previously pledged to nurture growth in domestic oil production, to counter Republican cries of “Drill, baby, drill.”

President Obama Goes Backward on Energy - Last March, President Barack Obama gave a speech on energy security at Andrews Air Force Base outside Washington. In it, Obama offered what might be called a "grand compromise" on energy—in exchange for expanded offshore drilling, including in previously untouched areas like north Alaska and the Atlantic, he called for support of alternative power and the carbon cap bill that was still up for debate at the time in the Senate. But the BP oil spill, less than a month later, effectively killed that compromise. Expanding offshore drilling became toxic for the White House, but without that carrot, cap-and-trade had no chance—if it ever had one at all—and the legislation died in the Senate without a vote. Nearly a year later after that Andrews speech, Obama was back this morning at Georgetown University, ready to talk about energy security in the wake of the Fukushima disaster, unrest in the Middle East and triple digit oil prices.  But it's a mark of how stagnant our energy policy has gotten that Obama was able to offer little more than he had a year ago. In fact, he could offer less.

Reducing Oil Imports to Lower Prices: Is President Obama a Neanderthal Protectionist? - The description of his strategy in a Washington Post article suggests that he is. According to the article, President Obama wants the United States to reduce its dependence on foreign oil because the price is high. This strategy makes no sense in the current context because there is a world market for oil. Increased production of oil in the Gulf of Mexico or Alaska has no more impact on the price that people in the United States pay for their gas than increased production in Venezuela or Saudi Arabia. The only way that focusing more on domestic production would substantially reduce the price of oil relative to the rest of the world would be if President Obama plans to put export restrictions on U.S. oil. Of course since the U.S. doesn't have enough oil to ever be close to self-sufficient, this would be impossible in any case. The Post should have pointed out to its readers that President Obama's strategy for reducing the cost of oil does not make sense

Town Hall Discussion of Energy Solutions: Live Stream of Dylan Ratigan Here at 8 PM EDT -- Yves Smith - Dylan Rtigan is hosting an important conversation on energy solutions from a Town Hall panel live from Oklahoma State University at 8PM ET / 7PM CST tonight. The goal is to generate the political will to reduce our dependence on oil. View it below Or you can also view it at Facebook (http://www.facebook.com/DylanMSNBC?v=app_142371818162): Panelists include:

· Boone Pickens, Oil Tycoon & Founder, BP Capital Management
· Ashwin Madia, VoteVets.org
· Bob Deans, Director of Federal Communications, Natural Resources Defense Council
· Former CIA Director James Woolsey

We Aren't Going to Stop Buying Gas - Speaking at Georgetown University today, President Obama warned that thanks to rising demand from developing countries like India and China, the long-term trend of gas prices would be upward. “This is something that everybody is affected by,” he warned. But America has faced energy crises before, and by one important measure, it appears we are less willing or able to respond to higher gas prices. According to research by UC Davis's Jonathan Hughes, Christopher Knittel and Daniel Sperling, Americans are now less responsive to increases in gas prices. In the late 1970s, a ten percent rise in the cost of gas would lead to about a three percent decline in the amount of gas consumed. In the early 2000s, on the other hand, gas prices would have to rise about 60 percent to provoke a similar decline in gas consumption. The researchers theorized that this might be because spending on gas is now a smaller fraction of total monthly income or because cars get better mileage now, meaning that cutting back on driving saves less gas than it would have in the 1970s. But either way, their research suggests that even if gas prices go higher, we’re unlikely to see Americans buying substantially less gas.

The best idea everyone hates - TODAY, Barack Obama unveiled the latest set of presidential proposals for reducing oil imports, strengthening the economy, and cutting emissions. Nearly everything he proposed is old hash; American leaders have been dutifully acting out this bit of theatre since the Nixon administration. And as my colleague at Democracy in America points out, even if Mr Obama were serious about pressing for these policies, he'd face significant opposition in Congress: Nominally, at least, both parties care about oil imports and both parties care about the deficit. They don't necessarily behave as if they care, but they say they care. Can Congress address these priorities without explicitly doing anything that's either 1) green or which 2) requires new spending? Sure, Congress can raise the petrol tax. Just as a reminder, the chairmen of the bipartisan Simpson-Bowles deficit commission recommended that the petrol tax be increased by 15 cents per gallon beginning in 2013. The idea isn't popular, but it makes a great deal of sense

As Canadian Oil Moves South, Americans Push Back - The oil sands of Alberta, Canada, constitute one of the biggest proven oil reserves in the world. Today, Canada is the single biggest foreign source of oil for the U.S., and industry analysts project that 20 years from now, it may be supplying one-fourth of all U.S. oil needs. But getting all that oil across the border requires heavy-duty infrastructure, and some new projects are causing cross-border tensions.A tractor-trailer creeps down a winding mountain road in Montana, hauling a coke drum for an oil refinery in Billings, Mont., and the drum, imported from Asia, is huge — two lanes wide, three stories tall. The drum is just one way oil-industry growth in Canada may soon be visible on the mountain highways of Idaho and Montana. Imperial Oil, a Canadian company controlled by ExxonMobil, is preparing to send about 200 loads of oil-processing equipment through the region to Alberta.

Oklahoma Town Fears Cancer, Asthma May Be Linked to Dump Site EPA Proposed Declaring Coal Ash Hazardous Waste, Considering More Lenient Standards - Many residents of Bokoshe, Okla., have a common fear: a coal ash dump site. "It's real distressing to have something like this in your backyard and not be sure if you're safe, if your kids are safe," Dub Tolbert said. The mound of coal ash at the MMHF -- Making Money Having Fun -- dump site reaches six stories high; residents count 80 truckloads a day. The dump site has been in the town since 2001. Residents say the toxic mix -- coal ash contains arsenic, mercury and lead -- contaminates the air they breathe and water they drink. "It would be a cloud of dust that would engulf you," said Susan Holmes. "It would just choke you so you couldn't breathe." Of the 20 homes in the immediate neighborhood, 14 have one or more cancer victims, residents told ABC News.

S.Africa takes heat for burning coal - The global fight over fossil fuels has hit home in South Africa as the coal-dependent country debates its energy future before hosting UN climate talks later this year. Africa’s largest economy is overhauling its energy policy, looking to more than double its power supply by adding more than 50,000 megawatts of electricity to the grid at a cost of 860 billion rand ($125 billion, 90 billion euros). But as the country seeks to ease power shortages that caused paralysing blackouts in 2008, environmentalists say it is not doing enough to cut its reliance on coal-fired power — currently more than 90 percent of the electricity supply. The scrutiny is intensifying as South Africa prepares to host the next major round of United Nations climate talks in the eastern port city of Durban from November 28 to December 9.

BP Managers Said to Face U.S. Review for Manslaughter Charges - Federal prosecutors are considering whether to pursue manslaughter charges against BP Plc (BP/) managers for decisions made before the Gulf of Mexico oil well explosion last year that killed 11 workers and caused the biggest offshore spill in U.S. history, according to three people familiar with the matter. U.S. investigators also are examining statements made by leaders of the companies involved in the spill -- including former BP Chief Executive Officer Tony Hayward -- during congressional hearings last year to determine whether their testimony was at odds with what they knew, one of the people said. All three spoke on condition they not be named because they weren’t authorized to discuss the case publicly.. “They typically don’t prosecute employees of large corporations,” said Barrett, who spent 20 years prosecuting environmental crimes at the federal and state levels. “You’ve got to prosecute the individuals in order to maximize, and not lose, the deterrent effect.”

Nuclear Safety Lessons Start With Manholes, Axes - Three Mile Island, Chernobyl, Fukushima. First the accident, then the predictable allegations in the postmortem: The design was flawed. Inspections were inadequate. Lines of defense crumbled, and reliable backups proved unreliable. Planners lacked the imagination or willpower to prepare for the worst. There’s a way to break out of this pattern. Nuclear power plants will never be completely safe, but they can be made far safer than they are today. The key is humility. The next generation of plants must be built to work with nature, and human nature, rather than against them, Bloomberg Businessweek reports in its March 28 edition. They must be safe by design, so that even if everything goes wrong, the outcome won’t be disaster.  In the language of the nuclear industry, they must be “walkaway safe,” meaning that even if all power is lost and the coolant leaks and the operators flee the scene, there will be no meltdown of the core, no fire in the spent fuel rods, and no bursts of radioactive steam into the atmosphere.

Radiation in Water Dumped on Japan's Damaged Fukushima Plant May Be Rising - Radiation in water at Japan’s earthquake-damaged nuclear plant reached potentially lethal levels, hampering work to cool reactors. As the worst atomic accident since Chernobyl entered its third week, the government said soil near the Fukushima plant would be tested for plutonium contamination. The radioactive metal was used in one of the reactors and its presence outside the plant would suggest the fuel rods were damaged. Water in the Fukushima Dai-Ichi No. 2 reactor’s turbine building was measured at more than 1,000 millisieverts per hour, Japan’s nuclear safety agency said today. That’s higher than the dose that would cause vomiting, hair loss and diarrhea, according to the World Nuclear Association. The radiation is 10 million times the plant’s normal level, broadcaster NHK said.

Japan Nuclear Crisis: Reactors Have Damaged Fuel Rods, As radiation in seawater near the Fukushima Daiichi nuclear plant¹ increases, Japanese officials said the reactors have damaged fuel rods and may be in partial meltdown. In a newly released video, smoke can be seen billowing from reactors two and three — the only visible sign of the catastrophe happening inside. On Monday, workers continued to pump out radioactive water inside the plant, according to the Associated Press. Officials said the contaminated water must be taken out before workers can restart and restore the plant's cooling system. Radioactive water has been found in all four of the reactors at the plant. The news comes a day after officials apologized for an inaccurate reading of a major increase in radioactivity which caused a panic that led workers to flee the plant. The inaccurate reading was confirmed as a mistake Sunday night by operators at the plant.

Poison Pools Point to Meltdown - Efforts to drain highly contaminated water from three of the reactors at the quake-hit Fukushima Daiichi nuclear power plant continued Monday, a difficult task that has further held up efforts to reconnect cooling systems that would bring the crisis closer to a resolution.The pools of water in the turbine rooms of at least three reactors included especially toxic water in the No. 2 unit. Chief government spokesman Yukio Edano confirmed Monday that the water appeared to have come from the core of the reactor and suggested that a partial meltdown of the core had taken place.  "We have received the analysis estimating that the water that came in contact with the melted fuel in the containment building has somehow leaked out," Mr. Edano said at his daily press briefing.This melting has since stopped as temperatures have been slowly brought down to more manageable levels, he said.

Soaring radioactivity deals blow to Japan's plant - Japan appeared resigned on Monday to a long fight to contain the world's most dangerous atomic crisis in 25 years after high radiation levels complicated work at its crippled nuclear plant. Engineers have been battling to control the six-reactor Fukushima complex since it was damaged by a March 11 earthquake and tsunami that also left more than 27,000 people dead or missing across Japan's devastated north east. Radiation at the plant has soared in recent days. Latest readings at the weekend showed contamination 100,000 times normal in water at reactor No. 2 and 1,850 times normal in the nearby sea.Those were the most alarming levels since the crisis began."I think maybe the situation is much more serious than we were led to believe," said one expert, Najmedin Meshkati, of the University of Southern California, adding it may take weeks to stabilize the situation and the United Nations should step in."This is far beyond what one nation can handle - it needs to be bumped up to the U.N. Security Council. In my humble opinion, this is more important than the Libya no fly zone."

Seawater Radiation Level Soars Near Plant - Levels of radiation in the ocean next to the Fukushima Daiichi nuclear power plant have surged to record highs, the government said Wednesday, as operators try to deal with large amounts of radioactive water—the unwanted byproduct of operations to cool the reactors.The Nuclear and Industrial Safety Agency said water taken Tuesday afternoon from the monitoring location for the troubled reactors Nos. 1 to 4 had 3,355 times the permitted concentration of iodine-131. That is the highest yet recorded at the sampling location, which is 330 meters south of the reactors' discharge outlet.

Conditions Worsen at Fukushima Nuclear Site - From the Washington Post:Leaked water sampled from one unit Sunday was 100,000 times more radioactive than normal background levels — though the Tokyo Electric Power Co., which operates the plant, first calculated an even higher, erroneous, figure that it didn’t correct for several hours. Tepco apologized Sunday night when it realized the mistake; it had initially reported radiation levels in the leaked water from the unit 2 reactor as being 10 million times higher than normal, which prompted an evacuation of the building. After the levels were correctly measured, airborne radioactivity in the unit 2 turbine building still remained so high that a worker there would reach his yearly occupational exposure limit in 15 minutes…. Japanese authorities say efforts to control Fukushima’s overheated reactors will take months and during that time radiation will continue to leak into the environment, extending a nuclear emergency that already ranks as the most serious in a quarter-century. Several hundred workers now shoulder the responsibility for limiting the crisis, amid potentially lethal radiation levels, and Saturday the chief of Japan’s nuclear agency called on Tepco to improve its worker safety.

Reactors leaking weapons-grade plutonium into soil --Plutonium 238, 239 and 240 discovered --Plutonium breaks down very slowly and can remain dangerously radioactive for hundreds of thousands of years. Weapons-grade plutonium was found in the soil surrounding Japan's crisis-stricken power plant yesterday, heightening fears at the facility, where workers have struggled for weeks to keep the nuclear lid from blowing off its damaged, leaky reactors. The world's most serious atomic crisis in 25 years went from bad to worse after crews discovered traces of the material -- a key ingredient in nuclear weapons. "The situation is very grave," Chief Cabinet Secretary Yukio Edano said today. Still, plant managers downplayed the discovery of the plutonium 238, 239 and 240.

Japan may have lost race to save nuclear reactor - Guardian: "No danger of Chernobyl-style catastrophe"- The radioactive core in a reactor at the crippled Fukushima nuclear power plant appears to have melted through the bottom of its containment vessel and on to a concrete floor, experts say, raising fears of a major release of radiation at the site. The UK’s Guardian reports the grim news in its breaking story whose blunt headline I used above.  Here’s more:The warning follows an analysis by a leading US expert of radiation levels at the plant. Readings from reactor two at the site have been made public by the Japanese authorities and Tepco, the utility that operates it.Richard Lahey, who was head of safety research for boiling-water reactors at General Electric when the company installed the units at Fukushima, told the Guardian workers at the site appeared to have “lost the race” to save the reactor, but said there was no danger of a Chernobyl-style catastrophe….

