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

Saturday, April 9, 2011

week ending Apr 9

Fed balance sheet grows to record in latest week (Reuters) - The U.S. Federal Reserve's balance sheet grew to a 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 balance sheet expanded to $2.633 trillion on April 6 from $2.606 trillion on March 30. The central bank's holding of U.S. government securities grew to $1.358 trillion on Wednesday from last week's $1.333 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) held steady in the latest week at $937.16 billion.The Fed's holdings of debt issued by Fannie, Freddie and the Federal Home Loan Bank system also was unchanged, totaling $132.50 billion. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $30 million a day in the week ended Wednesday, up from an average daily rate of $11 million last week.

Fed Balance Sheet Rises To $2.653 Trillion - The Fed's asset holdings in the week ended April 6 climbed to $2.653 trillion, from $2.627 trillion a week earlier, it said in a weekly report released Thursday. The Fed's holdings of U.S. Treasury securities rose to $1.358 trillion on Wednesday from $1.333 trillion the previous week. Meanwhile, Thursday's report showed total borrowing from the Fed's discount window fell to $18.49 billion Wednesday, from $19.25 billion a week earlier. Borrowing by commercial banks slid to $23 million Wednesday from $27 million a week earlier. Thursday's report showed U.S. government securities held in custody on behalf of foreign official accounts climbed to $3.406 trillion from $3.404 trillion. U.S. Treasurys held in custody on behalf of foreign official accounts rose to $2.644 trillion from $2.637 trillion. Holdings of agency securities fell to $762.96 billion from the previous week's $766.87 billion.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--April 7, 2011

FOMC Minutes: Some Disagreement, Worry about Oil Prices, No Tapering of QE2 - From the March 15, 2011 FOMC meeting. On tapering purchases:  The Manager also discussed the possible benefits of gradually reducing the pace of the Federal Reserve's purchases of Treasury securities when the current asset purchase program nears completion. In light of the Manager's report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee's purchases of Treasury securities when its current program of asset purchases approaches its end.  And on the outlook:  Participants expected that the boost to headline inflation from recent increases in energy and other commodity prices would be transitory and that underlying inflation trends would be little affected as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable.. They continued to see some downside risks from the banking and fiscal strains in the European periphery, the continuing fiscal adjustments by U.S. state and local governments, and the ongoing weakness in the housing market. . Participants judged that the potential for more-widespread disruptions in oil production, and thus for a larger jump in energy prices, posed both downside risks to growth and upside risks to inflation.

Fed Policy Update - The minutes from the March 15 FOMC meeting contain some interesting things. First, there was some discussion about modifications to the QE2 asset purchase program, begun in November 2010 and set for completion at the end of June: Members emphasized that the Committee would continue to regularly review the pace of its securities purchases and the overall size of the asset purchase program in light of incoming information--including information on the outlook for economic activity, developments in financial markets, and the efficacy of the purchase program and any unintended consequences that might arise--and would adjust the program as needed to best foster maximum employment and price stability. A few members noted that evidence of a stronger recovery, or of higher inflation or rising inflation expectations, could make it appropriate to reduce the pace or overall size of the purchase program. Several others indicated that they did not anticipate making adjustments to the program before its intended completion.  Thus, on March 15, some on the committee could imagine conditions under which they would want to scale back the QE2 program. Indeed, on April 5, Jim Bullard, St. Louis Fed President, said he would push for just that, but his remarks seemed to indicate that he did not expect much support.

Fed’s Fisher: May Need to Consider Curtailing QE2 - A key Federal Reserve official continued Friday his drumbeat of criticism against the central bank’s policy of buying Treasury debt to drive forward economic growth, as he also took the nation’s political leaders to task, imploring them to get the budget under control. “Continued accommodation presents significant risks,” Federal Reserve Bank of Dallas President Richard Fisher said. “No amount of further accommodation by the Fed would be wise — either by prolonging or ‘tapering off’ the volume of purchases of Treasuries past June, or adding another tranche of large-scale asset purchases.”  The Dallas Fed president is a voting member of the interest rate setting Federal Open Market Committee, and he has for a number of months been a steady critic of efforts by the Fed to stimulate growth by buying longer-dated government bonds. Fisher believes the economy simply doesn’t need the support right now, and fears the extra liquidity the central bank is providing may be setting off a new round of financial market imbalances as well as creating a future inflation surge.

Fed’s Bullard to Push for Curtailing QE2 at April Meeting - James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful. “I don’t always get my way on the committee,” he noted in an interview with the Wall Street Journal. Most Fed officials want to carry the program through to its end in June. “Any changes that we’re going to make we’re going to have to make at this meeting,” he added.Mr. Bullard was elaborating on comments he made last week about the Fed’s $600 billion program of U.S. Treasury securities purchases. When the Fed launched the program last November it had lower forecasts for growth and inflation, he said.“We got a stronger economy and we got higher inflation and higher inflation expectations than we expected at the time,” he said. “The logical thing to do is to pull back.”

Fed Watch: More Hawkish Rhetoric - And so it continues. Via Jon Hilsenrath at the Wall Street Journal: James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful. “I don’t always get my way on the committee,” he noted in an interview with the Wall Street Journal. Most Fed officials want to carry the program through to its end in June. “Any changes that we’re going to make we’re going to have to make at this meeting,” he added. Bullard’s position is not news. At least he admits the Fed is not likely to follow his suggestion, so I give him credit for providing proper guidance. Still, his logic is interesting:Bullard seems to be saying that we need to end the program early because it is working. The majority of the majority will view it otherwise - don't mess with something that is working. Consider also the Fed’s projections last November and at the end of January:

Bernanke May Have to Overcome Fed Split on Maintaining Stimulus - Federal Reserve Chairman Ben S. Bernanke may have to overcome divisions among policy makers should he seek to maintain record stimulus past June, minutes of the Fed’s March 15 meeting indicate.  A “few” among the central bank’s 17 governors and regional bank presidents said tighter credit may be warranted this year, while a “few others noted that exceptional policy accommodation could be appropriate beyond 2011,” the Federal Open Market Committee said in the minutes, released yesterday in Washington.  Stocks and Treasuries fell on speculation the Fed may start to tighten policy sooner than previously forecast after it completes its $600 billion bond-purchase program in June. A mixed bag of economic indicators, including higher food and energy prices and a slowing expansion in service industries, make Bernanke’s job tougher, said Keith Hembre, a former Fed researcher.  “You’ve got lower-than-desired growth and the potential for higher-than-desired inflation here, and it definitely complicates the picture from a policy standpoint,”

Fed’s Lockhart: QE2 Should Be Completed - The Federal Reserve should complete its $600 billion bond program known by most as QE2 as planned, Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday.“We made a commitment” to pursue this program, Lockhart said. “I don’t think we change or reverse that commitment without compelling reasons to do so. I don’t see those reasons existing,” the central banker said. Lockhart, who isn’t a voting member of the monetary policy setting Federal Open Market Committee currently, made his comments in response to reporters’ questions at an event held by his bank in Stone Mountain, Ga.The veteran policymaker spoke at a time of rising uncertainty about the monetary policy outlook. A number of officials have been questioning over recent weeks whether it may soon be time for the Fed to tighten policy, as they’ve chafed at the central bank’s pursuit of a bond-buying effort aimed at stimulating growth and boosting employment at a time when inflation pressures are on the rise.

Fed’s Lacker: Interest Rates Could Rise By Year-End - The Federal Reserve could raise target interest rates by year-end to keep inflation in check, Federal Reserve Bank of Richmond President Jeffrey Lacker said Thursday. Speaking with reporters here, Lacker said inflation risks during the past six months have “picked up,” having increased “appreciably.”“I think we’re in an OK place now, but I think the upside risks now are higher than they were six months ago,” he added. “The risk now is that we overshoot.” The Fed dropped its short-term interest rate target nearly to zero in December 2008 during the financial crisis, and has reiterated that it would keep it there for “an extended period.” But several regional Fed presidents in recent weeks have discussed options for tightening monetary policy amid indications of stronger economic growth and potentially worrying signs of inflation.

Europe Interest Rate Hike: Will the Fed Be Forced to Follow? - Central banker see. Central Banker do? We will see. On Thursday, the European Central Bank for the first time in nearly three years raised interest rates. Even though the rate is only going from 1% to 1.25%, it's a  significant move because the ECB becomes the first central bank among so-called wealthy nations to raise interest rates since the beginning of the financial crisis. And it's a major shift from just six months ago, when central bankers around the world seemed to be doing anything possible to lower the value of their currencies, in order to make their countries' products cheaper to the rest of the world and boost growth. And that meant keeping interest rates low. But that was before this year's rapid rise in food and other commodities prices. That has caused a number of emerging market economies to raise interest rates. China has raised rates a number of times. And now Europe. So will that put pressure on the Federal Reserve to raise rates in 2011 as well? Perhaps a little. Interest rates are generally used by central banks to slow and speed the economy. But they can also have significant affects on the value of the local currency as well.

Fed’s Lockhart: Central Bank to Offer Guidance Before Tightening - Federal Reserve Bank of Atlanta President Dennis Lockhart stressed Friday that now isn’t the time to alter monetary policy, but said the Fed would provide guidance to the financial markets before it eventually moves away from its easy-money policies. He said the Fed would eventually raise interest rates and reduce its swollen balance sheet by selling Treasurys or mortgage-backed securities. “We would have to explain that well in advance in order not to disrupt markets and not in a way to give incorrect guidance to markets,”  He said reducing the Fed’s balance sheet would take time. “We’re going to have to do that in a very reasoned, methodical and non-market disrupting way,” he added.

The Transmission Mechanism for Quantitative Easing (Wonkish) - Krugman - It’s now widely claimed that QE2 has been a success — and for sure, the US economy, which seemed to be sliding into a deflationary morass last summer, has perked up since then. But why? A few thoughts. Back in the old days we used to hear a lot about the monetary “transmission mechanism” — how the Fed actually got traction on the real economy. Both the phrase and the subject have gone out of fashion — but it’s still an important issue, and arguably now more than ever. Now, what you learned back then was that the transmission mechanism worked largely through housing. Why? Because long-lived investments are very sensitive to interest rates, short-lived investments not so much. If a company is thinking about equipping its employees with smartphones that will be antiques in three years, the interest rate isn’t going to have much bearing on its decision; and a lot of business investment is like that, if not quite that extreme. So Fed policy, by moving interest rates, normally exerts its effect mainly through housing. Not this time, however, since housing is deeply depressed and there’s a huge overhang of excess capacity. So if QE2 did work, how did it work?

How QE2 Worked - Paul Krugman has a post explaining the monetary policy transmission channels for QE2. His explanation is that there was a rise in wealth effect-driven consumption spending via the rising stock market and a rise in foreign spending on the U.S. economy via the depreciated dollar.  While true, there is a far richer story to tell with the portfolio rebalancing channel of monetary policy. Here is how I described it before: Currently, short-term Treasury debt like T-bills are near-perfect substitutes for bank reserves because both earn close to zero percent and have similar liquidity.  In order for the Fed to get investors to spend some of their money holdings it must first cause a meaningful change in their portfolio of assets.  Swapping T-bills for bank reserves will not do it because they are practically the same now. In order to get traction, the Fed needs to swap assets that are not perfect substitutes.  In this case, the Fed has decided to buy less-liquid, higher-yielding, longer-term Treasury securities.  Doing so should lower the average maturity of publicly-held U.S. debt.  It should also overweight investor's portfolios with highly-liquid, lower-yielding assets and force investors to rebalance them.    The portfolio rebalancing, then, ultimately cause an increase in nominal spending.  Given the excess economic capacity, this rise in nominal spending should in turn raise real economic activity

Is Quantitative Easing Working? -  Krugman takes a stab If QE really is working through stocks and the dollar, are there further implications? I’m not sure — in a highly indebted society, you might hesitate at policies that would increase private debt further, but if stocks are driving the story, the consumers now spending more aren’t the same people who are in debt trouble — so that’s actually OK. And as for the weaker dollar, if the Chinese and the Brazilians don’t like it, they are free to let their currencies appreciate.Anyway, that’s my casual take on what has happened. I would say that if it’s right, it’s far from clear that the recovery will prove self-sustaining. We want to think about both what we would have predicted before and the evidence that we have seen.When I was pushing for greater Fed stimulus I had two primary mechanisms in mind.

  1. The decline of the dollar
  2. A decline in corporate cash holdings

Yield Curve Widens as Long-Term Rates Rise; Bernanke's QE II Scorecard - Mish - You can go back as far in history as you want and you cannot find a chart that resembles what the Greenspan and Bernanke have done. Greenspan fueled the biggest property bubble in history by holding rates too low, too long. Bernanke undercut those rates to near-zero, and has held them low, for even longer. Bernanke's stated purpose in QE II was to hold interest rates low. He has also wants to support housing and stimulate lending.

  1. Long-term yields are rising
  2. Banks are not lending
  3. Consumer credit is still dropping
  4. Housing prices hit new all time record lows
  5. Housing starts have hit new all time record lows
  6. Banks are sitting on massive amounts of properties not marked-to market
  7. Commodity prices have soared
  8. Food and energy prices are up substantially
  9. Those on fixed incomes earning nothing on their deposits are getting crushed
  10. The stock market marches higher

Bernanke has taken credit for point number 10. He ignores or denies any role in points 1 through 10.

A Global Tsunami, Courtesy of the Fed - cmartenson - The Fed is in a bind. No matter which way it turns, utter failure is a risk. Putting more money into the system risks no less than the dollar itself. Stopping quantitative easing (QE) risks plunging the economy and financial system into another period of turbulent decline. It looks like the Fed is going to choose the latter. In a recent report, I made the case that pressure was building on the Fed to end its QE 2 program in June, and that if it did, there would be an enormous rout in the stock, bond, and commodity markets. That analysis still stands. This new two-part report will analyze the many competing factors, both for and against, that will determine whether QE 2 really is the end of the Fed's efforts at printing up a recovery, or merely the event that precedes QE 3.

Has the Fed Eased Too Much? - The Federal Reserve's latest easing move, a $600 billion purchase of US government bonds, known as QE2, has elicited much criticism from Congress and some members of the Fed's own policy board. It has been labeled by critics as inflationary and contrary to the Fed's mandate to pursue price stability. There are some guides--though they are controversial--for determining when a central bank should stop easing after a financial crisis such as occurred in 2008. In light of those criteria, considered here, it is not clear that the criticism of QE2 is valid.Central banks can be and need to be large buyers of government debt under three conditions: First, after a financial bubble collapses, when a surge in the demand for liquidity coincides with a surge in government borrowing undertaken to finance fiscal stimulus. Second, when central banks have reached a zero interest bound in which asset purchases are the only measure available to avoid the risk of deflation. If deflation takes hold, it boosts the real interest rate and causes a destabilizing further boost in liquidity demand and deflationary pressure. Finally, when private borrowing collapses under the deflationary zero-bound scenario--as it has done in the United States since 2008. Higher public borrowing has offset lower private borrowing, total borrowing has remained flat, and upward pressure on interest rates has not resulted from crowding out.

Monetary policy exit: Is a bad bank the solution? - Atlanta Fed's macroblog - It is not difficult to find people who espouse the following belief:  "One of the Fed's recent errors was increasing the money supply by buying more than $1 trillion of mortgage-backed securities as part of its 'quantitative easing' policy. Its hefty balance sheet now threatens to finance further inflationary increases in the money supply. How can it be unwound in an orderly way?"  That claim above might only merit notice here because it comes from a Wall Street Journal op-ed penned by Professor Allan Meltzer, the eminent monetary macroeconomist and chronicler of Federal Reserve history. But what really distinguishes the critique is that it comes with a fairly novel and creative way of resolving the perceived problem:  "One idea is for the Fed to create its own version of a 'bad bank.' The Fed should promptly put the $180 billion of its long-term government debt and more than $1 trillion of its mortgage-backed securities into a separate entity. The long-term government debt and mortgage-backed securities would be the new bank’s assets. (The $1 trillion in Fed-created 'excess' bank reserves as a result of quantitative easing would become the liabilities of the bad bank.)

Fed Watch: Meltzer, Part II - David Altig gives Allan Meltzer a more charitable read than I did: Generally speaking, the Meltzer strategy offers what I perceive to be two critical criteria for a viable exit plan. One is that the winding down of the mortgage-backed securities (MBS) and long-term Treasury securities on the Fed's balance sheet should be conducted in a way that avoids market disruption and distortion as much as possible. The second is, of course, that the excess reserves held in the banking system—the liability side of the Federal Reserve’s balance sheet—have to be removed or "locked up" as needed to avoid an inflationary expansion of broad money and credit. I take Altig seriously, but believe he is giving Meltzer far too much credit. First off, there is nothing in the Meltzer plan that keeps the excess reserves “locked up.” Instead, Meltzer claims that simply moving a portion of the assets and corresponding liabilities off the Fed’s balance sheet onto another bank’s balance sheet somehow magically changes the monetary situation.Meltzer suggests that bank reserves that are not “officially” part of the balance sheet are no longer available to fuel inflationary pressures. Why? If we split the Fed in half, call one part the “official” Fed, and the other part the “bad” Fed, does the aggregate size of the balance sheet change? Does the aggregate amount of excess reserves change? I don’t see how.

Fed Watch: Retirement in the Liquidity Trap - Reporter Mark Whitehouse, via the Wall Street Journal, has a piece on a negative side effect of the Federal Reserve’s zero interest rate policy: Mr. Yeager is among the legion of retirees who find themselves on the wrong end of the Federal Reserve's epic attempt to rescue the economy with cheap money. A long spell of low interest rates has created a windfall worth billions to banks. But for many people who were counting on their nest eggs, those same low rates can spell trouble. As with many polices, there are winners and losers, and the losers now are with those dependent on the once steady returns from ultra-safe assets. Dallas Fed President Richard Fisher: "Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates," says Richard Fisher, president of the Federal Reserve Bank of Dallas and a voting member of the Fed's policy-making open market committee. "That state of affairs is not sustainable for a long period of time." Fisher obviously doesn’t realize that Japan has already proved that it is indeed sustainable for a long period of time.

Whose economy is this? - MARK WHITEHOUSE has a long Wall Street Journal piece on the impact of low interest rates on pensioners, in which he says: A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit. But for many people who were counting on their nest eggs, those same low rates can spell trouble. That "others it was designed to benefit" bit is a potent piece of generalisation. The Fed's aim is macroeconomic stabilisation, and its goal in pursuing QE2 was boosting a rate of growth inconsistent with price stability and full employment. The "others" in Mr Whitehouse's phrase are working Americans. Which is worth considering in itself. Tim Duy comments on the Journal piece: I was a bit surprised that Whitehouse did not compare the current situation with that of Japan, where the elderly have long suffered from the impact of ultra low interest rates. Perhaps that part was left in on the editing room floor. This is an important point. Pensioners often benefit from too-tight monetary policy in several ways.

Demystifying Monetary Policy (Again) - Ramesh Ponnuru of The National Review does a first-rate job of summarizing the counterintuitive nature of monetary policy and how it applies to recent history. In particular, he explains in clear and (mostly) non-technical terms how and why the Fed's "passive tightening" in late-2008 helped turn what might have been a relatively modest recession into something much worse. He also outlines why the subsequent QE2 was necessary and how many commentators (primarily conservatives) have misunderstood the necessary monetary policy solution, along with the fact that low interest rates of late aren't a sign of loose money.  These and related subjects have been discussed in great detail in recent years by such economists as Scott Sumner, David Beckworth and others. But the finer points of how a surge in the demand for money can change the rules of monetary policy still aren't widely understood.

Windows on the Discount Window - Last week the Federal Reserve, obeying a court order, released thousands of pages of documents about banks' discount window borrowings at the height of the financial crisis. The manner in which the data was released — more than 800 separate PDF files on a computer disk that news outlets could pick up in person from the Fed building in Washington or have mailed to them — made it difficult to mine the disclosures for insights. But American Banker has used an online tool called DocumentCloud to make sifting through the documents just a little bit easier. Our reporter Sean Sposito uploaded the files to The nonprofit's application then ran each document through a program that bundled the more than 25,000 pages together. The result is a searchable database. The documents are all below, in no particular order. But you can find ones containing keywords using the search bar below.

Mind the Output Gap - Why is the European Central Bank raising rates while the Federal Reserve isn’t? There are a lot of reasons, but one big one: The U.S. has a whole lot more spare capacity — in terms of unemployment workers, idle factories, empty offices and stores — than Europe. Measuring the gap between an economy’s current output and its potential output if it were at full employment is tricky, even treacherous. The history of measuring these output gaps accurately is awful, and relying on faulty estimates has led central banks astray. But the concept remains a key part of modern central banking. The larger the output gap, the theory goes, the less likely inflationary pressures are to emerge. Economists at Goldman Sachs — relying on government, OECD and their own calculations — say: “The output gap is larger in the US (at around 6% of GDP) than it is in the Euro-zone, Japan and the UK (each between 3% and 4% of GDP).”

The Bank Run We Knew So Little About - IN August 2007, as world financial markets were seizing up, domestic and foreign banks began lining up for cash from the Federal Reserve Bank of New York1.  That Aug. 20, Commerzbank of Germany borrowed $350 million at the Fed’s discount window. Two days later, Citigroup2, JPMorgan Chase3, Bank of America4 and the Wachovia Corporation each received $500 million. As collateral for all these loans, the banks put up a total of $213 billion in asset-backed securities, commercial loans and residential mortgages, including second liens. Thus began the bank run that set off the financial crisis of 2008. But unlike other bank runs, this one was invisible to most Americans.  Until last week, that is, when the Fed pulled back the curtain5. Responding to a court ruling, it made public thousands of pages of confidential lending documents from the crisis.  The data dump arose from a lawsuit initiated by Mark Pittman, a reporter at Bloomberg News, who died in November 2009. Upon receiving his request6 for details on the central bank’s lending, the Fed argued that the public had no right to know. The courts disagreed.

Meet The 171 Banks For Which The Margin Of Failure Is One Thousand Dollars - At this point the majority of the population is transfixed by the biggest borrowers from the discount window. Yes, we know by now that the bulk of these were foreign banks, primarily Dexia and Depfa, but that is simply because only Bank Holding Companies, or depository institutions (and yes, last we checked Goldman deposit branches are still sorely missing), are allowed discount window access. Keep in mind that most banks were Investment Banks and not under the BHC umbrella until after the Lehman collapse. Which is why most banks only had access to the PDCF, which is how the Fed eliminated the loophole for emergency liquidity trickling down to everyone. The majority of US investment banks therefore accessed Fed rescue funding via the PDCF, of which JPMorgan and BofNY Mellon were intermediaries due to their position as the only two tri-party repo clearers and keymasters of the shadow banking mechanism. A quick glance at the PDCF confirms that all banks, pre their conversion to Bank Holdings Companies in the week following Lehman's failure, borrowed from the Fed, if not necessarily from the Discount Window. Yet what we are more concerned by is not the mega borrowings: after all, it makes sense that if you need tens of billions you will go to the Fed. We are far more concerned by the banks for whom the marginal amount of cash was smallest. Below we present the 171 banks that had to access the Discount Window for the paltry sum of $1,000.00. That's right - these are the banks for whom the margin of failure is as low as one thousand dollars.

Fed Help Kept Banks Afloat, Until It Didn’t - During the frenetic months of the financial crisis, the Federal Reserve stretched the limits of its legal authority by lending money to more than 100 banks that subsequently failed.The loans through the so-called discount window transformed a little-used program for banks that run low on cash into a source of long-term financing for troubled institutions, some of which borrowed regularly from the Fed for more than a year. The central bank took little risk in making the loans, protecting itself by demanding large amounts of collateral. But propping up failing banks can increase the eventual cleanup costs for the Federal Deposit Insurance Corporation because it keeps struggling banks afloat, allowing them to get even deeper in debt. It also can clog the arteries of the financial system, tying up money in banks that are no longer making new loans.The discount window is a basic feature of the central bank’s original design, intended to mitigate bank runs and other cash squeezes. But access to it historically has been limited to healthy banks with short-term problems.

The Fed, having won a war, loses a battle - A BIT more of the hidden history of the financial crisis surfaced last week when the Federal Reserve released details of who borrowed how much from its discount window in 2008. The Fed didn’t do so willingly; it was sued by Bloomberg news and Fox Business, a cable channel, and lost. The documents don’t reveal much that we didn’t already know. The general composition of its lending came to light last December when the Fed named the beneficiaries of its emergency lending programmes. That disclosure was also made under pressure, in that instance from Bernard Sanders, the socialist senator from Vermont, who inserted the requirement into the Dodd-Frank financial law. As with those loans, the biggest borrowers at the discount window were foreign: Belgium’s Dexia borrowed $31.5 billion on October 24, 2008; Bank of Scotland (part of Lloyds Banking Group) and Depfa, based in Dublin, also drew heavily. Both Morgan Stanley and Goldman Sachs borrowed shortly after converting themselves into bank holding companies at the depth of the crisis in the fall of 2008. (Bloomberg and The Wall Street Journal have details on who borrowed. Tyler Durden at Zero Hedge has helpfully loaded the information into a spreadsheet.) There does seem to be a troubling inconsistency between what some banks have previously said and what we now know.

Rationalization of Biggest Foreign Bank Bailout Misses Regulatory Failure -- Yves Smith - Some aggressive spinning on the Fed data releases about its lending during the financial crisis has surfaced at Bloomberg (admittedly with some less favorable facts also included). The Friends of the Fed and other Recipients of Largesse are defending the central banks’ panicked and indiscriminate responses to the crisis. These efforts to rationalize emergency responses fail to acknowledge underlying regulatory failings that remain unaddressed. The PR push surrounds the foreign bank that got the most support during the post-Lehman phase, namely, Dexia. From Bloomberg: Dexia SA, based in Brussels and Paris, borrowed as much as an average daily loan amount of $12.3 billion in the 18 months after Lehman Brothers Holdings Inc. collapsed By lending to Dexia, the Fed kept money flowing into local government projects throughout the U.S. as well as the money market funds that invested in them. Dexia guaranteed bonds issued by entities as varied as the Texas State Veterans Land Board in Austin and the Los Angeles County Metropolitan Transportation Authority….My, my, the authorities are so solicitous of municipalities! Funny how they failed to lift a finger when another set of municipal guarnators, namely, the monlines, started hitting the wall in early 2008. The result was the collapse of the auction rate securities market.

Why is the Fed Bailing Out Qaddafi? - Matt Taibbi - Barack Obama recently issued an executive order imposing a wave of sanctions against Libya, not only freezing Libyan assets, but barring Americans from having business dealings with Libyan banks. So raise your hand if you knew that the United States has been extending billions of dollars in aid to Qaddafi and to the Central Bank of Libya, through a Libyan-owned subsidiary bank operating out of Bahrain. And raise your hand if you knew that, just a week or so after Obama’s executive order, the U.S. Treasury Department quietly issued an order exempting this and other Libyan-owned banks to continue operating without sanction.

Our Unaccountable Fed - 'I will maintain to my deathbed that we made every effort to save Lehman, but we were just unable to do so because of a lack of legal authority." So said Federal Reserve Chairman Ben Bernanke in 2009. The statement was striking—not because it was false, but because the Fed lacked explicit legal authority to do so much of what it did during the financial crisis. Drawing the line at Lehman seemed arbitrary, and it proved that the Fed has become an unaccountable power within American government. Mr. Bernanke's insistence that the Fed is restrained by some obscure statute is central to his argument that the Fed is a body subject to the check of external forces. But it's not. The principal check on its power is the self-restraint of its chairman, a point proven by the Lehman example: Had Mr. Bernanke saved Lehman, who would have enforced the statute that he had violated? No one. That's because the Fed, as currently configured, has no opposing force to rein it in.

Deflated inflation expectations - Given the attention that inflation expectations received in Tuesday’s release of the latest FOMC minutes, we’re not the least bit surprised that it’s been the topic du jour among analysts (along with other distractions).We’ll get to them in a moment, but first, here is the key paragraph from the minutes:Participants expected that the boost to headline inflation from recent increases in energy and other commodity prices would be transitory and that underlying inflation trends would be little affected as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable. However, a significant increase in longer-term inflation expectations could contribute to excessive wage and price inflation, which would be costly to eradicate. Accordingly, participants considered it important to pay close attention to the evolution not only of headline and core inflation but also of inflation expectations. In this regard, participants observed that measures of longer-term inflation compensation derived from financial instruments had remained stable of late, suggesting that longer-term inflation expectations had not changed appreciably, although measures of one-year inflation compensation had risen notably. Survey-based measures of inflation expectations also indicated that longer-term expected inflation had risen much less than near-term inflation expectations

The Taylor Rule Is Wrong - The working hypothesis of just about every forecaster or Fed-watcher in the world has been that the Fed would not tighten at all until 2012. That meant no interest rate hikes this year. And to avoid putting on any brakes at all, the Fed would even think about QE-III. But this view is now coming under fire, not just from the private sector, but from inside the Fed itself. . Charles Plosser, Philadelphia Fed President, said recently that the Fed might need to head for the “exit ramp.” Jeffrey Lacker, Richmond Fed President, said he would “not be surprised” if action were taken to fight inflation before the end of the year. James Bullard, St. Louis Fed President, said “U.S. monetary policy cannot remain ultraaccommodative” and hinted about tightening this year. Narayana Kocherlakota, Minneapolis Fed President, said it was “certainly possible” that interest rates could be lifted in late 2011.For the record, we think the Fed is way behind the curve and that accelerating inflation over the next few years is already baked in the cake.

No quantitative easing for oil  - The Federal Reserve can digitally print money into existence but this does not create more oil.  I know the above isn’t shocking to many readers but ask most Americans and they would be stunned to find out that many banks can create money out of thin air.  With a 14% reserve requirement a bank with a $100 deposit would ultimately create $714 worth of “money” throughout the system.  This is how the Federal Reserve system largely targets inflation over time.  We are seeing more and more pressure on many items including food prices going upwards because a weaker U.S. dollar is chasing items that are largely finding more and more demand. The Fed has a hard time combating against items like oil where production is based in reality instead of fictional digital programs like quantitative easing that allow the Fed to buy up junk paper in exchange for U.S. Treasuries.  In other words our money gets weaker.  Yet look at world oil production per day:

The Fed and Inflation -  Fed officials have turned up the volume on inflation talk in the past week, and it comes as the more hawkish among them have become louder critics of the Fed's current easy money policies. Pimco market strategist and portfolio manager Tony Crescenzi said Fed officials have changed their tone slightly to express a change in inflation expectations. He said Fed Chairman Ben Bernanke, in his semiannual testimony to Congress last month, used the word inflation 22 times, compared to nine times in his prepared remarks six months earlier. "It seems that the Fed is trying to say, while the Fed itself is not concerned about headline inflation, it is concerned that the public is because it can affect inflation expectations, and inflation expectations can feed the enemy, inflation," Crescenzi said he expects the Fed to complete its quantitative easing (QE2) program, but notes in its last statement it acknowledged the possibility of inflation while removing concerns about deflation.

Americans to Fed: prices are too high - On the streets of America, the debate over inflation is over. Prices are too high and rising too fast, many people say."The government says inflation is low, but that's not what I'm seeing at the grocery story,". "My pension is being put to the test."Policy-makers at the U.S. Federal Reserve largely agree that promoting economic growth is still more urgent that constraining a nascent pick-up in consumer prices.They look beyond the volatile fuel and food prices that have pushed up inflation and focus instead on data showing little if any upward rise in wages, something they would see as the seed of a sustained and broad-based rise in prices."I don't think the Federal Reserve has a clue about us little people,"

Bernanke Says Fed Must Monitor Inflation ‘Extremely Closely’ - Federal Reserve Chairman Ben S. Bernanke said policy makers must watch inflation “extremely closely” for evidence that rising commodity costs are having more than a temporary impact on consumer prices. “So long as inflation expectations remain stable and well anchored” and the rise in commodity prices slows, as he’s forecasting, then “the increase in inflation will be transitory,” Bernanke said yesterday in response to audience questions after a speech in Stone Mountain, Georgia. “We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability,” he said.

Survey: Inflation to Jump 200% in 2011 -- Among the things the recent recovery may lack - jobs, for one - there is one thing we have in abundance: Inflation worries. And why not? Food prices are rising. Gas prices are rising. And many think the Federal Reserve's efforts to boost the economy could lead to massive inflation. About six months ago, Sarah Palin and Glenn Beck began whipping the Tea Party and their other many followers into an inflation fear frenzy. And, of course, there was the famous Ben Bernanke bear video. Now Americans in general seem to be catching inflation fever. Last week, the Conference Board reported that when it asked Americans last month what they think inflation will be a year from now, the average response was 6.7%. That would be a huge jump from where inflation is now. In the past year, prices are up just 2.2%. If inflation were to jump to 6.7% that would be a 205% increase in the rate of inflation in one year.

Fed’s own forecasts move to center stage - When Federal Reserve Chairman Ben Bernanke sits down with reporters at his first press conference in late April, he will not come alone. He will bring with him the consensus economic forecast of Fed officials. These projections have been largely ignored, even by the Fed itself, especially during the Volcker and Greenspan eras. But Bernanke is dragging them into the limelight. “This is an effort to move the forecasts front and center,” said Lou Crandall, chief economist at Wrightson ICAP. The Fed will release the projections on the same day that Bernanke talks to the press. The past practice had been to delay release of the forecasts until three weeks following the meetings.