Japan’s effort to cool nuke fuel has itself led to massive releases of radioactivity - Tokyo Electric to scrap Reactors 1 to 4, probably 5 and 6, too - "… a deluge of contaminated water, plutonium traces in the soil and an increasingly hazardous environment for workers at the plant have forced government officials to confront the reality that the emergency measures they have taken to keep nuclear fuel cool are producing increasingly dangerous side effects. And the prospect of restoring automatic cooling systems anytime soon is fading." Hiroto Sakashita, a professor in nuclear reactor thermal hydraulics at Hokkaido University, said of the fuel rods, “Handling this situation is getting increasingly difficult.” The NY Times explains how the very efforts to stop a full meltdown have themselves had serious consequences: The setbacks have raised questions about how long, and at what cost, Japan can keep up what experts call its “feed and bleed” strategy of cooling the reactor’ fuel rods with emergency infusions of water from the ocean and now from freshwater sources. That cooling strategy, while essential to prevent full meltdowns, has released harmful amounts of radioactive steam into the atmosphere and set off leaks of highly contaminated water, making it perilous for some of the hundreds of workers at the plant to further critical repair work.

Fears for food supply as radioactive water pours from stricken reactor - Radioactive water was pouring from a damaged reactor at Japan's crippled Fukushima nuclear plant last night, with officials warning it will soon reach the sea. The contaminated samples were found outside the reactor building for the first time, causing concern that soil and sea in the surrounding area will be poisoned. Efforts to contain the crisis at the stricken complex, which was hit by a massive earthquake and towering tsunami earlier this month, have been hampered by repeated setbacks. The crisis has begun to fray relations between the embattled government and the power utility widely blamed for creating confusion over the real extent of the crisis. That confusion has spurred import bans on Japanese products abroad, the flight of some 160,000 foreigners from Tokyo, an embargo on food from the affected region and a global debate on the future of the nuclear industry.

Japan utility ordered to review radiation figures – Japan's nuclear safety agency ordered a review Friday of the latest radiation measurements taken in air, seawater and groundwater samples around a leaking, tsunami-disabled nuclear plant, saying they seemed suspiciously high. The utility that runs the Fukushima Dai-ichi plant has repeatedly been forced to retract such figures, fueling fears over health risks and a lack of confidence in the company's ability to respond effectively to the crisis. The Tokyo Electric Power Co. has not been able to stabilize the plant's dangerously overheating reactors since cooling systems were knocked out in the March 11 tsunami. Among the measurements called into question was one from Thursday that TEPCO said showed groundwater under one of the reactors contained iodine concentrations that were 10,000 times the government's standard for the plant, the safety agency's spokesman Hidehiko Nishiyama said. Seawater and air concentrations from this week also are under review. "We have suspected their isotope analysis, and we will wait for the new results," Nishiyama said, adding that the agency thinks the numbers may be too high.

TEPCO Confirms That Groundwater Radiation Is So Bad, Everyone Thought It Had To Be An Error! - Just out from Kyodo Wire. TEPCO is confirming that presence of radioactive iodine in groundwater below Fukushima is 10,000x the legal limit. This number came out yesterday, but it was so high that there were some who doubted the veracity of the number. TEPCO has come out with false readings before, but nope, not this one. It is that high, and because it's hitting water, it's serious.

Japan says battle to save nuclear reactors has failed - Japanese officials have conceded that the battle to salvage four crippled reactors at the Fukushima Daiichi nuclear power plant has been lost.The plant's operator, Tokyo Electric Power (Tepco), said the reactors would be scrapped, and warned the operation to contain the nuclear crisis, well into its third week, could last months. Tepco's announcement came as readings showed a dramatic increase in radioactive contamination in the sea near the atomic complex.The firm's chairman, Tsunehisa Katsumata, said it had "no choice" but to scrap the Nos 1-4 reactors, but held out hope that the remaining two could continue to operate. It is the first time the company has admitted that at least part of the plant will have to be decommissioned. But the government's chief spokesman, Yukio Edano, repeated an earlier call for all six reactors at the 40-year-old plant to be decommissioned. "It is very clear looking at the social circumstances," he said.

Japan Told To Consider Widening Evacuation Zone Around Nuclear Plant (Reuters) - Pressure mounted on Japan on Thursday to expand the evacuation zone around its stricken nuclear power plant while officials said radiation may be flowing continuously into the nearby sea, where contamination was now 4,000 times the legal limit. In the first data on the impact of the devastating earthquake and tsunami that triggered the nuclear crisis, Japanese manufacturing slumped the most on record in March as factories shut down and global supply chains were broken. The damage to the world's third-biggest economy from the quake and tsunami alone could cost more than $300 billion, making it the world's costliest natural disaster, and a report from a Wall Street investment bank said nuclear-related compensation claims could reach more than $130 billion. Both the U.N. nuclear watchdog and Japan's nuclear safety agency said the government should consider widening the 20-km (12-mile) zone after high radiation was detected at twice that distance from the facility.

Official: Tens of thousands of evacuees can’t head home for months - Tens of thousands evacuated from around the stricken Fukushima Daiichi power plant may not be allowed home for months, a Japanese minister said Friday, with no end in sight for the nuclear crisis as fresh concerns mount about alarming radiation levels in beef, seawater and groundwater. While he didn't set a firm timetable, Chief Cabinet Secretary Yukio Edano said people who'd lived within 20 kilometers (12 miles) of the nuclear facility would not return home permanently in "a matter of days or weeks. It will be longer than that." "The evacuation period is going to be longer than we wanted it to be," Edano said. "We first need to regain control of the nuclear power plant."

Stabilising nuclear plant to take years - Japan’s quake-crippled atomic power station will take years to fully stabilise but officials hope to prevent any further deterioration of the plant and stem the leakage of radioactive material into surrounding areas within a matter of weeks. Yukio Edano, Japan’s chief cabinet secretary and the minister responsible for co-ordinating efforts to resolve the nuclear crisis, told the Financial Times that new setbacks at the Fukushima Daiichi plant were possible. However, the government hoped within weeks to be able to stem the leakage of radiation and prevent the situation at the plant worsening and prevent radioactive material escaping into surrounding areas. “If we can stop those developments, and remove people’s fears, then that may also be viewed as a sort of stability,” Mr Edano said in an interview. Asked how long it would take to end the crisis, Mr Edano said that achieving “full stability” of the plant and its dangerously overheated spent fuel rods was generally recognised to be a multi-year task.

Fukushima Workers Face Risk of Uncontrolled Reactions, IAEA Says -- Japan’s damaged nuclear plant may be in danger of emitting sudden bursts of heat and radiation, undermining efforts to cool the reactors and contain fallout. The potential for limited, uncontrolled chain reactions, voiced yesterday by the International Atomic Energy Agency, is among the phenomena that might occur, Chief Cabinet Secretary Yukio Edano told reporters in Tokyo today. The IAEA "emphasized that the nuclear reactors won’t explode," he said.  Three workers at a separate Japanese plant received high doses of radiation in 1999 from a similar nuclear reaction, known as ‘criticality.’ Two of them died within seven months.

WANTED: U.S. workers for crippled Japan nuke plant (Reuters) - As foreign assignments go this must be just about the most dangerous going.A U.S. recruiter is hiring nuclear power workers in the United States to help Japan gain control of the stricken Fukushima Daiichi plant, which has been spewing radiation. The qualifications: Skills gained in the nuclear industry, a passport, a family willing to let you go, willingness to work in a radioactive zone. The rewards: Higher than normal pay and the challenge of solving a major crisis."About two weeks ago we told our managers to put together a wish list of anyone interested in going to Japan," said Joe Melanson, a recruiter at specialist nuclear industry staffing firm Bartlett Nuclear in Plymouth, Massachusetts, on Thursday.So far, the firm has already signed up some workers who will be flying to Japan on Sunday.

Bloomberg: Japan Weighs Entombing Nuclear Plant in Bid to Halt Radiation  -Dismantling the plant and decontaminating the site may take 30 years and cost Tokyo Electric more than 1 trillion yen ($12 billion), engineers and analysts said. The government hasn’t ruled out pouring concrete over the whole facility as one way to shut it down, Edano said. Tokyo is 135 miles (220 kilometers) south of the Dai-Ichi power plant.  Dumping concrete on the plant would serve a second purpose: it would trap contaminated water, said Tony Roulstone, an atomic engineer who directs the University of Cambridge’s masters program in nuclear energy.  “They need to immobilize this water and they need something to soak it up,” he said. “You don’t want to create another hazard, but you need to get it away from the reactors.” The process will take longer than the 12 years needed to decommission the Three Mile Island reactor in Pennsylvania following a partial meltdown in 1979, said Hironobu Unesaki, a nuclear engineering professor at Kyoto University.

Dangerous Levels of Radioactive Isotope Found 25 Miles From Nuclear Plant — A long-lasting radioactive element has been measured at levels that pose a long-term danger at one spot 25 miles from the crippled Fukushima Daiichi nuclear power plant, raising questions about whether Japan¹’s evacuation zone should be expanded and whether the land might need to be abandoned.  The isotope, cesium 137, was measured in one village by the International Atomic Energy Agency² at a level exceeding the standard that the Soviet Union used as a gauge to recommend abandoning land surrounding the Chernobyl reactor, and at another location not precisely identified by the agency at more than double the Soviet standard.

Full Meltdown In Full Swing? (video) In Japan, radiation levels in the seawater near the Fukushima plant continue to rise. They're now more than 3.5 thousand times higher than normal. Radioactive material has also been detected in soil at the facility. Japan's government described the situation as serious and unpredictable. Workers have been unsuccessfully trying to restore the plant's cooling system, in what is now the worst atomic crisis since Chernobyl. There's been some debate over whether there are any similarities between the two events. RT talks to Professor Christopher Busby, of the European Committee on Radiation Risks.

Is Fukushima About To Blow? - Conditions at the Fukushima Daiichi nuclear plant are deteriorating and the doomsday scenario is beginning to unfold. On Sunday, Tokyo Electric Power Co. (TEPCO) officials reported that the levels of radiation leaking into seawater at the Unit 2 reactor were 100,000 times above normal, and the airborne radiation measured 4-times higher than government limits. As a result, emergency workers were evacuated from the plant and rushed to safe location. The prospect of a full-core meltdown or an environmental catastrophe of incalculable magnitude now looms larger than ever. The crisis is getting worse. If spent fuel rods catch fire from lack of coolant, the intense heat will lift radiation plumes high into the atmosphere that will drift around the world. That's the nightmare scenario, clouds of radioactive material showering the planet with lethal toxins for months on end. And, according to the Central Institute for Meteorology and Geodynamics of Vienna, that deadly process has already begun.

Regulator Says Radioactive Water Leaking Into Ocean From Japanese Nuclear Plant - Highly radioactive water is leaking directly into the sea from a damaged pit near a crippled reactor at the Fukushima Daiichi nuclear power plant, safety officials said Saturday.  Japan’s nuclear regulator said that workers discovered a crack about eight inches wide in the pit, which lies between the No. 2 Reactor and the sea and holds cables used to power seawater pumps.  The operator of the plant said that air directly above the water leaking into the sea had a radiation reading of more than 1,000 millisieverts an hour, said Hidehiko Nishiyama, deputy director-general of the Nuclear and Industrial Safety Agency. Although higher levels of radiation have been detected in the ocean waters near the plant, the leak discovered Saturday is the first identified direct leak of such high levels of radiation into the sea. Earlier Saturday, Mr. Nishiyama had said that above-normal levels of radioactive materials were detected about 25 miles south of the Fukushima plant, much further than had previously been reported.

EXCLUSIVE PHOTOS: Latest Satellite Imagery From Fukushima Tells Sobering Tale -  cmartenson - Noting that the press has largely turned its resources off of the Fukushima complex, and needing up-to-date information on the status of the damage control efforts there, we secured the most up-to-date satellite photo from DigitalGlobe (dated March 31st), which we analyze below. This is the first photo of the damaged reactor site at Japan's Fukushima Dai-ichi nuclear facility made available to the public in over a week. That means you, our readers, are the first public eyes anywhere to see this photo. Drawing upon the expertise of our resident nuclear engineer and Ann Stringer, imaging expert, we conclude that the situation at Fukushima is not stabilized: things are not yet at a place of steady progress in the containment and clean-up efforts. It's still a dance, forwards and backwards, with the workers making gains here and there but the situation forcing them to react defensively all too often. In this report, we will tell you what we know for sure, what we are nearly certain of, and what we remain forced to speculate about.

MSNBC: Entomb? Cement pumps flown in to nuke plant - Same company that helped seal in Chernobyl is sending equipment. Some of the world's largest cement pumps were en route to Japan's stricken nuclear plant on Thursday, initially to help douse areas with water but eventually for cement work — including the possibility of entombing the site as was done in Chernobyl.  Operated via remote control, one of the truck-mounted pumps was already at the Fukushima Dai-ichi site and being used to spray water. Four more will be flown in from Germany and the United States, according to the German-manufacturer Putzmeister. The biggest of the five has an arm that extends well over 200 feet."Initially, they will probably pump water," Putzmeister stated. "Later they will be used for any necessary concreting work."A construction company in Augusta, Ga., was among those redirecting the pumps to Japan. Its owner said he believes building a concrete sarcophagus will follow."Our understanding is they are preparing to go to next phase and it will require a lot of concrete," Jerry Ashmore told the Augusta Chronicle.

Fukushima shines light on U.S. problem: 63,000 tons of spent fuel - The Fukushima Daiichi disaster is focusing attention on a problem that has bedeviled Washington policymakers since the dawn of the nuclear age -- what to do with used nuclear fuel. Currently, spent fuel -- depleted to the extent it can no longer effectively sustain a chain reaction -- is stored in large pools of water, allowing the fuel to slowly cool and preventing the release of radiation. But events in Japan, where two of the six spent fuel pools at the Fukushima Daiichi facility were compromised, have raised questions about practices at the nation's 104 nuclear reactors, which rely on a combination of pools and dry casks to store used fuel. In California, Feinstein said, fuel removed from reactors in 1984 is still held in spent-fuel pools, well beyond the minimum five to seven years required by federal regulators. Currently, there is no maximum time fuel can remain in spent fuel pools, the NRC said Wednesday. As a result, critics say, nuclear plants have made fuel pools the de facto method of storing fuel, crowding pools with dangerous levels of fuel, industry critics say.

Fukushima warning: US has 'utterly failed' to address risk of spent fuel - Nuclear experts told Congress Wednesday that spent-fuel pools at US nuclear power plants are fuller than safety suggests they should be. They say the entire US spent-fuel policy should be overhauled in light of the nuclear crisis at Japan's Fukushima plant.  In Japan, a relatively small amount of used-up fuel was sitting in Fukushima's seven spent-fuel pools when disaster occurred. Yet after just days without a cooling system, most water in at least one pool had apparently boiled away, a fire was reported, and radiation levels soared.By contrast, nuclear utilities in the US have over decades accumulated some 71,862 tons of spent fuel in more than 30 states – the vast majority of it sitting today in pools that are mostly full, according to a recent state-by-state tally by the Associated Press. It's a huge quantity of highly radioactive material equal to a great many Chernobyls' worth of radioactivity, nuclear experts say.

Nuclear Optimism and the Reality of How Humans Price Risk -  The cataclysm visited upon Japan this March has produced an understandable debate over the future of nuclear power. As so often is the case, however, these post-crisis conversations presume the freedom to decide new policy choices when such choices, by society, have already been made. Decades after the advent of nuclear power, this modern energy source still provides only 5% of total global primary energy supply. Reality tested, risk adjudicated, and cost denoted, nuclear power has been given more than enough time to be adopted. We can talk all we like. There is little reason for nuclear optimism. | see: Global Energy Use by Source 2010 (estimate). When humans assess risk we are more inclined to overweight catastrophic damage that occurs in short, acute phases than we are to pay sufficient attention to losses which come more chronically, over time. Thus it’s inarguable that the extraction, transport, and burning of coal for example will do (and has done) far greater harm than nuclear power. But humans prefer to live with a measure of negativity, than to die suddenly.

Pictures: Top Ten Nuclear Nations' Quake Hazard - Although the United States has not built a new nuclear power station since the 1979 accident at Three Mile Island, it is far and away the world’s largest nuclear power producer. Its 104 reactors produce more electricity than all the nuclear plants in the next two nations—France and Japan—combined. But because U.S. electricity use is so prodigious, all those nuclear plants provide only 20 percent of the total. Given the map of U.S. earthquake hazard, it’s no surprise that California’s two nuclear power plants are the ones that have raised the most political concern in the wake of Japan’s crisis. San Onofre, in San Clemente, and Diablo Canyon, in Avila Beach, are located right on the coast, near active faults.Earthquake hazard in this area of the West, where the North American tectonic plate meets the Pacific plate, is about five times greater than the earthquake hazard in the eastern half of the United States, says seismologist Seth Stein, of Northwestern University’s Department of Earth and Planetary Sciences. He is author of the recent book, Disaster Deferred, on how new science is changing views of earthquake hazards in the Midwestern United States. As the book explains, there is some seismic hazard in the central and eastern part of the country, where the vast majority of U.S. nuclear reactors are located. Damaging earthquakes have occurred near Charleston, South Carolina; Boston, Massachusetts; and New Madrid, Missouri.

OPEC oil revenues set to surge above $1 trillion in 2011 - A combination of higher prices and higher oil production means that Opec’s oil revenues may exceed $1 trillion in 2011 for the first time. The International Energy Agency has published some new data on Opec production - the revenue forecast includes exports of natural gas liquids and is not adjusted for the effects of inflation. But if you are a Finance Minister of an oil exporting country the price of crude trading at $115 is welcome news especially given the stimulus spending that some countries have introduced as a response to social and political unrest. On some estimates, Saudi Arabia (the world’s largest oil producer and exporter) needs oil to be priced at $83 for its national budget to balance.

Saudi Government’s Break-Even Oil Price Rises $20 In A Year - Another reason to brace for higher oil prices in coming years: big oil exporters are increasingly dependent on the income.Saudi Arabia, due to higher government spending this year, will need its oil to sell for $88 a barrel in 2011 for its government to break even–up from $68 last year, according to a new estimate from the Institute of International Finance, a global bankers’ trade group.The kingdom, in response to the unrest spreading throughout the Middle East and North Africa, is boosting government spending to provide new social benefits for its people. The support for housing units, unemployment benefits and wage hikes for public workers (among a long list of measures) will contribute to a 31% increase in government spending in 2011 from a year earlier.“A significant portion of the increase in spending is likely to be irreversible,” the IIF said in a research note.

Saudi Arabia to Target Solar Power in $100 Billion Energy Plan  - Saudi Arabia, with 20 percent of the world’s oil reserves, is targeting renewable energy and nuclear power in a $100 billion spending drive aimed at meeting a jump in electricity demand and curbing its dependence on crude. The kingdom sees solar power and other non-hydrocarbon sources as crucial parts of a plan to boost generating capacity by 50 percent in this decade, said Abdullah al-Shehri, governor of the Electricity and Co-Generation Regulatory Authority. The government may announce details of a renewable-energy strategy at a conference in the capital Riyadh on April 3. Persian Gulf oil producers need to produce more electricity to sustain a regional economic growth rate averaging about 10 percent a year, Jarmo Kotilaine, chief economist at National Commercial Bank in Jeddah, Saudi Arabia, said on March 29. At the same time, countries in the region are hungry for new ways to generate power because they prefer exporting crude to maximize income and allocating natural gas to make petrochemicals.

Battling the Mideast's 'curse of oil' -The UAE, however, is leading other Gulf states in an aggressive program to meet rising domestic energy demand by developing alternatives. Here, amid the world's greatest concentration of oil, the UAE is pursing a program to develop nuclear power.  In 2009, the emirates inked a $40 billion agreement with South Korea to build and operate four nuclear plants in the country, with construction of the first unit scheduled to begin next year. The plants, which are scheduled to begin producing electricity in 2017, are based on modified designs of existing Korean reactors. The ongoing troubles at Japan's nuclear plants following the massive earthquake and tsunami earlier this month have done little to slow the advance of the UAE's timetable.

Does Libya's Oil Industry Reflect its Fate? - "Integrated and unified," is how Shokri Ghanem, head of the Libyan National Oil Corporation described the energy sector, claiming that he was in close communications with staff at the vast oil fields in rebel-held eastern Libya.That was then. Now, the oil and gas industry — on which Muammar Gaddafi depends for his regime's survival — teeters between paralysis and chaos, and energy analysts warn that it will take some time to recuperate. Ghanem's NOC, which generates more than 90% of Libya's income, is under international sanctions. Even if the Libyan war ended tomorrow, energy analysts estimate that the country's production has now dwindled to between 200,000 and 300,000 barrels a day, compared with the 1.6 million pumped before the revolt. The more important statistic, however, is a big zero: That is the amount of oil and gas Libya currently exports, and by extension, the amount of hard currency Gaddafi is currently earning. "It would be very difficult, no, impossible, to export oil from Libya now," says Cliff Kupchan, director of the Eurasia Group in Washington. "And it's hard to see, in any near-term period, them exporting much oil."

Oil Rises to 30-Month High on Concern Libya Conflict to Prolong Supply Cut Oil rose to a 30-month high in New York as economic data from the U.S. and China spurred hope of growing demand in the world’s two biggest oil users, while fighting in Libya fanned concern that output cuts may spread. Futures advanced as much as 0.9 percent, extending the biggest quarterly rally since 2009, as troops loyal to Libyan leader Muammar Qaddafi retook control of the oil port of Ras Lanuf and shelled Brega, another energy hub. “You got the perception of further oil demand from China at the time we got the unrest in the Middle East,” . “This is making the market firm.” Crude for May delivery rose as much as 93 cents to $107.65 a barrel in electronic trading on the New York Mercantile Exchange, the highest front-month price since Sept. 26, 2008. It was at $107.36 at 1:48 p.m. London time. The contract climbed $2.45 yesterday to $106.72 a barrel and is heading for its second weekly gain.

Record gas prices blamed on peak oil - A prominent energy scientist blames record-high gas prices on the approach of peak oil — a point when the world’s oil fields will pump out their maximum amount of oil, then gradually decline.  "There's no question that's what's causing it,"says David Hughes, a recently retired geoscientist, who worked with the Geological Survey of Canada for 32 years.His view defies conventional wisdom that turmoil in Libya is to blame.Production in that country's oil fields, which represent two per cent of the world's supply, has been shut down. That, say some experts, has led to a spike in gasoline prices."If we were not close to peak oil, (Libya) should not have made any difference," Hughes said. "There should have been enough spare capacity in Saudi Arabia to easily offset what's happening in Libya.

Shale Oil Is Abundant In US. It Won’t Be Cheap. It Will Be Dirty. Do We Have A Choice? - In a new report, the Natural Resources Defense Council (NRDC) warns about the dangers of producing transportation fuel from oil shale, a crude oil alternative that has not yet been commercially developed in the United States. Oil shale—sedimentary rock that contains a petroleum-like substance called kerogen—is found in great quantities in the western United States, particularly in the Green River Basin spanning portions of Colorado, Utah, and Wyoming. According to Bobby McEnaney, a public lands advocate at NRDC, there are two main ways to extract the kerogen from the shale. The first, an “ex-situ” process, involves mining the shale in an open-pit or underground mine, crushing it, and then distilling it at temperatures exceeding 800 degrees Fahrenheit. The other method, which remains largely unproven, is an “in-situ” process whereby heaters are placed in the ground to liquefy the kerogen in place. The liquid can then be extracted using current oil well technology and sent to a refinery to be processed.The BLM reports that mining and distilling oil shale would require an estimated 2.1 to 5.2 barrels of water for each barrel of oil produced—inputs that could reduce the annual flow of Colorado’s White River by as much as 8.2 percent.

TheOilDrum: Understanding Global Refining Capacity - Global refining capacity is in a state of flux. In the main, the refining capacity in the OECD countries is in a mature state, with refineries aging and struggling to achieve the necessary returns for re-investment. This is particularly relevant for Europe and Japan where refining margins have been poor for decades. The same applies to an extent in the US, although there has been more investment in upgrading in the US than Europe. It would be not hard to reason that high taxation of fuels may have been partly to blame. Irrespective of your point of view, the fact that refining margins are so poor - typically $2-5 per barrel - it is no surprise that much rationalisation is taking place on the mature markets. It is worth looking at the typical disposition of the products from a barrel of oil and Chris Skrebowski's (of Peak Oil Consulting) slide Fig. 1 does it well.

The Peak Oil Crisis: Edging Towards Recession - As oil prices edge ever higher, more people are expressing concern about what this phenomenon is doing or could do to economic recovery. The conventional wisdom used to be that, in the U.S., whenever total national spending on oil products exceeded four percent of GDP the country went into recession. Elaborate charts have been produced showing how this happened in four of the recessions over the last 40 years. In 1974, 1981, 1991, and 2008 oil prices rose to levels anywhere from 4.5 to 9 percent of GDP just prior to the U.S. economy going into recession.Only the recession caused by the dot.com bubble of 2001 did not involve unusually high oil prices. Three of the price spikes --1974, 1981, and 1991-- came as the result of disruptions to the oil supply from the Middle East, while the 2008 spike is now thought to have been caused by the demand for oil getting ahead of available supply. Each of these price spikes and subsequent recessions was followed by a drop in U.S. demand for oil. During the 1974, 1991, and 2001 recessions, oil demand dropped by about a million barrels a day (b/d). The 2008 recession cut U.S. demand by roughly two million b/d and the recessions of the early 80's cut demand by four million b/d.

Less than 50 Years of Oil Left, HSBC Warns - video - The world may have no more than half a century of oil left at current rates of consumption, while surging demand from the developing world threatens to create “very significant price rises” before substitutes like biofuels can serve as viable alternatives, the British bank HSBC warns in a new report.“We’re confident that there are around 50 years of oil left,” Karen Ward, the bank’s senior global economist, said in an interview on CNBC. The bank, the world’s second largest in assets, further cautioned that growth trends in developing countries like China could put as many as one billion more cars on the road by midcentury. “That’s tremendous pressure on oil to power all those resources,” Ms. Ward said. Substitutes, such as biofuels and synthetic oil from coal, could fill the gap if conventional supplies fall short, but only if average oil prices exceed $150 per barrel, the report notes. Increasingly tight global supplies, meanwhile, are likely to cause “persistent and painful” price shocks, it says.

Researchers Close in on Technology for Making Renewable Petroleum - University of Minnesota researchers are a key step closer to making renewable petroleum fuels using bacteria, sunlight and carbon dioxide. Graduate student Janice Frias, who earned her doctorate in January, made the critical step by figuring out how to use a protein to transform fatty acids produced by the bacteria into ketones, which can be cracked to make hydrocarbon fuels. The university is filing patents on the process. The research is published in the April 1 issue of the Journal of Biological Chemistry. Frias, whose advisor was Larry Wackett, Distinguished McKnight Professor of Biochemistry, is lead author. Other team members include organic chemist Jack Richman, a researcher in the College of Biological Sciences' Department of Biochemistry, Molecular Biology and Biophysics, and undergraduate Jasmine Erickson, a junior in the College of Biological Sciences. Wackett, who is senior author, is a faculty member in the College of Biological Sciences and the university's BioTechnology Institute

China may raise regional prices to help power firms - China may raise power prices at the point where supplies from generators enter the grid in some regions as early as April, industry and government sources said, in what would be the first power price hike since late 2009 to cope with rising coal costs As a result, power prices that grid firms charge industrial users will also be increased, but household users will continue to be shielded as the government is loathe to stoke more public complaints over inflation. "Inflation is the main concern," a government source said. "The hike could be implemented from April 1 as planned if the inflation situation is not serious." China's consumer price index in February topped expectations at 4.9 percent from a year earlier, near its fastest level in more than two years, and looks set to climb in coming months. The power price increase would be moderate and mostly affect industrial power users, said another source, who declined to be identified due to the sensitivity of the issue.