Measuring Inflation - Economist Mehmet Pasaogullari at the Cleveland Fed reviews inflation from several angles. If nothing else, he offers a timely reminder that there's more than one way to skin this statistical cat. Inflation comes in a variety of flavors. But while the numbers vary, there's a common trend afoot, he reports, noting that "all measures of short-term inflation expectations we have looked at show an upward trend since last summer." Pasaogullari continues:  Some measures showed higher increases, and others were much more limited. Measures of longer-term inflation expectations have also risen in the last six months... However, most of the increase in the market-based measures happened in September and October 2010. The recent increases in food and energy prices have had limited, if any, effect on the long-term expectations. They seem to be well-anchored and are in line with their averages of the previous decade. The question (as always) is whether the past is prologue?

Are asset purchases fueling the rise in commodity prices? (San Francisco Fed) Prices of commodities including metals, energy, and food have been rising at double-digit rates in recent months. Some critics argue that Federal Reserve purchases of long-term assets are fueling this rise by maintaining an excessively expansionary monetary stance. However, daily data indicate that Federal Reserve announcements of large-scale asset purchases tended to lower commodity prices even as long-term interest rates and the value of the dollar declined.

Fed Not to Blame for Rising Commodity Prices, Paper Argues - New research from the San Francisco Fed plays down the impact the central bank’s very expansionist monetary policy stance has had on commodity prices. The paper sought to shed light on the critical question of the Fed’s influence over commodity prices. There has been increasing concern that zero-percent short-term rates joined with a massive program to buy long-term bonds is catalyzing a surge in all manner of commodity prices, from food stuffs, to raw material for factories, through to energy prices. No one can doubt that over recent months, commodity prices have jumped. Fed officials have by and large argued the blame for these increases must be placed not on their shoulders, but elsewhere. Speaking Friday in Puerto Rico, New York Fed President William Dudley said commodity-price gains “have virtually nothing to do with U.S. monetary policy” and can instead be attributed to the impact of a growing world economy coupled with supply disruptions resulting from bad harvests and political unrest.

Commodity Prices Show Strong Correlation With Fed Treasury Purchases‎ - Commodity prices show a strong correlation with large-scale asset purchases, evidence that contradicts Federal Reserve Bank of San Francisco research published earlier this week that indicated quantitative easing has not caused commodity price increases. The San Francisco Fed report concluded that "commodity prices fell on average on days of LSAP announcements"; using the price change from one day is unlikely to capture wider macro-economic trends. Bloomberg Brief found that widening the time horizon from the start of QE1 through today paints a different picture. The chart shows a strong correlation -- R^2 of 90 percent -- between cumulative Fed Treasury purchases associated with the first and second rounds of quantitative easing and the Thomson Reuters Jefferies CRB Index. This is strong evidence that while the relationship between daily price changes in commodities and Fed purchase announcements was insignificant, the longer-term relationship is much stronger. It also suggests that in June when the second round of asset purchases is scheduled to end, upwards pressure on commodity prices may be reduced. By the same token, when the Fed begins to unwind its balance sheet, that may place downward pressure on commodity prices

Bernanke in Q&A: "Inflation will be transitory" - From Dow Jones: Fed's Bernanke Downplays Inflation Fears Federal Reserve Chairman Ben Bernanke Monday downplayed inflation fears ... Bernanke said the rise in global commodity prices is likely to be temporary and shouldn't translate into a broader inflation problem. ...  "I think the increase in inflation will be transitory," Bernanke said ... He attributed the strong gain in global energy and food prices to supply and demand conditions, adding he reckons these prices "will eventually stabilize."  The Fed chief's remarks, which came in response to audience questions...Here is the full quote on inflation from CNBC"I think the increase in inflation will be transitory. Our expectation at this point is that in the medium term inflation, if anything, will be a bit low. We will monitor inflation and inflation expectations very closely."

Does A Weak Dollar Cause Inflation? - The price at the gas pump should be a stark reminder that a weaker dollar may contribute to higher prices. Yet, economists tell us that food and energy inflation does not count. Why do economists have such a baffling sense of logic? Are economists really aliens in disguise, locked up in ivory towers? Let’s shed some light on the logic and why it may not merely be strange, but wrong. First off, we are talking about the “modern” notion of inflation, rising prices as expressed in the Consumer Price Index (CPI). Historically, inflation had been considered an increase in money supply. Economists have decided to blur the term to have a more “accurate” measure of inflation. When economists embraced what some consider a conspiracy to shortchange retirees entitled to inflation-indexed social security benefits, it may have merely been an attempt by economists to please policy makers, so that their alien identity would not be revealed.  What conspiracy and alien theories have in common is that they imply it’s a question of personnel rather than the system. If there’s one thing we have learned in our discussions with policy makers, including those whose policies we disagree with, it is that they generally work with the best of intentions – as in, “the road to hell is paved with good intentions.”

Fed Watch: Misguided Meltzer - After scouring the Wall Street Journal for stories by competent journalists, compelled to make the same mistakes over and over, I found Allan Meltzer’s latest inflation warning staring me in the face. Meltzer begins with the same, tired lament: Federal Reserve Chairman Ben Bernanke sees little risk of inflation because he doesn't look in the right places. Inflation is a general increase in prices, but increases always occur at different rates. Right now, labor costs are not rising but other costs, such as the prices of raw materials, have been and are continuing to increase. Businesses will pass some of these costs to their customers. Health-care costs also are continuing to rise. Inflation is not a general increase in prices. That is a one-time price increase, or a shift in relative prices. Inflation is a continuous increase in the price level, which, to be perpetuated, needs to be matched by increasing wages – something Meltzer admits is not happening. Without an increase in wages, the current gains in headline inflation will prove to be transitory. Meltzer then brings up the boogieman of the 1970s: During the inflation of the 1970s, for example, the discredited "Phillips Curve"—which suggested that high unemployment and rising prices shouldn't go together—persistently underestimated inflation and misled the Fed Yes, inflation can coexist with high unemployment, but only in the presence of accelerating wage growth.  Look at the historical record.

What are the preconditions for Hyperinflation? - I don’t like talking about hyperinflation because it veers into the fringe element of discussion. But, in the blogosphere you often hear vague references to it. So I thought I would take this on. This post came together in response to an appearance I had on the Max Keiser show. I was talking to Max about precious metals, currency debasement and hyperinflation. Max was pushing the view that the U.S. was on its way to hyperinflation due to its reckless monetary policy. I argued against this view. The video is in the original post at Credit Writedowns, but let me argue my case here. People arguing that hyperinflation is around the corner usually are pushing this view because of an ideological bias against fiat money. This is a bias I share because I believe that fiat money allows excessive money creation that winds up as a credit super bubble – and our experience over the past 40 years demonstrates this. However, I don’t let this bias get in the way of my analysis of the economics of the situation. I have a better understanding of the fiat money system because I am not anchored in a gold-standard mentality when looking at the constraints on government in the fiat money system and the types of events that lead to hyperinflation. The hyperinflation talk is a gimmick used to push a particular ideological viewpoint. While I share that viewpoint and don’t like fiat money, I am not a fear monger, so you won’t see pushing an ideological agenda which has the economics wrong.

Is the World Headed Toward a Single Global Currency? - Many economists, including Paul Krugman and Nouriel Roubini, have argued that the European Monetary Union is in trouble because of the fiscal difficulties of a few of its member countries. Some have predicted that the euro will fail.  Because the prospects for a future single global currency depend upon the continued success of the euro and the currencies of other monetary unions, I discussed the euro with Morrison Bonpasse, president of the Single Global Currency Association, to get his insight into this situation.

Global Risks: How Did We Get Here? » I should start by setting out the things I believed in three or four years ago that now appear to be wrong.  First, I thought that the highly leveraged banks had control over their risks. With all of the industry's experience at quantitative analysis, with all our knowledge of economic history, with bosses who understood the importance of walking the trading floor--I thought that our commercial and investment banks were professionals at risk management.  Second, I thought that the Federal Reserve had the power and the will to stabilize the growth path of nominal GDP. He was not called "Helicopter Ben Bernanke" for no reason. When demand for currently-produced goods and services is crashing because households and businesses find themselves desperately short of the safe, liquid vehicles of appropriate duration in which they want to park their wealth and so are not-spending in order to build up their safe, liquid, appropriate duration asset holdings, it is the job of the central bank--and of the Treasury through banking policy, and perhaps of the Treasury through fiscal policy--to fix it and give the private sector the financial assets it wants.

The Great Rebalancing - Dennis Lockhart - Atlanta Fed - In Lockhart's view, American economic history over the last quarter century can be divided into three periods: the Great Moderation, the Great Recession, and what he calls the Great Rebalancing, which is now underway. As the economy continues to recover from the recession, Lockhart sees three rebalancing processes now underway: rebalancing of consumption and savings, fiscal rebalancing, and regulatory rebalancing.  Lockhart believes that higher savings rates and more measured consumer spending will make the U.S. economy less dependent on consumption and will help rebalance the country's external accounts. He thinks fiscal rebalancing is mostly ahead of us and public pension reform is a necessary element of fiscal correction. Also, as regulatory rebalancing continues, Lockhart sees the need for striking the right balance in all regulated sectors.   Lockhart is confident that the Federal Reserve, through its monetary and regulatory policies, is helping to shape and support conditions that all these three rebalancing processes must have in order to proceed.

More favorable developments - Last week's new economic data began with a personal income and outlays report which suggested slower consumption growth. But the numbers released Friday are a little more encouraging. First there was the March employment report, which showed an average employment increase for the first quarter of 160,000 jobs per month according to the establishment survey and 219,000 per month according to the household survey. It would take many years of that kind of growth to get back to a labor market that anyone would describe as healthy. But at least at that pace we are finally making some actual progress. Menzie has more. A stronger positive signal was provided by the March ISM manufacturing report, whose 61.2 reading reflects managers' reports that new orders, production and employment were better in March than in February.

Fed Watch: The Good, The Bad, and the Fed - The data flow can be characterized as generally good from a growth perspective and generally bad from a levels perspective. Fed policymakers who focus on the former will tend toward removing policy accommodation sooner than later. Those who focus on the latter tend toward the opposite. I think the key decision makers, notably Federal Reserve Chairman Ben Bernanke, will be in the second group, leading the Fed to finish up with the current asset purchase program as scheduled before moving to the sidelines. Start with the good.  Private sector job growth continues to compensate for weakness on the government side, sustaining net overall job growth at a monthly average of 159k during the first quarter. This was a tad better than the 139k average of the final quarter of last year and consistent with declining initial unemployment claims. If we focus on the underlying trends, rather than getting bogged down in volatile month-to-month or quarter-to-quarter numbers, it looks as though the cyclical tide has turned. The manufacturing surveys, including the most recent ISM report on manufacturing, remain well into solid territory. It can be argued that the March dip in auto sales forewarns of the negative impact of higher energy prices, but also should be taken in context of a solid gain in February. Also, note the rising confidence among CEO’s:

ISM Non-Manufacturing Index indicates slower expansion in March - From the Institute for Supply Management: March 2011 Non-Manufacturing ISM Report On Business®  The March ISM Non-manufacturing index was at 57.3%, down from 59.7% in February. The employment index indicated slower expansion in March at 53.7%, down from 55.6% in February. Note: Above 50 indicates expansion, below 50 contraction. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

Rising Oil Prices Beginning To Hurt US Economy - Just when companies have finally stepped up hiring, rising oil prices are threatening to halt the U.S. economy's gains. Some economists are scaling back their estimates for growth this year, in part because flat wages have left households struggling to pay higher gasoline prices. Oil has topped $108 a barrel, the highest price since 2008. Regular unleaded gasoline now goes for an average $3.69 a gallon, according to AAA's daily fuel gauge survey, up 86 cents from a year ago. The higher costs have been driven by unrest in Libya and other oil-producing Middle East countries, along with rising energy demand from a strengthening U.S. economy. Airlines, shipping companies and other U.S. businesses have been squeezed. The rising prices are further straining an economy struggling with high unemployment and a depressed housing market.

Solvency and Value, Insolvency and Debasement - One of the stranger things about the world is that there are some ideas that are true even if we don’t believe them. The eternal solvency of fiat currency issuing governments is one of these things that cannot be impacted by human effort.  No matter who does what, a government issuing a currency can always pay its bills denominated in that currency.  A government issuing a fiat currency cannot be insolvent. Jamie Galbraith lays the smackdown on insolvency: please explain: what is the “reasonable market value of assets held” by the government of the United States? Go ahead, if you want, and add up all the land, buildings, aircraft carriers and submarines. And then, don’t forget to add the capacity to produce, without limit, pieces of paper of a legal – and therefore market – value of “one dollar” each. Can this value, which is unlimited, ever be less than the finite value of public debts? No, it cannott. Governments in control of their money cannot be insolvent.  Insolvency is the inability to pay off one’s debts as they fall due.   But the impossibility of insolvency does not mean the fiat currency will have value. A government might be fully solvent even with a worthless currency.

MMT stabilization policy — some comments & critiques - Steve Randy Waldman - First, I want to make clear that the critiques I’ll offer below are not intended to discredit or dismiss MMT. As I’ve said before, I think MMT offers a coherent and important perspective on fiscal and monetary issues that ought to be understood, on its own terms rather than in dismissive caricature, by anyone serious about macroeconomics. In my opinion MMT is one of the most useful perspectives in thinking about fiscal and monetary questions. However, it is still just a perspective. Enthusiasts sometimes present MMT in a manner that’s too complete and hermetically sealed. While some MMT theorizing is based on “double entry accounting” or “obvious, unarguable facts”, when MMT adherents offer non-trivial conclusions, they rely upon assumptions about human behavior that are in fact contestable. This will be a long post. I’ll discuss each of the seven points I outlined in my summary of MMT stabilization policy. Then I’ll offer some general comments. Before you continue, you should understand the point of view being examined. Please read my previous post first. Or much better yet, read Chapter 1 (Tymoigne and Wray) and Chapter 5 (Tcherneva) of A handbook of alternative monetary economics (ed. Arestis & Sawyer). These essays offer a polished, concise introduction to the MMT perspective. Then spend some time with the “mandatory” or “101″ readings on Warren Mosler and Bill Mitchell’s websites.

U.S Debt Nears Ceiling, Hits Record $14.217.86 Trillion - Total U.S. debt hit an all-time high of $14.27011 trillion on Thursday and is nearing the federal debt ceiling as Washington intensifies the debate over debt and government spending. The federal debt ceiling is set by Congress and was last raised to $14.29 trillion. Because not all U.S. debt counts towards the ceiling, total debt subject to the ceiling was $14.21786 trillion as of Thursday, according to the most recent government data available. That gives the U.S. less than $80 billion in headroom before it hits the ceiling. Treasury officials said several weeks ago the U.S. could hit the ceiling as soon as April 15 and have urged Congress to raise the limit. The country can’t issue debt once it hits the ceiling, which a number of experts, including Federal Reserve Chairman Ben Bernanke, have warned would be “catastrophic.”In February, Treasury Secretary Timothy Geithner urged Congress to raise the debt ceiling by March 31, but Congress so far hasn’t agreed on how to tackle the issue.

Geithner Warns US to Hit Debt Ceiling by May 16 - The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default. "The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations," Geithner said in a letter to congressional leaders."Default by the United States is unthinkable."Previously, the Treasury had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31. As of Friday, Treasury borrowing stood just $95 billion from the ceiling.

Fitch Comments on U.S. Debt Ceiling and Sovereign Rating - U.S. Treasury Secretary Geithner this week informed Congress that the current limit on federal government debt of USD14.29 trillion will be breached by no later than May 16 based on the latest projections for federal tax receipts and expenditures. He also stated that extraordinary measures could forestall this event until July 8 2011 - the date when the debt ceiling is reached and the 'United States would otherwise default on its obligations.'  In Fitch's opinion, the likelihood of the U.S. government failing to honor its financial obligations and in particular make due and full payments on U.S. Treasury securities is extremely low. Ultimately, the recognition of the dire consequences of failing to raise the debt ceiling in a timely manner will prevail over differences on the more fundamental issue of how best to place U.S. public finances on a sustainable path over the medium- to long-term.  'The brinkmanship over the debt ceiling and the 2011 budget will be resolved. Of greater threat to U.S. financial stability and its 'AAA' status would be the failure to agree on a credible medium-term fiscal consolidation strategy as economic recovery becomes more secure,'

Federal Budget Deficit Totals $830 Billion in the First Half of 2011 - CBO Director's Blog - The federal government incurred a budget deficit of $830 billion in the first six months of fiscal year 2011, CBO estimates in its latest Monthly Budget Review—$113 billion more than the shortfall recorded in the same period last year. Outlays for the first half of fiscal year 2011 were $179 billion (or 11 percent) higher than outlays during the same period last year, CBO estimates. That increase is almost entirely explained by adjustments to the expected cost of the Troubled Asset Relief Program and advance payments of premiums to the Federal Deposit Insurance Corporation in fiscal year 2010 that would have been made in future years. Excluding those adjustments and prepayments (which were recorded as negative outlays), total spending has grown, on net, by $15 billion—or less than 1 percent—in 2011.The relatively small increase in outlays (excluding the effects of those adjustments and prepayments) is, in part, the result of declining spending in three areas:

  • Outlays associated with the American Recovery and Reinvestment Act dropped by $30 billion.
  • Smaller cash infusions and slightly larger dividend receipts reduced net payments to Fannie Mae and Freddie Mac by $27 billion. 
  • Unemployment benefits so far this year are $19 billion less than those in the same period last year, reflecting fewer claims and lower average benefits.

Budget deficit hits $830 billion for half the year- The Congressional Budget Office just made clear what all the fuss is about over the 2011 budget -- it's $830 billion in the red, and there are six months to go. That's a remarkable figure, almost double the full-year deficits for any year before 2009. And the fiscal year won't be over until Sept. 30.These are the numbers fueling the heated discussions between Republicans and Democrats in Congress and President Obama. The deficit is likely to reach about $1.6 trillion before the year is out, and they are at loggerheads over whether to cut $33 billion or $40 billion in spending -- about 2% of the annual red ink. The $830 billion is $113 billion more than the 2010 deficit was a year ago at this time. Post-stimulus spending is up $179 billion, or 11% over the same period a year ago, while post-recession revenue is up $66 billion, or 7%.

March Madness: U.S. Government Spent More Than Eight Times Its Monthly Revenue - The U.S. Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government. During the month, according to the Treasury, the federal government grossed $194 billion in tax revenue and paid out $65.898 billion in tax refunds (including $62.011 to individuals and $3.887 to businesses) thus netting $128.179 billion in tax revenue for March.At the same time, the Treasury paid out a total of $1.1187 trillion. When the $65.898 billion in tax refunds is deducted from that, the Treasury paid a net of $1.0528 trillion in federal expenses for March. That $1.0528 trillion in spending for March equaled 8.2 times the $128.179 in net federal tax revenue for the month.

Geithner: Raise Debt Ceiling or Risk Another Financial Crisis -- In testimony Tuesday before a Senate Appropriations panel, U.S. Treasury Secretary Timothy Geithner again emphasized to Congress that failure to raise the country’s debt limit would have “catastrophic” consequences and make the recent financial crisis appear “modest in comparison.” “Default by the United States would precipitate a crisis worse than the one we just went through. I think it would make the crisis we went through look modest in comparison. It would force us of course to cut critical payments to our seniors and it would be a reckless, irresponsible act to this country. I find it inconceivable that the Congress would not act to increase the limit." “It would be catastrophic. I mean, if you call into question the willingness of the government of the United States to meet its obligations, you will shake the basic foundation of the entire global financial system. It is inconceivable that America would do that. And of course I am totally confident that Congress will act to avoid that,” Geithner said.

Geithner: Debt Default Would Make Financial Crisis Look Tame - Treasury Secretary Timothy Geithner wasn’t mincing words on Tuesday when he warned what would happen if Congress didn’t soon raise the debt ceiling about its current level of $14.294 trillion. He said the “consequences of that would be catastrophic for the United States. Default by the United States would precipitate a crisis worse than the one we just went through. I think it would make the crisis we just went through look modest in comparison. It would force us to cut payments to the military, cut critical payments to our seniors. It would be a reckless, irresponsible act.” Gulp. And he was just getting warmed up. He said failing if the country defaulted on its debt (which as of Friday was $14.199 trillion) it would “call into question the willingness of the United States to meet its obligations” and this would “shake the…foundations of the entire global financial system.”

Spending transparency for the federal government - OMB recommends six changes Congress and the Obama administration should make to, the government's spending website which is based off of one of their websites,

  • Treasury data: Use spending information directly from the nation’s checkbook, which would improve data quality
  • Tax expenditure data: Shed light on the more than $1 trillion in tax expenditures
  • Multi-tier sub-recipient reporting: Everyone who gets federal funds must report in, as opposed to the current two-tier system
  • Unique entity identification: Create a new system to link recipients to lobbying data, contractor performance information, etc.
  • Full text of contracts: Show detailed information on government projects, not just short summaries
  • Performance information: Provide meaningful data on which programs are effective

To Contain Future Budget, US Must Raise Taxes By 35%, Cut Entitlements 35% - To restrain the U.S.’s future budget crisis, the federal government must raise taxes by at least 35% and cut entitlements such as health care and Social Security by 35%, International Monetary Fund economists warned Monday in a new working paper. While the projected ballooning of future costs of entitlements as the so-called baby boomer generation enters old age isn’t new, the IMF paper’s quantifying just how much the federal government will have trim its balance sheets sheds fresh light on the political hurdles ahead. Raising taxes and cutting spending on health care, Social Security, Medicare and Medicaid are some of the most sensitive issues for voters. The IMF paper shows that if the government doesn’t cut entitlements, it will have to raise taxes by 88% to pay for their costs. Since the federal government has historically collected around 18% of gross domestic product in taxes, the mandatory entitlement programs may absorb all federal revenues as early as 2026, when the cost of servicing the debt is included in the calculation, the economists say.

Fed Exit Means No Pain for Obama as Foreigners Take Up Slack - Treasuries are signaling that the $9 trillion market will weather the end of the Federal Reserve’s quantitative easing program in June without suffering a selloff that drives long-term borrowing cost higher. The class of investors that includes foreign central banks purchased 60 percent of the $66 billion in benchmark 10-year U.S. notes sold this year, up from 42 percent in 2010. Fed data show banks have increased their holdings of Treasuries to the most since December, as a panel of bond dealers and investors that advises the government says lenders may double their stake to $3.2 trillion in 2016. Rising demand from international investors and financial institutions bodes well for bonds with the Fed’s plan to buy more than $600 billion of Treasuries more than 80 percent complete. U.S. fixed-income assets are retaining their appeal as the credit quality of European sovereign debt deteriorates and banks meet tighter risk standards governing the capital they need cushion against losses.

Department of "Huh?!": Ken Rogoff Edition - Kenneth Rogoff writes: History will rue US and Europe debt woes: Will 23rd-century historians look back on today’s fiscal follies with the same mixture of bemusement and disdain with which we now view the financial affairs of 18th-century French kings? Policymakers throughout the world are trying to find ways to stabilise government debts, now approaching record postwar levels. As US legislators fumble towards a budget deal, there is the laudable bipartisan Bowles-Simpson commission report. But too many remain sceptical of the need for prompt action at all. Throughout industrialised nations, debate continues over how fast to withdraw post-financial crisis stimulus. Too many want to follow the lead of the US, which has consistently increased its dependency on debt finance... Look at the chart at the top of this post. The Congressional Budget Office says that if Congress finds pay-fors for its now-routine extensions of the Alternative Minimum Tax and that if the excise on high-cost health plans in Obama's Affordable Care Act goes into effect and if the changed procedures that allow the cuts to Medicare spending designed by the Independent Payment Authorization Board to go into effect, then the U.S.'s long-term fifty-years primary fiscal gap is only 0.8% of GDP.

Deficit numbers for CEA chair signatories on the deficit letter - I'm kind of late to this, but apparently ten ex-chairs of the President's Council of Economic Advisors decided to share their opinion about the national debt with the rest of us. There's been commentary here and there about how hypocritical some of the names on the list are - the CEA chair is the President's chief economic advisor, and many of these people served under Presidents (and provided economic advice) that drove up the debt. I thought it would be an interesting exercise to put some numbers on the hypocrisy. To do that, I pulled the dates for which each CEA chair served and quarterly figures for the total public debt. The debt series I obtained (from the Federal Reserve Economic database) goes back to 1966. The terms of each CEA chair served did not completely coincide with a yearly quarter, but I split them up as best I could. (Note - because sometimes it took a while for a CEA chair to be confirmed, but that person could well be offering the President advice before confirmation, I assumed that each CEA chair "took office" immediately after his/her predecessor left.)

Government shutdown looms over talks as crunch time for 2011 budget nears - With the prospect of a government shutdown1 looming Friday, leaders of both parties publicly staked out seemingly inflexible positions while staff members worked in private on a possible compromise to finally pass the 2011 budget. If they come up with a deal that both sides can accept, the agreement could become a blueprint for other even more contentious budget battles on the horizon. If they fail, then the government will be shut down as happened in 1995 and 1996 — with inevitable disruptions and unpredictable economic and political consequences.Both Democratic and Republican aides said efforts continued over the weekend to fashion a bill with $33 billion in spending cuts, but they also said neither side intends to officially announce a “deal” on that plan. Instead, once staff members from the House and Senate appropriations committees finish their effort, the legislation will be presented to rank-and-file lawmakers to determine if there are enough votes to pass it. The wild card remains the 87 House Republican freshmen who won in the fall largely on tea party pledges to slash government spending and who are pushing for much deeper cuts.

Boehners Choice: Brace for a Government Shutdown, or Cross the Tea Party ...John Boehner, who often meets the press flanked by a team of deputies, took the podium alone on Thursday. With a week left before the government shuts down April 8, the House Speaker took pains to dispel rumors of a deal. “There is no agreement” on a pact that would cut $33 billion from the federal budget, Boehner insisted, despite Vice President Joe Biden's assertion to the contrary Wednesday night. “Here's the bottom line,” the House Speaker said. “Democrats are rooting for a government shutdown. We're listening to the people who sent us here to cut spending.” The people aren't so sure. As the Speaker held forth, some 200 Tea Party activists began gathering Thursday in the shadow of the Capitol. As usual, they came to deliver an ultimatum: House Republicans will meet their promises or pay the price. “They've heard us,” Tea Party Patriots' co-founder Jenny Beth Martin told the crowd. “But they are not listening.”

Boehner Goes All In For The Tea Party - My posts from yesterday morning (here and here) that asked which way House John Boehner (R-OH) was going to go on the CR may have been answered yesterday afternoon. According to this story by Greg Sargent in The Washington Post yesterday, Boehner supposedly let the White House know that he couldn't or wouldn't support a deal on a continuing resolution that wasn't supported by 218 Republicans in the House.  There are 241 Republican members of the House in this Congress and at least 40 identify themselves as tea party supporters.  That makes the math simple: There's no way for Boehner to get the 218 votes he says he has to have from the GOP caucus if he loses all the tea party people.  That likely explains Boehner's apparently last-minute insistence yesterday that the amount of spending cuts be increased and some of the most important policy riders be included for him to support a deal with the White House.  It also explains why the negotiations broke down yesterday.  Playing to the tea party means that Boehner can't come up with a deal that is acceptable to Senate Democrats or the White House.

The unexpected T-bill rally - With time rapidly running out before the debt ceiling is reached, and doom-mongering rampant about the disastrous possible consequences of the US Treasury being unable to repay its debts, just look what’s happened to the market in short-term Treasury bills!  The lack of supply was so severe on Monday, and some investors so desperate for Treasurys, that they accepted negative yields. That is something that has rarely been seen since the financial crisis. In other words, the market simply isn’t worried about short-term US debt at all. Instead, Treasuries are rallying on what the FT describes as “the collapse of a profitable arbitrage opportunity that financial groups have used to rebuild their balance sheets after the financial crisis.”

Arguing Over Crumbs -The budget pie illustrated.

Budget Talks Hit Serious New Obstacles - Trying to head off a crisis, President Obama1 invited Congressional leaders to the White House for a meeting Tuesday to try to resolve the impasse that is threatening to shutter a large part of the federal government as of Saturday.  The administration also accelerated preparations for a potential shutdown2 even as House Republicans demanded on Monday that the president and Senate Democrats agree to federal spending cuts beyond $33 billion for this year as budget talks hit serious new obstacles just four days before financing for federal agencies runs out. “We are aware of the calendar, and to be prudent and prepare for the chance that Congress may not pass a funding bill in time, O.M.B. today encouraged agency heads to begin sharing their contingency plans with senior managers throughout their organizations to ensure that they will have their feedback and input,” Kenneth Baer, a spokesman for the Office of Management and Budget3, said Monday.  Facing the prospect of a politically charged impasse, House Republicans on Monday night began preparing a one-week stopgap measure that would combine $12 billion in new cuts with a measure financing the Pentagon through Sept. 30.  

Obama administration moving forward with government shutdown plans - With the clock ticking towards Friday’s federal budget deadline and President Obama hosting congressional leaders for budget talks at the White House on Tuesday, top administration officials have instructed agency officials to begin sharing details of shutdown contingency plans with top managers. This marks the next step toward both curtailing government operations if a budget impasse occurs and informing federal workers whether they are considered “essential” personnel who would stay on the job despite a shutdown.Though Obama and congressional leaders remain committed to avoiding a shutdown, “given the realities of the calendar, good management requires that we continue contingency planning for an orderly shutdown should the negotiations not be completed by” Friday at midnight, Office of Management and Budget Deputy Director Jeffrey Zients said in a memo. The message was sent to the government’s deputy secretaries and chiefs of staff, who handle day-to-day management issues for agencies and departments.

Government shutdown details begin trickling out to workers - With negotiations over the fiscal 2011 budget collapsing, officials warned that the impact of a federal government shutdown would stretch from the Internal Revenue Service to the Smithsonian Institution to battlefields abroad.  Most federal employees still don’t know whether they would have to work during a shutdown, but Cabinet secretaries and other agency bosses began answering questions late Tuesday by distributing Q & A regarding the effect such an event would have on federal pay and benefits. The guidance warns that employees may not voluntarily work during a shutdown and that all essential and nonessential personnel would be paid only if Congress approved such funding after a shutdown ended. Any workers scheduled to take paid leave would not be able to and some would be eligible for unemployment benefits if a shutdown continued for more than a few days. A shutdown would also affect pay for members of the military, said senior government officials familiar with the planning. If the current funding expires on Friday, in the middle of the military’s two-week pay period, the Defense Department would distribute paychecks for the first week, according to the officials, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.

Is the US Really More £$%*ed Up Than the UK? - With the US heading towards a government shutdown by Friday lest they feed the whole unsavoury enterprise more scraps, let's just say that the UK at least has this one over its erstwhile wayward North American insurrectionists. (As if cutting a measly $73 billion from a trillion-plus dollar deficit helps much.) I have heartily endorsed the idea of US government shutdown [1, 2]. However, another less gung-ho opinion is that of Emma Duncan, deputy editor of The Economist. In her op-ed, she says that the UK is in the least of a political-economic pickle amongst the US and EU. For, the UK political system is not geared towards inherent intractability (American "checks and balances") or making a challenging economic compromise work politically (a single currency). Although I am not entirely in agreement, there are interesting points worth mulling here. There's the obvious reference to free lunch economics where America is buying fleeting respite from tomorrow's inevitable misery as the US authors its own demise:

Congress has More Time to Avoid a Shutdown than Anyone is Admitting - Tomorrow is the supposed deadline for a deal to be developed that will prevent a federal government shutdown from occurring.  Although current funding doesn't expire until the clock strikes midnight this Friday, the House this year imposed a rule on itself that requires all legislation to be available for three days before voting takes place.  As a result, many people are saying an agreement is needed by COB Tuesday to prevent the government from shutting its doors. But what few are forgetting is that a federal shutdown over the weekend would affect very few people. As a result, although the people heading to a national park or the Smithsonian might be inconvenienced over the weekend, the real deadline for getting an agreement signed is next Monday morning.  That effectively gives House Republicans, Senate Democrats, and the White House until COB Thursday rather than tomorrow to get their act together

White House Says Shutdown Would Harm the Economy -  The White House warned on Wednesday that a shutdown of the federal government would threaten the nation’s fragile economic recovery. But negotiations over the budget remained stalled amid increasingly sharp rhetoric from lawmakers in both political parties. Administration officials said that nearly 800,000 federal workers would probably be told to stop working if a deal was not reached in the next two days. Small business loans would stop. Tax returns filed on paper would not be processed. Government Web sites would go dark. And federal loan guarantees for new mortgages would become unavailable. .”  There was little evidence of progress on Wednesday toward a compromise on the budget for the 2011 fiscal year, which is already more than half over. President Obama1 left Washington to hold a town-hall-style meeting on energy policy in Pennsylvania in the afternoon, and was scheduled to deliver a speech in New York City in the evening.