Solar Farms Gain Priority in China as Atomic Goal Cut After Japan Accident - China, the world’s biggest energy consumer, will cut its 2020 target for nuclear power capacity and build more solar farms following Japan’s atomic crisis, said an official at the National Development and Reform Commission. The country will reduce its nuclear capacity goal of 80 gigawatts, Ren Dongmin, the head of the economic planner’s renewable energy development, said at a Beijing conference today, without giving a new target. The goal for solar-power capacity will increase from the current target of 20 gigawatts, he said. “We can see delays in some projects, but in the longer term, I don’t see how they can change the program they have in place without facing drastic power shortages,” David Lennox, an analyst at Fat Prophets in Sydney, said by telephone. “It’s difficult to see what their alternatives to nuclear are.”

TheOilDrum: Japan's Liquid Fuels Crisis - There are so many issues that the Japanese must deal with in the immediate aftermath of their huge quake and tsunami — humanitarian relief, damaged nuclear reactors, and general disruptions and shortages of all kinds. While the ongoing troubles at the Fukushima reactors generate global attention, several recent articles have touched on shortages of liquid fuels that are very worrying. Japan is, after all, the #3 consumer of oil in the world after the US and China.^[1] This post will quickly review some recent trends in Japanese consumption and refinery output of the most important liquid fuels — gasoline, kerosene and diesel.

TABLE – Japan refinery operations status after quake - The table below shows the latest operational status of Japan's refineries after a strong earthquake on March 11, according to a Reuters survey. Japan, the world’s third-biggest oil consumer, has 28 refineries with total refining capacity of 4.52 million bpd. Six refineries operated by four firms with total capacity of 1.40 million barrels per day, or 31 percent of Japan’s total, had halted operations after the quake, the survey shows. So far, three companies have restarted their affected refineries. JX Nippon Oil & Energy restarted its 270,000 barrels per day (bpd) Negishi refinery on Mar. 21. TonenGeneral Sekiyu restarted its 335,000 bpd Kawsaki refinery on Mar. 17, while Kyokuto Petroleum Industries (KPI) restarted its 175,000 bpd Chiba refinery on Mar. 16.

Tepco Sees 8.5mn-Kilowatt Power Shortage This Summer - Tokyo Electric Power Co. (9501) said Friday that its power output is expected to fall about 8.5 million kilowatts short of demand this summer, an estimate that some have blasted as way too optimistic.With the March 11 earthquake and tsunami knocking some nuclear power plants and other facilities offline, the utility is currently conducting rolling blackouts in greater Tokyo to deal with a shortage of electricity.The utility known as Tepco plans to increase its output capacity by about 20% from current levels to 46.5 million kilowatts by the end of July through such steps as bringing damaged fossil-fuel-fired plants in Ibaraki Prefecture back online and setting up gas turbine facilities.

Japan’s Electricity Shortage to Last Months -Utility experts and economists say it will take many months, possibly into next year, to get anywhere close to restoring full power.  The places most affected are not only in the earthquake-ravaged area but also in the economically crucial region closer to Tokyo, which is having to ration power because of the big chunk of the nation’s electrical generating capacity that was knocked out by the quake or washed away by the tsunami.  Besides the dangerously disabled Fukushima Daiichi nuclear power plant, three other nuclear plants, six coal-fired plants and 11 oil-fired power plants were initially shut down, according to PFC Energy, an international consulting firm.  By some measures, as much as 20 percent of the total generating capacity of the region’s dominant utility, the Tokyo Electric Power Company — or an estimated 11 percent of Japan’s total power — is out of service.

TheJapanTimes: 'Drastic' ideas eyed for power crisis - Options being considered include the introduction of daylight-saving time, known locally as "summer time," and a hike in electricity charges, although nothing has been decided yet.When electricity use peaks to escape the heat and humidity this summer, it is expected to create a shortage of around 10 million kw — or nearly 20 percent of total available power — Chief Cabinet Secretary Yukio Edano said upon emerging from an emergency meeting on the problem earlier in the day."There needs to be a drastic and immediate measure that may affect industrial business activities and people's lifestyles to fill in the gap" between supply and demand, Edano said.

Japan copes with 21st-century dark age - The first pitch of Japan's baseball season has been pushed back so people don't waste gasoline driving to games. When the season does start, most night games will be switched to daytime so as not to squander electricity. There will be no extra innings.Tokyo's iconic electronic billboards have been switched off. Trash is piling up in many northern cities because garbage trucks don't have gasoline. Public buildings go unheated. Factories are closed, in large part because of rolling blackouts and because employees can't drive to work with empty tanks. This is what happens when a 21st-century, technologically sophisticated country runs critically low on energy. The March 11 earthquake and tsunami have thrust much of Japan into an unaccustomed dark age that could drag on for up to a year.

Japan Tax Increase Unavoidable After Quake-Given Debt Load, Lawmakers Say - A tax increase to finance earthquake reconstruction may be unavoidable considering the nation’s huge debt, two Japanese ruling party officials say, and two-thirds of the public agree the measure may be necessary.  “We can’t avoid raising taxes as the great earthquake may worsen an already dangerous fiscal situation,” Ikkou Nakatsuka, deputy chairman of the tax committee of the ruling Democratic Party of Japan, said in an interview last week. Separately, Vice Finance Minister Fumihiko Igarashi said today the government may scrap its plan to lower the corporate tax rate, a move the head of the nation’s largest business lobby said he would support.  A levy increase may help to push back the possibility of a future fiscal crisis with public debt already about twice the size of the $5 trillion economy. Some 67.5 percent of the public support higher taxes to fund reconstruction after Japan’s strongest quake on record, according to an opinion poll released yesterday by Kyodo News.

$24-Bn Loans Not Enough: Tokyo Electric - Tokyo Electric Power has secured $24 billion in bank loans but said it would not be enough to keep the company running, adding to fears the utility may collapse under the strain of paying for Japan's worst nuclear disaster. In a further sign of the disarray at Asia's largest utility, the company said its president had been hospitalised and was handing over the reins to Chairman Tsunehisa Katsumata.Katsumata told a news conference that Tokyo Electric, known as TEPCO, had not had time to estimate the financial impact on the company from the disaster at its Fukushima nuclear plant but expected it to be "very severe".

Tokyo Electric Faces Claims That Might Rise to $132 Billion, Merrill Says - Tokyo Electric Power Co., the utility crippled by the worst nuclear accident since Chernobyl, faces claims of as much as 11 trillion yen ($132 billion) if the crisis lasts two years, Bank of America Merrill Lynch said.  Under such a “worst-case” scenario, Tokyo Electric would be unable to absorb the losses even after a capital reduction and debt-to-equity swap of state-guaranteed debt, Yusuke Ueda, a credit analyst at Merrill, wrote in a report yesterday. The utility known as Tepco may face claims of less than 1 trillion yen if the crisis is resolved within two months and as much as 3 trillion yen if it takes about six months, Ueda wrote.

Tepco's Damaged Reactors May Take 30 Years, $12 Billion to Scrap - Damaged reactors at the crippled Fukushima Dai-Ichi nuclear plant may take three decades to decommission and cost operator Tokyo Electric Power Co. more than 1 trillion yen ($12 billion), engineers and analysts said. Four of the plant's six reactors became useless when sea water was used to cool them after the March 11 earthquake and tsunami knocked out generators running its cooling systems. The entire station north of Tokyo will likely be decommissioned, Japanese Prime Minister Naoto Kan said yesterday.The damaged reactors need to be demolished after they have cooled and radioactive materials are removed and stored, said Tomoko Murakami, a nuclear researcher at the Institute of Energy Economics, Japan. The process will take longer than the 12 years needed to decommission the Three Mile Island reactor in Pennsylvania following a partial meltdown, said Hironobu Unesaki, a nuclear engineering professor at Kyoto University.

Renewable Energy A Pillar In Japan Reconstruction Vision: Edano - Renewable energy will play an important role in Japan's reconstruction, Chief Cabinet Secretary Yukio Edano said on Tuesday as the country struggled to bring a damaged nuclear power plant under control.  "When considering the damage from this accident, there is no doubt we are moving towards making renewable energy sources a pillar," Edano told reporters.  Damage to Fukushima's Daiichi nuclear power plant caused by the devastating earthquake this month has contaminated water and produce surrounding areas with radiation.  Edano did not say whether a move towards renewable energy sources such as solar, wind and biofuels would spell a fundamental overhaul of Japan's nuclear energy policy.

Fukushima Illustrates SmartGrid Need - This past week all serious discussions about energy policy have been overshadowed by the disasters in Japan. . There are, of course, lessons to be learned from the incidents at Fukushima, which go well beyond the subject of nuclear plant design.  But there is also a lesson about the importance of energy storage.  One of the most economically devastating effects of the Fukushima incidents has been the sudden loss of a significant portion of the Japanese grid’s generating capacity.  The Japanese grid, which relies on much of the same early 20^th century technology as the U.S. grid, has had little choice but to cope with lost generation capacity by imposing rolling blackouts and other mandatory curtailments on commercial, industrial and residential consumers.  The economic impact of these curtailments cannot yet be measured, but is likely be in the trillions of yen.

Shippers Stick With Tokyo as U.S. Says Radiation Easily Cleaned - Five of the six biggest container shippers are maintaining routes to Tokyo and Yokohama after the U.S. Navy said radiation on vessels from the leaking Fukushima Dai-Ichi nuclear plant can be scrubbed off with soap and water.  A.P Moeller-Maersk A/S, Mediterranean Shipping Co. and CMA CGM SA, the top three, are still serving Japan’s two busiest container ports, 2 1/2 weeks after an earthquake and tsunami damaged the Fukushima plant, 220 kilometers (135 miles) to the north. Among the top six shippers, only Hapag-Lloyd AG, the No. 4, is diverting vessels to docks in the south of the country.  The Japanese government is allowing ships to sail as close as 30 kilometers to the stricken reactors, and the International Maritime Organization, a United Nations agency, says operations in and out of Japan can continue as normal, with levels of radiation presenting no medical basis for imposing restrictions.

Wal-Mart to Open Half of Japanese Stores Hampered by Earthquake, Tsunami  -- Wal-Mart Stores Inc., the world’s largest retailer, is resuming normal operations at half the stores hampered by Japan’s strongest earthquake as residents struggle to find water, food and other necessities. A dozen of Wal-Mart’s Seiyu stores in the quake-hit Sendai area are restarting full operations today after being limited mostly to relief efforts for two weeks, Scott Price, Wal-Mart’s Asia chief, said in an interview yesterday. Of the remaining 12 stores, 10 will be opened as soon as possible and two may take a “long time” because they’re covered in mud, he said. Retailers from Wal-Mart to 7-Eleven operator Seven & I Holdings Co. are racing to reopen stores and replenish shelves after the March 11 disaster left hundreds of thousands in the Tohoku region, northeast Japan, scrambling for shelter, food and water. The magnitude-9 earthquake and tsunami knocked out more than 1,000 stores in the Tohoku and Kanto regions, according to estimates at Goldman Sachs Group Inc.

Japan's Struggles Continue -Meanwhile, the global electronics industry reported that it is facing serious shortages of key materials because of supply chain interruptions caused by the quake and tsunami. Production of those materials, many made by Japanese chemical companies, has slowed or halted in some cases. Of most concern is a likely shortage of bismaleimide triazine resin, which is used as an insulating material in a wide range of printed circuit boards and integrated-circuit substrates. Mitsubishi Gas Chemical is the world’s largest producer of bismaleimide triazine, and its facilities in Fukushima prefecture have been knocked out of operation altogether. The company says it expects to resume some production next month. The MGC facilities, according to Barclays Capital Asia in Hong Kong, make about half of the world’s supply of the material.

Japan supply paralysis spreads as firms cut output - Sony Corp cut output at five more plants and Toyota Motor Corp delayed restarting assembly lines, as the global supply of parts and products began to feel the full impact of Japan's catastrophic earthquake. Global electronics and autos companies have been hardest hit by the turmoil, but in an illustration of how the ripples are spreading, Rio Tinto, the world's No. 2 iron ore miner behind Brazil's Vale, warned the disruptions posed a threat to its expansion plans. Miners are already facing longer waits for key equipment as companies ramp up exploration, making shutdowns at plants manufacturing heavy earth-moving equipment and electronics more likely to create additional pressures.Toyota, the world's largest automaker, said all 12 Japanese assembly plants would remain closed until at least Saturday and it was not sure when they would reopen. Production lost between March 14-26 would be about 140,000 units.Electronics giant Sony said five more of its plants, mostly in central and southern Japan and producing digital and video cameras, televisions and microphones, were hit by parts shortages and would close or cut output until the end of March

Japan carmakers see return to full output taking time (Reuters) - Japanese automakers including Toyota Motor Corp and Nissan Motor Co said on Tuesday it would be some time before they could return to full production after Japan's devastating March 11 earthquake and tsunami disrupted supplies to their plants.With some 500 parts affected, a Toyota spokesman said it was impossible to say when production would resume in full. A source with knowledge of the matter told Reuters that the automaker had told its main suppliers not to expect production to restart until at least April 11 -- exactly a month from the quake.All vehicle assembly has been halted at the 18 domestic factories that build Toyota and Lexus cars except for two plants that began producing a limited number of three hybrid models, including the Prius, on Monday.Meanwhile, Nissan CEO Carlos Ghosn told workers at one of the company's factories in the stricken northeast he wanted to bring the site back to full production levels by early June at the latest.

Japan quake strains supply chain - Global companies from semiconductor makers to shipbuilders faced disruptions to operations after the earthquake and tsunami in Japan destroyed vital infrastructure and knocked out factories supplying everything from high-tech components to steel. Top mobile telecom equipment makers have joined automakers in warning of a damaging supply squeeze as the impact of Japan's devastating earthquake spreads, adding to fears in a sector hampered by shortages. Japan, home to around a fifth of the world's semiconductor production, has seen factories making everything from chips to car parts shutdown following March 11 9.0-magnitude earthquake, threatening supplies to manufacturers across the globe. Most are putting contingency plans in place, scrambling to source key components elsewhere while working out how much inventory they have available to keep production going.

Special Report: Disasters show flaws in just-in-time production -  Soon after the devastating earthquake and tsunami that struck northeastern Japan on March 11, major manufacturers around the world sprang into action. From a conference room at General Motors Co's technical center in the Detroit suburb of Warren to the Memphis headquarters of package delivery giant FedEx Corp, teams of employees scrambled to assess the impact on staff, factories and goods."Within an hour and 15 minutes we'd established a crisis room after the earthquake," Andy Palmer, senior vice president of Japanese automaker Nissan, said in a telephone interview from his office in Tokyo last week. "From there we were able to see everything unfolding, the priority being on the status and welfare of the employees." In a globalized economy where manufacturers have moved ever more toward lean inventories and "just-in-time" production -- keeping ultra-low quantities of parts on hand to avoid holding expensive stocks of parts -- a speedy response was vital because a disruption to the global supply chain would spread quickly, shuttering plants employing legions of workers around the world.

Broken Links: Japan And The Global Supply Chain - Manufacturers around the world are now racing to secure supplies of the scarcest components and materials, pushing up their prices. Carmakers in Japan and America have had to scale back production. Toyota fears a scarcity of 500 rubber, plastic and electronic parts. It is not yet clear how much worse things will get as existing stocks run down. Nor can Japanese suppliers be sure yet of how soon they can get back up to speed: hundreds of aftershocks, some strong enough to disrupt production, have rumbled on since the main quake. Given the loss of a very large nuclear plant and shutdowns of others, power shortages may extend for years.  Even before the extent of the disruption becomes clear, it seems certain that Japan’s disaster will have a lasting impact on how manufacturers manage their operations. “It is very important now to think the extreme,” he says. “You have to have some buffers.” Over the past decade or so the just-in-time concept of having supplies delivered at the last minute, so as to keep inventories down, has spread down the global manufacturing chain. Now, say economists at HSBC, this chain may be fortified with “just-in-case” systems to limit the damage from disruptions.

Official: Quake, tsunami could cost Japan $300 billion - This month's catastrophic quake and tsunami could cost Japan's government in excess of 25 trillion yen ($300 billion), an official said Thursday. Deputy Finance Minister Mitsuru Sakurai told reporters that authorities are currently planning a supplemental budget, in an effort to immediately inject money and resources into the hardest hit areas outside of the standard annual budget process. He said that the cost of that bill alone could top 10 trillion yen. Meanwhile, officials are also trying to grasp the overall economic impact of the disaster -- as well as how much money the national government will put toward reconstruction efforts. Right now, Sakurai said the estimates range from 16 trillion to 25 trillion yen.

Japan's economy: An ugly first look at the quake's impact - We got an early indication today of how the giant earthquake and tsunami that ravaged northeastern Japan on March 11 damaged the Japanese economy. And it ain't pretty. The Markit/JMMA purchasing managers' index (PMI) for March (which you can find here) shows that some serious hurt was put on Japan's industrial sector. The PMI, an indicator of the health and direction of manufacturing, sank to 46.4, its lowest level in nearly two years. (A measure below 50 tells us that conditions in manufacturing are getting worse.) The drop from 52.9 in February is the largest month-on-month decline in this survey's history, even surpassing the plunges witnessed after the 9/11 terrorist attacks and the 2008 collapse of Lehman Brothers. What this suggests is that the damage done by the quake to Japan's growth could be quite severe. Chris Williamson, chief economist at Markit, wrote that the “decline signals (a) 7% quarterly drop in manufacturing output which is set to push Japan temporarily back into recession.”

Japanese Economic Collapse Confirmed By PMI Plunge From 52.9 To 46.4, Largest Drop Ever - In the first economic metric since the Japanese earthquake struck, Japanese manufacturing activity slumped to a two-year low in March and posted its steepest monthly decline on record, confirming all the worst fears about supply chain disruptions and production operations, according to the Japanese PMI released on Thursday. From Need to Know News: "The 6.5-point drop in March was the largest on record, surpassing the falls seen after the collapse of Lehman Brothers in September 2008 and the U.S. terror attacks in September 2001, MarkIt Economics said, adding that the March PMI index was the lowest since 41.4 marked in April 2009. Kohei Okazaki, economist at Nomura Securities, said March industrial output due out on Apr. 28 is expected to show a m/m fall of at least 10%. The PMI index is closely correlated to industrial output released by the Ministry of Economy, Trade and Industry. Markit, a UK-based research firm, conducted the latest survey between March 11 and March 25, and only 67% of those polled responded. It releases manufactures PMIs for 25 areas in the world every month." And in addition to all the collapse in all output metrics, adding insult to injury is the confirmation that inflation is now ravaging the land: the input price index increased to 65.2, the highest since September 2008, due to higher costs of raw materials such as crude oil and naphtha. It now appears that Japan is about to have the worst stagflationary episode in its history ever.

Japan Auto Parts Makers May Move Plants to China, Official Says -- Japan’s auto parts makers, faced with continuing production interruptions after the March 11 earthquake, may relocate more factories to China as a result of the disaster, according to a Chinese government official. About 70 percent of car parts in China are supplied by local component makers and foreign companies with plants in the country, according to the nation’s Association of Automobile Manufacturers. Yet some parts used for engines and electronic components are mainly imported from Japan and other countries, Cheng Xiaodong, an official with the National Development and Reform Commission, said in a telephone interview today. “Companies were not motivated to localize production of key components in China and the quake may change that if they face rising difficulties in the following months in supplying to their China assemblers,” said Cheng, who is in charge of the vehicle price monitoring arm of the state planning agency. “China is the world’s biggest vehicle market and producer and it makes sense for them to do so.”

Nissan cuts Chinese output by 75%‎ - A shortage of auto parts has caused Nissan to cut output by 75 percent at one of its Chinese plant even as the Japanese auto maker further suspended production in its home market following the devastating earthquake, according to media reports.The production capacity of Dongfeng Nissan's Xiangfan plant has been slashed to 82 units per day, a sharp fall from its designed capacity of 304 vehicles, Xinhua news agency said yesterday. The Japanese car maker's inventory is dwindling rapidly after key car components, including engines and transmission, experienced tight supply after the 9.0 magnitude quake and tsunami hit Japan, it added. The Chinese auto industry is feeling the ripple affect of Japan's earthquake as major Japanese auto makers announced plans to further shut down plants due to a delay in the deliveries of key spare parts.

Japanese Earthquake Threatens to Shut Down Taiwanese Fabs - In our globalized economy, no one suffers alone. Two weeks after a 9.0-magnitude earthquake and a catastrophic tsunami devastated northeastern Japan and brought a nuclear power plant to the brink of meltdown, the regional impacts of the disaster are just starting to become clear. The World Bank has estimated that the cost of damages could reach US $235 billion and has warned that economies across East Asia may be affected. Taiwan’s high-tech sector is scrambling to determine how its own manufacturing will be affected by the troubles across the sea. Industries that rely on Japanese suppliers for raw materials and components are wondering how long it will take to restore reliable power and transportation in eastern Japan, which is home to several key suppliers. But some Taiwanese companies may also be able to find opportunities in the crisis, filling the void left by the temporary shutdown of Japanese plants. "

China’s Five-Year Plan and Global Interest Rates - China’s new five-year plan will have important implications for the global economy. Its key feature is to shift official policy from maximizing GDP growth toward raising consumption and average workers’ standard of living. Although this change is driven by Chinese domestic considerations, it could have a significant impact on global capital flows and interest rates. China’s high rate of GDP growth over the past decade has, of course, raised the real incomes of hundreds of millions of Chinese, particularly those living in or near urban areas. And the funds that urban workers send to relatives who remain in the agricultural sector have helped to raise their standard of living as well. But real wages and consumption have grown more slowly than China’s total GDP. China now plans to raise the relative growth rate of real wages and to encourage increased consumer spending. There will also be more emphasis on expanding service industries and less on manufacturing. State-owned enterprises will be forced to distribute more of their profits. The rising value of the renminbi will induce Chinese manufacturers to shift their emphasis from export markets to production for markets at home. And the government will spend more on low-income housing and to expand health-care services.

A Look Into China Development Bank’s Cross-Border Energy Deals - Since the mid-2000s, China Development Bank (CDB) has participated in some of the country’s most high-profile cross-border deals. By providing generous financing, CDB is playing an increasingly central role in China’s “going out” strategy, which involves the international expansion of Chinese firms to secure energy and natural resources, build national champions, and acquire advanced technologies. In the latest China Center monograph, Inside China, Inc, Erica Downs examines the energy-backed loans CDB extended to energy companies and government entities in Brazil, Ecuador, Russia, Turkmenistan and Venezuela in 2009 and 2010. Downs assesses the extent to which these deals are driven by strategic objectives of the Chinese government versus the commercial interests of Chinese companies, and explores how CDB coordinated with the Chinese government and China’s national oil companies to negotiate and implement these deals.

Geithner's Blatant Lies at the G20 Meeting; Four-Pronged Solution - Treasury secretary Tim Geithner says inflexible currencies are biggest monetary problem.  Tightly controlled exchange rate regimes are the main flaw in the international monetary system and the solution is simple, U.S. Treasury Secretary Timothy Geithner told a G20 meeting on Thursday. In a thinly veiled swipe at the Chinese hosts of the seminar of the Group of 20 wealthy and developing economies, Geithner said that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order. Both French President Nicolas Sarkozy and Chinese officials have said it is time to consider bringing the yuan into the basket of currencies that constitutes the SDR, which is currently restricted to the dollar, euro, yen and pound. Geithner suggested that certain conditions should be met first.

The Spaghetti Bowl is Not Deep - At Vox, Theresa Carpenter and Andreas Lendle ask, "How Preferential is World Trade?"  Their answer: We find that around half of world imports are from countries that are granted some preference – yet that does not mean that all of that trade is actually preferential. MFN rates may be zero or a product can be excluded from preferences. Overall – but not including intra-EU trade – just 16.3% of global trade has a positive preferential margin.  By "preferential margin," they mean the gap between the "most favored nation" tariff, which all WTO members are expected to apply to imports from other members, and the lower tariffs which might apply under regional and bilateral trade agreements.  For example, if the US has a 10% MFN tariff on cogs, but under NAFTA, cogs from Mexico enter the US tariff-free, that would mean a 10% preferential margin.This addresses one of the main complaints about trade agreements: that they lead to preferences.

India@61: An idea gone astray - Gokul Singh Gond, of Druminia village, Madhya Pradesh, places his dead daughter Sohagvati on the back of his bicycle and pedals 10 km to the nearest district hospital for an autopsy. On the same day, cricketer Gautam Gambhir was auctioned for 2.1 million dollars for the fourth edition of IPL, the highest amount of money offered for the services of a cricketer in the history of the game. If there are two images that could capture the idea of India in the 62nd year of its republic, they are these. On the one hand, India is poised to send its business classes to take over the world when, on the other, it condemns vast sections of its citizens to subhuman existence. The signature of Indian Republic at 61 is the almost seemingly unbridgeable chasm between the worlds of the Gokul Singh Gonds and the rest. Of course, there was always contempt for the poor by the rich, but the biggest change in the post-liberalisation era is that the have-nots are not looked down upon, but they simply don't exist!

2500 years of Development in 100 Seconds - This marvelous video from 498 BC to 2011 AD shows the location and concentration of events mentioned in Wikipedia at different dates. A History of the World in 100 Seconds from Gareth Lloyd on Vimeo. Taking that as an informal history of development, the main takeaway is that for most of history, things were mainly happening along the line between Birmingham and Baghdad.

Latin America’s Twin Challenges—Increasing Rate of Growth and Managing Volatility - By Dominique Strauss-Kahn -  Earlier this month, I had the opportunity to discuss Latin America’s regional outlook with government leaders, parliamentarians, and university students in Brazil, Panama, and Uruguay. The key conclusion that I took away from these meetings is that Latin America faces two principal economic challenges: to increase the sustainable rate of economic growth and to reduce the volatility of growth. In my meeting in Calgary on March 26 with Finance Ministers of the region, I focused on the second challenge so that favorable conditions today do not come at the expense of a bust tomorrow.  It’s a nice coincidence that this meeting of Finance Ministers of the Americas and the Caribbean was held here in Calgary. Canada is a good example of “managing the good times,” but as in many countries across the globe, some challenges remain.

Rising U.S. Savings Are Part of Global Rebalancing - Saving has become a status symbol in the New Frugality. The fallout of the financial crisis — from mortgage defaults to tattered 401(k) portfolios — taught U.S. households the need to get their balance sheets in better order. For a culture that celebrated a “shop til you drop” mentality, frugality has been a bitter pill to swallow. Consequently, progress has been slow– but it has been made.The latest data on income and spending, released Monday, show U.S. households socked away 5.8% of their after-tax income in February. That was the rate averaged for all of 2010, and a far better pace than right before the recession when consumers saved barely more than 2%. A higher saving rate is a baby step toward the needed global rebalancing. The U.S. must learn to live within its means. But that behavior change has consequences. Emerging nations will have to depend less on the U.S. and develop domestic consumer markets. That’s because higher savings means less spending.

Euro Falls From Four-Month High Reached on ECB Interest Rate Speculation - The euro fell against the dollar from the highest level in almost four months as European Union leaders failed to solidify a permanent bailout mechanism during a summit ended yesterday.  Declines in the 17-nation currency this week were limited by speculation the European Central Bank will increase interest rates in April. The dollar fell against currencies linked to commodities, with the Australian dollar strengthening to the most versus its U.S. counterpart since foreign-exchange controls ended in 1983, before a report that may show U.S. private employers added 222,000 jobs in March. “EU leaders, they sound fairly optimistic no country after Portugal may need a bailout, but it’s too early to say that for sure and I don’t see any justification for euro to be up even this high,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “The market continues to have fairly good risk appetite, despite the turmoil going on.”