Sen. Reid: Abortion Is Sticking Point - The federal government appears headed toward a shutdown, the top Senate Democrat said Thursday morning, as high-stakes negotiations between Democrats, Republicans and the White House appeared to have flagged overnight. Senate Majority Leader Harry Reid of Nevada, speaking Thursday on the Senate floor, said he was less optimistic than when he emerged Wednesday evening with House Speaker John Boehner (R., Ohio) from an emergency meeting at the White House with President Barack Obama. Mr. Reid said the disagreements on spending cuts are minimal–”the numbers are basically there”–but that ancillary issues Republicans want to attach to the funding bill dealing with abortion and other matters are sticking points. “If this government shuts down, and it looks like it’s headed in that direction, it’s going to be based on my friends in the House of Representatives…focusing on ideological matters,” Mr. Reid said.

Government Shutdown Threatens 800,000 As Obama Seeks Solution  -In the event of a government shutdown, the National Institutes of Health won’t admit new patients, some taxpayers will wait longer for refunds and any furloughed civil servants with federally issued BlackBerrys must turn them off. A failure by Congress to extend the government’s spending authority, which expires tomorrow, would force the closure of national parks, monuments and museums. Federal agencies -- such as the National Labor Relations Board -- that don’t protect lives, property or national security also would be shuttered.  As Democratic and Republican leaders in Congress seek agreement on a spending measure for the rest of the 2011 fiscal year, the Obama administration has warned of economic disruption from even a short shutdown. More than 800,000 “non-essential” federal workers -- out of a civilian workforce of 2.1 million -- would be furloughed until new spending legislation was passed. Agencies have drafted contingency plans for who would work and who wouldn’t.

OMB Sounds New Warning on a Shutdown - The White House ratcheted up its warnings of the impact a government shutdown could have on the economy, saying a fight over cutting the budget could ultimately cost taxpayers money. “When you have to shut something down, that costs money, and ramping something back up costs money,” Jeffrey Zients, a deputy director of the Office of Management and Budget, said Thursday. “That’s built into contracts. It’s built into a lot of different cost structures in the federal government.” Mr. Zients, speaking to reporters at the White House briefing room, did not have an estimated cost of a shutdown and said the administration would come up with one if it happens. Administration officials told the heads of federal agencies Thursday to notify employees about whether they are among the estimated 800,000 workers who would be legally barred from working if the government shuts down Saturday, Mr. Zients said.

Gov't shutdown could hit federal workers in wallet - Last time there was a government shutdown, furloughed federal workers were able to recover their lost pay. They may not be so lucky this time. Congress would have to decide whether an estimated 800,000 government employees could recoup back wages if they are forced to stay out of work. When workers were sidelined during the most recent partial shutdowns of 1995 and 1996, Congress quickly voted to make them whole. But that was during flush economic times and before tea party conservatives wielded influence over GOP lawmakers, seeking smaller government and deeper spending cuts. "It was a very different economic time back then, and a very different Congress," . "I think there is such a vocalized hostility by too many in Congress today against the federal work force and federal agencies."

Most US data won't be issued in government shutdown- (Reuters) - Most U.S. economic data would not be released if the budget impasse in Congress results in a government shutdown, although the Federal Reserve would issue its data, a U.S. official said on Thursday. No data from the Commerce Department or from the Bureau of Labor Statistics, which handles the closely watched monthly employment report, would be released, the official said. The government will shutter all but emergency services at midnight on Friday unless Republicans and President Barack Obama's Democrats agree over budget cuts, or pass another temporary funding bill. It was not clear if the disruption to data releases would also extend to weekly jobless claims, handled by the Employment and Training Administration at the Department of Labor. Many of ETA's functions would be hit, including work on visas and grant applications. However, data releases from the Federal Reserve would continue because the U.S. central bank does not operate under funding allocations approved by Congress.

Even the Threat of a Shutdown is Expensive - If congressional Republicans go through with their threat and shut down the government tomorrow night, the costs will be considerable. It's ironic that those hoping to cut the budget will force a shutdown that's needlessly expensive. But while we wait to see what happens, it's worth noting that the GOP's game of chicken is already costing us money. I spoke to a friend who works in the Obama administration last night, who sent me this email. I'm republishing it with permission. I spent most of today prepping what to do with our online properties and presences in the event of a shutdown.  Lots of decisions are still to be made, but it appears that almost all of our websites will be offline. We are literally unplugging our servers from the wall and the internet. We need to do that since neither the content nor security people are allowed to monitor the websites during a government shutdown. So what does that mean? Rather than have a 404 error, we want a simple "away" message to explain that, because of the shutdown, the website isn't available.  Since there is no time for me to put out a contract offer (nor is there any money appropriated for it, anyway), I had to attach myself to a five-figure contract we already had with a cloud host provider to ensure we can display a simple "away" message. This is amazing overkill.

Fed Would Stay Open Amid Government Shutdown - Since it doesn’t rely on Congressional funds, the U.S. central bank would remain open for business as usual, with normal staffing levels. The Fed would therefore be able to continue with its day-to-day operations, such as buying some $7.0 billion U.S. Treasurys on Monday, April 11. The government bond purchases, due to run until June, are part of the Fed’s latest effort to stimulate the economy. One potential danger for the Fed is that the data it needs to take policy decisions to steer the economy in the right direction may be delayed. That would only be a problem if the shutdown lasts a long time, an unlikely scenario. Still, during a three-week partial shutdown caused by the budget impasse at the end of 1995 and start of 1996, some key indicators on jobs, prices and spending released by the Labor and Commerce Departments were delayed, creating some headaches at the central bank. Then Vice-Chairman Alan Blinder complained it made it harder for the Fed to set interest rates.

Government shutdown in budget battle may hinge on clean air, abortion - Senate Majority Leader Harry Reid said Democrats and Republican in Congress have essentially agreed on spending levels for the rest of the year, but a budget deal is being held up by a split over policy measures related to abortion funding and clean-air regulation. 'These matters have no place in a budget bill,' Senate Majority Leader Harry Reid says. Democrats and Republicans are basically agreed on spending levels, he says, but divisions on abortion funding and clean-air rules may stymie a deal, resulting in government shutdown. Reid said the divisions made him more pessimistic about the chances of passing a compromise deal before a Friday deadline, resulting in a government shutdown."It looks like it's heading in that direction," Reid said in remarks on the floor Thursday morning.

The Shutdown Shakedown (and the Lowdown on It, Too) - This morning’s Washington Post could be called the special “Ponder the Shutdown” edition–perhaps the first in a week- or month-long series.  For federal workers, most of whom live here in the DC area, these are no doubt scary times, when one is not sure if one will be deemed “essential” and continue to get paid.  (Here’s a good FAQ section from today’s Post.)  I feel badly for my government-worker friends but continue to believe the adverse effects of a shutdown would be largely contained within the Beltway and that a shutdown would not cripple the economic recovery over the longer run or even immediately, simply because I doubt it would last very long or affect the neediest of households.  The threat of a shutdown amounts to a “shakedown” that each side is using to try to claim intellectual dominance or moral superiority over the other side on the federal budget more generally. 

Government Shutdown Not Likely to Halt Unemployment Benefits - The Labor Department has been advising states that the mishmash of federal programs offering up to 99 weeks of jobless benefits should continue uninterrupted. (See how many weeks each state offers here.1) “Currently they anticipate being able to make benefit payments in event of a federal shutdown,”  “They’re still establishing what exactly the scenario will look like as they head towards Friday.”The federal government funds up to 73 weeks of benefits and, in most cases, states pay for the other 26 weeks. Because of the severity of the recession, 32 states, including Michigan, have borrowed nearly $48 billion to pay for their regular state benefits. They will continue to be able to borrow even if the federal government shuts down, according to state officials. One lingering doubt is whether states will have difficult accessing the federal funds they use to help administer their programs.

It May Be a ‘Budget Battle,’ but Some Skirmishes Have Little to Do With Money - There are fights about money and fights about ideas, and the battle over a spending plan to keep the government open is increasingly centered on the latter.  The frenetic negotiations to avert a government shutdown seem largely focused not on dollars and cents, where the two sides are not all that far apart, but on policy issues, primarily abortion1 and environmental regulations, that defy easy compromise.  “We’ve been close on the cuts for days,” Harry Reid2, the Democratic Senate majority leader, said Thursday, adding, “The only things — I repeat, the only things — holding up an agreement are two of their so-called social issues: women’s health and clean air.”  Speaker John A. Boehner3 begged to differ, saying that Democrats and Republicans were far apart in every way. After a meeting on Thursday at the White House, Mr. Boehner said, “When I see what the White House has to offer today, it’s really just more of the same.”

Planned Parenthood, abortion and the budget fight - Republicans portray Planned Parenthood as primarily focused on performing abortions and — intentionally or not — using American taxpayer dollars to do it. Not so, say Democrats who counter that the group's 800-plus health centers nationwide provide an array of services, from screenings for cancer to testing for sexually transmitted diseases. Abortion is just one of many procedures, and the law bars Planned Parenthood from using tax money for it. In the budget maelstrom Friday stood Planned Parenthood Federation of America, a 90-year-old organization now part of a decades-long congressional battle over abortion. Republicans wanted any legislation keeping the government operating to bar federal dollars for Planned Parenthood, the nation's largest provider of abortions. They wanted to distribute the money to the states."The country is broke and the vast majority of Americans don't want tax dollars to take the life of unborn children,"

Obama Demands Budget Deal to Avert Government Shutdown- After a White House meeting last night with Reid and Boehner, President Barack Obama called on lawmakers to reach a last-minute deal to avert a government shutdown today.  The two sides had agreed on everything but a $300 million cut for Planned Parenthood that House Republicans want included in a budget resolution to carry the government through the rest of the 2011 fiscal year, one Democratic official said earlier today. Republicans said larger spending issues remained as an obstacle to agreement. Another person familiar with the negotiations said the issues agreed upon were less clear than last night.  “The only thing left undone when we left last night was women’s health,” Reid told reporters at the Capitol today. “We agreed on spending cuts and they’re still not happy.”

On averting shutdowns - IT WAS an interesting strategic decision by the Republicans to release their 2012 budget proposal—"the Ryan plan"—at the precise moment that Congress is attempting to avert a government shutdown over appropriations for 2011. One can't help but conclude that the GOP was hoping that the public would conflate the two issues, perhaps because the sticking points on the appropriations battle are so painfully childish and trivial; Republicans now seem to be prepared to close down the government over $5 billion and their demand that federal funding for Planned Parenthood, a family planning organisation, be eliminated. But the two questions are quite different. The Ryan plan is not about how to keep the government operating through the remainder of the fiscal year. It is nominally about spending levels for the 2012 fiscal year and actually about how to address a number of longer-term fiscal questions. As for Mr Ryan's plan, The Economist is cautiously supportive; the policy is far from perfect, we write, but Mr Ryan deserves credit for courage and honesty in discussing the true nature of the long-term fiscal crunch.

US Congress puts staff on notice as government nears shutdown - The US Congress has begun sending out letters warning staff they will be suspended from this weekend along with hundreds of thousands of other workers as part of a looming federal government shutdown. The letters inform staff whether they are regarded as essential – necessary to maintain security and keep Congress running – or non-essential. The process will be repeated at the White House, the Pentagon and hundreds of federal agencies that are preparing to scale back or cease operation from midnight on Friday. The Democrats and Republicans failed on Thursday to end the stalemate in their budget dispute that will see the federal government shut down. If no last-minute agreement is reached, the government will begin stopping everything from tourist visits to the Statue of Liberty and Alcatraz to wages for about 800,000 federal employees. In Washington, libraries will close, there will be no parking attendants and, for one week, no rubbish collection, and the University of the District of Columbia would also be shut.

Shutdown's surprising cost to taxpayers - So if the federal government shuts down, taxpayers would save a lot of money, right? Not quite. It would actually cost taxpayers money. And for every day the shutdown continues, the bill would go up. "There is absolutely no way this saves money. Zip," said Bo Cutter, former director of the National Economic Council and a senior fellow at the Roosevelt Institute. It's pretty hard to put an accurate price tag on a shutdown. Official estimates of the costs incurred during last major shutdowns in 1995 and 1996 vary widely. And the White House hasn't produced an estimate of how much a shutdown might cost, but it does say it will cost something. First, the government actually has to spend money in order to complete an orderly shutdown.

11 Ways The Tea Party-Inspired Shutdown Will Hurt The Economy - House Republicans are still holding out for deeper spending cuts and various policy riders demanded by the Tea Party, such as cuts to funding for Planned Parenthood.  Senate Majority Leader Harry Reid (D-NV) said today that “the two sides have essentially agreed on the amount of money set to be cut from the long-term budget but that Republicans have drawn a line in the sand over ‘ideology.’” As Steve Benen noted, “what we’re talking about here is Republicans shutting down the government over access to contraception and family planning services.” If the government shuts down on Friday night, all government functions deemed “non-essential” will be stopped in their tracks. But “non-essential” describes a wide variety of important government functions, which, if they stop, threaten to harm the nation’s fragile economy. Here are some of the economic consequences that will occur under a Tea-party inspired government shutdown:

The only poll you need to understand the shutdown -Nothing explains the current contretemps in Washington as well as this NBC/WSJ poll (pdf). First, they asked Democrats and independents, “Do you want Democratic leaders in the House and Senate to make compromises to gain consensus on the current budget debate, or do you want them stick to their positions even if this means not being able to gain consensus on the budget?” Turns out they want compromise: Then the poll asked Republicans and independents, “do you want Republican leaders in the House and Senate to make compromises to gain consensus on the current budget debate, or do you want them stick to their positions even if this means not being able to gain consensus on the budget?” The answer for independents was very similar, but for Republicans, it was almost the precise opposite:

What Actually Happens When the Government Shuts Down (And Other Things You Don’t Know About the Budget Fight) - Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was Director of the National Economic Council and Deputy Assistant to the President from 1992-1996 during the Clinton Presidency and the last government shutdown. He explains why the current shutdown is small potatoes compared to the looming battle over the debt ceiling and other things you need to know.

Boehner Gets Paid While Soldiers Wait When Congress Shuts Down Government - As tomorrow night’s deadline for avoiding a government shutdown nears, about 800,000 “non- essential” federal workers face the prospect of getting no pay at all for time lost to the political impasse.  Elected officials, including Republican House Speaker John Boehner, Democratic Senate Majority Leader Harry Reid and President Barack Obama, all would be paid as usual during a shutdown, unless Congress changes the law. Soldiers, law enforcement officers and other government employees whose jobs are deemed essential would continue to work yet wouldn’t get paychecks until the budget standoff is resolved.  Workers furloughed as non-essential, however, aren’t guaranteed that they’ll be paid at all for time off when the government closes for business. While they’ve ultimately received back pay after previous shutdowns, it’s up to Congress to “determine whether ‘non-excepted’ employees receive pay for the furlough period,” according to a U.S. Office of Personnel Management website providing guidance and information on furloughs.

Budget deal elusive, government shutdown looms (Reuters) - With a midnight deadline approaching, the White House and Congress scrambled on Friday to break a budget impasse that threatens to shut down the government and idle thousands of federal workers. Democratic and Republican congressional leaders blamed each other for the stalemate over government funding for the rest of the fiscal year, which ends September 30, and could not even agree on what issues were the final stumbling blocks to a deal. Democrats said the two sides were at odds over a Republican push to include birth control restrictions in the agreement, while Republicans said spending cuts were the issue. Without an agreement on spending for the next six months, money to operate the government runs out at midnight on Friday and agencies such as the Internal Revenue Service would begin a partial shutdown.

Government Shutdown Would Delay Economic Statistics - A partial shutdown of the U.S. government would delay the release of economic data, possibly complicating policymakers’ efforts in managing the economy. A failure by Congress to solve the budget impasse by midnight Friday would force the closure of the Labor and Commerce Departments, the two federal agencies said. Data they publish provide crucial economic snapshots that inform the Federal Reserve’s monetary policy decisions. A deal to keep the government funded beyond midnight remains at an impasse over the size and composition of cuts, a Republican aide said Friday morning, as Senate Democrats cited funding for abortion services as the remaining obstacle in talks to prevent shutdown. The longer the government offices remain closed, the bigger the impact would be on the release of economic indicators. If the budget impasse drags on for all of next week, key releases of consumer spending and inflation for March would be postponed.

Government shutdown: How it will affect student jobs, home loans, unemployment data, and other economic activity. - The overall economic impact of a government shutdown, if it happens, probably will not be that bad or that broad. The cost of the last shutdown, in 1995-96, was only about $1.4 billion, according to the Office of Management and Budget, and most of that got recouped in the next quarter. But that does not mean it will be nonexistent. We all know: No national parks, yes Social Security payments, yes online tax refunds. (Also: "Park with impunity" in Washington, D.C., since the meter maids won't be at work.) But there could be a few lesser-known, secondary economic effects of a government shutdown. The Department of Education says that about 4,150 employees are preparing for furloughs. Thankfully, the day-to-day impact will be invisible for most parents and kids. The University of the District of Columbia, though, is preparing for a full-bore, turn-of-the-lights scenario.  But that does not mean there will not be other disruptions. For one, the 590,000 students who use work-study programs to help pay the bills might lose their paycheck.

Government Shutdown Threatens Space Shuttle Endeavour Mission - With the government shutdown looming, one federal employees may be reluctantly preparing for the furlough -- space shuttle Endeavor. Disagreements over ideologies in the final hours of negotiations on Capitol Hill seemed deadlocked, and without a congressional resolution providing lawmakers more time to negotiate, the federal government shuts down at midnight Saturday morning. Depending on the length of the government shutdown, NASA will be forced to halt the majority of preparation work being done on Endeavor -- and postpone the April 29 launch until a later time.

Tax Refund Fears: Would A Government Shutdown Hurt Spending - A government shut down could cause consumer spending to drop by just over $30 billion. It's a lot of money. And certainly meaningful to the people who count on those checks. But the real question is this: Is that enough to derail the economic recovery, or at least delay it? The spending hit has to do with tax refunds, which many Americans still expect to get in the next month or so. The Internal Revenue Service has said that if the government shuts down, Americans would still need to send in their taxes by the deadline, which this year is April 18. If you owe money, checks would still be cashed. But for the many people who are expecting to get a refund, a government shutdown could mean a much longer wait than usual. Worse, at a time when American consumers seem to be wavering between spending again and keeping their wallets shut, the lack of refunds could put a large dent in the economy. Last year, about 120 million Americans got a tax refund. And in 2011, the average refund is running at $2,952. That means the IRS should return about $354 billion before tax season is over.

Blame game intense as government shutdown looms - Senate Majority Leader Harry Reid blasted Republicans today for failing to reach a budget agreement over funding for women's health screenings. The federal government is hours away from shutting down if Congress and the White House cannot reach a deal on funding for the rest of the fiscal year.Reid, D-Nev., said it is "shameful" that Republicans are trying to move "an extreme social agenda" that will "throw women under a bus even if it means it will shut down the government." House Speaker John Boehner and the GOP leadership team just emerged from a meeting with their Republican members. Boehner insists the fight is about spending cuts, not policy issues such as funding for women's health clinics. "Most of the policy issues have been dealt with and the big fight is over spending," Boehner said. He continued: "We're not going to roll over and sell out the American people like'ts been done time and time again here in Washington. When we say we're serious about cutting spending, we're damn serious about it."

Government shutdown avoided, White House and Republicans reach deal  - Racing the clock, in a long day of trading offers, the White House and Speaker John Boehner reached agreement Friday night on a budget framework that would cap 2011 appropriations just under $1.050 trillion while cutting domestic and foreign aid by more than $40 billion from the rate of spending at the beginning of this Congress. The deal — which was only sealed after Boehner presented the outline to a closed door Republican Conference — averts what would have been an unprecedented wartime shutdown of the government that had become a growing embarrassment for himself and President Barack Obama. Down to the end, Boehner was still pressing for a lower top line when Obama called him in the early evening. Both men later cast the agreement as the best available, but the grueling, often distrustful process testified to how tough this legislative year will be and the immense pressure on the speaker from the right.

'Historic' deal to avoid government shutdown - President Barack Obama and congressional leaders reached a historic, last-minute agreement just before a midnight deadline to slash about $38 billion in federal spending and avert the first federal government shutdown in 15 years. Obama, Boehner and Reid announced the agreement less than an hour before government funding was due to run out. The shutdown would have closed national parks and other popular services, though the military would have stayed on duty and other essential operations such as air traffic control would have continued. The Democrats and the White House rebuffed numerous Republican attempts to curtail the reach of the Environmental Protection Agency and sidetracked their demand to deny federal funds to Planned Parenthood, which provides family planning and other medical services. Anti-abortion lawmakers did succeed in winning a provision to ban the use of government funds to pay for abortions in the Washington capital district.

Congress reaches last-minute budget deal, averting partial government shutdown - Congressional leaders agreed late Friday to a compromise that will keep the federal government funded for the remainder of the fiscal year, averting a government shutdown less than two hours before it was set to start. House Speaker John Boehner, R-Ohio, announced the deal just before 11 p.m. EDT, after the agreement came together in a few frantic hours at the near-deserted Capitol, with a midnight deadline looming. President Barack Obama hailed the deal as "the biggest annual spending cut in history." House Speaker John Boehner said that over the next decade, it would cut government spending by $500 billion, and he won an ovation from his rank and file — Tea Party adherents among them.Boehner said that a short-term spending resolution would be approved to keep the government open into next week, and that the final agreement for the rest of the year would be approved by the middle of next week.

Last-Minute Deal Averts Shutdown - Congressional leaders reached a last-gasp agreement Friday to avert a shutdown of the federal government, after days of haggling and tense hours of brinksmanship.Under the deal, the GOP won budget cuts of $39 billion for the remaining six months of the fiscal year, far more than either party had expected a few months ago. Democrats managed to hold off Republican demands to strip funding for the new health-care law and for a range of other Democratic priorities. GOP provisions to cut all federal funding to Planned Parenthood of America and National Public Radio also were dropped. Also in the deal is a provision requiring an annual audit of the new Consumer Financial Protection Bureau, which had been created by last year's Dodd-Frank financial overhaul law. Republicans have been widely critical of the law.

Budget Deal Would Give Pentagon Extra Funds In Exchange For Social Program Cuts --Democrats and Republicans are now moving toward an agreement that would increase defense spending. 05 Apr 2011 While media attention focuses on the cuts to government spending demanded by House Republicans and broadly accepted by Democrats, the Pentagon is poised to reap billions more in federal funds, according to sources close to the discussions. The confines of the budget negotiations established by the two parties results in a system where every extra dollar going to military spending ends up being offset by a dollar reduction in spending on domestic social programs.

Last-minute agreement avoids a shutdown  – A last minute budget deal, forged amid bluster and tough bargaining, averted an embarrassing federal shutdown and cut billions in spending — the first major test of the divided government voters ushered in five months ago. Working late into the evening Friday, congressional and White House negotiators struck an agreement to pay for government operations through the end of September while trimming $38.5 billion in spending. Lawmakers then approved a days-long stopgap measure to keep the government running while the details of the new spending plan were written into legislation. The agreement — negotiated by the new Republican speaker of the House, John Boehner, the president and the Senate Democratic leader, Harry Reid — came as the administration was poised to shutter federal services, from national parks to tax-season help centers, and to send furlough notices to hundreds of thousands of federal workers. It was a prospect that all sides insisted they wanted to avoid but that at times seemed all but inevitable. Shortly after midnight, White House budget director Jacob Lew issued a memo instructing the government's departments and agencies to continue their normal operations.

Government shutdown averted: Congress agrees to budget deal, stopgap funding - To keep the government running through Friday, lawmakers approved a short-term spending measure overnight — the Senate at 12:20 a.m. and the House at 12:40 a.m. — and said the final agreement should be approved next week. If that happens, the measure would cut $37.8 billion from the federal budget through the end of September, congressional aides said. Democrats had wanted to cut billions less: they assented to the larger figure, and in return Republicans dropped a demand to take federal funds from the group Planned Parenthood, according to aides in both parties.  However, Republicans did win the inclusion of a policy rider that forbids public money from going toward abortion procedures in the District of Columbia, a restriction that had previously been enacted when Republicans held power in federal Washington. The deal also adds money for one of Boehner’s favored projects, a program that provides low-income District students with money to attend private schools.

2011 is not 1995 - The substance of this deal is bad. But the way Democrats are selling it makes it much, much worse. The final compromise was $38.5 billion below 2010’s funding levels. That’s $78.5 billion below President Obama’s original budget proposal, which would’ve added $40 billion to 2010’s funding levels, and $6.5 billion below John Boehner’s original counteroffer, which would’ve subtracted $32 billion from 2010’s budget totals. In the end, the real negotiation was not between the Republicans and the Democrats, or even the Republicans and the White House. It was between John Boehner and the conservative wing of his party. And once that became clear, it turned out that Boehner’s original offer wasn’t even in the middle. It was slightly center-left.  But you would’ve never known it from President Obama’s encomium to the agreement. Obama bragged about “making the largest annual spending cut in our history.” Harry Reid joined him, repeatedly calling the cuts “historic.” It fell to Boehner to give a clipped, businesslike statement on the deal. If you were just tuning in, you might’ve thought Boehner had been arguing for moderation, while both Obama and Reid sought to cut deeper. You would never have known that Democrats had spent months resisting these “historic” cuts, warning that they’d cost jobs and slow the recovery.

Government shutdown averted -- now what?‎ - Just because a government shutdown was averted at the last minute doesn’t mean that the all of the political and economic issues that swirl around the budget process are resolved. Here is a road map to what lies ahead. Both the House and the Senate overnight passed short-term spending measures that keep the government running until next Friday. Passage followed a negotiated agreement between the Republican-controlled House of Representatives and the Democratic-run Senate on a longer-term spending plan for the rest of the fiscal year. That plan is expected to be voted on next week after the agreement is turned into legal language and works its way through the legislative process. Next, they have to finalize a deal for the rest of the fiscal year, which is likely. But after come bigger battles about the federal debt ceiling, which could reach its limit in May, and about next year's budget.

Is Government Shutdown 2011 An Opening Act? Debt Ceiling Debate Is Yet To Come -  A government shutdown could result if lawmakers can't agree on how to close the $5 billion gap between what spending cuts Republicans want and Democrats can stomach. But their standoff over funding for a fiscal year that is half over is not a big deal. Relative to what’s coming. In the next month, the Congress will have to pass an increase to the Federal Debt Limit – which currently stands at $14.294 trillion – or risk defaulting on interest payments on the nation’s debt. Imagine the Congressional wrangling over a vote which would expand the Federal government’s borrowing authority by an additional trillion dollars (the nine most recent increases since 1997 have averaged $977 billion in new borrowing authority). The Treasury says that Congress must act by May 16 to insure the continued functioning of the government – with some financial high-wire acts, that could be pushed a few weeks into June. Without it, administration officials and private sector economists say, the U.S. government and private sector economy would face a catastrophe. Imagine the world’s biggest debtor – Uncle Sam – missing a few payments on his credit cards. Is anyone going to want to lend him money at a reasonable rate moving forward? Probably not.

Government shutdown has been averted for now, but debt ceiling issue looms -  Last night congressional leaders formed what was literally a last-minute deal in order to avoid a government shutdown. In fact, the Congress technically missed their midnight deadline, but the bill they ended up passing funds the government retroactively back to 12:01 am EST. The Obama administration instructed agencies to keep operating as normal even though they technically ran out of money once the clock struck 12:00. For now the 800,000 federal employees who would have gone without a paycheck, and the millions of others who would have been affected can let out a sigh of relief. The bad news is that another, potentially more complicated issue looms over the Congress. If the Democrats in the Senate and Republicans in the House of Representative do not raise the United States debt ceiling soon a government shutdown could still occur in a little over a month. Currently the United States has a public debt of $14.271 trillion. The current debt limit is $14.294 trillion. The debt is currently growing, and if Congress does nothing the United States will hit its debt limit on May 16th. According to the Wall Street Journal the Republicans will demand even more spending cuts before they are willing to raise the debt ceiling. Democrats already feel like they gave up a lot with the last deal which included $38.5 billion in cuts and other concessions such as a vote on the Senate floor to repeal health care reform. The White House is pushing for the debt ceiling to be raised immediately, saying the American economy should not be used as a bargaining chip to gain concessions. At the same time, Speaker Boehner may be unable to get the votes he needs unless he is able to get his 'pound of flesh' through new cuts."

The Shutdown Problem This September is Going to be Even Worse - Just a quick note...No matter what happens today with the government shutdown, the situation is going to be even more difficult this September when the House, Senate, and White House fight over the 2012 appropriations.  The House GOP is likely to propose even larger appropriations reductions in next year's budget than it did for fiscal 2011 and the battle will be far more intense.  This especially will be the case if (1) the tea party wing of the GOP doesn't get what it wants on the 2011 appropriations and feels that it needs to make a stand on 2012, and (2) if House Speaker John Boehner thinks he has to make a stand on 2012 spending to show the tea party he doesn't deserve a primary opponent. In other words...Expect another shutdown threat...or an actual less than 6 months.

GOP's Plan to Cut Defense: No More Color Copies! - Over the weekend, House Majority Whip Eric Cantor (R-Va.) paraded out tea party darling and retired Army lieutenant colonel Rep. Allen West (R-Fla.), to announce a bold initiative that would reduce military spending by $37.5 million this year: cutting color copies. "After serving 22 years in the United States Army, I am aware of areas where saving money is very possible," West said of his proposed paper cuts, which Congress passed with bipartisan support Monday night. But despite the fanfare, his proposed trim is so paltry—just 0.00357 percent of the entire annual defense-related budget, or what the US spends on the wars in Afghanistan and Iraq every two-and-a-half hours—that it's adding to tea partiers' growing concerns about whether Republicans are serious about budget-cutting.

Cutting spending and burning the middle class - Although the U.S. economy clearly needs more fiscal support to address an unrelenting jobs crisis, Congress is prematurely pivoting from creating jobs to cutting spending. Less than four months after passing an $858 billion tax deal, the government is on the verge of shutting down because Congress can’t agree on nondefense discretionary spending for the remaining half of this fiscal year. Congress seems to be saying that deficits don’t matter when it comes to tax cuts, but deficits trump all when it comes to nondefense spending. Th is non sequitur poses grave risks to both economic recovery and the besieged middle class, and it is embodied in five budget proposals— all of which would place the entire burden of deficit reduction on spending cuts, leaving the revenue side of the equation missing. The House-passed budget alone would cut an additional $51.5 billion from nondefense discretionary spending over the next six months. And this budget proposal, which would turn the dial on unemployment in the wrong direction, is competing with proposals that would do even greater harm to the economy.

Congress could let recovery crumble: Monetary policy is about to move from expansionary to neutral.. Fiscal policy is moving abruptly from neutral to contractionary.... Republicans in Congress are playing an outrageous game of brinkmanship over the budget for the current fiscal year. Some Tea Party supporters happily contemplate a shutdown of government at the end of this week. A shutdown would strengthen their hand in rolling back government, they think, and teach the White House a lesson. Some Democrats hope it will happen, calculating (correctly) that the tactic will explode in the GOP’s face.... [W]hatever Congress can do to undermine confidence and add to uncertainty, it is doing. Just as the private sector shows signs of reviving, Capitol Hill is threatening to drag it back down. The danger is real because the recovery is fragile. The jobs figures were good but not great. Net job creation is positive, but at roughly 200,000 a month, not much higher than growth in the working-age population. The fiscal outlook clinches the point. The US preoccupation with federal borrowing – as opposed to borrowing by the whole public sector – has obscured the role of fiscal policy. The federal stimulus was mostly absorbed in offsetting the automatic tightening of fiscal policy by individual states, whose borrowing is strictly constrained.

The Least Defensible Budget Cut - Upon leaving office, George H.W. Bush left his successor with only one request: preserve federal support for Points of Light, the foundation he created to encourage volunteerism and civic engagement. Bill Clinton followed through on that appeal and went on to establish AmeriCorps in 1993, which further solidified government support for nationally organized community service. He, in turn, had one request for his successor. “When I was leaving, and George W. Bush was coming in, the only thing I asked him to do was to preserve AmeriCorps,” Clinton said at a recent event in Washington. “And he did.” Now, 17 years after its creation, AmeriCorps is on the chopping block. The most recent continuing resolution passed by the House would cut all federal funding for the agency that oversees the program, the Corporation for National and Community Service (CNCS), effectively wiping out AmeriCorps. Ending the program would not only eliminate jobs for the 85,000 individuals who serve each year through AmeriCorps, it would also significantly burden organizations like Habitat for Humanity, Teach for America (TFA), and City Year that depend on AmeriCorps participants for their cost-effective labor. “AmeriCorps really is the stream of human capital for these nonprofits,”

What President Obama and Congressional Democrats Are Fighting For - The main point of contention has to do with President Obama's and the majority Democratic Party senators' opposition to the Republican Party-controlled House's proposed total of $61 billion of spending cuts for Fiscal Year 2011, which is at stake because the previous 111th Congress, which was fully under the control of members of the Democratic Party, declined to pass a budget for Fiscal Year 2011. That $61 billion is just 1.6% of the $3,834 billion federal government budget for Fiscal Year budget that President Obama submitted to Congress early in February 2010, and a very slightly larger fraction of the $3,819 billion the government is currently projected to actually spend. It's also just 0.1% of the total amount of spending reductions in Paul Ryan's proposal for containing federal spending over the next decade.