Euroworried, Eurohappy, Euroflummoxed - Europe has fixed its debt and bank problems --  again.  Last week's EU summit produced a term sheet charting the path to a permanent, treaty-based crisis resolution regime, the European Stability Mechanism (term sheet embedded here starting p. 21).  You may recall it all started with revelations about Greece's government debt crisis in late 2009, and proceeded to reverberate around the Euro-periphery, with banking and government debt troubles bubbling up in Ireland, Portugal, Spain ... Italy ... Belgium ...   About a year ago, after much dithering, a one-off program for Greece, and a couple of false starts, Europe came up with an arrangement to finance countries in trouble, effective 2010-2013.  Soon thereafter, the European Financial Stabilization Mechanism and the European Financial Stability Facility deployed in Ireland, in conjunction with the IMF.   This is a fine overview.  Last week's deal establishes a standing successor to this model.   The term sheet is a fascinating study in EU governance (note the respective roles of the member states, the Commission, and the European Central Bank) and potentially an important step on the path to a fiscal union.  I will limit my comments to the legal and legal-sounding tidbits.

ECB Seeks New Liquidity Plan for Irish Banks -The European Central Bank is working on a plan to keep struggling Irish banks afloat in the medium term, a euro-zone central-banking official said Sunday.  The new facility would aim to replace the use of so-called Emergency Liquidity Assistance, the official said. The program offers a form of central-bank lending that is meant to tide banks over when they are faced with short-term emergencies, but which has become an essential form of funding for Irish banks since last summer... Sunday Business Post newspaper reported over the weekend that the tests will expose a capital shortfall of €18 billion to €23 billion. That is more than the €10 billion earmarked by the European Union, International Monetary Fund and European Central Bank in Ireland's November bailout deal, but less than the €35 billion many analysts had estimated the banks would require.

Ireland Seeks to Share Bank-Loss Burdens With Bond Holders, Noonan Says - Ireland wants to share bank losses with senior bondholders as part of a “final solution” for the country’s debt-laden financial system, Agriculture Minister Simon Coveney said.  Finance Minister Michael Noonan will seek agreement from European authorities to share losses with bondholders after stress-test results on March 31 determine how much extra capital the banks need, Coveney said. Government-guaranteed banks have 16.4 billion euros in senior unguaranteed unsecured bonds outstanding, Ireland’s central bank said on March 2.  Ireland’s government wants “a sustainable and comprehensive solution that involves recapitalization, but also an element of burden sharing as well as a funding package for Irish banks,” Coveneny told RTE in an interview yesterday. “A lot of delicate and difficult discussions are going to take place over next two to three weeks, if not slightly longer.”  Coveney said that “markets are already ahead of us” in accepting that there is “a possibility if not a likelihood that bondholders may have to share some of the pain.”

Ireland Seeks to Force Losses on Banks' Senior Bondholders -- Ireland said it wants to impose losses on banks’ senior bondholders, increasing the pressure on European policy makers to cut the costs of its bailout and provide longer-term financing for the country’s lenders. The government, which took office last month, wants “a sustainable and comprehensive solution that involves recapitalization, but also an element of burden sharing as well as a funding package for Irish banks,” Agriculture Minister Simon Coveney told broadcaster RTE in an interview yesterday. “A lot of delicate and difficult discussions are going to take place over next two to three weeks, if not slightly longer.”The government is raising the prospect of losses for senior bondholders to win a cut in the interest charges on its bailout and secure medium-term funding from the European Central Bank for its banks. European Union authorities opposed the imposition of losses on senior bondholders amid concern that could cause the debt crisis to spread to Spain and Portugal. Ireland is also under pressure from Germany and France to raise its corporation tax from 12.5 percent, one of the lowest rates in the EU.

Ireland threatens to bail in bondholders as high noon approaches - This looks to be part of a negotiating tactic to secure a good deal from the EU and the ECB. But as Reuters reports, Ireland’s government says it is now considering imposing haircuts on senior bondholders to reduce the pressure from the Irish tax payer. The total amount held by senior creditors in Irish banks is some €16bn. The Irish government is nervously awaiting this week’s results of the stress of its banks, which are likely to show a recapitalisation requirement of around €25bn, according to Reuters. The FT puts the recapitalisation requirement at between €15bn and €25bn, with an additional €90bn in asset sales to reduce the loan-to-deposit ratio from 170% to 120-125%. There is a widespread acceptance in the markets that the government will impose bondholder haircuts on Anglo-Irish and Irish Nationwide, but to bail in bond holders at the other banks might be more controversial.  The ECB has on previous occasions voiced strong opposition to a bondholder bail-in, and the Irish threat to bail in bondholders may only be part of a wider negotiating strategy, especially in view of the following.

Ireland Draws Down Over 20% Of Bailout In Q1 - Ireland drew down just over 20 percent of its 85 billion euro ($120 billion) EU-IMF bailout in the first three months of the year, the country's financial regulator said in a note published on its website on Tuesday. Ireland asked for the emergency loans last November after it was frozen out of debt markets and has so far drawn down a total of 18.4 billion euros. It received 5.8 billion from the IMF and 12.6 billion from European Union bailout funds, the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). The financial regulator said subsequent drawdowns will be subject to Ireland's needs and to quarterly reviews conducted by the European Commission, IMF and European Central Bank.

Noonan to propose 'radical' bank sector restructuring - THE MINISTER for Finance will propose a ground-breaking restructuring of the banks today as the results of Central Bank stress tests will signal the virtual nationalisation of the Irish banking sector. The results of the tests will lead Michael Noonan to undertake “a radical new approach” to fix the banks, a Government source said. Mr Noonan will make a “watershed” argument for a EU-wide solution around passing bank losses on to bondholders in response to the tests on Bank of Ireland, AIB, Irish Life and Permanent and EBS building society. Government colleagues last night described it as the first radical policy departure from the previous Fianna Fail-led government.

The unbelievable truth about Ireland and its banks - Ireland's central bank and new government will confirm on Thursday that the hole in the country's banks is even wider, deeper and darker than seemed to be the case last November, when those bust banks forced the country to go with a begging bowl to the European Central Bank (ECB) and the International Monetary Fund (IMF) for 67.5bn euros (£59bn) of rescue loans.Regulators at the Irish central bank have conducted a review of how much extra capital - as a buffer against future losses - is required by Bank of Ireland, Allied Irish Bank, EBS and Irish Life and Permanent. Unless something unexpected happens in the next 24 hours, the total amount of additional capital that will need to be injected into these banks will be a bit less than 35bn euros - including 8bn euros that was supposed to be injected into them at the end of February, but was postponed because of Ireland's political turmoil.

S&P warns of further Portuguese ratings downgrade - Standard & Poor's warned Monday that it could further downgrade Portugal's credit rating by a notch this week, after lowering it by two levels last week following the government's resignation. "Based on current information and expectations, we could lower our ratings on Portugal again -- by another notch," the ratings agency said in a statement. That could happen this week, S&P added, depending on the outcome of European discussions on the design of the European Stability Mechanism (ESM), which is being set up to provide support loans to eurozone states in financial distress.

Portugal crisis: The Eurovision singers giving voice to a nation’s anger - On the face of it, Portugal’s Eurovision song contest entry is just another piece of euro-trash pop, a cheesy folk-disco number sung by a comedy moustachioed troupe that is, definitely, too camp to be taken seriously.  But first appearances can be deceptive – and the song by the band Homens da Luta (Men of Struggle) has become an ironic anthem for thousands of Portuguese angry at the misery about to be imposed on them by the European Union and the International Monetary Fund. That prospect loomed even greater last week when Portugal’s government lost a crucial parliamentary vote over its own austerity programme – approved by the EU – that included a deeply unpopular plan to tax pensions.  Behind it all looms the near certainty that Portugal, having failed to put its own financial house in order, will now have no choice but to accept the terms of a £66 billion EU-IMF bailout in a few weeks’ time. Voters fear that will bring to Portugal the misery of the deeply unpopular spending cuts and tax rises imposed on the Irish and Greek peoples last year.

Portugal to Revise Figures in 2010 Budget - Portugal's statistics agency said it plans to make "accounting changes" in a report to be submitted to the European Union's statistics agency by week's end, a revision that could indicate a wider 2010 budget deficit and which would further undermine the credibility of the country's embattled government. The country's statistics office has been reviewing its 2010 accounts after the EU's Eurostat agency observed that Portugal hadn't included a €2 billion ($2.8 billion) cash injection into Banco Portugues de Negocios. A spokeswoman from Portugal's statistics agency confirmed Tuesday that "a new set of accounting changes" will be made in a report to Eurostat. The EU agency will then publish the amended bookkeeping next month.?  A revision showing a wider deficit could imperil Portugal's effort to assure investors that it can continue to finance itself without joining Greece and Ireland in asking for a bailout from the EU and the International Monetary Fund.

Brazil's Lula to Portugal: Don't Take Bailout - Brazil's former president Luiz Inacio Lula da Silva has some advice for Portuguese politicians: Don't take the bailout. But even as the popular Brazilian supported Portuguese efforts to stick to their own plan for clearing the country's crippling debts, financial pressures mounted Tuesday as Standard & Poor's downgraded its credit rating of Portugal's bonds to just one notch above junk status.That cut — the rating agency's second in six days — will make it even harder for Portugal, one of the 17-nation eurozone's smallest and weakest economies, to raise money on international markets, where nervous investors view the country as a very risky bet.Standard & Poor's said it lowered its sovereign credit ratings on Portugal to BBB-/A-3 from BBB/A-2 and said Portugal's high debt load and poor growth prospects make it likely the ailing country will need a financial rescue.Analysts estimate Portugal would need a bailout of up to euro80 billion ($113 billion).

Financial markets are pushing Portugal over the brink -Portugal’s President Cavaco Silva summoned his Council of State advisory body on Thursday this week, Jornal de Negocios reports, after which he is expected to dissolve parliament and call early elections. Socrates retains full powers until the president's decision. Into this fragile political environment came the news that Standard & Poor’s has cut long- and short-term counterparty credit ratings on five Portuguese banks and two related subsidiaries warning that  it could downgrade Portugal further this week, Bloomberg reports.  Portuguese debt yields soared to new records in nearly all maturities, with the biggest increases observed at shorter maturities. The 10y bond hit 7.9%, 5y-bond yields reached 8.7% and 2y bonds 7.4%. El Pais writes that even the ECB, which returned to secondary markets after three weeks of absence to buy €432m in government debt last week, could not halt this. Portugal needs to repay or rollover €4.3bn of bonds maturing on April 15 and another €4.9bn in June.

Portugal's Rating Is Cut to Lowest Investment Grade by S&P on Bailout Need -- Standard & Poor’s Ratings Service cut Portugal’s credit rating for the second time in four days, saying the country will likely need an international bailout and debt restructuring.  S&P cut the rating to BBB-/A-3 from BBB/A-2, with a negative outlook, it said in an e-mailed statement today. BBB- is the lowest investment grade.  A statement after a European Council meeting on March 24-25 on the terms under which countries may borrow from the region’s future rescue fund confirms “expectations that sovereign debt restructuring is a potential pre-condition to borrowing” and “senior unsecured government debt will be subordinated” to loans from the fund, S&P said. “Both features are, in our view, detrimental to the commercial creditors.”

S&P cuts Portugal credit rating to just above junk (Reuters) - Standard & Poor's cut its credit rating on Portugal by one notch on Tuesday to just above junk status, its second downgrade in less than a week as the debt-ridden country grapples with a political crisis. S&P cited the prospects of unsecured government debt being subordinated to future loans from the European Stability Mechanism fund, which it said Portugal was likely to resort to. "Given Portugal's weakened capital market access and its likely considerable external financing needs in the next few years, it is our view that Portugal will likely access the EFSF (the current euro rescue fund) and thereafter the ESM," the agency said.S&P's BBB-minus rating, the lowest investment grade, is now far below Moody's A3 and Fitch Ratings' A-minus.After last Thursday's two-notch downgrade, the agency warned it was likely to cut Portugal further, and analysts say the cut was mostly priced in. Still, bond yields, already at euro lifetime highs, rose further after the move, hitting 8.18 percent for the benchmark 10-year maturity.

Portuguese Yields Reach Records on Aid Concern, Irish Bonds Drop  -Portuguese bonds sank, driving the yields on two-, five- and 10-year securities to records as the country’s president prepared to call early elections amid concern it will need a financial bailout. Irish debt slid, pushing the 10-year yield to the highest since the introduction of the euro as regulators said four banks need to raise an extra 24 billion euros ($34 billion) in capital. Losses on the Portuguese two-year note pushed the yield above that on 10-year securities for the first time since 2006, signaling increased concern that the nation will default on its debt. German bunds fell after data showed European inflation unexpectedly rose to the fastest pace in more than two years.“Concern about the sovereign-risk factor is reflected more in the widening yield spreads,” . Stress tests “are a potential driver for sentiment in the near term. There’s still the unresolved political situation in Portugal.”

Greece 2010 Deficit Seen At 10% Of GDP, Revised From 9.4% Official - Greece's budget deficit last year is likely to be revised higher, to around 10% of gross domestic product, a Greek official said, after a discrepancy in the accounts of the country's social security system showed a shortfall rather than an expected surplus. That discrepancy should push the 2010 budget deficit up by more than half a percentage point above initial estimates of 9.4%. "[The deficit] could come in a bit higher, around 10%, because of some discrepancies where a surplus was expected but that may not be the case," the official said. In its 2011 budget, the Greek government estimated that last year's budget deficit would reach around EUR21.9 billion, or 9.4% of GDP, and it aims to cut the deficit to 7.4% of GDP this year. But combined with lagging revenue collections since the start of the year, the upward revision in the 2010 deficit will mean the Greek government may have to take further austerity measures to achieve its deficit targets for this year.

Greece: This Decade's Argentina? - There's been a bit of discussion floating around about whether the US's deficit and debt situation makes it appropriate to draw comparisons with Greece. Of course, such a comparison is ridiculous for a number of reasons, not least because the US has its own currency. But Greece has been on my mind lately for unrelated reasons, including the following news:Euro economists expect Greek default, BBC survey finds Greece is likely to default on its sovereign debt, according to the majority of respondents to a BBC World Service survey of European economists. Two-thirds of the 52 respondents forecast a default, but most said the euro would survive in its current form.The survey had a total of 38 replies and two messages came across very strongly. Not only do I agree that default by Greece on its sovereign debt is quite possible... but I think it increasingly likely that policy-makers in Greece may decide that it is the least bad option at this point, particularly in the face of an increasingly hard-line attitude from Germany regarding bailouts (which will only be reinforced by recent election results).

Greece is not Argentina - Rebecca Wilder - I politely disagree with the conclusions of the article written by my Angry Bear colleague, Kash, where he envisages Greece defaulting in 2011 similarly to Argentina in 2001. I do agree, that the macroeconomic initial conditions in Greece scream default (actually, if you focus just on the measurable factors, like the current account, debt levels, or fiscal imbalances, Greece is much worse than Argentina in 2001 - see Table 4 of this IMF paper to see Argentina's initial conditions and compare them to Greece in 2009 using the IMF World Economic Outlook Database). Where I disagree, arguing that Greece is not like Argentina, is that the debt crisis in Argentina didn't bring down the banking system of Latin America overall. In contrast, the default of Greece has the potential to do just that in Europe. In Argentina, the Latin American banking system (and sovereign bonds, for that matter) was quite resilient in the face of the sovereign default in Argentina. Uruguay was the exception, whose two largest private banks, Banco Galicia Uruguay(BGU) and Banco Comercial (BC), which account for 20% of the country's total, saw near-term liquidity pressure and an ensuing banking crisis in 2002 (see this IMF paper for a history of banking crises). All else equal, the IMF reports only minor impact to the region as a whole:

Greece's Rating Cut Two Levels to BB- by S&P on Debt-Restructuring Concern -- Greece’s credit rating was cut two steps by Standard and Poor’s on concern the country may be required to restructure its debt and bondholders may lose out. The rating was lowered to BB- from BB+ by S&P, according to a statement today. The outlook remains negative, according to the statement.  A meeting of EU leaders in Brussels on March 25 affirmed a decision earlier this month to ease the terms of 110 billion- euro ($155 billion) in emergency loans granted to Greece last year in return for a program of budget cuts. The leaders also agreed that repayment of loans granted through the European Stability Mechanism, the region’s permanent debt crisis mechanism from 2013, would take a priority in the event of a debt restructuring. S&P said on March 15 that the agreement would be “detrimental” to existing bondholders.

Moody's Signals More Euro-Nation Downgrades Possible on ESM -- Moody's Investors Service said it can't rule out further credit downgrades for euro-region nations because the agreement on a permanent bailout fund, the European Stability Mechanism, doesn't go far enough. European Union leaders met March 25 and set out new rules on bailout loans. Their failure so far to provide a permanent system whereby stronger nations support the finances of their weaker counterparts leaves bondholders at risk, Moody's said. "The absence of a fiscal-transfer mechanism and the conditions under which assistance will prospectively be made available leave downside risk to private creditors," the rating agency said in an e-mailed report today. "Consequently, further rating downgrades cannot be ruled out." Bonds of Europe's so-called peripheral nations have fallen since the summit in Brussels. Moody's rates Greece B1, Ireland Baa1 and Portugal A3.

Rating agency calls ESM a negative gamechanger, and downgrades Greece - Standard & Poor’s called the European Stability Mechanism a negative "game changer", according to Reuters, because of the preferred creditor status and its impact on privately held debt in the eurozone periphery. The article quotes S&P analyst Frank Gill as saying that the agreement had a negative implication on the rating of countries likely to be “clients of the ESM” in the future. He said the decision “will weigh on countries' capacity to serve their commercial debt." He said Ireland's rating was also likely to be negatively affected by the ESM.  Earlier yesterday, S&P had downgraded Greek sovereign debt by two notches to BB-  with a negative outlook. The agency made an explicit reference to the ESM, which would undermine Greece’s plans to resume commercial borrowing from 2013. S&P also warned that targets might not be met, and that additional measures to reach those targets might run into political opposition. Unsurprisingly, the decision met with outrage by the Greek government.  The FT has an interesting article on the reactions of investors to last Friday’s agreement. The bottomline is that the ESM is seen as making it more difficult for countries to return to the bond market, and that nobody believes that the regime would only to apply to bonds issued after 2013. Nobody was buying those bonds now, and almost everybody expects that the return to the financial markets will only be possible after the debt of these countries is restructured. But Spain and Italy are considered safe.

Agencies could stop rating risky EU states - sources - Credit rating agencies have warned the European Commission that they could stop rating risky countries if the EU executive goes ahead with plans to make them legally liable for errors of judgment, industry sources said. Tensions have been rising between Brussels officials and the three major agencies, whose assessment on countries and companies determines their cost of borrowing, after Standard & Poor's downgraded Portugal and reranked Greece below Egypt. Moody's and Fitch have also downgraded euro zone member states in recent months, increasing investor uncertainty. To put a check on their decisions, which can have a powerful impact on financial markets, policymakers are considering making the agencies legally liable if an assessment, such as a downgrade of Ireland or Portugal, turns out to be flawed -- although it remains open how this would be proven.

Greece May Need to Break Taboo on Selling Land to Slash Debt - Greece’s plan to raise billions of euros from state-owned land may fail if the government succumbs to pressure to keep assets in public hands, according to Miltos Kambourides, managing partner at Dolphin Capital Partners.  Finance Minister George Papaconstantinou said in an interview this month that he would prefer to offer developers long-term leases, though he’d consider selling smaller assets outright. On March 23, the government said it will give details of the fundraising plan “in the coming weeks.”  “No foreign investors will want to buy a lease and be told what they should develop on the site,” Dolphin, registered in the British Virgin Islands and listed on the London Stock Exchange’s AIM, is developing seven luxury resorts in Greece with a total investment budget of 2 billion euros ($2.8 billion).

Sovereign Ratings Add to Europe Instability, IMF Paper Says -- Sovereign rating announcements in Europe have had “significant” spillover effects in the region, revealing their potential to stir financial instability, International Monetary Fund economists said in a study. The research was released yesterday, just as Portugal and Greece were downgraded by Standard & Poor’s, adding pressure on policy makers to stem the debt turmoil that led to bailouts of Greece and Ireland. Cuts to levels near the lowest investment grade for “relatively large economies” such as Greece have had a systematic impact on other countries sharing the euro, the study said. The European debt crisis “has been the theater of sovereign credit-rating downgrades, widening of sovereign bond and credit default swap spreads, and pressures on stock markets,” IMF economists wrote in the report, which was published on the IMF’s website.

Circularity with the European Bailout Fund - Details are shaping up about the European Stability Mechanism—the new fund designed to provide liquidity assistance to struggling sovereign European countries. The fund is designed to lend up to 500 billion euros, backed with 80 billion euros in capital and 620 billion euros in callable capital. Yet as Morally Bankrupt explains, the structure of the fund is designed in a way that it functions least well when it is most needed. Drawing on data from the pre-existing European Financial Stability Facility, he writes: [T]he risk here is that everyone is guaranteeing everyone. So, if Ireland, Portugal and Greece need aid, their guarantee is pretty much worthless, and they are now users of the fund. If another state were to need aid, another piece of the guarantee would become worthless and need for funds would increase. This would increase the cost of funds, which would be passed on to aid receivers. Unless the states receiving aid are running a budget surplus, this would translate to increasing borrowing needs to cover additional debt service costs, furthermore deteriorating their quality.

ECB Still on Track to Raise Rates - European Central Bank

officials are doing nothing to dislodge market expectations of a quarter-point rate increase when they meet on April 7. If fact, they’re digging in, growing even more explicit that an interest-rate increase — which would be the first since July 2008 — is practically certain despite the unclear economic implications of Japan’s earthquake, unrest in the Middle East and renewed tensions in the euro bloc’s fragile periphery of Ireland, Greece and Portugal. In an interview with German daily Frankfurter Allgemeine Zeitung Tuesday, executive board member Juergen Stark said it is the time to bring interest rates “step by step” back to normal, citing the ECB’s “very accommodative” monetary stance.

Anglo Irish Bank posts €17.7bn loss ahead of stress tests - Anglo Irish Bank reported a record €17.7bn (£15.5bn) loss on Thursday ahead of stress tests which will uncover the full extent of the black hole in the Irish banking system.  The nationalised lender's massive shortfall last year includes impairment charges of €7.8bn and a loss of €11.5bn on loans taken over by Nama, the state's toxic assets agency, the bank said in a statement.  The losses are the worst on record in Irish corporate history, and slightly higher than predicted last month.  The bank has so far cost the Irish taxpayer almost €30bn in recapitalisation.  The losses were announced ahead of the Central Bank's publication of forensic stress tests which will expose losses across other Irish banks, including Allied Irish Banks (AIB), Bank of Ireland, Irish Life and Permanent (IL&P) and the EBS building society.  It is expected they will need about another €30bn to remain in business.

Moment of truth for Irish banks – and the eurozone at large - It is high afternoon in the eurozone’s crisis resolution strategy today. The Irish finance minister Michael Noonan is said to announce a ‘radical’ bank restructuring plan  directly after the central bank publishes the stress test results at 17:30 CET in Dublin, according to the Irish Times.  First leaks of the stress test results suggest that three of Ireland’s biggest banks may have to raise a combined €9bn in capital. According to Bloomberg the Bank of Ireland will need as much as €5bn, Irish Life & Permanent more than €3bn, while EBS Building Society will require about €1bn. No figures for Allied Irish yet. The article has also more details on the stress tests, saying that the banks are tested against the worst- case scenario of lenders’ losing about 10% on their Irish home-loan portfolios. Also this, the ECB is expected to announce its new medium-term liquidity scheme.

Irish Stress Test Results Require 3.5 Billion Euros Less Than Expected - Irish regulators have told four banks to raise 24 billion euros. The amount is actually about 3.5 billion euros less than many expected. The Irish government pledged to provide the money if banks fail to raise it themselves from a 35 billion-euro fund set up under the country’s international bailout in November, which would effectively give the government a controlling stake. The government has already taken control of Anglo Irish Bank Corp., Allied Irish Banks Plc (AIB), EBS Building Society and Irish Nationwide Building Society. Bank of Ireland is fighting to remain outside majority State control. Irish Life and Permanent is the only institution outside NAMA and not yet in receipt of State funds, RTE reported. Check out the RTE Live stress tests results page here

Irish Bank Stress Tests and European Bond Spreads - On the Irish banks from the Irish Times: Irish banks require an extra €24 billion recapitalisation Ireland’s beleaguered banking sector is to be recapitalised by a further €24 billion and restructured around two core retail banks ... This is the fifth attempt to recapitalise the banks and brings the total cost of bailing out the sector from €46 billion to €70 billion. ...[Minister for Finance Michael Noonan] indicated the Government would seek "significant contributions" from subordinated bondholders in the banks to contribute to the cost of recapitalising the sector. Here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of March 30th): From the Atlanta Fed: Most peripheral European bond spreads (over German bonds) continue to be elevated, particularly those of Greece, Ireland, and Portugal, with the latter two countries seeing their financial situations worsening. Since the March FOMC meeting, the 10-year Greece-to-German bond spread has declined by 38 basis points (bps), through March 29. Also, the Spanish spread has declined by 17 bps. However, the spread for Ireland and Portugal has risen by 49 bps and 44 bps, respectively. Here are the Ten Year yields for Ireland, Portugal, Greece, and Germany. The spreads to Germany widened more today with Greece up to 948 bps, Ireland up to 687 bps, and Portugal up to 505 bps.

Ireland puts $100 bln price on bank rescue (Reuters) - Ireland put a 70-billion-euro price on protecting its banks from future shocks on Thursday and promised a radical overhaul of the sector, trying to persuade investors it has the nation's financial crisis under control.The European Central Bank (ECB) offered a compromise funding solution for Irish lenders but its proposal fell short of a formal medium-term funding facility that would have gold-plated Dublin's big bang announcement.Ireland's central bank said fresh stress tests showed the country's four remaining lenders needed to recapitalise to the tune of 24 billion euros, in line with expectations. That comes on top of the 46 billion euros taxpayers have already poured into the sector, giving a total bill equal to $100 billion."The cost is huge," Finance Minister Michael Noonan told parliament. "(But) the price will be worth paying if we get a functioning banking system."

Irish Banks Move Toward Nationalization - Ireland is on track to nationalize its banking sector after its government uncovered a €24 billion ($33.9 billion) capital shortfall in the latest round of "stress tests" of top banks.  That gap will be plugged largely by taxpayers. The likely result will be that the government takes majority ownership of the country's six largest lenders, said Patrick Honohan, the governor of Ireland's central bank.  Four of the six banks are already fully, or mostly, nationalized. In a bid to end a 30-month banking crisis that forced Ireland to accept a €67.5 billion international bailout package and contributed to the ousting of its government, Finance Minister Michael Noonan said Thursday that he will reorganize the sector around two heavily capitalized "pillar banks," Bank of Ireland and Allied Irish Banks PLC. At least three other lenders will be shut down or merged into other banks, he said. The government already has pumped €46.3 billion into its banks since 2009, meaning the tab could swell to €70 billion if the government has to foot the entire bill. That would represent more than €15,000 for each of Ireland's 4.5 million residents. Some of the new cost will ultimately be covered by the €67.5 billion bailout, but some funds may also come from either private investors or capital-raising actions by the banks.

Ireland’s Debt Rating Is Reduced One Level to BBB+ by S&P on Banking Costs -Ireland’s credit rating was cut one level by Standard & Poor’s and put on watch for a possible downgrade by Fitch Ratings after the cost of rescuing Irish banks reached as much as 100 billion euros ($141.5 billion).  S&P today lowered the rating to BBB+ from A-, putting the country on the same level as Thailand and the Bahamas. The outlook is stable, S&P said in a statement. Fitch placed its long-term foreign and local-currency issuer default ratings of BBB+ on negative, “indicating a heightened probability of a downgrade in the near term,” it said in a statement.  The stable outlook from S&P “is a very good thing for a credit that has been under intense pressure,” said Padhraic Garvey, head of developed-market debt at ING Groep NV (INGA) in Amsterdam. “It’s good for holders of Irish paper.”