An 18% spending cap is not just bad policy, it’s simply not feasible - On March 31, EPI published the following commentary based on a GOP one-pager summarizing a balanced budget amendment that “limits outlays to 18 percent of GDP.” As explained in the original commentary piece, we thought this was both terrible budgetary policy and infeasible. But the Consensus Balanced Budget Amendment is significantly worse than we had first thought. As Bruce Bartlett has pointed out, the legislative text of the proposal would actually cap spending for a given fiscal year at 18% of GDP for the calendar year ended before the start of the current fiscal year. Consequently, if the balanced budget amendment became effective at the start of fiscal year 2016 (October 1, 2015), spending would be capped at 18% of GDP for calendar year 2014. Based on CBO projections, this would translate to an average effective cap of 16.6% of GDP over 2016-21, so the spending cuts we crunched last week ($8.3 trillion over 2016-21, assuming current tax policies are continued) significantly underestimated the magnitude of the cuts needed to comply with this proposal. Instead of rolling back outlays to the lowest level since 1966, the constitutional amendment would cut government back to the smallest size since 1956. The numbers in this commentary have been revised to reflect this even less plausible assault on the Great Society and New Deal legislation.

The Worst Idea in Washington, part V - Here’s the thing about the Worst Idea in Washington: Every time you think you’ve accurately explained how bad it is, you find out that it’s actually worse than that. For instance: I’ve been saying that the proposed amendment would make it unconstitutional for the government spending to exceed 18 percent of GDP — a standard so stringent that even Paul Ryan’s Roadmap would be ruled unconstitutional. But as Jed Graham and Bob Greenstein both note, the amendment actually says that spending cannot exceed 18 percent of the previous year’s GDP. Greenstein explains what this means:The amendment would bar total federal spending from exceeding about 16.7 percent of Gross Domestic Product . It says spending in any fiscal year may not exceed 18 percent of the GDP of the previous calendar year (i.e., the calendar year that ended before the fiscal year began). Using CBO’s economic assumptions, in the first five years that the amendment would be in effect, the amount of spending allowed would average 16.7 percent of the current year’s GDP. The last year that federal spending was 16.7 percent of GDP or lower was 1956 . In that year, Medicare and Medicaid did not exist and millions of workers (including many low-income and minority workers) were excluded from Social Security.

Joseph Stiglitz on inequality, and Krugman on Mellonism – Linda Beale - Thanks goodness there are a few economists who can still say it like it really is.   Krugman's op-ed on Mellonism is a must-read. Krugman, The Mellon Doctrine, NY Times, Mar. 31, 2011. He notes the GOP report that suggested that slashing jobs would be a good thing to do to create jobs.  The GOP today (with very little pushback from Democrats who seem to have forgotten how to fight in their constant whine of being bipartisan) has decided that firing people is the way to achieve economic growth and fuller employment! 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. Joe Stiglitz, in Of the 1%, by the 1% and for the 1%, Vanity Fair, May 2011, is right on

Stiglitz Tells Us the Redistribution Fairy is Dead, but She Still Lives in Economists’ Fantasies -- Yves Smith - Vanity Fair has published a short article by Joseph Stiglitz on how the top 1% aren’t merely taking way more than their fair share, but how they are increasingly organizing the world to make that into a self-perpetuating system. After debunking the idea that the new economic order is a function of merit, as opposed to socialism for the rich and rent extraction, he turns to its destructive features, including:….perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead….. Needless to say, the shift in income distribution and wealth looks to be so badly entrenched as to be pretty much impossible to reverse ex a very concerted push by the great unwashed 99% (but sadly, the top 10% to 20% of that cohort incorrectly sees its interests as aligned with those of its betters).I hate picking on individuals to illustrate broader phenomena, but in light of the reality depicted by Stiglitz, arguments in support of policies that worsen distribution and leave the economy net no better off are simply indefensible. But instead we get rationalizations and calls for the Distribution Fairy to wave her magic wand.

Joseph Stiglitz: Of the 1% by the 1% for the 1% - This is an interview of Joseph Stiglitz on Democracy Now regarding his article in the current Vanity Fair.  He discuss the issue of income inequality, taxes, etc and how it has set us up to be less of a land of oportunity than what old Europe was. A few quotes:  The question was, if people were getting rewards for contributing to our society, a theory that was in the 19th century called "marginal-productivity theory," then you could say, "OK, those who contribute more should get more." But what we saw in that crisis was that these titans of the financial industry got mega-bonuses while their companies were making mega-losses.  And with this one percent getting so much, there’s only one place really to get that extra revenue. The good news is it’s relatively easy. You have 25 percent—almost 25 percent of the income in the upper one percent, you raise their taxes by a few percentage points, and you get an awful lot of money. This raises a very important point that I raise in my article, which is that much of the wealth of this one percent comes not from hard work, not from innovation, but from good investments in Washington, investing in political capital.

Robert Scheer "The Peasants Need Pitchforks" - The delusion of a classless America in which opportunity is equally distributed is the most effective deception perpetrated by the moneyed elite that controls all the key levers of power in what passes for our democracy. It is a myth blown away by Nobel Prize winner Joseph E. Stiglitz in the current issue of Vanity Fair. In an article titled 'Of the 1%, by the 1%, for the 1%' Stiglitz states that the top thin layer of the superwealthy controls 40 percent of all wealth in what is now the most sharply class-divided of all developed nations: 'Americans have been watching protests against repressive 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.'

Got Liberalism? - It's very rude to say I told you so, but, well, I told you so. And I would imagine they'll find a way to throw some scrap the liberals' way and then instruct us all to overlook the 75 billion dollars in cuts because of it.  This is absurd. We have to put huge amounts of energy into getting the Democrats not to agree to do things we should be able to take for granted they won't -- like Planned Parenthood funding -- and when they "come through" that's supposed to be a big victory. It's intensely frustrating. No Democratic president should sign on to draconian cuts in government spending when he's got nearly 9% unemployment, a housing crisis that isn't getting any better and is engaging in wars of choice that nobody really understands. This is not liberalism in any sense that we have ever known it before.

Budget Decisions Must Consider Both Costs and Benefits - Suppose you are lucky enough to own two businesses. The first has large costs, let's say $100,000 per day, but it brings in $110,000 reliably, on average, for a 10% profit margin. The second business costs much less to operate per day, only $30,000, but, unfortunately, it is only bringing in $15,000 and is therefore realizing a 50% loss. It's obvious in this case that you would want to shut the doors on the business that is losing money, i.e. the business that costs $30,000 per day, not the one that costs $100,000 per day to operate. It has nothing to do with costs by themselves, costs must be weighed against benefits to make good decisions. The same is true for government. The programs the government spends its money on have both costs and benefits. Thus, we shouldn't cut the programs that cost the most, we should, instead, cut the programs with the smallest net benefits (or largest net cost). However, unlike a business, the benefits of government programs are often not monetary. The social benefits are there, but because they are non-monetary or not subject to market forces they are difficult to gauge precisely. What is the value of national defense, lower rates of infectious disease, a more educated population, cleaner air and water, security in old age, and so on?\

Abandoning what works (and most other things, too) If the policies in Washington matched the rhetoric about job creation, Americans could rest easy about the economy for the next couple of years. Advocates on every side of nearly all current debates make strong claims about whether a given policy will “create” or “destroy” jobs. Given these conflicting claims regarding identical policies, it is hardly surprising that Americans seem truly confused about what textbook economics actually predicts could lower today’s too-high unemployment rate. These predictions are surprisingly straightforward: Only policies that boost the overall demand for goods and services in the economy will significantly lower unemployment in the near-term. The best way to boost this demand is doing more of the effective parts of the American Recovery and Reinvestment Act (ARRA). This reality is frustrating to most people—they want something new and different that can be invoked to solve the unemployment crisis. According to a New York Times magazine story from earlier this year, this frustration even extends to President Obama, who reportedly chastised his economic team at the end of 2010 for not bringing him newer and more exciting job-creation ideas. Read Briefing Paper

Three Paths for Indebted Democracies - Democratic governments are not incentivized to take decisions that have short-term costs but produce long-term gains, the typical pattern for any investment. Indeed, in order to make such investments, democracies require either brave leadership or an electorate that understands the costs of postponing hard choices.Brave leadership is rare. So, too, is an informed and engaged electorate, because the expert advice offered to voters is itself so confusing. Economists of different persuasions find it difficult to reach a consensus about the necessity of any policy. Consider, for example, the cacophony of arguments about government spending: is it the only thing keeping depression at bay, or is it moving us steadily down the road to perdition? The debate does not lead to agreement, moderate voters do not know what to believe, and policy choices ultimately follow the path of least resistance – until they run into a brick wall.

Capital Offense - Profits without suitable investment opportunities become the hot impatient capital that is sloshing around the world. This is the fuel of speculative bubbles and investment tsunamis. It is part of the reason why modern capitalism, not just in the Anglo-American countries but also in continental Europe, has such large financial superstructures. The role of the government as a lender of last resort demonstrated in recent crises. Its ability to underpin aggregate demand is less appreciated. If the political winds favor cuts in spending now and less transfer payments, where is aggregate demand going to come from? The best and brightest are focused on re-building the financial system. They are concerned about global imbalances. The major imbalance in national income shares is rarely discussed, but can be found at the root of the crisis. This is the ultimate challenge of market economies: sustaining aggregate demand. The 1980-2007 solution of deregulation and capital market liberalization has reached some sort of end. The shift in national income shares during the recovery suggests not only that a new solution is not at hand, but we are likely moving away from it.

How Big is the fiscal multiplier? An estimate one can’t refuse - How much more demand, output, and employment can we expect from expansionary fiscal stimulus? Conversely, how much macroeconomic pain can we expect from a contraction dictated by the need to keep public debt on a sustainable path? These questions have become most compelling during different phases of the recent global crisis. Few things divide the economics profession more than this question: How much economic activity does $1 of government spending generate? This column provides a new angle. Looking at local councils in Italy between 1990 and 1999, it examines variation in budgets due to the removal of funds by central government if mafia involvement is suspected. It finds that the fiscal multiplier starts at 1.4 and rises to 2.0.

Budget Battle to Be Followed by an Even Bigger Fight - Congress has yet to settle its first budget fight of the year but is already about to move on to an even more consequential fiscal clash.  Even as the two parties struggled over the weekend to reach a deal on federal spending for the next six months and avert a government shutdown at the end of the week, House Republicans were completing a budget proposal for next year and beyond. It is likely to spur an ideological showdown over the size of government and the role of entitlement programs like Medicaid1 and Medicare2.  The plan, which is scheduled to be unveiled Tuesday, will be the most ambitious Republican effort since the November elections to put a conservative stamp on economic and domestic policy. It involves far greater stakes for Congress and for President Obama3 — substantively and politically — than the current fight over spending cuts.  The outcome of that fight was still uncertain on Saturday as Congressional staff members assembled new proposals and the White House said that Mr. Obama had called House Speaker John A. Boehner4 and Senator Harry Reid5 of Nevada, the Democratic majority leader, to urge them to find an acceptable compromise. He reminded them that time “is running short.” 

Republicans unveil bold 2012 budget plan – A Republican plan for the 2012 budget would cut more than $4 trillion over the next decade, more than even the president's debt commission proposed, with spending caps as well as changes in the Medicare and Medicaid health programs, its principal author said Sunday. The spending blueprint from Rep. Paul Ryan, the chairman of the House Budget Committee, is to be released Tuesday. It deals with the budget year that begins Oct. 1, not the current one that is the subject of negotiations aimed at preventing a partial government shutdown on Friday. In an interview with "Fox News Sunday," Ryan said budget writers are working out the 2012 numbers with the Congressional Budget Office, but he said the overall spending reductions would come to "a lot more" than $4 trillion. The debt commission appointed by President Barack Obama recommended a plan that it said would achieve nearly $4 trillion in deficit reduction.

House Republicans Propose $4 Trillion in Cuts Over Decade - House Republicans plan this week to propose more than $4 trillion in federal spending reductions over the next decade by reshaping popular programs like Medicare1, the Budget Committee chairman said Sunday in opening a new front in the intensifying budget wars2. Appearing on “Fox News Sunday,” the chairman, Representative Paul D. Ryan3 of Wisconsin, also said Republicans would call for strict caps on all government spending that would require cuts to take effect whenever Congress exceeded those limits. “We are going to put out a plan that gets our debt on a downward trajectory and gets us to a point of giving our next generation a debt-free nation,” Mr. Ryan said, even as he predicted that the politically charged initiatives he intended to lay out in the 2012 budget beginning Tuesday would give Democrats a “political weapon to go against us.”

Will the Ryan Budget Start a Real Conversation? - As the federal government prepares for a shutdown in the event that continued funding is not agreed to by this Friday (see the memo that was sent around yesterday, as reported by the Washington Post’s Ed O’Keefe), today Paul Ryan releases his own budget plan.  There have been plenty of preemptive critiques of the plan from those with a completely different view of the fiscal policy world who oppose the notion that the budget can and should be balanced by cutting spending alone, but the best critics who want to avoid just making things worse recognize that the time for merely throwing barbs has passed.  For example, in Monday’s Washington Post, E.J. Dionne isn’t shy about suggesting that the Ryan plan will promote “an even more unequal society”–but at the same time he praises Ryan’s character and conviction and in the end challenges President Obama to not just sit there but do something to defend “progressive government” And in today’s Washington Post, (Republican) Senator Tom Coburn says it’s time to stop bickering over the little stuff and start working together–as in, with the other side and not just with the extremists in one’s own party–on the big stuff.

Paul Ryan To Boldly Take On Big Poor - You know how you have been reading for weeks and weeks about how the bold Republican budget, crafted by Prince of Boldness Paul Ryan, will boldly address the deficit problem that President Obama refuses to address? While we wait for that to happen, some leaks are emerging. First, reports the Hill, Ryan will not touch Social Security, which is immensely popular with the middle class. Second, reports Politico, he will take a huge whack out of Medicaid, which primarily benefits the poor: House Republicans are planning to cut roughly $1 trillion over 10 years from Medicaid, the government health insurance program for the poor and disabled, as part of their fiscal 2012 budget, which they will unveil early next month, according to several GOP sources. Budget Committee Chairman Paul Ryan has made clear to POLITICO in February that he intends to target Medicaid and Medicare for savings. While Medicaid is easiest to win consensus on, Medicare is the biggest debt driver. I love the part about how Medicaid the the "easiest to win consensus on." Why is that? Because it's wasteful? No, Medicaid is super-cheap -- so cheap the program routinely has trouble finding doctors willing to accept it. It's easiest to win consensus on because its beneficiaries have the least political power.

On Not Learning From Experience - Krugman - I’ll no doubt be writing a lot about the Republican plan to dismantle Medicare in the days ahead. But a quick thought now before I go off to listen to Bob Hall explain the high-unemployment, zero-rate trap (pdf). Here’s the thought: when it comes to controlling health care costs, there are a lot of role models out there — because everyone does better than the United States. There are government-provider systems like Britain’s NHS (or the Veterans Administration); there are single-payer systems; there are regulated competition systems. But what the GOP plans to offer is a plan that broadly resembles Medicare Advantage — a plan that not only failed to reduce costs, but actually ended up substantially increasing costs. Of course, it’s not really about saving money. And that’s the point.

Mr Ryan makes his mark - WHEN Paul Ryan, the Republican fiscal wunderkind, moved from opposition to power in last year’s midterm elections, the biggest question hanging over him was whether he would bring his radical fiscal views with him or quietly stash them in a dark corner as he settled down to the realities of governing. Mr Ryan has answered the question today by unveiling a budget plan that, at least superficially, is almost as bold and painful as the Roadmap for America that he has flogged for years. It claims to slash the federal budget deficit from a little over 9% of GDP this year to just 1.6% by 2021. By contrast, the Congressional Budget Office reckons the deficit would fall to just 4.9% under Barack Obama’s budget. He does this without, on net, raising taxes. By closing loopholes, he would pay for a cut in the top personal and corporate rates. So how does he shrink the deficit? Through an eye-watering assault on entitlement spending, in particular health care. Mr Obama’s health care reform would be ditched, Medicaid would be converted to block grants, and traditional Medicare would be replaced with vouchers.

The Ryan Budget: The Real Choice We Face - Yesterday’s release of the draft Ryan budget offers a vision for repairing the federal budget. Thus far, this vision for fiscal repair remains the only serious legislative alternative to fiscal catastrophe. President Obama’s submitted budget, by contrast, contains no significant effort to repair the federal fiscal outlook. The Congressional Budget Office (CBO) has shown that it would leave federal finances on a clearly unsustainable trajectory. Health care reform, long touted by some as being the real key to fiscal reform, turned out to mean expanding federally-subsidized coverage rather than fiscal correction. Last year the Congressional Democratic leadership declined even to pass a budget at all. If there is a responsible left-of-center alternative to the Ryan proposal, we have yet to learn what it is. Some have criticized the Ryan budget as lacking the political and substantive balance of the Simpson-Bowles fiscal commission’s work. And indeed, the Ryan proposal would attack federal deficits solely by constraining spending growth without raising taxes.

Comparing the Ryan and Obama budgets - House Budget Committee Chairman Paul Ryan released his proposed budget plan yesterday. This will be the focal point of America’s fiscal policy debate for at least the next two years, so I’m going to write about it quite a bit. Today I’ll start by showing you the macro fiscal picture, and by comparing Chairman Ryan’s budget to President Obama’s. Since most people don’t enjoy a good table of numbers as much as I do, we’ll compare them visually. We’ll look at the short-term first, then the long-term. Let’s begin by comparing the short-term deficit effects of the two proposals. On each of the following graphs, solid lines represents Chairman Ryan’s budget and dashed lines represents President Obama’s budget. Spending will always be in red, taxes in blue, and deficits and debt in yellow. Everything is measured as share of the economy. As always, you can click on any graph to see a larger version.

The Republican budget: Praising Congressman Ryan - The Economist - BARACK OBAMA, as we unhappily noted when he produced his budget in February, has no credible plan for getting America’s runaway budget deficit under control. Up to now the Republicans have been just as useless; they have confined themselves to provoking a probable government shutdown in pursuit of a fantasy war against the non-security discretionary expenditures that make up only an eighth of the total budget, rather than tackling the long-term problem posed by the escalating costs of entitlements. Now that has changed. On April 5th Paul Ryan, the young chairman of the House Budget Committee, laid out a brave counter-proposal for next year’s budget and beyond (see article)—brave both in identifying the scope of the problem and in proposing the kind of deeply unpopular medicine that will be needed to cope with it. It is far from perfect; but it is the first sign of courage from someone with actual power over the budget.

What Paul Ryan’s budget actually does - Paul Ryan’s plan for Medicare and Paul Ryan’s plan for Medicaid rely on the same bait-and-switch: They use a reform to disguise a cut.  In Medicare’s case, the reform is privatization. The current Medicare program would be dissolved and the next generation of seniors would choose from Medicare-certified private plans on an exchange. But that wouldn’t save money. In fact, it would cost money. As the Congressional Budget Office has said (pdf), since Medicare is cheaper than private insurance, beneficiaries will see “higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.” In Medicaid’s case, the reform is block-granting. Right now, the federal government shares Medicaid costs with the states. That means their payments increase or decrease with Medicaid’s actual rate of spending. Under a block grant system, that’d stop. They’d simply give states a lump sum at the beginning of the year and that’d have to suffice. And if a recession hits and more people need Medicaid or a nasty flu descends and lots of disabled beneficiaries end up in the hospital with pneumonia? Too bad.

First Thoughts on the Ryan Plan - The broad outlines of the plan would work, from a budgetary perspective.  It reduces the deficit to a smaller percentage of GDP than either the current-law baseline or the more likely "alternative fiscal scenario".  On the other hand, politically, it seems very unlikely to pass in anything like its current form--the Ryan plan actually cuts spending, as a percentage of GDP, from its historical levels.  Given the burden of Baby Boomer retirements that we have promised to cover--and the GOP's craven cowardice and shameless pandering in the face of the senior lobby--I don't see how spending is going to fall in the near-to-medium term. That is a reasonable objection, but not a fatal one.  Most bold plans get negotiated.  The question is whether the GOP is actually willing to negotiate, or somehow believes that it can get its way through sheer bloody-mindedness.  With GOP freshmen idiotically cheering a potential government shutdown, as though this had anything at all to do with getting government spending or deficits under control, "bloody-mindedness" seems like the more credible current explanation.

Moment of Blather - David Brooks’s commentary on Paul Ryan’s “budget proposal” is entitled “Moment of Truth.” Brooks falls over himself gushing about his new man-crush, calling it “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes.” “Ryan is expected to leap into the vacuum left by the president’s passivity,” he continues. Gag me.  First of all, Ryan’s plan is not “comprehensive” by any stretch of the imagination. Ryan’s plan does limit taxes to 19 percent of GDP and outlays to 14.75 percent of GDP by by 2050, producing a huge surplus. How does he achieve this budgetary miracle? In part, he does it by waving his magic wand. This is what the CBO has to say (emphasis added):“The proposal specifies a path for all other spending [other than Medicare, Medicaid, and Social Security] (excluding interest) that would cause such spending to decline sharply as a share of GDP—from 12 percent in 2010 to 6 percent in 2022 and 3½ percent by 2050; the proposal does not specify the changes to government programs that might be made in order to produce that path.”

Privatizing Medicare - Krugman - So they’re really going to propose it.  More when we have some details. But two key points:

  • 1. Privatizing and voucherizing Medicare does nothing whatsoever to control costs. We’ve seen that from the sorry history of Medicare Advantage. I’m sure that the Republicans will claim savings — but those savings will come entirely from limiting the vouchers to below the rate of rise in health care costs; in effect, they will come from denying medical care to those who can’t afford to top up their premiums.
  • Oh, and for all those older Americans who voted GOP last year because those nasty Democrats were going to cut Medicare, I have just one word: suckers!
  • 2. E.J. Dionne is right: This will be Obama’s defining moment. Will he stand up for the principle that society takes care of those in need? Or will he cave in? I wish I had confidence in the answer.

Privatizing Medicare: As long as Medicare exists, it poses a threat to health insurance parasites, because it could always be extended to all of us, so the  Republicans want to privatize it. So this has to be treated very seriously.. Now, if any Democratic Senator wanted to filibuster this, he or she could fill the Capitol with protestors, a la Madison. So do we still have any friends on Capitol Hill?

GOP plans $1 trillion Medicaid cut -  House Republicans are planning to cut roughly $1 trillion over 10 years from Medicaid, the government health insurance program for the poor and disabled, as part of their fiscal 2012 budget, which they will unveil early next month, according to several GOP sources. Though Budget Committee Chairman Paul Ryan has yet to lock in his final numbers, he made clear to POLITICO in February that he intends to target Medicaid and Medicare for savings. [Gee, no one complained about the deficit when the GOPredators/Obusha rammed through the Bush tax cuts for the top one percent with corporations paying *zero* taxes.]

Death Panels are starting to sound awfully good right about now - Jill - Think about it: How would you rather check out of this God-forsaken level of reality? Would you rather be in a warm bed somewhere, perhaps lying on sheets nice and warm out of the dryer, with the sun streaming in your window and soft music playing into your room, perhaps with the aroma of peppermint, or fresh bread, or whatever your favorite aroma might be, while a doctor slips a needle into your arm and you wooze into a delightful drowsiness and then unconsciousness, and then another needle containing the drug that stops your heart is administered...or would you prefer to die out in the street, old, sick, and alone, huddling from a bitter wind, because you have no home, no shelter, no food, and no medical care? I know which one I'd take. But it's hard to imagine that the GOP will be kind and compassionate enough to offer the elderly the first one, not if the current House majority gets its way: House Republicans are preparing to introduce a 10-year budget Tuesday that will eliminate Medicare and replace it with a private insurance system that closely resembles the new health care law, and end Medicaid as an entitlement program all together.

Groundhog Day on the Budget - Krugman -- Like Atrios, I am not looking forward to this. It’s going to be just like the Social Security fight, only worse: once again, Very Serious People will pretend not to notice that the Republican plan is a giant game of bait-and-switch, dismantling a key piece of the social safety net in favor of a privatized system, claiming that this is necessary to save money, but never acknowledging that privatization in itself actually costs money. And we’ll have endless obfuscation, both-sides-have-a-point reporting that misses the key point, which is that the putative savings come entirely from benefit cuts somewhere in the distant future that would, in all likelihood, never actually materialize. (What do you think will happen when retirees in 2025 discover that their Medicare vouchers aren’t enough to buy insurance?)Here we go again.

The 2022 Medicare Crisis - Krugman - If the Medicare Advantage precedent holds, what will happen in 2022 or a bit later is that Congress will react to the fury of younger seniors — who see that those born just a few years earlier have vastly better benefits than they do — by increasing the vouchers. And the end result, in that case, would be that the Ryan plan substantially increases Medicare costs; remember that the payment increases that were part of the 2003 Medicare bill, introduced to rescue failing Medicare Advantage programs, have resulted in large overpayments, adding hundreds of billions to the program’s costs.Alternatively, if the benefit cuts stick, you’ll have a lot of furious people realizing that they are paying high taxes to support lavish medical care for older Baby Boomers, while being themselves condemned to pleading with insurance companies to provide coverage in return for an inadequate voucher. Plus, private insurance companies, making lots of money off the voucher business, will cast their eyes on those potential profit centers, aka seniors, still getting government insurance. So traditional Medicare will be in the firing line — and all those assurances about how nobody currently over 55 will be hurt will turn out to be empty. So this plan isn’t going to work; the only uncertainty is about exactly how it would fail.

The Return of the Myth that Competition will Fix Medicare - Well, it seems as if Congressional Republicans are going to propose a complete refashioning of the Medicare program. Specifically, they are going to recommend scrapping Medicare as a provider of health insurance to seniors, and instead replace it with a system that will provide subsidies to individuals who will then buy health insurance from private insurance companies. In other words, they want to get the federal government completely out of the health insurance business for senior citizens.  GOP 2012: overhauls on entitlements and taxes, $6.2 trillion in cuts over decade House Republicans plan to propose Tuesday historic changes to Medicare, Medicaid and other popular programs that pour federal money into Americans’ lives, arguing that a sacrifice now will keep those programs solvent for the future. The notion that Medicare costs have been rising because it is a government-run health insurance program, or because it is not a "competitive" health insurance program, is odd, to say the least

The Ryan Health Plan - Let me start off by saying that I don’t have a huge dog in this fight. I think the picture is so hazy on whether it is possible to control health care cost growth and if so how, that I can’t be strongly in favor of anything. That having been said there are a couple of points worth noting. 1) A voucher plan will probably entail some short term bloodiness for the poor. The push will be for the vouchers to grow slower than medical costs. Rather than forgo medical expenditures folks will simply bankrupt themselves. This is part of my larger thesis that the question is not whether health care will bankrupt America, it is whether it will bankrupt us as private citizens or as a polity.  Anyway, so a bunch of folks go bankrupt trying to afford their cancer treatments. Eventually this will lead to us raising the voucher size but in the short term you get a lot of privately bankrupt people. This fact should not be ignored

Rivlin: ‘I don’t support  the version of Medicare premium support in the the Ryan plan’ - Ezra Klein - “Alice Rivlin and I designed these Medicare and Medicaid reforms,” Paul Ryan said on “Morning Joe” yesterday. “Alice Rivlin was Clinton’s OMB director… she’s a proud Democrat at the Brookings institution. These entitlement reforms are based off of those models that she and I worked on together.” But Rivlin — who is all that Ryan says she is, in addition to a former vice chair of the Federal Reserve — is not supporting the reforms as written in Ryan’s budget. I spoke with her this morning to ask why. A lightly edited transcript of our conversation follows.

Generational Divide Colors Debate Over Medicare’s Future - The Republican budget released on Tuesday1 is a daring one in many ways. Above all, it would replace the current Medicare2 with a system of private health insurance plans subsidized by the government. Whether you like3 or loathe that idea4, it would undeniably reduce Medicare’s long-term funding gap — which is by far the biggest source of looming federal deficits.  Yet there is at least one big way in which the plan isn’t daring at all. It asks for a whole lot of sacrifice from everyone under the age of 55 and little from everyone 55 and over. Representative Paul Ryan5, the Wisconsin Republican who wrote the plan, calls the budget deficit an “existential threat” to the United States. Then he absolves more than one-third of all adults from responsibility in dealing with that threat.

The ugly math of Medicare-- House Budget Chairman Paul Ryan's 2012 budget resolution turned the floodlights on Medicare, the health care program for seniors that is projected to take increasingly bigger bites out of the federal budget in the coming decades.Ryan's proposals1 for overhauling the program are dramatic. Democrats claim they will dismantle it. Ryan claims they will save it.  Love or hate his ideas, though, they are sparking a necessary debate. The ugly math suggests Medicare is unsustainable in its current form. Medicare is financed through a combination of payroll taxes, premiums and general revenue. The problem is that spending has been growing faster than the economy and is projected to do so indefinitely. The reasons for that are simple: The number of people expected to enroll in the program will surge as the population ages and health care costs continue to grow far faster than inflation.

The cost of Medicaid savings - Already Rep. Ryan’s budget plan has received a lot of attention. By now you well know that one way it aims to save money is by turning Medicaid into a state block grant program. It is important to recognize that there is a cost to those savings: worse health for low-income individuals. Yet some proponents of Medicaid cuts deny this cost, citing evidence that does not support their case. In a NEJM paper by Harold Pollack, Uwe Reinhardt, and two of us (Austin and Aaron) that published today at 5PM, we emphasize just that. It’s short and ungated, so please read it. In it, we press those who claim Medicaid is worse for health than being uninsured to cough up their causal theory as to how this could be the case.

Medicaid Savings in Ryan’s Plan Would Come At the Expense of the Poor » The “Path to Prosperity” budget proposed by House Budget Committee Chairman Paul Ryan (R-WI), includes a plan to revamp Medicaid —which currently provides federal funding to states on an "as-needed" basis to help cover the health care costs of the poor and disabled—into a block grant program. This one initiative alone, according to the budget bill’s supporters, would save $750 billion over ten years.  There is little in Ryan’s budget proposal to support just where these savings will come from, but it’s easy to imagine that state caps on Medicaid enrollment, cuts in covered benefits and lowered physician reimbursement, along with an increase in co-pays for beneficiaries will all play an essential role.

Ryan plan to slash Medicaid will cost the economy nearly two million private sector jobs - Currently, Medicaid provides comprehensive health coverage to the elderly, disabled, children, and low-income adults.[1]  The cost of providing health care coverage is split between the federal government and the states.  House Budget Committee Chairman Paul Ryan (R.-Wisc.) released a budget resolution this week that would “block grant” Medicaid, meaning that it would give states a fixed amount of money rather than provide a fixed share of the total costs.  Because these grants would grow more slowly than the expected inflation rate for health care costs, this proposal would have the federal government shift an increasing amount of the coverage costs onto states, who will be in turn forced to cut health benefits and other services, cut public investments such as education and transportation, or raise taxes. Over the next five years (during which time CBO projects that the economy will still be below potential), Chairman Ryan’s Medicaid proposal would cut the program by $207 billion, which includes both eliminating the Medicaid expansion under the Affordable Care Act and even deeper cuts to the Medicaid program.  Using a standard macroeconomic model that is consistent with private- and public-sector forecasters, we find that a $207 billion cut would result in a loss of 2.1 million jobs over the next five years, or 2.9 million full-time equivalent jobs.[3]

EPI statement on proposed House Republican 2012 budget - The Paul Ryan Republican budget, among other things, includes a plan to privatize Medicare by forcing recipients to buy insurance on the open market, to gut Medicaid by shifting costs to states and reducing funding, to cut taxes on corporations and wealthy individuals, and to reduce the nation’s ability to make needed investments by capping overall levels of federal spending. The plan would not only put the fragile recovery at risk, but it would also undermine economic growth and job creation for years. This budget is impressive in its ability to not only inflict maximum harm on the economy, but to concentrate that harm on those most in need. This will not only cost the economy hundreds of thousands (and perhaps millions) of jobs over the next five years, it will also destroy the social safety net and undermine policies that support the middle class.

Ryan’s “Path to Prosperity” - House Budget Committee Paul Ryan has released his budget proposal, which he explains in the very polished video above.  Here’s the link to information on the Ryan budget on the House Budget Committee’s website. Major contours of his proposal are that the deficit is brought down to economically sustainable levels, but not eliminated, within a few years; revenues never rise above the (”magic”) historical average of just over 18 percent of GDP; spending is brought down to around 20 percent of GDP within ten years and below 15 percent by 2050(!)–which is what it takes to get debt/GDP to come down while holding onto the revenue ceiling. Ryan does the right thing by recognizing that a lot of “entitlement” spending in the federal budget actually operates through the tax code: he proposes fundamental tax reform that virtually eliminates tax expenditures–those deductions, exclusions, and other special provisions in the federal income tax. Doing that alone would raise a lot of revenue (in an economically efficient way) that could be used entirely for deficit reduction, but Ryan effectively “spends” it on reducing marginal tax rates instead. That’s my biggest complaint about his proposal, strengthened by my opinion that it’s unrealistic and perhaps downright cold-hearted to cut direct spending by as much as he’s proposing.