ECB Suspends Minimum Credit-Rating Threshold for Irish Debt -- The European Central Bank said it will accept all debt instruments backed by the Irish government as collateral against ECB loans as the country attempts to shore up its banking industry.The Frankfurt-based ECB said Ireland's commitment to recapitalize its banks and comply with a consolidation program prescribed by the European Union and International Monetary Fund must be assessed "positively." The suspension of the minimum credit-rating threshold is based on "this positive assessment of the program," a capital increase for Ireland's four banks and the decision to "deleverage and downsize the banking sector," the ECB said. Irish regulators today instructed four banks to raise 24 billion euros ($34 billion) in additional capital following stress tests on their businesses, and the government said it plans to merge two of the lenders. Allied Irish Banks Plc, the biggest lender during a decade-long economic boom, requires 13.3 billion euros, the central bank in Dublin said.

No ECB funding facility for Ireland after stress tests due to political disagreements - This was supposed to be the big day for Ireland to extricate itself from the crisis, and what happened? No ECB announcement on a medium-term funding facility. Further uncertainty about the status of unsecured bondholders. Portugal announced a dramatic upward revision of its 2010 deficit due to account errors; a Spanish bank merger unravels, eurozone inflation exceeds everybody’s worst guesses, and bond spreads shoot up to new records. Another day in the eurozone’s never-ending crisis. Reuters reports that internal disagreements within the ECB’s governing council had prevented an agreement for a medium-term funding facility that had previously been leaked to the press (and that must have been in an advanced stage of preparation). Reuters quoted Nout Wellink as saying that he preferred Ireland and other European countries to solve the Irish banking crisis, not the ECB. Axel Weber was quoted as saying that he also favoured bail-ins of bondholders – in contrast to the ECB’s position on this matter; Reuters also reports of legal concerns about such a facility, as it may be in breach of the European Treaties; Patrick Honohan said yesterday that following the discussions, there was no prospect of an announcement any time soon. The ECB did, however, agree, to suspend all rating requirements for collateral pledged by Irish banks in repo operations, to insure continued funding, and to wean the Irish banks off the emergency lending assistance from the Irish central bank. FT Alphaville thinks this is a pre-cursor to an eventual special funding regime.

Revisiting options for the eurozone: monetisation, default, break-up - Four months ago I wrote a post outlining three options for the euro zone: monetisation, default, or break-up just after the Irish bailout. Markets were disappointed by the terms of that package as it showed Europe was not dealing with the fundamental solvency issues that have created the European sovereign debt crisis. Instead, they were treating this as a liquidity crisis. And that has permitted the liquidity crisis to spread beyond Greece and Ireland to Portugal.At this point, Portugal is probably headed for a bailout. The government has collapsed and bond yields are trading at post-Euro high spreads to German debt. In fact, credit default swaps suggest that Portugal is one of the likeliest governments to default on its debt obligations. The situation for Portugal is in a word – grim.

European Inflation Unexpectedly Accelerates to Fastest Since October 2008 - European inflation unexpectedly accelerated to the fastest in more than two years in March as European Central Bank policy makers prepared to raise interest rates to fight increasing price pressures. Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the fastest since October 2008 and exceeds the ECB’s 2 percent limit for a fourth month. Economists forecast inflation to hold at 2.4 percent, the median of 32 estimates in a Bloomberg News survey showed. ECB President Jean-Claude Trichet earlier this month called for “strong vigilance” on price increases, signaling that the bank may raise its benchmark interest rate in April from a record low of 1 percent. The German economy, Europe’s largest, has driven the region’s expansion as companies boosted hiring and output, helping offset the impact of surging energy costs and tougher austerity measures in countries such as Spain.

European Monetary Policy: Trigger Happy - THE formal decision has yet to be made. But the surprise now will be if the European Central Bank (ECB) does not raise its policy rate at its next meeting on April 7th. After the ECB’s governing council met in early March, Jean-Claude Trichet, the bank’s president, could scarcely have semaphored an imminent rate rise more clearly. Despite the tsunami in Japan and the conflict in Libya there has been no hint of second thoughts among the 23 members of the council. A rise, expected to push the rate up from an historic low of 1% to 1.25%, would put the ECB well ahead of the Federal Reserve and probably beat the Bank of England (whose rate-setters meet on the same day) to the draw as well.  The increase may be small but it would mark the turn in the interest-rate cycle. And the case for early tightening looks flimsy. True, euro-wide inflation has risen in recent months above the ECB’s target of “below but close to 2%”. But the overshoot, to 2.6% in March, has been primarily driven by higher energy costs, reflecting the jump in world oil prices. Measures of “core” inflation, which exclude more volatile things like energy and food, have remained at around 1%.

Is This How The ECB Thinks? - Jürgen Stark is a member of the executive board of the European Central Bank.  He has a piece in the Financial Times that makes me wonder if the ECB really understands what it is doing.  Stark goes after commentators who question whether the ECB's monetary policy has been appropriate for the Eurozone.  He may be responding to folks like Ryan Avent, Kantoos, and myself who have argued that easier monetary policy would be in the best interest of preserving the Eurozone.  Doing so would cause a real appreciation for Germany and France while allowing a much needed real deprecation for the Eurozone periphery.  Unfortunately, he misses this important point and makes some rather astounding claims.  This one in particular was amazing: when setting interest rates, the central bank cannot do any better than take an area-wide perspective. This applies to any central bank. Consider the Federal Reserve: it cannot tailor its interest rate to the specific economic conditions in, say, Texas or California. This is absurd.  It is widely known that ECB monetary policy does not take an area-wide perspective,  but rather targets the German and French economies because of their disproportionate size in the currency union.  Studies have shown the ECB does a good job stabilizing these core economies, but is destabilizing when it comes to the currency union's periphery.

Massive Setback for Merkel: Greens Score Big in Key German State - It is being hailed as the start of a new political era in Germany. The Green Party looks set to appoint its first state governor after Sunday's election in the state of Baden-Württemberg. The result is a huge setback for Chancellor Angela Merkel. The Fukushima disaster has had, and will have, many consequences around the world. One of the more unlikely, however, appears to be the results of Sunday's election in the southwestern German state of Baden-Württemberg, where skepticism about nuclear power helped propel the Green Party to a historic victory over Angela Merkel's conservative Christian Democratic Union (CDU). The Greens doubled their share of the vote to 24.2 percent, according to preliminary results released by the state electoral commission. They are now likely to govern the state in a coalition with the center-left Social Democratic Party (SPD), which secured 23.1 percent of the vote, down 2 percent from the last election in 2006. In what would be a first for Germany, the Greens, as the senior partner in the coalition, will likely appoint the state governor.

Germany: The lights go out - To the outside world, it may be hard to understand how a provincial election can shake the political establishment in Berlin and endanger the authority of Angela Merkel, German chancellor and Europe’s most powerful politician. It is also hard to conceive how a disastrous earthquake and tsunami in Japan can cause a political upheaval in the heart of Europe. Yet those two things happened at the weekend when Ms Merkel’s mighty Christian Democratic Union suffered a humiliating defeat in the southern state of Baden-Württemberg. The result – victory for the centre-left and environmentalists – could see a sorely weakened coalition in Berlin limping to the end of its term in office in 2013, with both CDU and the Free Democrats, its liberal junior partner, riven by internal divisions.They may be unable to push legislation past a substantial hostile majority in the Bundesrat, the upper house of parliament where the 16 federal states are represented. If they lose one more state election in September, Ms Merkel could face a “blocking majority” of Social Democrat, Green and far-left Linke votes in that chamber. In terms of foreign policy, in Europe and on the wider world stage, the election defeat could compound the indecision that has marked German policy in recent months on issues such as the eurozone crisis and the Nato military intervention in Libya. A string of seven state elections in Germany this year – of which Baden-Württemberg was always seen by the government as the most critical – saw Ms Merkel take an increasingly strict position in eurozone negotiations .

Office for Budget Responsibility: standard of living to fall for two years - Households face falling standards of living for at least another two years as rising prices outstrip wage increases, the Government’s official economic forecaster has warned. Inflation will exceed expected salary increases until the middle of 2013, more than five years after the onset of the recession, figures from the independent Office for Budget Responsibility (OBR) suggest. The predicted squeeze is far worse than ministers had previously signalled. A typical middle-class family will see their disposable income fall by more than £1,500 this year as a result. In one possible scenario, the OBR, set up by George Osborne to provide economic forecasts, suggests that high inflation could result in a twelvefold rise in Bank of England interest rates, up to six per cent, plunging many households into difficulty.

Anti-cuts campaigners plan to turn Trafalgar Square into Tahrir Square World - Campaigners against public service cuts are calling for a 24-hour occupation of Trafalgar Square – drawing inspiration from revolts in the Middle East – to coincide with Saturday's trade union protest in London. Student activists who organised last year's demonstrations say there will be a rolling programme of sit-ins and protests on the day and have called on people to occupy the central London square turning 'Trafalgar into Tahrir' – a reference to the gathering point in Cairo that was at the heart of the revolution in Egypt earlier this year. 'We want Trafalgar Square to become a focal point for the ongoing occupations, marches and sit-ins that will carry on throughout the weekend,' said Michael Chessum from the National Campaign Against Fees and Cuts. 'There are a lot of smaller scale demonstrations and actions planned and, just as we have seen in recent protests in the Middle East and north Africa, we want to create an ongoing organising hub.'

Anti-cuts march swells to 400,000 - Around 400,000 people have joined a march in London to oppose the coalition government's spending cuts. In what looks like being the largest mass protest since the anti-Iraq war march in 2003, teachers, nurses, midwives, NHS, council and other public sector workers were joined by students, pensioners and direct action supporters, bringing the centre of the capital to a standstill. Tens of thousands of people streamed along Embankment and past police barriers in Whitehall. Feeder marches, including a protest by students which set off from the University of London in Bloomsbury, swelled the crowd, which stretched back as far as St Paul's Cathedral. The biggest union-organised event for over 20 years saw more than 800 coaches and dozens of trains hired to bring people to London, with many unable to make the journey to the capital because of the massive demand for transport.

Austerity Games, Here And There - Krugman - Early last year, many people on both sides of the Atlantic seized on the idea that less is more — that cutting spending would actually help, not hinder, recovery. There was a paper by Alesina and Ardagna that seemed to provide evidence to that effect, and nothing succeeds like telling people what they want to hear.Since then, the whole intellectual edifice has collapsed. The Alesina et al methodology turns out to be deeply flawed, which should have been obvious from the start (and was, to some of us.) The alleged cases of expansionary austerity have, without exception, turned out to be bad examples, either involving cuts when the economy was booming or situations in which sharp interest rate declines and/or currency depreciations were the actual sources of expansion.But by then expansionary austerity was the official doctrine of the Conservatives in Britain (and also the ECB) and of the GOP here. So, how are they dealing with the collapse of their doctrine?

Far from cutting debt, Osborne’s plans will make it soar - Early last year George Osborne described private debt as the ‘cause’ of the financial crisis and pledged to make it more ‘sustainable’ in future: 'Our banks became more leveraged than American banks, and our households became more indebted than any other major economy in history. And in the aftermath of the crisis our public debt has risen more rapidly than any other major economy. So while private sector debt was the cause of this crisis, public sector debt is likely to be the cause of the next one…'So this is the new economic framework for monetary and fiscal policy that we need to ensure that private and public debt are sustainable in the future.' Fast forward to last week's forecasts from the Office for Budget Responsibility. Buried in the small print (actually found in tab 1.8 of the ‘Supplementary Economy Tables’ spreadsheet) was a forecast that the UK’s personal indebtedness is set to worsen considerably.

Britain's leaders should come clean on the true depth of the fiscal crisis - George Osborne told the House of Commons that "Britain has a plan and is sticking to it". The Chancellor won't be cowed by claims his efforts to get the UK back on the fiscal straight and narrow will do more harm than good. He is right, of course – but only up to a point. The Labour party's most senior figures, in defiance of their education and intelligence, keep claiming that Osborne's actions are "driven by ideology, rather than necessity". This is absurd. Anyone who argues that rapidly addressing the fiscal catastrophe Labour left behind is anything other than absolutely crucial either knows nothing about global bond markets, or is so blindly ambitious, so determined to close their eyes to the facts, as to be unfit for public office.  Having said that, Osborne is also ignoring the facts – if to a slightly lesser degree. Because the UK's fiscal retrenchment won't be over by 2015 – when the deficit, on last week's numbers, falls roughly to zero. That won't be the end of our budgetary problems. It won't even be the beginning of the end. It will merely be, if we're lucky, the end of the beginning.

U.K. Strives to have "Most Competitive Tax System Among G20" - There are two ways to respond to a wake-up call. You can deny it and put your head in the sand, or you can acknowledge the problem and address it with positive reforms. When it came to responding to an exodus of companies moving their headquarters offshore for better tax climates, U.S. lawmakers did the former, while British lawmakers did the later. After a number of U.S. firms reincorporated offshore during the 1990s and early 2000s, U.S. lawmakers chose not to address the underlying causes of these defections - our high tax rates and the world-wide tax system. Instead, they enacted legislation that effectively made it illegal for companies to move offshore. Today, U.S. firms may not be moving their headquarters offshore, they are either getting purchased by foreign companies (see Anheuser Busch) or they are simply choosing to leave their profits abroad - at least $1 trillion by some estimates.   By contrast, after more than a dozen high-profile firms moved out of Great Britain to countries such as Ireland, the Netherlands, or Switzerland, British lawmakers took action to cut the corporate rate and move toward a territorial tax system which will allow companies to bring their profits home without an additional surcharge.

Stop this race to the bottom on corporate tax - Sachs  - With capital globally mobile, moreover, governments are now in a race to the bottom with regard to corporate taxation and loopholes for personal taxation of high incomes. Each government aims to attract mobile capital by cutting taxes relative to others. The end result is that both the US and UK are battling deficits of about 10 per cent of gross domestic product. We surely need to reduce the deficits but in a fair, efficient, and sustainable manner, by levying higher taxation on the rich, who are enjoying a boom in living standards and a share of the national income unprecedented in modern history. Yet to get to the right place, countries cannot act by themselves.  Multinational companies and their disproportionately wealthy owners are successfully playing governments against each other. The game is clear, and it is working fiercely well. As a starting point, the Organisation for Economic Co-operation and Development countries should urgently convene a meeting of finance ministers to enunciate that tax and regulatory co-ordination across countries are vital to prevent a ruinous fiscal race to the bottom.