Paul Ryan’s 2012 GOP Budget Proposal: What It Means for You - The 2012 budget proposal championed by House budget committee chairman Paul Ryan lays out more than $6 trillion in spending cuts. An analysis by the Congressional Budget Office concludes that federal spending (excluding debt interest payments) would equal 14 percent of GDP in 2050; it is currently on a path to be 26 percent. Federal debt would reach 10 percent of GDP in 2050; its trajectory under current law has it reaching 90 percent of GDP in 2050. And the Ryan budget gets the federal budget to running at a slight surplus in 2050; under existing law, the deficit would amount to 4 percent of GDP in 2050. How to get all of that accomplished? Well, the main savings comes from transforming Medicare from a program that pays for care that is needed (with certain out-of-pocket expenses) to a program that pays a fixed annual benefit and requires beneficiaries to cover more of the their health care costs. The CBO estimates beneficiaries’ share of premiums and out-of-pocket costs would be more than 60 percent under the Ryan plan, compared to 35 percent today. The other big ticket savings are from Medicaid cutbacks, with additional savings coming from rolling back discretionary spending programs (excluding defense) to their pre-2008 levels, and freezing those budgets for five years.

Best budget ever - PAUL RYAN has officially revealed the House Republicans' budget proposal, and we will have a detailed analysis of it up in short order. Reactions to the plan will vary (sharply, it's safe to say). But whatever your take on the policy proposals, it's worth approaching the rosy claims made on its behalf with extreme caution. Claims like: A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage's analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year. That sounds unbelievably good, and for good reason—the figures in the Heritage analysis are simply outlandish. According to the study cited above, Mr Ryan's plan will bring the unemployment rate down to 6.4% next year, 4.0% in 2015, and 2.8% in 2021.

The Problem With Deficit Solutions Like Representative Ryan's   -

We already have a number of “serious” long-term fiscal restraint proposals on the table. Last year there was the Simpson-Bowles commission report. There was also a proposal from the Bipartisan Policy Center’s Debt Reduction Task Force, let by Alice Rivlin and Peter Domenici. Then there’s the reports from the Pew-Peterson Commission on Budget Reform, and from U.S. PIRG and the National Taxpayers Union. Not to mention the similar blue-ribbon fiscal panels assembled by President George W. Bush, by President H.W. Bush, and a slew of other presidents preceding them. By Bruce Bartlett’s count, there have been at least a dozen such commissions over the last few decades, with basically nothing to show for their efforts. And of course the Congressional Budget Office regularly puts together a handy (and comprehensive) guide of spending and taxation options to bring the nation’s fiscal house into order. None of these myriad proposals have ever gotten any traction, and they have, for the most part, been less drastic than Mr. Ryan’s. I’ve said it before and I’ll say it again: The country’s budget problems are not a failure of policy ingenuity, but a failure of political willpower.

New Proposal Hits Old Hurdles of Budget Math - House Budget Committee Chairman Paul Ryan says a budget is "an expression of ... principles, vision and philosophy of governing."  The vision in the Republicans' 2012 budget he outlined Tuesday is for smaller government. It is for the most significant reshaping of government-benefit programs in 50 years. And it is for overcoming government addiction to deficits and debt by cutting spending, not raising taxes. In sketching out that plan, Mr. Ryan may inadvertently be making the case for tax increases.

  • Reason one: Even with the spending cuts he proposes, Mr. Ryan wouldn't balance the budget until 2030 or so.
  • Reason two: The most far-reaching change he proposes—limiting the sum the government will spend on each Medicare beneficiary's health care—won't save a nickel for a decade.
  • Reason three: Even without many of the details, and there aren't many, the Ryan plan shows how severe the spending cuts would have to be to avoid raising taxes.

The House GOP Budget: Lots of Change, and Many Questions - According to the fiscal plan drafted by House Budget Committee Chair Paul Ryan (R-WI), federal spending would be almost $1 trillion less in 2021 than if fiscal policy stays on its current track. That is a staggering 20 percent cut, even before the House Republicans biggest proposed change—the repeal of Medicare as we know it—would begin to kick in. At the same time, tax revenues would be cut by about $600 billion from the Congressional Budget Office baseline for 2021. And the deficit that year would be about $400 billion, roughly $350 billion lower  than if government spending remained on  course.    This is a big deal. But the budget document is a curious mix of the general targets normally set by a budget resolution and very specific policy proposals. As such, the House GOP leaves unanswered some very important questions.  As you think about what Ryan & Co. are doing, here are some to keep in mind:

No Path to Prosperity: Ryan's Incredulous Budget-Balancing Proposal, Preposterous Unemployment Estimate - Many Republicans have embraced Paul Ryan's proposal to balance the budget. I can't embrace his plan because it will do no such thing. I questioned the idea in Government Shutdown Battle to Be Followed by Bigger Fight; GOP wants $4 Trillion in Cuts Over Next Decade; Is that Enough? The proposal is now up to $6 trillion in cuts. However, $6 trillion over a decade is still not enough. Inquiring minds may wish to consider the Congressional Budget Office reply to to Paul Ryan's Proposal. The CBO reply is 28 pages long but quite frankly the above snip is pretty much all you need to see to understand Ryan's proposal will not balance the budget. No credible proposal can ignore interest on the national debt. I counted 10 instances of the phrase "excluding interest" in the CBO reply.

Challenge to the Heritage Foundation; Preposterous Unemployment Estimate Revisited - Mish - In No Path to Prosperity: Ryan's Incredulous Budget-Balancing Proposal, Preposterous Unemployment Estimate I blasted the Heritage Foundation's estimate of 4% unemployment rate by 2015. In the above referenced article, I did unemployment math two different ways to show just how silly a 4% unemployment projection is. In an effort to be as fair to the Heritage Foundation as possible, I will do the math a third time factoring in a few more variables. Before doing so, please note that Bernanke estimates it takes 125,000 jobs a month to hold the unemployment rate steady. Thus, in a Bernanke scenario we would need 1.5 million workers a year to break even. I find that number reasonable. It is one of the few things I agree with Bernanke about.

Long-Term Analysis of a Budget Proposal by Chairman Ryan - CBO Director's Blog - In response to a request from House Budget Committee Chairman Paul Ryan, CBO has conducted a long-term analysis of a proposal to substantially change federal payments under the Medicare and Medicaid programs, eliminate the subsidies to be provided through new insurance exchanges under last year’s major health care legislation, leave Social Security as it would be under current law, and set paths for all other federal spending (excluding interest) and federal tax revenues at specified growth rates or percentages of gross domestic product (GDP). CBO analyzed major provisions of the proposal as they were described by the Chairman’s staff. The specifications may differ in some ways from the plan released today by Chairman Ryan in The Path to Prosperity: Restoring America’s Promise. CBO has not reviewed legislative language for the proposal, so this analysis does not represent a cost estimate for legislation that might implement the proposal. Rather, it is an assessment of the broad, long-term budgetary impacts of the proposal, with results spanning several decades and measured as a share of gross domestic product (GDP). It is therefore quite different from a cost estimate for legislation, which would require much more detailed analysis, focus on the first 10 years, and be based on more recent baseline projections. (CBO’s most recent long-term projections, which are the basis for this analysis, were issued in June 2010 and were derived from the agency’s March 2010 baseline projections.)

The CBO scores Paul Ryan - THE federal government has been described as a gigantic insurance company with a side business in security. Its largest fiscal obligations, outside of defence, involve protecting Americans from various risks: unemployment, destitution, illness and lack of education. Paul Ryan’s budget is, ultimately, an alternative to that vision—one in which the federal government would shift many of those risks to the states or to Americans themselves. That is what emerges, in its own antiseptic way, from the Congressional Budget Office’s analysis of Mr Ryan’s proposal. Since the proposal is most specific and sweeping on health care, that’s what the CBO dwells on. Starting in 2022, Medicare beneficiaries would receive a voucher to pay for private insurance. In the first year of the plan, a beneficiary would pay 61 cents for services that he would have paid 27 cents for under traditional Medicare, while the government contribution is unchanged: 39 cents. Why are they, in combination, paying more for the same services? Because private plans cost more than traditional Medicare. Thereafter, the value of the voucher grows more slowly than health care costs so by 2030 the government is paying just 32 cents while the beneficiary is paying 68 cents for that same set of services.

CBO: GOP Budget Would Increase Debt, Then Stick It To Medicare Patients - The nonpartisan Congressional Budget Office's initial analysis of the House GOP budget released today by Rep. Paul Ryan (R-WI) is filled with nuggets of bad news for Republicans.  In addition to acknowledging that seniors, disabled and elderly people would be hit with much higher out-of-pocket health care costs, the CBO finds that by the end of the 10-year budget window, public debt will actually be higher than it would be if the GOP just did nothing. Under the so-called "extended baseline scenario" -- a.k.a. projections based on current law -- debt held by the public will grow to 67 percent of GDP by 2022. Under the GOP plan, public debt would reach 70 percent of GDP in the same window. In other words, the spending cuts Republicans would realize in the first 10 years would be outpaced by deficit increasing tax-cuts, which Ryan also proposes. After that, debt projections under the plan improve decade-by-decade relative to current law. That's because 2022 would mark the beginning of the Medicare privatization plan.

What Will We Tell the Doctors? - Lost in the discussion of Paul Ryan’s “plan” is the group of entrepreneurs that will be most harmed economically by enacting it: doctors—most especially general practitioners. I was speaking with David Warsh last week at Kauffman, and pointed out what “everyone knows” but no one will say: U.S. doctors net about twice as much money as doctors in the rest of the civilized world. (As a ballpark, $200K in the U.S. and $100K elsewhere.)  And until you can solve some of that, you won’t really make much of a dent in the High Cost of Medicine.  David noted that solving that “isn’t going to happen.” Paul Ryan’s plan is a large step toward making it happen—just not in the way David (or I) would have expected it to happen.

Paul Ryan’s budget in summary - It occurs to me that I haven’t yet posted a simple summary of what House Budget Commitee Chairman Paul Ryan’s budget does. So before I comment on it further, let’s do that.  To begin with, you can download his budget here (PDF). But the best way to understand it is probably to break it down by categories. One thing that surprised me when reading through the budget was just how much Ryan was actually proposing to do here. For instance: There’s no obvious reason that repeal of the Dodd-Frank financial-regulation law should be in the budget, yet there it is. Anyway, onto the summary:

Ryan’s Budget Plan Is Ridiculous, But It Could Shift the Debate - Ezra Klein has helpfully assembled a summary of the Ryan GOP budget. As you can see, while everyone’s talking about the privatization of Medicare and block-grant of Medicaid, there are plenty of other pieces worth discussing here even without any of that. Ryan would reduce discretionary spending to pre-2008 levels and freeze it for five years. He would repeal the Affordable Care Act and Dodd-Frank entirely. He would block grant the food stamp program, giving a set amount of money indexed to inflation, regardless of economic conditions. He would eliminate all changes to Pell Grants, kicking them back to 2008 levels. And he would use the savings from all that to make the Bush tax cuts effectively permanent, but actually do worse than that, by changing the tax code to lower the top individual and corporate tax rates to 25% and making up the revenue on the poor. So this is a pretty pathetic budget. And it also happens to be a complete fiction. The numbers are not to be trusted at all. Ryan assumes $1.4 trillion in savings from health care repeal when the Congressional Budget Office scores repeal as increasing the deficit. He uses “dynamic scoring” to perpetuate a fiction that tax cuts will increase tax revenue. He sets unrealistic spending caps without determining how to get there or how future Congresses not bound by his budget will abide by them. Worst, he assumes a world-historical low unemployment rate based on a Heritage Foundation study that claimed the Bush tax cuts would lead to the same kind of prosperity (hint: they didn’t). Indeed, by 2021, Ryan assumes a 2.8% unemployment rate, which is how he achieves the revenue needed to make the numbers work. Included with this projection is an implausible housing boom.

Paul Ryan's Multiple Unicorns - Krugman - For a plan that supposedly sets a new standard of seriousness, Paul Ryan’s vision (pdf) depends an awful lot on unicorn sightings — belief in the impossible. Let me review the top three unicorns. First, the plan assumes that tax cuts will set off a literally unprecedented boom.  Ryan is claiming that unemployment will plunge right away; that by 2015 it will be down to the levels at the peak of the 1990s boom; and that by 2021 it will be below 3 percent, a level we haven’t seen in more than half a century. Right. Then there’s the Medicare business. According to the CBO analysis, a typical senior would end up spending more than twice as much of his or her own income on health care as under current law. As Dean Baker points out, this means that seniors would end up paying most of their income for health care. Ryan is also assuming that everything aside from health and SS can be squeezed from 12 percent of GDP now to 3 1/2 percent of GDP. That’s bigger than the assumed cut in health care spending relative to baseline; it accounts for all of the projected deficit reduction, since the alleged health savings are all used to finance tax cuts. And how is this supposed to be accomplished? Not explained.

And A Housing Unicorn, Too - Paul Krugman - More from that Heritage forecast the Ryan plan relies on (2011 is an estimate interpolated from the baseline, the rest directly from the report):  So, do you find this plausible? Unlike the Cameron budget, the House plan doesn’t project private debt. But it’s clear that you can’t have this kind of housing boom without massive borrowing. So the theory, as in Britain, is that the problem of government debt will be cured by massive private indebtedness.Update: according to the Heritage forecast, housing investment in 2015 would be back to its level in 2006 — at the height of the housing bubble.

Memory Hole Alert - Krugman - Wow. Yesterday afternoon I downloaded the tables from that Heritage report that’s the basis for the Ryan plan. The first page looked like this: You can see the unemployment forecast, with the amazing 2.8 percent prediction, in the fourth set of figures. But go to the same place right now, and you get this:  Yep — they took the offending number out. I mean, really, guys — this is all over the blogosphere; did you really think you could get away with pretending it was never there?  Anyway, you now know what kind of people we’re dealing with. Update: For reference, here they are (pdf files):

Getting from A to B on Deficit Reduction - Many have praised Representative Paul Ryan’s deficit reduction plan for being bold and dangerous. But in some areas — like, well, details — it might be a little meek.  I’m not talking about obscure, nitty-gritty regulations, but rather pretty basic decisions, like how to go about enacting “real reform” for Social Security, as Mr. Ryan declares Congress should do on p. 13. Does that mean raising the retirement age? Increasing payroll taxes? Cutting Social Security benefits? The report doesn’t say. When asked about the lack of details in his news conference on Tuesday, he said the goal was just to “set the table, require the president to send a plan to the Congress, require the Senate and the House to submit plans so we can actually get on to the idea for saving Social Security on a bipartisan basis.” So…it’s a plan for a plan. Likewise, the report vows to eliminate universally vilified “tax loopholes” so that the statutory tax rate can be lowered — but then neglects to specify which of those many cherished, heavily lobbied-for loopholes should actually go. And the proposal also promises big cuts in mandatory spending, a ”category [that] includes food stamps, unemployment benefits, and farm subsidies” (p. 12), but doesn’t say what individual programs should be cut, or by how much.

2012 Republican budget: Why Paul Ryan's numbers don't add up. Rep. Paul Ryan's 2012 budget has ambitions far beyond 2012. It aims not just to set priorities for a single year, but also to wrench the country back into the black. The theory is straightforward enough: Tax cuts to wealthy Americans foster prosperity that moves millions of (less wealthy) Americans back to work, with increasing wages. High earnings and employment bolster tax revenue. When combined with huge cuts in domestic spending and radical changes to Medicaid and Medicare, the budget balances out in about 20 years.  There were a few improbable figures in the Heritage account of how Ryan's budget plan would affect the economy. For instance, it saw homebuilding ticking up more than 50 percent from current levels by the end of 2012—though housing is currently undergoing a double dip. There also were Pollyannaish employment projections, which the conservative think tank later adjusted. Initially, its economists forecast that without the GOP budget, unemployment would drop to 8.4 percent next year and 5.2 percent in 2021. With it, unemployment would fall to 6.4 percent in 2012 and 2.8 percent in 2021.

Magical thinking won’t create jobs: Heritage forecasts for Ryan plan are fantasy - Rep. Paul Ryan (R-Wisc.) has produced a magical budget that “strengthens the safety net” by slashing trillions of dollars from Medicaid and Medicare. He also proposes to “strengthen” Social Security by dismissing the $2.4 trillion Social Security trust fund as valueless, based on “dubious accounting.”  It is no surprise, therefore, that the economic analysis Ryan holds up to support his plan is pure fantasy. According to Ryan: "A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade.” The Heritage Center’s forecasts for the Ryan plan are even bolder in the out years: It predicts unemployment will fall to an unprecedented 2.8% by 2021. Simply put, this is incredible. After the amazing eight-year run of job growth from 1993 to 2000, when annual job creation averaged more than 2.5 million, unemployment fell to 4%.

Ryan The Ridiculous - OK, let’s leave the badness of the Medicare plan aside for now, and look at the economic projection the plan is based on. Here’s part of what the people at Heritage are claiming the plan will accomplish:   In case you’re having trouble reading that, here’s the forecast for unemployment (the red line at the right) in the context of the historical record: Except briefly during the Korean War, the United States has never achieved unemployment as low as Ryan and co. are claiming. The Fed believes that the lowest unemployment rate compatible with price stability is between 5 and 6 percent — that is, twice what Ryan is claiming he will achieve.This is ridiculous; it’s megalomaniacal. If Obama tried to claim that his policies would achieve anything like this, he’d be laughed out of office.

Estimating Medicare Taxes Versus Benefits - My column this week describes some work by Stephanie Rennane and Eugene Steuerle examining the total amount of money people pay in Medicare taxes over the course of their lives, as well as the total benefits they receive. For every cohort of workers, going back to the founding of Medicare in the 1960s, the benefits exceed taxes. If you are interested in more details, you can read this article by Mr. Steuerle. This chart has more estimates than we were able to print in the paper. This Q. and A. discusses their methodology.To do the calculations, Ms. Rennane and Mr. Steuerle, who both work at the Urban Institute, assumed that money saved by the government would earn a 2 percent annual return, after inflation. They talk more about this in the Q. and A. But even if they had assumed a higher rate of return — say, 3 percent — the basic finding would not change. Americans receive more in Medicare benefits than they pay into Medicare, even after including the share of the tax paid by employers and even after including Medicare premiums.

A budget that can't budge: You probably know the plan’s main elements: A huge cut in Medicaid, a big cut in the value of future Medicare coverage for those under age 55, substantial cuts in discretionary domestic spending, plus a big tax cut aimed primarily at upper-income taxpayers. Theoretically, this plan constitutes the first step toward the 2012 federal budget. But only very theoretically. The Ryan Plan won't become law. So what's it for? If the plan is not a real-world budget proposal, not an electioneering document, not a negotiating position — then what is it? Answer: The Ryan plan is a Republican “memo to me" — an attempt by a party emerging from a troubled history to answer the question, “Who are we?” The answer is not aimed at the general public, but at Republicans themselves. It goes like this: “Perhaps we used to be the people who introduced Medicare Part D. No longer. We have rediscovered our identity as the people who shrink government, not the people who expand it. Here is the proof. "This “speaking to ourselves” mission explains many things about the plan that are otherwise puzzling.

Rep. Ryan Takes Aim at Dodd-Frank Bailout Remedy - The summary document released by Mr. Ryan says his budget would “eliminate provisions that make future bailouts more likely.” It specifically mentions ending federal regulators’ authority to seize and dismantle financial mega-firms in cases where the failure could damage the stability of the entire financial system. The summary didn’t go into further detail, and Mr. Ryan’s office didn’t immediately return calls on the matter. The Dodd-Frank law gives the Federal Deposit Insurance Corp. , which would be in charge of breaking up  any failing firm, the power to borrow money from the Treasury to fund the process of carving up a mega-firm.  Mr. Ryan, echoing earlier criticisms leveled by Republicans, says the FDIC’s “resolution authority” will lead to future bailouts.Supporters of the provision say it ensures that taxpayers never again find themselves on the hook for a big financial firm’s mistakes. Regulators say they lacked the necessary tools during the 2008 financial crisis to seize and break apart big financial firms like Lehman Brothers and American International Group Inc.  as they teetered on the brink of failure.

Paul Ryan Does Wall Street’s Bidding In Budget - House Republicans — led by House Budget Committee Chairman Paul Ryan (R-WI) — released their 2012 budget today. The plan includes a giant tax cut for the wealthy, as well as a complete dismantling of Medicare and Medicaid. But it also includes a gift for Wall Street, in the form of a repeal of the provisions of the Dodd-Frank financial reform law that protect taxpayers from having to bail out failed financial institutions. Here’s how the House Republicans framed their repeal effort:Although the bill is dubbed “Wall Street Reform,” it actually intensifies the problem of too-big-to-fail by giving large, interconnected financial institutions advantages that small firms will not enjoy. While the authors of Dodd-Frank went to great lengths to denounce bailouts, this law only sustains them.The Federal Deposit Insurance Corporation (FDIC) now has the authority to access taxpayer dollars in order to bail out the creditors of large, “systemically significant” financial institutions. The provisions in question — which Ryan dubbed “permanent bailout authority” in a Wall Street Journal op-ed today, reviving a key GOP talking point from the financial reform debate — are actually two distinct parts of the financial reform law.

Why is Paul Ryan’s Budget Trying to Dismantle Financial Reform? - It’s not enough to gut programs for low-income Americans. Paul Ryan wants to roll the clock back on Wall Street to 2008. The budget Paul Ryan released yesterday has huge cuts that are likely to fall on the poorest Americans while offering all kinds of bonuses to the top 1%. Others will be talking about how it eliminates Medicare and Medicaid. I want to talk about how it dismantles one of the few regulations put on Wall Street post-crisis. Let’s back up with a high-level overview.

Rep. Paul Ryan: Politics or ideology? - Most of what the Grand Old Party has done in the last two years can much better be explained by politics than ideology. For example, only politics can explain a systematic strategy of opposing whatever the White House favors, even when this requires changing one’s vote (for example on the fiscal commission bill that Senators like John McCain had previously been sponsors of). Only politics can explain the long-time refusal of so-called fiscal conservatives to name the specific spending programs they want to cut.On Tuesday Representative Paul Ryan unveiled a new long-term budget plan that apparently comes closer to naming the specific programs he wants to cut.   Medicaid in particular. Clearly the reforms he proposes for Medicare would also results in big cuts there, though he is still trying to avoid alienating the elderly (who vote, unlike children and many of the poor).  Perhaps we are getting closer to the point where we can actually have a debate over ideology, over competing policy priorities. This would be an improvement over the nonsense that has passed for public debate in recent years.

Where the Spending Cuts Go - Krugman - I think it might be helpful to have a quick picture that illustrates what’s going on in the Ryan budget proposal. Here’s what we get for 2030, according to the CBO analysis: Ryan is proposing huge (and largely unspecified) spending cuts; but he’s also proposing very large tax cuts, mainly, of course, for those with high incomes. And as you can see, a large part — roughly half — of the spending cuts are going, not to deficit reduction, but to finance those tax cuts.Actually, it’s even worse, since the revenue figure in the Ryan plan is simply assumed, and is clearly too high given what he’s actually proposing on taxes; so either the fall in revenue will be even larger than shown here, or there will be unspecified tax hikes on the middle class.In any case, the bottom line is obvious: this is not the budget of a deficit hawk. It’s the budget of a deficit exploiter, someone who is trying to use fears of red ink to push through a political agenda that includes major losses of revenue.

Taking Note: Congressman Ryan's Doublethink - One of the main reasons that the conservative movement continues to dictate the terms of domestic policy debates is its mastery at applying language that resonates favorably with the public to deeply unpopular ideas. Representative Paul Ryan’s “Path to Prosperity,” starting with the title, is full of more instances of “holding two contradictory beliefs in one’s mind simultaneously” than George Orwell himself could have conjured. Some examples of doublespeak (a term Orwell did not coin) in Ryan’s plan, along with translations into plain English that would more accurately inform the public:

Representative Ryan's Roadmap: Interesting Implied Macro Impacts - I've read and re-read the Heritage Foundation's analysis of how the projections for the Ryan plan were developed. I'm sure it's my own failing, but I still don't quite understand what is going on. And this is after Heritage took down their original documentation that indicated unemployment would eventually hit 2.8%.[0]  (Here is National Journal's take on the original Heritage analysis.) Even ignoring the unemployment number (which seems to have moved a bit, although not reported in the document), I thought it worthwhile to mention the other oddities of the report. First, it is important to note that the simulation forecasts relative to the CBO alternative fiscal scenario, rather than extended baseline, as would typically be the case. Obviously, this makes the Ryan plan "look better" in terms of budget deficits and (given Heritage's modeling approach incorporating substantial supply side effects) in terms of growth. Second, it is very interesting to take a look at the forecasts. For GDP (Figure 1), the forecasts imply a noticeable increase, amounting to a 2.4% higher GDP (in log terms, relative to baseline) by 2021. Perhaps reflecting the assumptions built into the model, despite reduced effective personal tax rates (see Appendix 3 tables), personal tax receipts are higher (Figure 2).

The Ryan Plan Is "Fundamentally Immoral" - Even people not particularly enamored with government involvement in health insurance hate the Ryan plan for Medicare: You put the load right on me, Democracy in America: Paul Ryan's plan to replace Medicare with a system of vouchers for seniors to buy health care on the private market ... ends the guarantee that all American seniors will have health insurance. The Medicare system we've had in place for the past 45 years promises that once you reach 65, you will be covered by a government-financed health-insurance plan. Mr. Ryan's plan promises that once you reach 65, you will receive a voucher for an amount that he thinks ought to be enough for individuals to purchase a private health-insurance plan. ... If that voucher isn't worth enough for some particular senior to buy insurance, and that particular senior isn't wealthy enough to top off the coverage, or is a bit forgetful and neglects to purchase insurance, there's no guarantee that that person will be insured. It's up to you; you carry the risk.

Did the Federal Budget World Plunge in A Budget Hot Tub Time Machine Yesterday? - If you're a federal budget watcher, there was a moment yesterday when you had to wonder whether you had entered a parallel universe or traveled back in time. The day began with discussion of a budget plan proposed by House Budget Committee Chairman Paul Ryan (R-WI) that relies on the type of rosy economic scenario that made several of Ronald Reagan' budgets famous in the 1980s.  Then we had the apparent collapse of the talks over a continuing resolution that could lead to the types of shutdowns we had in 1995 and 1996. And, as Bruce posted about several days ago, the thoroughly discredited idea of a balanced budget amendment to the U.S. Constitution that has been discussed at least as long as I've been working on the federal budget, that is, since the mid-1970s, once again is being discussed.

Ryan Plan Unconstitutional Under Senate GOP Balanced Budget Amendment  - Under the balanced budget amendment proposal unveiled last Thursday with all 47 GOP senators on board, the blueprint presented by House Budget Committee Chairman Paul Ryan on Tuesday would be unconstitutional until sometime after 2030. It’s not that Ryan’s budget plan doesn’t balance; excluding interest payments, it would balance starting 2015, which does clear the bar set by the balanced budget amendment. But primary (or noninterest) spending, though down sharply from close to 23% of GDP this year, would remain at 17% of GDP or higher beyond 2030. Never mind that Ryan and his GOP cohorts have just taken on tremendous political risk by proposing to turn Medicare into a fixed-payment voucher for buying private health coverage or that he would cut $750 billion in Medicaid costs this decade while providing flexibility — and shifting responsibility — to the states.

The Ryan Budget: Voodoo Economics Redux - On Tuesday morning, Republican Representative Paul Ryan released a budget plan that would slash spending over the next few decades with no increase in taxes and very limited cuts to defense programs. It’s like a stool with only one leg. It will not stand. Although it’s a wobbly stool—in both political and in policy terms—it will have a big impact on the debate. David Brooks calls it “a moment of truth,” noting that despite a presidential commission that has issued a bold plan for getting our fiscal house in order, the President failed to endorse its work. Here’s what the progressive rebuttal should be in a nutshell: 1) point out that voodoo economics is back in full gear; 2) start talking about tax reform and its potential to produce a fairer, simpler, and more pro-growth system that has the added advantage of plugging a big hole in the budget; 3) instead of worrying about protections for the elderly, many of whom are quite affluent, remind people that, whether young or old, wealthy Americans have made out like bandits in recent decades and that it’s time to do something for working families of modest means; 4) rethink America’s defense posture and whether we can continue to be the world’s policeman, and 5) be open to some reforms to Medicare and Medicaid but only if they’re combined with additional revenues and a more streamlined military.

Why Would Anyone Call Congressman Ryan's Plan "a Budget"? - More on the health-care later, but let me be clear: Congressman Paul Ryan's "plan" is NOT a budget. Budgets show Sources and Uses. As the CBO analysis makes clear, this "budget" is no more a budget than Ryan's last round of fakery. To wit: The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff. The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028 and remains at that level thereafter. There were no specifications of particular revenue provisions that would generate that path. (CBO, page 11; emphasis mine)  This is the equivalent of my current household budget, which is heavily dependent upon winning the lottery sometime in the next three years even though there is no provision for buying tickets.I'll call Ryan's proposal a budget when—as, for instance, Obama's does—he specifies Sources as well as Uses. Until then:

Even More Ryan Ridiculousness - Krugman -Here’s the table from the CBO report you really want to focus on: Note the two boxed lines. The first shows the supposed path of government spending on health care, which is supposed to go down as a share of GDP despite an aging population and the long-term rising trend in health care costs. We know where that comes from: Ryan is proposing health care vouchers that grow only with general inflation — an incredibly stringent constraint, which nobody serious believes can be met. The second shows spending on everything other than health care and Social Security, which is projected to fall in half as a share of GDP in just 10 years, and eventually to fall to levels comparable to those during the Coolidge administration — even as the US presumably maintains a post-isolationism-level military force. Riiiggghhht. This is just ridiculous; the only thing more ridiculous is the praise the plan is getting.

Same As He Ever Was - Paul Krugman - A correspondent asks how it’s possible that Paul Ryan would release such an extreme, unprofessional plan. Folks, he’s always been like this. The image of Ryan as a thoughtful, serious conservative never had any basis in reality. The original “roadmap” was just as nonsensical as the new proposal; the Ryan-led attack on health reform was crude nonsense. Ryan the serious deep thinker was a fantasy of Beltway types who think entirely in terms of images and perceptions, and can’t be bothered to dig into the policy details. Oh, and the haplessness of Heritage is also old news to anyone who has been paying attention to the think tank’s actual output. I admit, I really thought that the experience of Busholatry and its demise would change something. But no. And those pundits who now have egg on their faces had it coming.

Ludicrous and Cruel, by Paul Krugman - Many commentators swooned earlier this week after House Republicans, led by the Budget chairman Ryan, unveiled their budget proposals. They lavished praise on Mr. Ryan, asserting that his plan set a new standard of fiscal seriousness.  Well, they should have waited until people who know how to read budget numbers had a chance to study the proposal. For the G.O.P. plan turns out not to be serious at all. Instead, it’s simultaneously ridiculous and heartless. Let me count the ways — or rather a few of the ways, because there are more howlers in the plan than I can cover in one column. First, Republicans have once again gone all in for voodoo economics — the claim, refuted by experience, that tax cuts pay for themselves. Specifically, the Ryan proposal trumpets the results of an economic projection from the Heritage Foundation, which claims that the plan’s tax cuts would set off a gigantic boom. Indeed, the foundation initially predicted that the G.O.P. plan would bring the unemployment rate down to 2.8 percent — a number we haven’t achieved since the Korean War. After widespread jeering, the unemployment projection vanished from the Heritage Foundation’s Web site, but voodoo still permeates the rest of the analysis.

Reform, Real and Fake - Ezra Klein has a very good post on all the ways in which the Affordable Care Act makes a serious effort to grapple with health costs, while the Ryan plan doesn’t: The bottom line is this: The Affordable Care Act is actually doing the hard work of reforming the health-care system that’s needed to make cost control possible. Ryan’s budget just makes seniors pay more for their Medicare and choose their own plans — worthy ideas, you can argue, but ideas that have been tried many times before, and that have never cut costs in the way Ryan’s budget suggests they will. That’s why, when the Congressional Budget Office looked at Ryan’s plan, they said it would make Medicare more expensive for seniors, not less. The reason the deficit goes down is because seniors are paying 70 percent of the cost of their insurance out-of-pocket rather than 30 percent. But that’s not sustainable: We’ve just taken the government’s medical-costs problem and pushed it onto families. Precisely.

On averting deficits - DAVID BROOKS provides the counterpoint to the previous post: The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs. Raising taxes on the rich will not do it. There aren’t enough rich people to generate the tens of trillions of dollars required to pay for Medicare, let alone all the other programs. Democrats, thus, face a fundamental choice. They can either reverse President Obama’s no-new-middle-class-taxes pledge, or they can learn to live with Paul Ryan’s version of government. Until they find a way to pay for the programs they support, they will not be serious players in this game. They will have no credible plans and will be in an angry but permanent retreat. Now, this is a little unfair. Taxes on the rich can't close the gap, but they can narrow it. But Mr Brooks has a point. The Republicans have made it clear that they're willing, rhetorically at least, to put cuts to third-rail programmes like Medicare on the table.

What liberal deficit reduction would look like - Next week, the group of progressives plans to introduce its alternative to Ryan's proposal, called "The People's Budget." Based on an advanced peek provided by a senior Democratic aide, it promises to return the nation to surpluses by the end of the decade and reduce the debt, only with a much different approach from Ryan's.To extend the long-term solvency of Social Security, it would propose dramatically increasing payroll taxes on both the employer and employee side, and funneling the money into even more generous benefits. Payroll taxes are economically destructive, because they make it more expensive for employers to hire new workers, meaning lower real wages and higher unemployment. Yet the tax increases wouldn't end there. The People's Budget would rescind last year's tax deal to raise rates on higher income levels, boost taxes on capital gains and dividends, increase the estate tax, institute three "millionaire tax rates," with the highest reaching 47 percent, tax corporate foreign income, impose a "financial crisis responsibility fee," and institute a "financial speculation tax." Overall, taxes would rise to 22.3 percent of the economy, compared with 18.3 percent under the Ryan proposal.

Ryan Plan’s “Path to Prosperity” Is Just for the Wealthy, CBPP: House Budget Committee Chairman Paul Ryan’s name for his budget — “The Path to Prosperity” — is a cruel joke. For the last three decades, nearly all the gains of economic growth have gone to the tiny sliver of people at the top of the income scale. The challenge for policymakers is how to restore opportunity for middle- and lower-income Americans by once again widening the path of prosperity.  Unfortunately, Chairman Ryan’s plan would narrow it further.For the wealthy, Ryan’s proposals are pure gold:

  • A typical hedge fund manager would benefit from Ryan’s extension of the Bush tax cuts for high-income people; the average person making at least $1 million a year would get $125,000 a year in tax breaks.
  • Heirs to multi-million-dollar estates would benefit from Ryan’s estate tax proposal, which would let them inherit the first $10 million in estate value entirely tax-free.
  • High-income investors would benefit from Ryan’s elimination of Medicare taxes on their investment income.
  • And large numbers of high earners would benefit from Ryan’s call to cut the top rate to 25 percent, the lowest in 80 years.

Ryan and Taxes - Paul Krugman - Today’s column didn’t even mention the tax part of the Ryan plan — 800 words, you know. So, a bit about that. The Ryan plan calls for cutting the top marginal rate to 25 percent — lower than it has been at any time in the past 80 years. That in itself should tell you that this is a deeply unserious proposal: anyone who tells you that we have to face hard truths, that everyone must sacrifice, and by the way, rich people will pay lower taxes than they have at any time since the 1930s, is just engaged in a power grab. Beyond that, has anybody besides Bruce Bartlett noticed that Ryan still hasn’t gotten an independent estimate of the revenue losses from his tax plan? Last summer I pointed out that he was getting a free pass on tax cuts that appeared likely to lose a lot of revenue; his defenders came up with all sorts of excuses about how he couldn’t get anyone to do a proper estimate.  But that was 8 months ago, and his plan is now the official plan of the Republican party. At this point, the absence of any independent verification of the claim that he will collect 19 percent of GDP in revenue clearly reflects a deliberate evasive strategy: Ryan and his colleagues don’t want anyone looking at their numbers independently.

$3 Trillion Here, $3 Trillion There – Krugman - OK, $2.9 trillion. Anyway, pretty soon you’ll be talking about real money. Richard Rubin and Stephen Sloan direct us to a new Tax Policy Center assessment of the tax cuts in the Ryan plan (all, repeat all, of which go to top incomes and corporations) The people at TPC are careful to say that this is not a full assessment of the Ryan plan, because The proposed resolution includes measures to broaden the individual and corporate tax bases, but lacks sufficient detail for an estimate including those provisions. I’ll say. In fact, the proposal says it will broaden the tax base, but says nothing whatsoever about how. And it would take an awful lot of broadening to make up for the revenue losses, which are estimated at $2.9 trillion. As Rubin and Sloan point out, even completely eliminating the mortgage interest deduction wouldn’t be enough to close more than a fraction of the gap.And what does the chairman of the Ways and Means Committee have to say? His spokesperson says, The pro-growth tax reform proposal included in Chairman Ryan’s budget proposal is both revenue neutral and holds revenue at historical norms. I believe that translates as, “We believe in voodoo. Also, arithmetic has a well-known liberal bias.”

"Serious" - Krugman - And there’s David Gergen, telling me that the Ryan plan, whatever its flaws, is “serious”. So I guess that’s the Very Serious People line. James Fallows has a very good take on this; my version would be this: I don’t think a budget plan is “serious” unless it has numbers that remotely add up, says something specific about how it will cut spending and/or raise revenue, and puts forward proposals that have at least some chance of actually going into effect.So, we have a plan that proposes to cut spending to Calving Coolidge levels, without explaining how it will do that; that includes $2.9 trillion in tax cuts, but asserts that it will make that up by broadening the base — yet says literally nothing about what that means; and has as its centerpiece a Medicare plan that will collapse as soon as seniors start getting their grossly inadequate vouchers.

Why We Must Raise Taxes on the Rich - Robert Reich - The only way America can reduce the long-term budget deficit, maintain vital services, protect Social Security and Medicare, invest more in education and infrastructure, and not raise taxes on the working middle class is by raising taxes on the super rich.Even if we got rid of corporate welfare subsidies for big oil, big agriculture, and big Pharma – even if we cut back on our bloated defense budget – it wouldn’t be nearly enough. The vast majority of Americans can’t afford to pay more. Despite an economy that’s twice as large as it was thirty years ago, the bottom 90 percent are still stuck in the mud. If they’re employed they’re earning on average only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. (Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.) Yet even as their share of the nation’s total income has withered, the tax burden on the middle has grown. Today’s working and middle-class taxpayers are shelling out a bigger chunk of income in payroll taxes, sales taxes, and property taxes than thirty years ago. It’s just the opposite for super rich.

Are progressive income taxes fair? - Kip Hagopian says no. He considers various arguments in favor of progressivity and isn’t persuaded. I appreciate Hagopian’s attempt to engage these arguments. Unfortunately, he says little or nothing about the three I find most compelling.

  • 1. Luck. Many of the things that determine our incomes — intelligence, creativity, physical and social skills, motivation, persistence, confidence, connections, discrimination, occupation, employer, spouse, inherited wealth — are in significant measure a product of chance. They are heavily influenced by genes, our parents, our childhood neighborhood and schools, timing, and various fortuitous occurrences. Opponents of progressive taxation often emphasize the role of effort, but much of the variation in effort is itself a product of luck.
  • 2. Ability to pay. Higher-income households tend to be able to pay not only more dollars but also a larger share of their income without suffering.
  • 3. Income tax progressivity helps to offset the regressivity of other taxes. Some taxes are regressive, with higher-income households paying a smaller share of their income than lower-income households.

How to Soak the Rich without Making them buy Bigger Houses - This is new. This post by Matthew Ygelsias isn't about monetary policy, and I don't find it convincing at all. He wrote:if you raise high-end marginal rates while leaving deductions alone, what you do is massively increase the value of the deductions. The home mortgage interest tax deduction, for example, is both distributively regressive and also economically damaging by shunting too much money into the housing sector. If wealthy people start paying a marginal income tax rate of 47 percent, then the incentive to overconsume housing becomes much more intense. A economically sound approach to the tax code needs to go after some of these deductions, and that means some middle class families will have to pay somewhat more. Yglesias almost contradicts himself when he notes that increased marginal tax rates on the rich increase the value of deductions *and* argues that to avoid that problem we must raise taxes on middle class people. This isn't true unless one assumes that the options open to legislators are limited (in particular that they don't include something which might be called an "alternative minimum tax" like, say, the alternative minimum tax).

Tax Reform and the Long-Term Budget - There are basically no policy experts who think that the current system is a good one. It is convoluted, costly, and economically damaging.  The debate here is about whether this is fundamentally a revenue issue or spending issue: Do we need more revenue or less spending, or some combination? Often tax reform gets lumped into these long-term budget debates. The recent budget alternative proposed by Rep. Paul Ryan, Chairman of the House Budget Committee, includes tax reform (and references the President's Deficit Commission report from December) along with all the other budgetary changes. However, two veterans of the historic 1986 tax reform told the congressional Joint Committee on Taxation on Wednesday that while tax reform is necessary, it should be separated from the budget debate. Dick Gephardt, former U.S. House Majority Leader, and James Baker, Former Treasury Secretary, said that tax reform won't happen unless you have both parties on board. They fear that including it in the contentious long-term budget debate will doom tax reform. "If tax reform gets caught up in that, you won't have tax reform," Baker said.

Paul Ryan budget: Does it show why we need to raise taxes? - Rep. Paul Ryan's grand plan to dig America out of its fiscal hole is an extreme exercise in small government by brute force. It slashes Medicaid, the health care plan for the poor and disabled, by giving states block grants that grow slowly to force them to cut care or kick people out. It makes drastic Medicare cuts for those under 55, turning the program into a voucher system in which seniors will have to pay more. It takes funding from Pell Grants, food stamps, and a host of other domestic programs. It also repeals the Dodd-Frank financial regulatory reform law, almost as an afterthought. By 2030 or so, it wrenches the country back into the black—but only by relying on huge cuts and eyebrow-raising revenue and employment projections. Of course, balancing the budget is never easy. But, by mandating harsh program cuts without providing realistic new sources of tax revenue, the Ryan plan makes it unnecessarily hard. What the Ryan plan really shows—inadvertently, I am sure—is that balancing the budget will require raising taxes.

The Logic of Cutting Corporate Taxes - Laura D’Andrea Tyson - Corporate taxes –- or rather their absence –- have jumped to the top of the news in recent weeks, even drawing humorous commentary from Jon Stewart and Bill Maher. Many Americans are outraged to learn that some profitable American corporations pay little or no taxes in the United States, especially when corporate profits enjoyed their fastest growth ever in 2010. Shouldn’t the government raise the corporate tax rate to require corporations to contribute their “fair share” to deficit reduction and to enhance the progressivity of the tax system? The answer is no. In today’s world of mobile capital, increasing the corporate tax rate would be a bad way to generate revenues for deficit reduction, a bad way to increase the progressivity of the tax code and a bad way to help American workers and their families. After the 1986 tax overhaul, the United States had one of the lowest corporate tax rates among the advanced industrial countries. Since then, these countries have been slashing their rates both to attract investment by American and other foreign companies and to discourage their own companies from shifting operations and profits to foreign locations offering even lower tax rates.

Who Benefits From Those Tax Breaks? All of Us. -“We have met the enemy and he is us,” said the cartoonist Walt Kelly. He was talking about preserving the environment, but he could have been describing our national addiction to tax credits, deductions, and exclusions.These tax breaks increase after-tax income for nearly all of us. At a panel discussion this afternoon, my Tax Policy Center colleague Eric Toder described how eliminating every tax preference would cut average after-tax incomes by more than 11 percent. Keep these numbers in mind as Congress considers the many plans on the table aimed at cutting tax preferences and lowering tax rates. The most recent: The House Republican fiscal plan rolled out yesterday by Budget Committee Chairman Paul Ryan (R-WI).  The Ryan plan would cut the top individual and corporate tax rates to 25 percent and offset the cost by curbing tax deductions, credits, and exclusions. The plan does not, however, identify which preferences would be cut or how. Btw, it would use none of the revenue from eliminating tax breaks to help reduce the deficit.

Your 1040 Tax Form Lies to You - If you pick up a copy of a 1040EZ U.S. income tax form with all the instructions, particularly pages 36-37 (click on the graphic to the right for a high resolution version of the IRS chart), you’ll discover that the U.S. government only spends 22 percent of its money on “National defense, veterans, and foreign affairs.” The form admits that you could leave out the “foreign affairs” part and still be at 21 percent.  However, if you take a look at the pie chart created by the War Resisters League (click here for a two-page PDF of the alternate analysis), you’ll see 54 percent of the budget going to the military. What gives? Well, the income tax form plays a number of dirty tricks on you. The first is that it lumps Social Security and Medicare into the budget, even though they are not funded with income taxes. Take that out and the 1040EZ now tells us that the military makes up 32 percent of national public spending. But that’s still a long way from 54 percent.

Things I did not say - Greg Mankiw - I have long been what might be called a moderate supply sider (as well as a new Keynesian on various issues of macro theory).  I believe that tax rates have important influences on behavior and, as a result, tax hikes do not generate as much revenue as static estimates suggest.  However, I have long been skeptical that the United States is on the wrong side of the Laffer curve, except perhaps in a few special cases. So imagine my surprise when I read this headline over at Bloomberg: Mankiw Says Higher Taxes Won’t Increase Revenue The brief article alleges to summarize what I said in an interview. My first reaction was, I didn't say that. My second reaction was, did I misspeak?  Fortunately, the audio of the interview is right there.  So I listened to myself (always a painful experience), and I think I said what I really believe--that tax hikes do not generate as much revenue as you might think.  The Bloomberg headline is an unfortunate misrepresentation.

Want a Flat Tax? I Got a Flat Tax for You - One percent of financial assets. Personal and corporate. Annually. With somewhere north of $55 trillion in U.S. financial assets out there (2009, down from $63 trillion in 2007), a Financial Assets Tax would generate more than $550 billion in annual revenue. What could we do with that revenue? Here are some options:

  • • Eradicate taxes on corporate profits, dividends, and capital gains, and cut income taxes by between 22% and 51%. (Depends on which tax year you're looking at; this for 2007-09. NIPA Table 3.2.
  • • Pay off some of our national debt, invest in productive infrastructure to build true national wealth, greatly expand the EITC (and index it to unemployment) to turbocharge the real economy, or...
  • • Some equitable and economically efficient combination of the above

Why should we do this?  Simple: greater prosperity and greater equality. Both. This idea seems to have far greater upsides than downsides. But I've undoubtedly missed some things, which I hope my gentle readers will fill in. Here are some of the issues involved:

Tax Havens and Treasure Hunts - Our budget deficit would be smaller – and pressure to cut social programs lower – if corporate tax revenues had not declined over time relative to gross domestic product and relative to individual income tax revenues. Corporate America is a world leader in creative tax minimization. As David Kocieniewski reported in The New York Times, General Electric used some particularly innovative strategies to take advantage of overseas tax havens, including “offshore profit-shifting.” The Boeing Corporation, a major federal contractor, has had a net rebate in federal taxes over the last three years, though the company points to pension contributions and research credits that have reduced the bill. In 2008, the Government Accountability Office reported that 83 of the 100 largest publicly traded corporations in the United States had subsidiaries in jurisdictions listed as tax havens; it cautiously emphasized that this did not prove that their decisions to locate there were motivated by tax minimization.

Confusion and language American Style - What is this the definition of: The global economy, and capitalism, will be “reset” in several important ways.The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner. GE 2008 Annual report As it relates to Robert's post on public confusion regarding the budget, that's not all they are confused about. This man thinks the statement is the definition of liberalism: This is all to say that a bias towards the interests of General Electric is a liberal bias. The company advances and benefits from leftist policies, so to say that a news outlet supports GE's political interests is to say that it supports leftist policies. He makes that claim because GE lobbied for the Waxman-Markey climate bill which according to GE exec John Rice: "If this bill is enacted into law it would benefit many GE businesses." So, his reasoning is, because GE sees money in liberal policy (clean air, alt energy) it means GE is liberal. Maybe he's correct as most of the world calls what we have happening here with such a statement “and also an industry policy champion, a financier, and a key partner

Mr. Greenspan takes it all back. His Old Time Religion was right after all - It all seems so long ago! On October 23, 2008, Alan Greenspan choked up a mea culpa for his deregulatory policy as Federal Reserve Chairman. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House. “The whole intellectual edifice, however, collapsed in the summer of last year.” For a moment he seemed to be rethinking his lifelong assumption that the financial sector would seek to protect its reputation by behaving so honestly that its customers would gain from dealing with it.. “I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms.” The fact that they simply sought predatory gains for themselves – in the form of losses for their customers and clients (and it turns out, taxpayers”) was “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” But the past two or three years evidently have given Mr. Greenspan enough time for a re-think. In Wednesday’s Financial Times he returns to his old job proselytizing for deregulation. His op-ed, “Dodd-Frank fails to meet test of our times,” is a mea culpa to his co-religionists for his apostate 2008 mea culpa.

Sleaze Watch: Former NY Fed Bank Supervisors Lobbying to Neuter Regulations -  Yves Smith - The level of corruption in our society is so high that it is not only out in the open, but actively enabled by people in very high places. It shouldn’t be any surprise that the famed Turbo Timmie, a man who somehow was forgiven for having neglected to pay payroll taxes while a consultant to the IMF, would not be terribly sensitive as far as ethics rules are concerned. The latest fiascos involve the already-overly-bank-friendly New York Fed. We’ve commented on some recent revolving door horrorshows. One is that David Stevens, the Commissioner of the FHA and Assistant Secretary for HUD is going to join the Mortgage Bankers Association, and did not immediately quit his government posts. How can anyone pretend that his actions while still in office will not be hopelessly tainted by Similarly, Brian Peters, whose duties at the New York Fed included overseeing Fed loans to TARP recipients, most notably AIG, went from the central bank to AIG, during the period when AIG lobbed its bid on Maiden Lane II. We suspect that AIG actually secretly preferred the outcome that resulted, that of having the bonds auctioned but presumably made its offer at a favorable enough price that it would also have been able to buy them with a decent built-in profit.   Chris Whalen, in his latest Institutional Risk Analyst newsletter, discusses the institutionalization of the revolving door at the New York Fed. And he highlights how Geithner continues to wield power there, which in turn allows former bank regulators at the Fed (yes, a virtual oxymoron) to lobby Geithner more effectively from their new posts.

Wall Street Lobbies Treasury on Dodd-Frank - Wall Street has plenty to say about the Dodd-Frank Act, and the Treasury Department1 is listening.  The financial regulatory law has been the topic of conversation at dozens of meetings over the last several months between top government officials and titans of finance.  In February, Treasury officials met with finance industry executives and lobbyists from about three dozen banks, asset management companies and trade groups, according to government records2. Executives from Wall Street’s biggest names — Goldman Sachs3, JPMorgan Chase4, Morgan Stanley5 and Citigroup6 each huddled with Treasury officials to discuss Dodd-Frank’s rules for derivatives, proprietary trading and capital levels. In contrast, Treasury officials heard little in February from consumer advocates and lobbyists who favor financial regulation7, the records show.

Don’t listen to the banks’ lobbyists – Basel III is way too soft - The new, recently agreed upon rules for banks were a “landmark achievement”, Trichet boasted. They “will enhance banks’ safety and soundness, thereby strengthening the stability of the financial system as a whole”, Europe’s most important central banker said. Today, seven years later, a lot of academics are convinced that this regulatory framework has precipitated the worst financial crisis since the Great Depression. Under Basel II banks had been able to engage in reckless business. They became highly leveraged and accumulated enormous risks. Basel III is supposed to fix this awkward situation. In September 2010, the world agreed upon a new, more stringent regulatory regime.  Guess how Jean-Claude Trichet sees Basel III? Well, exactly. „It’s a major, major achievement”, he said in September 2010 according to Bloomberg. However, Adair Turner, chairman of the Financial Services Authority, the UK’s financial watchdog recently expressed significant doubts: “The world’s regulatory authorities […] thought that they had it right when they agreed Basel II, and that was clearly wrong. So have we now got it right?” Probably not. There is mounting evidence that Trichet’s judgement will be proven wrong again. Several academic papers come to the conclusion that Basel III is way too soft and not sufficient for guaranteeing financial stability in the long run.

Reducing the Chance of Pulling the Plug on Liquidity - The near collapse of the financial system that set off the global crisis was due in part to financial institutions suddenly lacking access to funding markets, and liquidity drying-up across securities markets. Many financial institutions were unable to roll over or obtain short term funding without sustaining significant losses. This threatened to sink them. Financial institutions did not factor in how their own responses to a liquidity shortfall could make the entire system shut down and less stable—that is, they underestimated their contribution to systemic liquidity risk in good times, and did not bear the cost of their actions on others in bad times. It only takes a few institutions to pull the plug on a liquidity-filled bathtub before it runs dry, and the central bank needs to open the spigots again.   The key then is to make sure that firms have less incentive to pull the plug. This requires establishing the right incentives in the good times.  We argue that more needs to be done to introduce macroprudential policies–ones that take into account the big picture of the financial system as a whole

Regulating the Shadow Banking System - The problem with Dodd-Frank, and with Basel III as well, is that they start with the banking system, not the shadow banking system.Give credit where credit is due. Everyone (I hope) now appreciates that so-called “microprudential” safeguards are not enough, and this is so even if we extend the traditional focus on solvency (capital adequacy) to include also liquidity.“Macroprudential” safeguards are needed also, to put bounds on the apparent instability of the system as a whole. Everyone says it, but what does it mean? What it used to mean was control of financial aggregates, back when Hawtrey’s writing about the inherent instability of credit translated the trained instincts of practical bankers into the King’s English. If aggregate credit is expanding too fast, then watch out. If aggregate money is also expanding too fast, then take action immediately, since it will soon be too late.This ancient central banker’s wisdom is resurfacing today, but mainly for lack of anything better. We heard it from Otmar Issing at the recent IMF conference. Here is Adair Turner’s version, from his 16 March speech at Cass Business School:

The Problems With Derivatives Clearing - The International Monetary Fund is out with a new paper on derivatives after the storm, and it is a strangely academic exercise for an institution that one would hope would be a bit practical. In short, the paper argues that the focus in the Dodd-Frank Act on central clearing of derivatives is not the best solution and that central clearing parties are apt to become “too big to fail.” The first point seems to ignore the current political reality in the United States. Many members of the House majority seem to doubt the need for derivatives regulation at all. Apparently, they think such regulation destroys jobs, although the connection between employment and derivatives is a bit vague (it apparently has something to do with the benefits of unchecked lending).  In any event, the realistic options now seem like there reside somewhere between what we have in Dodd-Frank and nothing; a new proposal being enacted is about as likely as the Portland Sea Dogs winning the World Series this year.

Quelle Surprise! Fed and Treasury Keen to Find As Few Systemically Risky Firms as Possible - Yves Smith - We seem to be going back to the world before the crisis in number of respects. The first is that the Financial Times is again running rings around the Wall Street Journal on markets and financial services industry coverage. The crisis forced the Journal to throw a lot of resources on those beats, with the result that it became pretty competitive.  The second is that the authorities seem to be engaged in a weird form of cognitive dissonance. They clearly can’t pretend the crisis didn’t occur; if nothing else, all the extra new studies and rulemaking imposed by Dodd Frank make that impossible. Yet in every manner imaginable, they behave as if no financial markets near death event took place. The object lesson of the evening is a story in the Financial Times on a battle between the FDIC, which is responsible for resolution of systemically important firms under Dodd Frank versus the Fed and Treasury. The struggle is over how many non-banks are to put on the systemically important watchlist as required by Dodd Frank. No one wants to be on that roster; it leads to the potential to be subject to all sorts of proctological examinations.

Why Jamie Dimon Is Wrong About Bank Regulation -Can it be that just 30 months after the Panic of 2008, some smart bankers have forgotten the main lesson of the financial system's epic fail? Not too long ago, virtually every large financial institution in the U.S. stood at the precipice of failure, in large measure because they didn't have anywhere near enough capital to back the debt they had accumulated. You would think that it would be obvious that regulators should err on the side of caution when drafting new capital requirements. You would think that bankers who survived September 2008 would appreciate the toxic combination of arrogance and incompetence that characterizes their peers. You would think they'd have some sense of perspective on how much their survival rests on the indulgence of taxpayers. Well, you would be wrong. On Wednesday, as the Financial Times noted, James Dimon, the CEO of J.P. Morgan Chase, appeared at a Chamber of Commerce event. Speaking of calls for banks to be far less leveraged than they were in the past, Dimon urged caution. Capital ratios set too high, he warned, would be "the nail in our coffin for big American banks." Regulators should eschew the calls heard in the U.K. and elsewhere for banks to hold 15 percent of capital or more."If you want to set it so high that no big bank ever goes bankrupt. . .I think that would greatly diminish growth," Dimon said.

Faulty Reasoning Behind Calomiris Post Dodd Frank Reform Proposals - Yves Smith - I hate to take issue with a post by Mike Konczal on some Dodd Frank reform ideas posed by Charles Calomiris in “Beyond Basel and Dodd Frank“, since Mike is usual a source of reliable analysis. But that’s why it’s particularly important to let one of the rare times he goes off beam not to lend credence to reform ideas that are sorely wanting. The problem in general with Dodd Frank and subsequent fixes is they don’t come close to doing what needed to be done, which is dramatically reduce the ability of financial players to wreck the economy for fun and profit. The fact that the banks howl bitterly over some half-hearted measures should not be mistaken for effectiveness. The big dealer banks have realized that they’ve emerged more powerful, and better able to extract rents, than before the crisis, so why not press home their advantage? Their new position is that any restriction on their profit-seeking is an intrusion and should be beaten back. Witness some recent evidence: their foot-dragging on clearinghouses for swaps. The normally accommodating New York Fed is forming a group to “compel” the banks to live up to their commitments. Of course, with enablers like Timothy Geithner, who has signaled that he is leaning toward exempting foreign exchange derivatives from Dodd Frank implementation, the banks don’t have to fight all that hard.

Frank Seeks to Amend Dodd-Frank - Rep. Barney Frank announced Tuesday that he’d like to amend a provision of his sweeping Dodd-Frank financial law – the one that limits banks’ processing fees.  And he made it clear that’s all he wants to change. The debit card fee provision, he said, is “the only part of the financial reform bill that needs to be amended.”Just how it would be amended isn’t certain.  The Massachusetts Democrat said he supported delaying implementation of the Federal Reserve’s forthcoming rule that would put the fee limits into practice. “I support legislative action to postpone the deadline so that we can revisit it,” Mr. Frank said in a statement. It’s unclear if Mr. Frank’s endorsement will increase the odds of congressional passage because the big battle will take place in the Senate. The provision to rein in the debit card processing fees has a powerful supporter in Sen. Richard Durbin of Illinois, the Senate’s No. 2 Democrat who spearheaded efforts to include the provision in the Dodd-Frank bill. He has vowed to try to fend off any efforts to delay the rules, which he says would help small retailers and add transparency to the broken interchange fee system.

A Potential Left-Right Consensus For Financial Reform? A Telling Example with the Miller-Moore Amendment - Reihan Salam, in trying to navigate a potential left-right program for building on and reforming Dodd-Frank, offers us Charles Calomiris’ short paper Beyond Basel and the Dodd-Frank Bill.  Salam asks ”Is this a program around which we can build a [left-right] consensus?”There’s a part of the paper that’s really interesting for how financial reform played out DoddFrank makes unlimited bailouts of creditors possible. This is a mistake that could be easily corrected by explicitly limiting the protection of creditors to no more than “x” percentage of their principal. Even if creditors knew that only 90% of their principal was protected, that would provide a powerful incentive for them to be careful about the riskiness of the banks in which they invest. By making that percentage sufficiently generous (say, 90%), the rule should be credibly enforceable, since there could be no justification for the view that permitting a 10% loss to a creditor would produce a chain reaction of cascading loss leading to a global financial meltdown. This is one of the hallmarks for the conservative reform of Dodd-Frank, presented at the conservative think tank Economics 21 in October, 2010. Creditors would only get back 90% of their principal in case of a winddown. If conservatives could do something to fix Dodd-Frank, this would be it.

Big Banks Have A Powerful New Opponent - Simon Johnson - As a lobby group, the largest U.S. banks have been dominant throughout the latest boom-bust-bailout cycle – capturing the hearts and minds of the Bush and Obama administrations, as well as the support of most elected representatives on Capitol Hill.  Their reign, however, is finally being seriously challenged by another potentially powerful group – an alliance of retailers, big and small – now running TV ads (, by Americans for Job Security), web content (, by American Family Voices), and this very effective powerful radio spot directly attacking “too big to fail” banks:  The immediate issue is the so-called Durbin Amendment – a requirement in the Dodd-Frank financial reform legislation that would lower the interchange fees that banks collect when anyone buys anything with a debit card.  Retailers pay the fees but these are then reflected in the prices faced by consumers.The US has very high debit card “swipe” fees – 44 cents on average but up to 98 cents for some kinds of cards.  These fees are per transaction – representing a significant percent of many purchases but posing a particular problem for smaller merchants. This is estimated to be around $16-17 billion in annual revenue.

Obama reviews names to run consumer agency: White House - President Barack Obama has not yet selected the head of a new consumer financial protection agency, the White House said.A source aware of the process told Reuters on Tuesday that the White House is considering Federal Reserve Governor Sarah Raskin and former Michigan Governor Jennifer Granholm to run the Consumer Financial Protection Bureau, set to open in July."The President is considering a number of candidates for the position of director, but no decisions have been made and we will not comment on speculation about potential candidates before the President makes his decision," said White House spokeswoman Amy Brundage. The source did not say whether other candidates in addition to Raskin and Granholm were under consideration.

Republicans aim to weaken consumer bureau -- House Republicans on Wednesday detailed a new barrage of legislative measures they plan to pursue that would dilute, delay and curtail powers1 of the new Consumer Financial Protection Bureau (CFPB). "This is just the beginning of what will be an ongoing dialogue of how to better reform the CFPB,"  "The current structure simply puts too much power in the hands of one individual and does not allow for sufficient oversight of the regulations put forth by the bureau." The new consumer bureau was the most popular part of the Wall Street reforms passed into law last year. But it was also the most politically controversial, barely emerging after more than a year's worth of legislative wrangling. The bureau is an independent agency, funded by fees that banks pay to the Federal Reserve. Beginning on July 21, it will be charged with regulating credit cards2, mortgages and other financial products like payday loans.

Elizabeth Warren maintains CFPB is not without oversight - Elizabeth Warren, architect of the Consumer Financial Protection Bureau, defended the fledgling agency from allegations that it lacks appropriate oversight while speaking to journalists on Friday. "The consumer agency will be subject to the administrative procedures act," Warren said. She added that the CFPB also is subject to judicial review to  ensure it stays within the constraints of lawmakers and can be overruled by Congress. "The consumer protection agency is the only bank regulator whose rules can be overruled by another group of agencies," she said. "We cannot interfere with other agencies' rulemaking efforts, but other agencies can veto our rules. This is another assurance that we can be held accountable for our actions." Warren said the CFPB also is subject to procedural and funding issues, although under its current funding model, the bureau is one of a few agencies that will not be impacted by the possibility of a government shutdown.

How Secrecy Undermines Audit Reform - For the auditing industry, the financial crisis was really not that bad.  While nearly every other group involved in the financial system — banks, mortgage brokers, bond rating agencies, derivatives dealers and regulators — faced severe criticism and new legislation, auditors largely escaped unscathed.  Dodd-Frank law did nothing to the auditors.  That was in sharp contrast to the previous round of scandals — the Enron and WorldCom accounting frauds that led to the enactment in 2002 of the Sarbanes-Oxley law. That law established the Public Company Accounting Oversight Board to audit the auditors. With a second set of eyes looking over their shoulders, it was hoped, auditors would do a better job.  While auditors may be doing a better job, that does not necessarily mean they are doing a good one.

Inside Job, Oscar-Winning Documentary, Now Online (Free) -  Now there is absolutely no reason for anyone to not see this movie. In late February, Charles Ferguson’s film – Inside Job – won the Academy Award for Best Documentary. And now the film documenting the causes of the 2008 global financial meltdown has made its way online (thanks to the Internet Archive). A corrupt financial industry, its corrosive relationship with politicians, academics and regulators, and the trillions of damage done, it all gets documented in this film that runs a little shy of 2 hours. Inside Job (now listed in our Free Movie collection) can be purchased on DVD at Amazon.. As Charles Ferguson reminded us during his Oscar acceptance speech, we are three years beyond the Wall Street crisis and taxpayers (you) got fleeced for billions. But still not one Wall Street exec is facing criminal charges. Welcome to your plutocracy… see it here:

Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering - Yves Smith - If this news story does not prove that banks are effectively above the law, I don’t know what does. The Guardian, in an account yet to be picked up anywhere in the US media (per Google News as of this posting, hat tip readers May S and Swedish Lex) reports that Wachovia was at the heart of one of the world’s biggest money laundering operations, moving $378.4 billion into dollar-based accounts from Mexican casas de cambio, which are currency exchange firms. While these transfers took place over a period of years, the article notes that it equals 1/3 of Mexican GDP. And the resolution? Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year’s “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine. The operation may have started sooner, but the Wachovia admitted in the settlement that as of 2004 it had reason to address the procedures used for these transfers and chose not to.

SEC Takes Light-Touch Approach Against Lawbreakers, Critics Say…The nation's fourth-largest bank agreed to pay an $11 million fine this week to settle federal charges that it misled investors by hiding critical facts and charging them excessive prices on portions of two billion-dollar securities during the height of the housing boom. Or put another way: For $11 million, one of the world's biggest investment firms was able to violate basic investor protection rules, defraud its customers, not admit wrongdoing, avoid a trial and likely pocket the profit off similar deals. The investors lost millions. The firm pocketed millions more in profit, more than offsetting the fine.  Wachovia Capital Markets, a unit of the Wachovia Corporation, sold securities tied to a pair of complex financial products linked to home loans. The products, known as collateralized debt obligations, or CDOs, contained slices of bonds backed by home mortgages. From 2004 through 2007, Wachovia, purchased by Wells Fargo in the fall of 2008, arranged 160 such deals worth more than $75 billion.

A suspicious sniff at CoCos - Contingent Convertible bonds (“CoCos”) are supposed to address this nonsensical phenomenon: During the financial crisis a number of distressed banks were rescued by the public sector injecting funds in the form of common equity and other forms of Tier 1 capital. While this had the effect of supporting depositors it also meant that Tier 2 capital instruments (mainly subordinated debt), and in some cases Tier 1 instruments, did not absorb losses incurred by certain large internationally-active banks that would have failed had the public sector not provided support. So it wasn’t just senior bondholders who were bailed out: in some cases, junior debtholders, pref holders and even equity holders got a degree of taxpayer support, which is pretty wild. This is the sort of thing that happen in a crisis, when you don’t have a proper resolution regime (but you do have banks that own each other’s debt or near debt). In the Glass-Steagall/FDIC world, bank resolution is done briskly and proactively: the bank is nationalized (yes, Virginia) and dismantled; operationally, it never misses a beat, and depositors are protected. Without an FDIC and its supporting legislation, it all gets messier, though. If your bank has to go bust before bondholders and depositors are tackled about the losses they are to take, then you will get bank runs. See Northern Rock, RBS, and it now seems, Dexia

The Re-Risking of Bank Balance Sheets - As a recent story in the Wall Street Journal reports, sub-prime mortgage loans are making a comeback: The prices on a representative slice of the subprime bond market have doubled from 30 cents on the dollar at the low point of the crisis to roughly 60 cents today… The willingness to take on risk is helping ordinary borrowers, too, by leading banks to make more nontraditional loans, such as jumbo mortgages, and to charge lower interest rates for them. Just a few years after the financial crisis, Wall Street is again piling onto subprime mortgages. As the Journal notes, most subprime bonds are still rated as “junk.” Yet the prospect of outsized returns has led many investors to ignore the risks. What is especially worrisome about this trend is that a driving factor behind the surge back into subprime is driven not by fundamentals (which, in real estate, still appear to be poor), but rather by government mandated capital standards. As one market observer at Moody’s puts it, "cautious optimism and relatively high capital levels has resulted in some re-risking of balance sheets."

Let's Be Realistic about TARP - The Troubled Asset Relief Program (TARP) saved the economy from collapse. In its absence, the holding companies of a number of large, complex financial institutions would have likely filed for bankruptcy. Given the inadequacy of the current Chapter 11 regime for dealing with all the competing claims of creditors, derivatives counterparties, depositors, partnerships, foreign subsidiaries, prime brokerage clients, and custodians, these bankruptcy filings would have likely resulted in a complete seizure of financial markets. Lending would have likely ceased completely until claims on bankrupt financial behemoths were resolved. Payrolls, payments to suppliers, and bank and brokerage account withdrawals would have likely been disrupted.  TARP not only rescued the economy from Armageddon, but also turned a profit in the process. These basic facts about the program have given rise to an unseemly triumphalism among TARP supporters, including Treasury Secretary Tim Geithner, who called TARP the “most effective government program in recent memory.” In March, Treasury sent out a flurry of press releases touting TARP’s miraculous capacity to save the economy while simultaneously generating a profit for taxpayers.

More Journalists Dignifying “TARP Was a Success” Propaganda - Yves Smith - I hope NC readers don’t mind my belaboring the issue of the TARP’s phony success, but every time I see the Administration’s propaganda parroted I feel compelled to weigh in. The trigger was an effort at a balanced assessment by Annie Lowrey at Slate, to which I have some objections, followed by some shameless and misguided cheerleading by Andrew Sullivan:Any effort to look at the performance of the TARP in isolation is pure three card monte, and accepting that framing plays into the Administration’s hands. You can’t look at its “success” of a program when its results are dependent on other operations, such as continued regulatory forbearance (aka extend and pretend), the Fed’s super low interest rates (a massive tax on savers), the continuing use of Fannie and Freddie to prop up the housing market, the train wreck hitting state and municipal budgets (the collapse in their revenues is a result of devoting fiscal firepower to the banks rather than the real economy; the experience of other severe banking crisis suggests that a short term fall in economic activity was inescapable, but less bank-coddling approaches would have led to a bona fide recovery).

CEO Pay Shoots Up At Expense of Workers - Here's the latest on how much richer the rich have gotten: Last year, according to a USA Today analysis of corporate filings, median CEO pay jumped 27 percent. Compare this to the paltry 2.1 percent pay raise earned by the typical American worker. In general, CEOs did so much better than everyone else due to their generous stock options, which surged in concert with last year's bull market. Wall Street argues that there's nothing wrong with such incentive-based pay; it alignes the interests of corporate execs with their companies' shareholders.  But is that all that matters? UMass economics professor William Lazonick notes that a huge chunk of corporate profits last year came not from legitimate gains, but from downsizing: While companies in the S&P 500 boosted profit 47% last year, much of that was due to cost-cutting and layoffs, not from the creation of businesses and growth, Lazonick says. Revenue, a gauge of the money flowing into businesses for selling goods and services, grew at a much slower pace than profit — and ended the year up just 7%.

Dimon Says Risk of $3 Billion in European Losses Worth Taking for JPMorgan - JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said potential rewards of investing in five European nations including Greece and Ireland outweigh the risk of losing $3 billion if the countries default.  “In the unlikely occurrence of extremely bad outcomes in all these countries, JPMorgan Chase ultimately could lose approximately $3 billion,” Dimon said today in a letter to shareholders. “But we are in the business of taking risks in support of our clients and believe that this is a risk worth bearing since we hope to be growing our business in these countries for decades.”  Portugal is set to start hammering out a bailout package that may total 75 billion euros ($107 billion), following Greece and Ireland in seeking European Union aid. Nations in the continent are seeking to quell the sovereign debt crisis that threatened to splinter the euro region.  “In the next year or two, we believe that the Euro Zone, in fits and starts, will work through its problems,”

JP Morgan head Jamie Dimon pockets 51% pay rise - Jamie Dimon, the head of JP Morgan Chase, received a pay rise of about 51% last year including a $5m (£3m) cash bonus, a move that angered campaigners for a levy on the banking industry. Dimon's remuneration package, disclosed by the bank on Thursday night, is the latest sign that pay on Wall Street is returning to pre-crash levels as its biggest players post higher profits. The 55-year-old chief executive was awarded stock options worth $17m and a "cash incentive" of $5m in 2010, on top of his basic salary of $1m. The previous year he had received no cash bonus and stock awards of just above $14.1m. In 2008, the year of the financial crisis and the collapse of Lehman Brothers, Dimon received just his base salary. Dimon has run JP Morgan since December 2005. The bank fared much better than its Wall Street rivals during the financial crisis, acquiring Bear Stearns in 2007 and Washington Mutual a year later. The bank made a net profit of $17.4bn in 2010, almost 50% higher than a year ago.

Goldman Sachs Almost Doubles Blankfein Pay Package to $19 Million - Goldman Sachs Group Inc. (GS) awarded Chairman and Chief Executive Officer Lloyd C. Blankfein $19 million in compensation for 2010, almost double the prior year, and granted him the first cash bonus in three years.  The total includes $5.4 million in cash, $12.6 million in restricted stock, a $600,000 salary and about $464,000 in other benefits, the New York-based firm’s proxy statement showed. Blankfein’s $9.8 million pay for 2009 included $9 million in restricted stock plus salary and other compensation.  Goldman Sachs, the fifth-biggest U.S. bank by assets, boosted Blankfein’s compensation for a year in which earnings dropped 38 percent and the stock price was little changed. The amount falls in the middle ground between 2008, when Blankfein, 56, and six other senior officers got no bonuses, and the record-setting $67.9 million award he received for 2007.

Nuns challenge Goldman Sachs over pay - They may be the masters of the universe, but Goldman Sachs bankers will face a challenge from shareholders invoking an even higher authority; four orders of nuns.The Sisters of Saint Joseph of Boston, Sisters of Notre Dame de Namur, the Sisters of St Francis of Philadelphia and the Benedictine Sisters of Mt Angel – all investors in the bank – have put their name to a proposal to review its remuneration policies, after it emerged its five most senior employees were collectively awarded $69.5m (£43m) in pay last year.The securities and exchange commission disclosed the challenge in a filing ahead of Goldman Sachs' annual meeting next month.The nuns asked that "shareholders request that the board's compensation committee initiate a review of our company's senior executive compensation policies and make available a summary report of that review by 1 October, 2011.

Unofficial Problem Bank list at 982 Institutions - Note: this is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for Apr 8, 2011. Changes and comments from surferdude808:  After a quiet week last week, activity picked-up on the Unofficial Problem Bank List as there were five removals and two additions. The changes results in the list having 982 institutions with assets of $433.2 billion compared with last week's total of 985 institutions and assets of $431.1 billion.

Reis: Office Vacancy Rate declines slightly in Q1 - From Bloomberg: Office Market in U.S. Begins Recovery as Vacancy Rate Declines Office vacancies in the U.S. dropped for the first time in more than three years in the most recent quarter and rents climbed, Reis Inc. said in a report today.  “This is the first quarter, at least on a national basis, where the change is strong enough to qualify it as the first quarter of a recovery,” This graph shows the office vacancy rate starting in 1991. Reis is reporting the vacancy rate was at 17.5% in Q1 2011, down slightly from 17.6% in Q4 2010, and up from 17.3% in Q1 2010. This was a small decline in the vacancy rate - but it was the first decline since 2007

Hawaii Hotels May Struggle to Repay Debt as Japanese Travel Dips - A decline in tourists from Japan after the earthquake and tsunami last month may reduce cash flow at Hawaii’s hotels, making it costlier for owners to refinance debt coming due this year and next.  The disaster may have set back a recovery by the islands’ hotels “by one to two years,” Mary MacNeill, a managing director at Fitch Ratings in New York, said in a telephone interview. Talks to restructure an $848 million commercial mortgage-backed security that includes the Sheraton Waikiki, the largest Hawaii hotel loan tracked by Fitch, have been “sidelined,” she said.  “Many CMBS loans in Hawaii will have difficulty refinancing without the borrower contributing significant additional equity,” MacNeill said. “These hotel loans have experienced significant performance declines and have been performing well below their underwritten cash flows at issuance.”

Malls Face Surge in Vacancies - Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%. The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990. In the Denver suburb of Westminster, Colo., city officials are negotiating to buy and raze the 34-year-old Westminster Mall and redevelop it into offices, homes and stores. The 1.2-million-square-foot mall, once home to a Macy's, Trail Dust Steak House and Mervyn's, has seen its sales-tax generation plummet in recent years, to $1.5 million last year from $8.5 million in 2000, city officials say.

US mall vacancy rate jumps in Q1 -report - The national vacancy rate for large U.S. malls in the first quarter reached its highest rate in at least a decade, as some retailers decided to look elsewhere after shuttered department stores and other anchors turned off shoppers. Reis Inc's quarterly report released on Thursday showed the vacancy rate reached 9.1 percent in the first three months of the year, up from 8.7 percent in the fourth quarter. It was the highest vacancy rate since the commercial real estate research firm began tracking the market in 1999. "The American consumer is coming back, which is good in terms of the economic recovery," Victor Calanog, Reis vice president of Research and Economics, said in a telephone interview. "But it really still has yet to make its way to a rising demand for retail space." Asking rent at regional malls dipped 0.1 percent to $38.75 per square foot.

Reis: Mall Vacancy rates increase in Q1 - From Bloomberg: Mall Vacancies Climb to Highest in Decade as U.S. Retailers Close Stores The vacancy rate [at U.S. regional malls] climbed to 9.1 percent from 8.9 percent a year earlier and 8.7 percent in the fourth quarter, [Reis reported]. It was the highest since Reis began publishing data on regional malls in the beginning of 2000.  At neighborhood and community shopping centers, which usually are anchored by discount and grocery stores, the vacancy rate rose to 10.9 percent from 10.7 percent a year earlier. The rate was unchanged from the three previous quarters and the highest since it reached 11 percent in 1991, according to Reis. The previous record for regional malls was 9.0% in Q2 2010 (Reis started tracking regional malls in 2000). The record vacancy rate for strip malls was in 1990 at 11.1%. As noted in the article, stores are still being closed as long term leases expire.

International Monetary Fund Voices Concerns With U.S. Housing System - The International Monetary Fund (IMF) has some pretty direct words for the American government and its handling of the U.S. housing crisis.  In an annual report that will be released next week, IMF says the origins of the global financial crisis can be found in the U.S. housing finance system. The agency says government participation in the U.S. housing market has been “pervasive” but has not yielded the expected benefits to prospective or existing homeowners.  IMF says quite bluntly in its report, “It is clear that an overhaul is needed.”  The global organization faults tax incentives and low-income housing goals as contributing to the near collapse of the housing market in the United States.“Government participation in the U.S. housing market includes a plethora of tax breaks and subsidies, including mortgage interest deductions at the federal level, as well as state and local property tax deductions and exclusion from capital gains taxation,” The report concludes, “These initiatives may have promoted the purchase of more and bigger homes than would otherwise have been possible, exacerbating leverage and the severity of boom-and-bust dynamics. That said, these subsidies predated the recent housing crisis by many years and did not change in the run-up to the subprime boom.”

Housing Subsidy is $2,085 per Household - The federal government spent about $244 billion on housing-related grants and tax expenditures in fiscal year 2009, or roughly $2,085 per household, according to a new study by Pew’s Subsidyscope project. By contrast, the government devoted a per household average of $212 to the energy sector (FY 2009), $400 to the transportation sector (FY 2008) and $429 to the nonprofit sector (FY 2008).  These figures do not include subsidy cost estimates for housing loans and guarantee programs because they are uncertain and likely underestimates. Nor do they include substantial liabilities the government assumed when it took over Fannie Mae and Freddie Mac because of the wide range of estimates measuring the total cost to the taxpayer.“Not surprisingly, housing subsidies are a key component of the federal debate on how to reduce the debt and the deficit,” said Subsidyscope project manager, Lori Metcalf. “With billions of dollars going to this sector, it is important that legislators have data to understand this spending.”

Fed’s Kocherlakota: Housing’s Reliance on Government Isn’t Sound Strategy -- A resurgence of private capital is needed to extricate the U.S. housing market from its reliance on government guarantees, a top Federal Reserve official said Tuesday. President of the Federal Reserve Bank of Minneapolis Narayana Kocherlakota said about 90% of mortgages originated over the past two years had been guaranteed by government-controlled entities, such as Fannie Mae, Freddie Mac, the Federal Housing Authority and the Veterans Administration.“This heavy reliance on government guarantees is not a sound long-term strategy,” Kocherlakota said in remarks prepared for an address to the Minnesota Emerging Markets Homeownership Initiative Workshop in Minneapolis. “Over time, our country needs a mortgage market that returns to greater reliance on private risk-taking and private risk assessment, along with the enhanced regulatory oversight that is already in place,” he said.

Register of Deeds John O’Brien: Stop Using Bank of America for County Deposits of $25 Millon a Year Because of MERS - A Massachusetts official whose office deposits about $25 million a year with Bank of America Corp. (NYSE: BAC) has asked the state treasurer to yank that money from the financial institution. Southern Essex District Register of Deeds John O’Brien said he has written to Massachusetts State Treasurer Steven Grossman and asked him to stop using Bank of America for his county’s deposits. O’Brien wants the deposits shifted to a community bank that is not part of the Mortgage Electronic Registration System. O’Brien, who is leading a nationwide effort against MERS, accuses the group and its members of failing to record mortgage assignments and pay associated fees. He says the actions have deprived taxpayers of millions of dollars in lost revenue.

David Apgar: The OCC – The Saint We Needed and the Devil We Got - The OCC (Office of the Comptroller of the Currency) might have saved us from the mortgage crisis. Instead, as Matt Stoller’s post on the OCC’s actions to suppress bank data about possible foreclosure malfeasance suggests, we have a regulator that seems to have turned its back on transparency. When Republicans in Congress wanted to take as much control of the economy as possible from the Clinton White House in 1999 they let the Federal Reserve draft the Gramm-Leach-Bliley banking reform. This is the bill that effectively put mortgage lending out of reach of the OCC examiners who traditionally reviewed a third of the loans every national bank made every few years. The so-called reform empowered the Fed to keep OCC examiners — the only ones among all of the regulators who regularly reviewed significant pools of big banks’ actual loan files — from looking at the operations of those banks’ nonbank subsidiaries. You’d never believe that the major banks promptly moved their edgier mortgage operations into nonbank subsidiaries — and out of view of OCC examiners. That’s right — Congress essentially halted US supervision of major bank mortgage operations in 1999. It took just eight years for those chickens to come home to roost.

Cease and Desist Orders as Regulatory Theater in Mortgage Settlement Negotiations - Yves Smith - I must confess to being puzzled last week by an American Banker article that claimed that Federal banking regulators were looking to send out cease and desist letters to serviers as a way to light a fire under banks who were dragging their feet at the now somewhat infamous so called settlement negotiations among 50 state attorneys general, various Federal regulators, the Department of Justice, and the major banks/servicers.  Now on the surface, this sounds sensible. The banks are not cooperating, so pull out a big gun and if needed, use it on them. But American Banker provided a link to the form of the cease and desist order and it looks remarkably weak. Its requirements are far less demanding than those set forth in the famed 27 page settlement draft that was presented by the AGs and the Federal authorities to the banks. It’s important to stress that a threat of action that is weaker than what you are demanding in a settlement makes no sense in a negotiating context. Now some of my correspondents were of the view that a cease and desist order was a serious matter, so this might create a frisson in the press if this comes to pass. But this is simply not a very serious cease and desist order. Adam Levitin, who replied by e-mail and then amplified his view in a post, confirmed my instincts:

Potemkin Regulation: Servicing Fraud Cease & Desist Orders - There appear to be forthcoming cease-and-desist orders on servicing fraud from some of the bank regulators, and the American Banker has a draft C&D order up. The draft C&D order is a regulatory equivalent of a Potemkin Village. (In truth, the better analogy for bank regulation has the inmates running the asylum.) On the surface it looks like a very serious thing--C&D orders are an extraordinary regulatory response in the banking world, where a lot of regulation is done informally. They typically indicate a very serious problem. But when one looks at the substance of the C&D order, one is struck by how empty it is. All sizzle, no steak.The C&D order basically tells banks to set up lots of internal procedures and controls within the next few months and then to tell their regulators what they have done. The reporting on these internal controls to the regulators will be non-public (like all safety-and-soundness review issues), so it will be impossible to judge whether the controls are adequate and whether the regulators are being sufficiently demanding. The result, I suspect, is that in a few months the bank regulators will declare that everything is fine.

Banks Win Again: Weak Mortgage Settlement Proposal Undermined by Phony Consent Decrees -- Yves Smith - Wow, the Obama administration has openly negotiated against itself on behalf of the banks. I don’t think I’ve ever seen anything so craven heretofore.  As readers may recall, we weren’t terribly impressed with the so-called mortgage settlement talks. It started out as a 50 state action in the wake of the robosigning scandal, and was problematic from the outset. Some state AGs who were philosophically opposed to the entire exercise joined at the last minute, presumably to undermine it. Not that they needed to expend much effort in that direction, since plenty of Quislings have signed up for the job.  The first sighting of what this group might come up with was a bizarre 27 page proposal. It was bizarre because it represented an incomplete set of demands. You never do that in a negotiating context, you make a complete offer and see what other side’s counter. The supposed leader of the effort, Tom MIller of Iowa, promised criminal prosecutions, then promptly reneged. His next move was to get cozy with the Treasury, presumably out of his interest in heading the Consumer Financial Protection Bureau. Federal regulators, such as the OCC and the Fed, who do not like being upstaged by states, were similarly keen to exert “leadership”, which really meant “lead a hasty retreat from anything that might inconvenience the banks.” So Miller, who was supposed to be representing the interests of the states, was instead working with the Treasury et al. to beat the state AGs into line (and separately, since the state and Federal legal issues are very different, the idea of having a joint effort was questionable from the outset).

It’s Now Official: No More Joint Federal/State Attorney Mortgage Settlement Effort - Yves Smith  - Housing Wire has confirmed what American Banker and the New York Times had indicated was underway, namely, that the formerly joint state/federal effort to deal with foreclosure abuses (still undefined beyond robosigning and improper affidavits) are now separate initiatives. We think that’s a good thing, since the state and federal law issues were so different that it made the idea of a grand global settlement seem a tad deranged, particularly on the fast timetable the Obama crowd was pushing for. As a reader with securities law regulatory experience noted via e-mail: Whoever was leading this charge for the Feds totally miscalculated. The fundamental failure was to separate the past from the future. The CFPB is about getting the systems right in the future so that securitization can work without all the fraud and self-dealing. The foreclosure mess is a state battle about fraud on the courts in foreclosure actions and other state real estate matters such as the effect of MERs. To the extent that fiasco bankrupts some banks, then it may become a Fed (FDIC) issue at that time, but not until. As we’ve noted, we also think the 50 state effort is misguided, given how far apart many of the AGs are. Our hope is that enough of the one who like doing their job (as in prosecuting misconduct) defect and pursue their own actions.

60 Minutes on Mortgage Securitization Document Lapses and Foreclosure Fraud - For readers of Naked Capitalism and any of the foreclosure-related blogs, this 60 Minutes report covers familiar ground. However, the fact that the story is coming now shows that even with bank efforts to pretend that there is nothing to see here, in fact the problems are widespread and difficult to solve. This segment, as highlighted in the text advanced release last Friday, includes a discussion of DocX and the practice of using “surrogate signers“, which are temps signing….in the name of robosigners! Having robosigners relying on corporate authorizations wasn’t low cost enough, apparently. Rather than take the time and effort to have more robosigners authorized (which is already not kosher, as we know, since the robosigners were attesting to have personal knowledge when they clearly didn’t), they went beyond providing bogus affidavits to having workers engage in forgery.  It also showed the work of NACA, but didn’t provide the most crisp description of the NACA process and how it addresses servicer bottlenecks (see here for more details). But it does feature Lynn Szymoniak and the procedures of the now-shuttered DocX, the infamous document fabricating subsidiary of LPS.

Did Wall Street Violate The Racketeering Act? - Watching CBS’s Scott Pelley evidence how Wall Street banks knowingly and fraudulently engaged in forging mortgage documents made me cringe and vomit as I thought of just how low these financial institutions have sunk in terms of corporate integrity.As state attorneys general prepare to pursue these Wall Street banks for the activity of forging these documents, I would raise the question whether this coordinated forging activity rose to the level of racketeering. Did these Wall Street banks violate the Racketeer Influenced and Corrupt Organizations Act? Let’s navigate. Before I delve into the questions surrounding the potential violation of the RICO Act, I STRONGLY encourage you to take the 5 minutes to review this summary video of the 60 Minutes’ piece last evening. I have long believed that a significant segment of the mortgage origination, securitization, and now foreclosure process was knowingly and actively engaged in a concerted fraud. The fraud encompassed not only those issuing and securitizing the mortgages but also those taking out the mortgages. While regulators and legal authorities have shown little willingness to pursue the obvious fraudulent activity, the blatant fraud involved in the forging of foreclosure documents is the ultimate insult to the indescribable injury. I ask the following very simple question. Did this activity violate the RICO Act? In what manner might the the RICO Act have been violated? Try the following on for size:
1. Mail and wire fraud.
2. Extortionate credit transactions.
3. Obstruction of justice.
4. Interference of commerce.
5. Laundering of monetary instruments.
6. Monetary transactions in property derived from specified unlawful activities.
7. Relating to trafficking in goods and services bearing counterfeit marks.
8. Fraud in the sale of securities.

The Fraud-Based Economy - Did you see 60 Minutes last night?   This craziness is part of the "Fraudclosure" scandal that has been well documented by Barry Ritholtz over at The Big Picture so I'm not going to spend too much time on it other than to look at the overall trend.  37,000 people went to an event in Los Angeles for people who are in foreclosure and wanted to know their rights, 12,000 people came to a similar event in Miami, law firms are beginning to take cases on contingency in exchange for liens on the homes, which can become very valuable if the law firm successfully shoos the bank away from the Mortgage.  LA and Miami are big cities so let's say that, nationwide, only 200,000 of the 4M homeowners facing foreclosure are able to challenge their loans and let's say only 50% are successful.  That's still 100,000 mortgages that may be written off and, at $200,000 per average mortgage, that's $20Bn worth of bank write-offs to work through the system.  But, if the 4M people who don't think this applies to them begin to see their neighbors ripping up mortgage documents - how long will it remain something only 5% of the affected people do?

Is American Society Worth Preserving? - You probably know the story. The Big Banks were so busy securitizing mortgages that they "forgot" to include the ownership papers for the mortgages. Now those banks want to foreclose on homeowners who have fallen behind on their payments, and most likely should not have been given a loan in the first place, but can't produce those ownership documents. Yahoo's Zachary Roth provides some details in The foreclosure mess isn't going awayAnd as the foreclosures unwind in a slew of court proceedings nationwide, many banks have produced dubiously rendered legal documents that seek to shore up the ownership paperwork long after the original mortgage transactions were on the books. In some cases, financial institutions paid contract companies who employed an army of "robo-signers"—office workers who forged signatures on mortgage documents that were then used to initiate foreclosures.Desperate to carry the foreclosure process to completion, the Big Banks have resorted to forging the documents required by law to initiate the proceedings. Thus the initial fraud in exotic mortgages (liar loans, interest-only loans, option-arms, etc.) has been compounded by more fraud on the backend.

Mortgage mess: Who really owns your mortgage? - Do you know who really owns your mortgage? As Scott Pelley reports on "60 Minutes" this week, that question has become a nightmare for many homeowners since the invention of mortgage-backed securities. Yes, those were the exotic investments that sparked the financial collapse in this country. And the're still causing problems. As it turns out, Wall Street cut corners when it bundled homeowners' mortgages into securities that were traded from investor to investor. Now that banks are foreclosing on people, they're finding that the legal documents behind many mortgages are missing. So, what do the banks do? As Pelley explains in this video, some companies appear to be resorting to forgery and phony paperwork in what looks like a nationwide epidemic.Even if you're not at risk of foreclosure, there could be legal ramifications for a homeowner if the chain of title has been lost. Watch the "60 Minutes" report and listen to Pelley's discussion with "60 Minutes Overtime" editor Ann Silvio about the findings of his reporting team.

Judges in Florida Start Inflicting Pain on Foreclosure Mills and Trusts - - Yves Smith - Several readers pointed to an article in the Palm Beach Post, “Foreclosure crisis: Fed-up judges crack down disorder in the courts,” about how judges are having to resort to increasingly forceful measures to get foreclosure mill lawyers to comply with court orders. I had refrained from discussing it here because one aspect of the news story struck me as potential misreporting, so I wanted to verify it (and Lisa Epstein pointed to the transcript which enabled me to do so). There have already been a number of reports of a marked shift in attitudes among judges in the wake of the robosigning scandal. In many courtrooms, the presumption that the bank is right has vanished. For instance, Mark Stopa reported late in March:

ACLU Taking Aim at Florida’s Kangaroo Foreclosure Courts -- Yves Smith - Per Lisa Epstein and April Charney, the ACLU has announced it is contesting the procedures used in Florida’s recently created foreclosure courts: ACLU Challenges Lack of Due Process in Florida’s “Foreclosure Courts” What has gone on there is too depressing and pervasive to chronicle on a consistent basis, but we’ve commented on what happens when a state tries to run its courts like a fast food franchise. Consider this discussion from last September: These new foreclosure-only courts are special creations of the Florida legislature, funded separately from the usual court system. They are manned by retired judges, which means in many cases they are not familiar with real estate law. But perhaps most important, the explicit objective of these courts is to clear up the backlog. Let’s look at one example of banana republic faux justice in the US, via a speech by foreclosure court Judge Roger Colton to his court on how the day was going to go. It’s simply breathtaking. He says that if the bank is foreclosing, he’s not going to consider any evidence that the foreclosure is in error (servicing errors, plaintiff can’t provide proof it owns the note, which means it might not be the right party and procedurally, means it lacks standing to take action). He says he has already heard everything, there is a lot of unemployment in the area; he is going to schedule a court date, but that is merely a deadline for negotiation. In other words, he makes it abundantly clear he has no interest in hearing evidence.

Washington AG Investigates New Foreclosure Abuse Front: Trustee Non-Compliance  - LoanSafe reports that the Washington state attorney general, Rob McKenna, has uncovered a likely widespread violation of state law, that foreclosure trustees lack a physical presence as required and a means for borrowers to contact or visit them to submit last minute payments or present documentation. McKenna’s interest appears to result from the fact as with servicers, the foreclosure trustees are not accessible to borrowers and not responsive when there may be legitimate reasons to halt or delay a foreclosure. Note that Washington is a deed of trust state, and the foreclosure trustee handles certain tasks relative to the actual foreclosure. This is a different role than that of the securitization trustee, who is the agent of the securitization trust, the legal entity that holds the loans in the securitization.  From LoanSafe: Six months into its investigation into unlawful business practices by foreclosure trustees, the Washington Attorney General’s Office announced that it has uncovered an additional widespread problem that jeopardizes homeowners’ chances of stopping a foreclosure….“Washington law requires that foreclosure trustees maintain actual offices in our state and local phone numbers for this reason,” . “But our investigation shows that some of the largest trustees are not in compliance and borrowers who have a legitimate reason to stop a foreclosure are having trouble reaching trustees.”….

Justices uphold foreclosure rule - The Ohio Supreme Court has dismissed a complaint against three Franklin County judges who are requiring lawyers to verify the authenticity of the documents they file in home foreclosures. Six lawyers challenged the action in December, asking the Supreme Court to prohibit the judges from ordering them to sign "certifications" on behalf of their clients. The Franklin County prosecutor's office filed a motion in January to have the complaint dismissed, which the Supreme Court granted yesterday without comment. John C. Greiner, a Cincinnati attorney for the lawyers, said the lack of comment made it difficult to react to the ruling. "We're disappointed in the decision, and we're disappointed that there's no guidance with it," he said.Prosecutor Ron O'Brien said the decision means the lawyers "have to follow the requirements imposed by the judges."

Jury Awards Homeowner $21 Million In Mortgage Lawsuit - A federal jury has awarded a Georgia man more than $21 million in a lawsuit pitting the homeowner against one of the nation's largest mortgage servicers. U.S. Army sergeant David Brash was awarded the damages in March, after a Columbus, Ga. jury found that PHH Mortgage, the country's eighth largest mortgage servicer, had incorrectly reported Brash to credit score companies as "seriously delinquent" despite the fact that all his mortgage payments had been automatically deducted from his paycheck. According to court documents, Brash sent letters to the mortgage company that went unanswered, violating federal laws. When he called his mortgage company to find out why his payments were not going through, his attorneys said, he was repeatedly routed to overseas customer services staff who couldn't answer his questions. "PHH's corporate representative testified that call center representatives had limited access to information,"  Some of Brash's calls -- which were automatically recorded by PHH -- were played in court, Abell explained. "The jury got a flavor of what would happen, he could be put on hold for 30, 45 or 55 minutes, then representatives would give him whatever story they had concocted," she added. Different representatives told Brash different things, many of which were simply not true.

Daniel Pennell: Thoughts on American Homeownership - Yves here. Despite the prevalence of retail therapy in America, consumption does go in and out of fashion. For instance, in the wake of the nasty 1991-1992 recession, “cocooning” was in briefly, which was code for “stay at home, feel sort of miserable and read books, but pretend you are virtuous by lighting nice scented candles and making at least some of that reading New Agey.” Entertaining at home was in. If you were feeling a tad more secure, you might decorate, but nothing really splashy, just comfortable/functional.  This downturn is leading to more fundamental rethinking of what used to be a mainstay of personal security but increasingly became a consumption item, namely, owning a home. The percentage of Americans who think of homeownership as a good investment has fallen by about 20 points in the last three years, from four fifths to three fifths. But the framing of the question is revealing. In the not-too-distant past, owning a home was seen as superior to renting, because for 20 to 30 years of paying more or less the same amount of money, you’d own the home free and clear. So even though that is technically an investment perspective, the goal was not to earn a return, but to repurpose an expenditure that had to be made regardless into a deferred payment plan.  Daniel Pennell not only puts himself in the camp of housing skeptics, but also highlights the link between the scale of homes and obligatory consumption levels.  So is this change in attitude simply a sign of the times, to be abandoned if we ever get past the post crisis hangover? A delayed response to shortened job tenures, which makes homeownership an obstacle to relocating? Or are Americans coming to grip with the fact that they might not enjoy ever rising standards of living?

CoreLogic: House Prices declined 2.7% in February, Prices now 4.1% below 2009 Lows - Notes: CoreLogic reports the year-over-year change. The headline for this post is for the change from January to February 2011. The CoreLogic HPI is a three month weighted average of December, January and February, and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Home Price Index Shows Year-Over-Year Decline for Seventh Straight Month According to the CoreLogic HPI, national home prices, including distressed sales, declined by 6.7 percent in February 2011 compared to February 2010 after declining by 5.5 percent in January 2011 compared to January 2010. Excluding distressed sales, year-over-year prices declined by 0.1 percent in February 2011 compared to February 2010 and by 1.4 percent in January 2011 compared to January 2010. Distressed sales include short sales and real estate owned (REO) transactions.This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index is down 6.7% over the last year, and off 34.5% from the peak. This is the seventh straight month of year-over-year declines, and the eighth straight month of month-to-month declines. The index is now 4.1% below the previous post-bubble low set in March 2009, and I expect to see further new post-bubble lows for this index over the next few months.

Hidden signs housing market is even worse - Between the recent report that sales of new homes hit a record low in February and this week's news that 19 of the 20 largest metro areas tracked by the Standard & Poor's/Case-Shiller home price index saw a price slump in January, it hasn't exactly been a stellar few weeks for the housing market. And yet another data dump tracking foreclosed and distressed homes that have yet to hit the markets - what's known as "shadow inventory" - suggests things are not likely to get a whole lot better for a long time.In terms of homes for sale, we have three inventory tracks to keep an eye on:

  • * The official inventory: 3.5 million homes. The National Association of Realtors says the current inventory of existing homes that are listed for sale would take 8.6 months to work down at the current sales pace.
  • * The unofficial shadow inventory: 1.8 million homes. According to research firm CoreLogic, there's another 1.8 million homes sitting in shadow inventory. These are homes that don't yet show up in NAR's Multiple Listing Service as being for sale, but that are likely to hit the market at some point.
  • * The severely underwater inventory: 2 million. CoreLogic uses this category to refer to homeowners that are at least 50 percent underwater on their mortgages.

Construction Spending declined in February - The Census Bureau reported yesterday that overall construction spending decreased in February compared to January (seasonally adjusted).  [C]onstruction spending during February 2011 was estimated at a seasonally adjusted annual rate of $760.6 billion, 1.4 percent (±1.4%)* below the revised January estimate of $771.0 billion. The February figure is 6.8 percent (±1.6%) below the February 2010 estimate of $815.8 billion. Private construction spending also decreased in February:This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted. Residential spending is 66% below the peak in early 2006.

Homebuilder to Buy Distressed Homes and Rent Them - From Dow Jones: Beazer Homes To Form Rental Unit, Starts In Phoenix Beazer Homes ... is acquiring newer homes in distress--including some it built--and renting them out. ... Builders are unable to compete with bargain-priced foreclosures, some located within walking distance of new homes under construction. ... The company launched its program in Phoenix, one of the areas hardest hit by the housing crisis. It completed its first home purchases last month and expects to have more than 100 by the end of this fiscal year.This seems like a dumb idea for a "home builder". The scale is insignificant, and they have no special expertise in being a landlord.

Refinance Activity and Mortgage Rates - Yesteday Scott Reckard at the LA Times wrote about mortgage lenders laying off workers as refinance activity declined: Home lenders shed workers as mortgage rates climb. Here is a graph of refinance activity and mortgage rates: This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.  Although mortgage rates are still below 5%, it takes lower and lower rates to get people to refi (at least lower than recent purchase rates). With 30 year mortgage rates now about 0.6 percentage points above the lows in October, this is the end of the recent surge in refinance activity - unless rates drop significantly again. With refinance activity down over 50%, and mortgage purchase activity at low levels, the lenders need fewer workers

Reis: Apartment Vacancy Rates fell sharply in Q1, Lowest in almost three years - From Reuters: U.S. apartment vacancies fall in Q1, rents edge up. Reis Inc's quarterly report showed the vacancy rate dropped to 6.2 percent in the first three months of the year, down from 6.6 percent in the fourth quarter. It was the steepest fall since the commercial real estate research firm began tracking the market in 1999. [CR note: the vacancy rate was 8 percent in Q1 2010].And from Bloomberg: Apartment Vacancies in U.S. Fall to Lowest in Almost Three Years Apartment owners had a net increase in occupied space of more than 44,000 units, the most for a first quarter since 1999 and almost double the number from a year earlier, Reis said. The first quarter tends to be a slow period for rentals since more leases are signed in the warmer months, the company said.  About 6,000 units came to market during the first quarter, the fewest since Reis began compiling data in 1999. This is a very large decline from the record vacancy rate set a year ago at 8%. A few key points we've been discussing:
• Vacancy rates are falling fast (the excess supply is being absorbed). Note: The excess housing supply includes both apartments and single family homes.
• A record low number of multi-family units will be completed this year (2011). Only 6,000 apartments came on the market in Q1 (in the Reis survey area).
• This will push up effective rents.

The rent is high, and getting higher - I AM generally more bullish than a lot of people on American housing markets. That's not saying much; after five years of awful housing market conditions, a lot of prognosticators are reluctant to forecast anything other than steady declines in values. And they aren't crazy; supply and demand remain unbalanced in many cities, the foreclosure pipeline is still pretty full, and unemployment is high. But foreclosure numbers, while high, are falling. The economy is strengthening and unemployment has fallen. Perhaps most importantly, new housing construction suffered an historic drop in recent years, even as the population continued to grow. I would not at all be surprised if prices nationally notched real gains in 2011. It would seem that rents are leading the way. The apartment vacancy rate in large cities dropped from 6.6% to 6.2% from the fourth to the first quarter. A year ago it stood at 8%

House Prices: Nominal, Real, Price-to-Rent - The first graph shows the quarterly Case-Shiller National Index (through Q4 2010), and the monthly Case-Shiller Composite 20 (through January release) and CoreLogic House Price Indexes (through February release) in nominal terms (as reported). In nominal terms, the National index is back to Q1 2003 levels, the Composite 20 index is slightly above the May 2009 lows, and the CoreLogic index back to January 2003. The second graph shows the same three indexes 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 January 2000.  This graph shows the price to rent ratio (January 1998 = 1.0). An interesting point: the measure of Owners' Equivalent Rent (OER) is at about the same level as two years - so the price-to-rent ratio has mostly followed changes in nominal house prices since then. Rents are starting to increase again, and OER will probably increase in 2011 - lowering the price-to-rent ratio.

Forecast: Rising Rents to slow House Price Declines - As I mentioned this morning, the sharp decline in the rental vacancy rate, to 6.2% in Q1 2011, suggests that the excess supply of housing is being absorbed. Here is a graph of the Reis apartment vacancy rate: The vacancy rate is back to early 2008 levels, and is not far above the rate of 2006 (around 5.7%). As the vacancy rate falls, rents will rise and this will help support house prices. See this post on the price-to-rent ratio. Housing economist Tom Lawler predicted this afternoon: 'Rising rents combined with a substantial reduction in the “excess supply” of housing (single family as well) will also help stem the recent “renewed” downturn in US home prices well before the end of this year.' I think prices might fall for another year or two in real terms (inflation adjusted), but I agree that it is likely that nominal house prices will bottom this year.

Consumer Bankruptcy filings decrease in Q1 2011 - From the American Bankruptcy Institute: First Quarter Consumer Bankruptcy Filings Fall 6 Percent from 2010 Consumer bankruptcies for the first quarter of 2011 (Jan. 1 – March 31) decreased 6 percent nationwide from the same time period in 2010, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The data showed that the overall consumer filing total for the first three months of 2011 (Jan. 1-March 31) reached 340,012, down from the 363,215 consumer filings recorded for the first quarter of 2010.

U.S. Service-Sector Growth Slows - The U.S. nonmanufacturing sector grew more slowly in March, according to data released Tuesday by the Institute for Supply Management. Cost pressures also ticked down slightly, while employment slipped.The ISM’s non-manufacturing purchasing managers’ index dipped to 57.3 last month from 59.7 in February.Forecasters surveyed by Dow Jones Newswires had expected the March PMI to hold steady at 59.7. Readings above 50 indicate expanding activity.The ISM said last month’s business activity/production index decreased to 59.7 from 66.9 in February. The new-orders index slowed slightly to 64.1 last month from 64.4. The ISM employment index dipped to 53.7 from 55.6 in February.Nonmanufacturers are paying slightly less for inputs, though costs still remained elevated. The ISM’s prices index ticked down to 72.1 in March from 73.3.

Another Round on Investment and Unemployment - Paul Krugman responded to my reply (March 31) to his two critiques (afternoon and evening of March 30) of my post (January 14) on the negative correlation between investment and unemployment. He now says that Taylor “professes himself baffled.” Of course I didn’t profess any such thing. I simply showed that that Krugman was wrong.  My original post showed that there is a negative correlation between total fixed investment (the sum of residential and nonresidential investment) as a share of GDP and the rate of unemployment over the past two decades. In his March 30 afternoon critique Krugman said that “It’s mostly the housing bust!” and continued that “The rest”—the business fixed investment part—“is just politically motivated mythology.” In my reply I pointed out that, no, it’s not mythology; there is a strong negative correlation between business fixed investment as a share of GDP and the unemployment rate over exactly the same period as in my original post. The investment-unemployment correlation is not mostly housing. Some of the high unemployment now is to do low residential investment as it has been in many past periods of high unemployment. As I said in my original January 14 post, you should look at residential investment plus nonresidential investment

Will The Surge In Corporate Profits Bring Stronger Job Growth? - Corporate profits have soared since the Great Recession was formally declared at an end as of June 2009. Employment, by contrast, has had a tepid recovery. Is this a mismatch with legs? Or is job growth finally set to impress the crowd?Private nonfarm payrolls are higher by 1.5% through last month over the past year on a seasonally adjusted basis. A charitable analysis says that's no better than middling compared with employment rebounds after recessions in the past. Then again, the final chapter has yet to be written for this cycle. As the chart below shows, it remains to be seen if the job market continues improving. Based on the rolling 12-month change in private nonfarm payrolls through last month, however, the labor market has hardly distinguished itself with strength.

Wholesale Inventories Rise, but Sales Drop - The inventories of U.S. wholesalers rose in February but their sales fell, a sign of uncertainty in the economic recovery. Wholesale inventories increased by 1.0% to a seasonally adjusted $437.99 billion, the Commerce Department said Friday. The growth in inventories wasn’t necessarily an indication wholesalers were stocking up in anticipation of future sales. Rather, goods piled up as sales fell 0.8%, to $378.97 billion. Also, the 1.0% increase in inventories was driven by a big gain in petroleum stockpiles amid rising oil prices.  Inventories were 12.7% higher than February 2010.The report showed wholesalers had enough goods on hand to last a little longer than a month. The inventory-to-sales ratio measures how many months it would take for a firm to deplete its current inventory. The ratio rose to 1.16 in February, from 1.14 in January. Despite the increase, the gauge is at a level that’s considered low, indicating room for further gains in manufacturing as companies, faced with rising demand, order goods to keep shelves filled.

Retailers surprise with March sales strength (Reuters) U.S. shoppers bought spring clothing along with more expensive food and gasoline in March, pushing sales at many chains up more than expected. Retailers such as Costco Wholesale Corp and Limited Brands Inc blew past forecasts, while Gap Inc was one of just four chains to miss expectations."The retailers that have the right assortment are still doing well," said Tom Clarke, director of AlixPartners' global retail practice.U.S. retailers overall had been expected to show their first same-store sales decline since August 2009, in part because Easter falls three weeks later than last year, which delays some spring purchases.But sales at stores open at least a year rose 1.7 percent in a tally of 25 retailers, topping expectations of a 0.7 percent decline, according to Thomson Reuters.

Sales Up: American Consumer Recovery Back on Track - Costco. Victoria Secrets. Wet Seal. Saks. Kohl's.  That's as varried a group of stores you can get. Yet, all four giant retail chains reported that in March their sales were better than expected. Some of the chains' sales were far better than expected.For example, analysts had expected sales at Costco's outlets open at least a year to be up 7.4%. Instead Costco customers bought 13% more of the warehouse chain's bulk goods than in March a year ago. Other stores that were expected to disappoint, ended up posting strong gains in sales. What's going on here? At the end of last year we saw a resurgence in consumer spending. But recently some have been worried that the American consumer was going back into hibernation. Especially, after last week's report of a drop in consumer confidence. There were a number of reasons why consumers would have shopped less than usual in March - a cooler than expected Spring so far; high gas prices; a later than normal Easter, putting off holiday purchases. Overall, analysts were expecting that retail sales would drop 0.7% in March.And yet, the retailers seemed to do much better than that.

Retail Sales - Much is being made of the reported gains in same store sales by major retailers. But it may be best to take these reports with a grain of salt. Until late last year price increases in the retail sector were minimal and the reported retail sales increases reflected real gains. Through year end the Y/Y deflator for retail sales rose less than 1%. But late last year price increases accelerated sharply. In the fourth quarter the retail deflator rose at a 5.5% annual rate and in January and February it rose at about an 8% rate. The March data has not been reported yet, but until new information is reported it probably would be best to assume the January and February experience was repeated. Also note that in March auto sales actually fell from 13.4 to 13.1 million(SAAR) -- a 2.2% drop.

Consumers Step Up Student, Auto Loans, Cut Back on Credit Cards - U.S. consumers stepped up borrowing in February but cut back again on their credit cards, giving mixed signals on the strength of the economic recovery. Overall consumer credit outstanding increased at an annual rate of 3.8%, rising $7.62 billion to $2.420 trillion, the Federal Reserve said Thursday in a monthly report. The gain was the biggest since June 2008 and the fifth in a row. Economists surveyed by Dow Jones Newswires had forecast the Fed data would show consumer credit rising by $5 billion in February. The bigger-than-expected gain was driven by an increase in a category that includes federal student loans, the data indicate. Most big retailers saw gains last month in same-store sales. High-end shoppers flocked to Saks Inc. and Nordstrom Inc., a report Thursday said. However, while an extension by Congress of income-tax cuts put more money into the pockets of Americans, gasoline prices have cost consumers at the pump.

Retail Staple Food Prices Rise in First Quarter - Retail food prices at the supermarket increased during the first quarter of 2011, according to the latest American Farm Bureau Federation Marketbasket Survey. The informal survey shows the total cost of 16 food items that can be used to prepare one or more meals was $49.07, up $2.10 or about 4 percent compared to the fourth quarter of 2010. Of the 16 items surveyed, 13 increased, two decreased and one remained the same in average price compared to the prior quarter. The total average price for the 16 items was up $3.53 (about 8 percent) compared to one year ago. Shredded cheddar cheese, vegetable oil, ground chuck and flour increased the most in dollar value compared to the fourth quarter of 2010. Together, these four items accounted for the majority of the quarter-to-quarter increase; shredded cheese increased 47 cents to $4.63 per pound; vegetable oil increased 29 cents to $2.88 for a 32-ounce bottle; ground chuck increased 27 cents to $3.10 per pound; and flour increased 52 cents to $2.51 for a 5-pound bag.

How much food will a week’s earnings buy? - Recent months have seen double-digit increases in energy prices and the prices of many important agricultural commodities. Because of the recent inflation in various raw materials, fuels, and foods, many ordinary Americans have been finding it increasingly difficult to afford basic necessities. The figure above shows just how severe this trend has been. (You will probably need to click on the image to make it larger.) The lines for various commodity groups begin on the left side of the figure at a level of zero percent for the March 2006 observation. Each subsequent point on a given line shows the total percentage change since March 2006 in the amount of one type of farm product that can be purchased at the wholesale level with the average weekly paycheck. The dark blue line that appears nearly flat shows average real (inflation-adjusted) weekly earnings as reported by the government. The Bureau of Labor Statistics (BLS) uses the consumer price index (CPI-U) to deflate this series. The line shows that the purchasing power of wages for a typical job has increased by only about 2.2 percent over the five-year period shown in the figure. Moreover, ground has been lost since early last fall, when wages were as high as 3.3 percent above March 2006 levels.

Inflation inflicting pain, as wages fail to keep pace with price hikes - Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts. It’s not just that prices are rising — it’s that wages aren’t. Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent. And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.

Obama's Advice To Those Complaining About Surging Gas Prices: Suck It In And Cope - As gasoline prices continue to surge day after day (and with WTI touching $109 today this will continue for a long time), the peasantry is getting restless. Not only that but it is getting nosy. In fact today some plebs had the temerity to seek answers from the teleprompter over the festering question of just how long will Bernanke, pardon, UK stagflation, pardon, default Portugal, pardon, healthy worldwide demand keep pushing gas prices to $4, then $5, then $6, and eventually to the price paid in Europe: about $9. "I'm just going to be honest with you. There's not much we can do next week or two weeks from now," the president told workers at a wind turbine plant. "Gas prices? They're going to still fluctuate until we can start making these broader changes, and that's going to take a couple of years to have serious effect." And we doubt Obama's hard core union electorate will be happy at the following stab at Channel Stuffing Motors: "If you're complaining about the price of gas and you're only getting 8 miles a gallon, you know," Obama said laughingly. "You might want to think about a trade-in." Let's hope the people don't get the same idea about the presidential office two years from now, even after the $1 billion spent on TV ads.

The Devolution of the Consumer Economy, Part II: Rising Costs, Declining Wages - Earlier this week I discussed the devolution of the consumer economy with a focus on the diminishing returns of consumption and the limits imposed by servicing ever-growing debts. Today I will address a series of other interconnected reasons why the consumer economy is devolving.  The cost structure of the entire U.S. economy has bloated to unsustainable levels. I have discussed this rarely-covered issue for years, for example Lowering the Cost Structure of the U.S. Economy Here's the basic mechanism: when money is "free," costs rise. If you had to explain why sickcare in the U.S. consumes 17% of our nation's GDP while other developed nations provide universal care for half that cost per capita (7-9% of their GDP), the answer boils down to "there's an unlimited amount of free money here for sickcare." There are no real limits on Medicaid or Medicare spending, and none on insurance cartels (it's a free market for health insurance, except there's only two providers in your area and their prices are the same--welcome to a "free market," hahahahaha).

AAR: Rail Traffic increases in March - The Association of American Railroads (AAR) reports carload traffic in March 2011 was up up 3.4% over March 2010 and 11.2% over March 2009, and intermodal traffic (using intermodal or shipping containers) was up 8.5% over March 2010 and up 21.6% over March 2009. This graph shows U.S. average weekly rail carloads (NSA).  From AAR: On a seasonally adjusted basis, U.S. rail carloads were up 2.0% in March 2011 from February 2011. That’s the biggest month-to-month increase in six months and the third seasonally-adjusted increase in the past four months. As the first graph shows, rail carload traffic collapsed in November 2008, and now, over 18 months into the recovery, carload traffic has recovered about half way.  The second graph is for intermodal traffic (using intermodal or shipping containers): In March 2011, U.S. railroads averaged 222,260 intermodal trailers and containers per week, for a total of 1,111,301 for the month. That’s up 8.5% (86,908 intermodal units) over March 2010 and up 21.6% (197,423 units) over March 2009. Intermodal traffic is close to old highs, but carload traffic is only about half way back to pre-recession levels.

A View of U.S. Manufacturing -  Atlanta Fed's Dennis Lockhart - Key Points:

• Although the economy may have lost some momentum at the start of the year, Lockhart expects a sustained moderate pace of expansion and gradually declining unemployment. He is also forecasting that the composite of inflation measures will level off around a rate consistent with the Federal Reserve's price stability mandate.
• Lockhart believes that there is still a halting and fragile quality to the economy. He thinks that the process of restoration of full economic strength with higher employment continues to require support. With longer-term inflation expectations remaining stable, he believes the current monetary policy is appropriate.
• In Lockhart's view, the manufacturing sector is playing an important role in the current economic recovery.  Over the past few decades, manufacturing production has maintained its share of the overall economy, while manufacturing employment has fallen and productivity has increased. Lockhart believes that the future of U.S. manufacturing depends on its ability to change and reinvent itself in response to global competitive pressures.

Hard Disk Drives May Get More Expensive - Shortages of controllers and other components have already impacted pricing of mainboards and will thus boost costs of other similar devices, such as graphics cards. In addition to that, contract prices of hard disk drives (HDDs) are also likely to get higher because of the same reasons. The recent earthquake in Japan interrupted production of controller chips for motors used in hard drives at Texas Instruments' plants and the latter may not resume shipments until September, according to sources of DigiTimes web-site. As a result, manufacturers like Seagate Technologies or Western Digital will have to rely on controllers from STMicroelectronics, which will boost pricing due to lack of competition.

Largest U.S. Dealer Expects Japanese Auto Shortage Cars made by Japanese manufacturers will be in short supply at showrooms this spring and summer because of last month's earthquake and tsunami, the head of the largest U.S. dealership chain said Monday. AutoNation Inc. CEO Mike Jackson expects disruptions at factories to limit the availability of vehicles from Japanese automakers. He based his prediction on information from the automakers, he said. The company has 243 new vehicle dealership franchises in 15 states. More than half of its new vehicle sales last year came from cars and trucks made by Japanese manufacturers. . Shortages of parts from Japan are also affecting manufacturers outside the country. Just last week, Ford Motor Co. and Nissan Motor Co. said that several North American plants would be closed part of this month, and Chrysler CEO Sergio Marchionne has said his company will see disruptions.

Take This Job And Shove It - Barack Obama and his minions were out in force on Friday declaring that the 216,000 jobs added in February are proof of a recovering economy. The unemployment rate fell to 8.8%, down from 9.8% in April 2010. All it took was 2.8 million Americans to leave the labor force to achieve this fabulous reduction in the unemployment rate. The percentage of Americans in the labor force of 64.2% is the lowest since 1983. The employment to population ratio of 58.5% is also the lowest since 1983. These atrocious figures are after a supposed economic recovery that has been underway for the last 18 months. There are now 1.8 million more people employed than at the depths of this Greater Depression. The working age population has grown by 3.2 million people since 2009. Inexplicably, the civilian workforce has actually declined by 736,000 over this same time frame. The government drones at the BLS want us to believe these people voluntarily left the workforce. Obama apologists declare this is because Baby Boomers are leaving the workforce as they retire into the sunset. That is laughable, as all studies show Boomers have not saved enough to retire and will be forced to work into their 70′s.

Duration of Unemployment, Unemployment by Education, Employment Diffusion Indexes - This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. In general, all four categories are trending down. The less than 5 week category appears to be back to normal (fits with the initial weekly claims data).  Unfortunately the "27 weeks or more" category increased slightly in March to 6.122 million workers (about 4% of the labor force). This remains extremely high, and long term unemployment remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Clearly education matters with regards to the unemployment rate - and it appears all four groups are now trending down with some month-to-month volatility - although the unemployment rate for the college educated has increased two months in a row.  The BLS diffusion index for total private employment was at 62.4 in March, down from 68.7 in February. For manufacturing, the diffusion index decreased to 63.0 from 66.0 in February.  Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:

Aside on Labor Utilization- The current seasonally adjusted unemployment rate in the United States is 8.9%. However, not 8.9% but 9.5% of those interviewed by the Bureau of Labor Statistics in the second week of February who were either at work or actively looking for work said that they were looking for work and had no job. But the Bureau of Labor Statistics calculates that for the March unemployment release, unemployment is 0.6 percentage points higher than in an average month because February is a slack month. Businesses are still recovering from the Christmas rush, construction in the northeast and the Midwest is still at a seasonal low, and so forth. [Note: i.e. seasonal adjustment.] The fact that the unemployment rate kissed 10% at the end of 2009 and since then has declined back down to 8.9% seems like good news. ... But the unemployment rate has not fallen because the share of American adults with jobs has increased. The share of American adults with jobs today at 58.4% is actually less than the 58.5% of Americans who had jobs when the unemployment rate kissed 10%.

The Big March Job Report Celebration - Okay, this celebration around the jobs report is really getting out of hand. Both the Post and Times had front page pieces touting the good news. The Post gets the award for being the more breathless of the two: "The jobs numbers come amid other promising signs that the recovery is building momentum. The stock market wrapped up the first quarter this week with a 6.4 percent gain in the Dow Jones industrial average and continued to tack upward Friday, adding another 0.5 percent. Investors were pleased that the job growth was continuing — but not so fast that the Federal Reserve might want to apply the brakes by raising interest rates anytime soon. First off, no one should include the stock market as indicator of the economy's well-being. Rich people are happy -- that's nice -- it has little to do with the economy.  As noted above, 216,000 jobs is not especially impressive, especially given the depth of the hole that our economic policymakers put us in. In only 15 of the 52 months from February 1996 to May of 2000 did the economy create fewer than 216,000 jobs. In most cases the weakness was caused by bad weather. And this was at a time when the working age population was more than 10 percent less than today.

The real story behind job creation - When the labour department announced that the US economy had created 216,000 jobs in March, it set off a round of celebrations throughout Washington policy circles. The word in the New York Times, the Washington Post and other major news outlets was that the economy was back on course; we were on the right path.Those who know arithmetic were a bit more sceptical. The average rate of job growth over the last three months has been just 160,000. At that pace, we won't get back to normal rates of unemployment until after 2022. That's a long time to make ordinary workers suffer because the folks who run the economy are not very good at their job. In addition to the job growth numbers, the March data also showed that the unemployment rate slipped down by another 0.1 percentage point. It now stands at 8.8%, almost a full percentage point below its year ago level of 9.7%. This, too, was treated as cause for celebration. While that may sound like progress, a more careful look at the data makes this number less impressive. The percentage of the population that is employed has actually fallen by 0.1 percentage point over the last year.

Bureau of Labor Statistics Report for March 2011: Is there really a there there? - In today's Bureau of Labor Statistics (BLS) report, the two main stories for the March numbers are that 216,000 jobs were created (from the establishment survey) and the unemployment rate declined to 8.8% (from the household data). This is not entirely unexpected. As I have said in the last couple of years February-April have been, per the BLS, the best months for job growth. We need to wait for the June report covering May to get a real idea of where the economy is headed, that is that the economy is doing better than our eyes are telling us it is. Despite these two good numbers in today's report, I was struck by how many times the report stressed that there had been little or no change in most areas.  Normally I begin with the household survey but since the big number today was the job number from the establishment survey I thought I would start there. The 216,000 is the seasonally adjusted number. The seasonally unadjusted number was only 25,000. So once again this comes down to how much you trust the BLS seasonal model. To be blunt, I do not trust it. My feeling is that it is growth weighted and will tend to assume growth even when there is none. In any case, our kleptocratic elites are going to spin this like crazy that it is a sign of a real, sustained recovery.

Normalizing DISemployment considered harmful - Remember, all the DISemployment numbers are fake, because people who've dropped out of the job market -- "discouraged" workers -- "don't count." Literally so, eh? They're not part of the story, the narrative. Building on Hugh's analysis, check this out: Fifteen paragraph into this Business Week story, which leads with "growth estimates": The April employment report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more rose as a percentage of all jobless to a record 45.9 percent. For example, in Georgia: While the unemployment rate declined 0.1 percent from March, the number of unemployed Georgians who have been out of work at least 27 weeks rose to 215,100 in April. That was a 5.1 percent increase from March and a 152 percent surge from April 2009, the Labor Department said. The long-term unemployed now account for 43 percent of the 489,010 jobless workers in Georgia, according to the Labor Department. So, when you hear all the (2012-driven) happy talk about the improving jobs picture, this is the background that's left out of the picture.

A Resurgence Of Lousy Jobs - Those with a vested interest in our economic "recovery" are crowing about the jobs growth over the last few months.The United States economy showed signs of kicking into gear in March, adding 216,000 jobs and prompting President Obama to proclaim a corner finally turned.The president and his fellow Democrats pointed to the latest jobs report on Friday, and to an unemployment rate that fell a touch to 8.8 percent, as evidence that their policies, like stimulus spending and the payroll tax cut, were working...In a society whose health is judged by economic data & statistics, the triumph of quantity over quality is almost complete. If one actually looked at what kind of jobs were added, a few cracks appeared in the otherwise rosy facade.I am delighted that many more bartenders, waitresses and dishwashers have been hired recently, a trend which reflects the need of so many Americans to eat & drink their way through the current disaster. However, it is that last BLS number, the average hourly wage, that hides the grim truth—half the jobs added during the "recovery" pay very low wages.

Not Exactly the Job Growth We Were Looking For- Mark Thoma wasn’t exactly cheering the latest employment report precisely because an employment to population ratio equal to 58.5% is still extremely weak.   Kim Peterson notes one firm is about to hire 50,000 more workers: The hiring binge is one result of the extraordinary business run McDonald's has engineered over the past few years. When the economy tanked, more people turned to the Golden Arches to dine on a budget. We are eating at McDonald’s and not better restaurants because we are poorer. And these jobs are not exactly coming with very high wages.

Thought-Experiment of the Day - It's no secret I'm not a fan of the birth-death adjustment to the employment serieses: not from a necessary belief that they're biased, but rather because they give the lie to the illusion of accurate monthly data. But imagine for the moment that there had been no adjustment before the January data release.  The headline number for January might well have been north of 400,000, making the past three months even more impressive (from a headline perspective only, but still…) in terms of job creation. Would that change anyone's opinion of the timing and/or need for tightening?  (See also my post earlier today with the graphic borrowed from The Big Picture marking a growth comparison with 2003-2004.)

March 2011 Jobs and March 2013 Unemployment - The employment situation in the U.S. showed real improvement for the second straight month in March 2011, as the number of employed Americans rose above the range of stagnation they had been in from April 2010 through January 2011. Looking two years into the future however, and looking a bit further forward in time using the latest projections of U.S. motor gasoline prices, we can see where today's high and rising oil and gasoline prices will translate into higher unemployment.   Given the medium-strength correlation between average gasoline prices and where the U.S. unemployment rate is two years later, we would project that the U.S. unemployment rate will rise above the 9.0% level early in 2013.

Temporary Layoffs during the Great Recession  - NY Fed - In this post, I show that despite the depth of the Great Recession, U.S. employers did not use temporary layoffs much to cut costs. Just as they did during the previous two recessions, when firms laid workers off, they usually severed ties completely. This prevalence of permanent layoffs during the recession could slow the employment rebound over the coming months. It also raises questions about why the behavior of employers during recessions has changed. The chart below shows that the Great Recession is the third downturn in a row in which temporary layoffs have not spiked noticeably. The new cyclical pattern for temporary layoffs is quite distinct from the sharp peaks in the recessions of 1975, 1979, and 1981; each of those saw a huge surge in temporary layoffs. By contrast, temporary layoffs showed smaller, less abrupt increases during more recent recessions. To provide contrast and complete the picture, the chart’s top line shows the unemployment rate while the middle line shows the share of the labor force that is unemployed for a reason other than a temporary layoff (such as a permanent layoff, quit, or entry).

Weekly Jobless Claims Drop By 10k - Weekly filings of new jobless claims continue to drift lower, and that’s encouraging. But oil prices remain elevated and various global risks continue to bubble. That raises the question of whether the falling trend in new filings for unemployment benefits has legs. The recent strength in jobs creation is one reason for answering "yes," although the fall in new jobless claims is beginning to look weak again. In absolute terms, last week’s change was a winner. New claims dropped by a seasonally adjusted 10,000 to 382,000 last week, the Labor Department reports. Both the weekly number and its four-week moving average have been under the 400k mark for weeks now. That suggests that layoffs are retreating and job growth is increasing.

Toyota: N. American plant closures likely in April -Toyota Motor Corp. said Monday that it's inevitable that the company will be forced to temporarily shut down all of its North American factories because of parts shortages due to the earthquake that hit Japan. The temporary shutdowns are likely to take place later this month, affecting 25,000 workers, but no layoffs are expected, spokesman Mike Goss said. Just how long the shutdowns last or whether all 13 of Toyota's factories will be affected at the same is unknown and depends on when parts production can restart in Japan, he said. So far the North American plants have been using parts in their inventory or relying on those that were shipped before the earthquake, Goss noted. But those supplies are running low."We're going to get to a point this month where that gap in the pipeline starts to show up. So we'll have to suspend production for a while," he said.

Inequality And The Great Stagnation - Tyler correctly points out that median family income rose smartly after World War II only to fall off sharply in the '70s. GDP per capita figures reveal the same trend, albeit a little less dramatically (because of the rise in income inequality). Between 1950and 1973, the average annual growth rate of real GDP per capita was 2.5%; for the period between 1973 and 2007, the corresponding figure was only 1.9% But look what happens when you put these figures in larger historical context:From this broader perspective, what Tyler calls the Great Stagnation looks like a return to normalcy after the "Great Boom" of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. If you look closely at Lindsey's argument, the work of it is being done by switching measures. Cowan uses median family income. Lindsey uses GDP per capita. Why does this matter? Because we've seen significant growth in total wealth over the last few decades, the only problem is that a massive share of it has been enjoyed by a tiny handful of very rich people. If you divvy all that rising income up on  aper capita basis, then we're doing fine. But it isn't being divvied up like that. In the real world, most Americans have experienced stagnation.

The Plight of the Working Class - Mauldin - Let’s start with today’s employment numbers. We got a decent non-farm payroll number of 216,000, and 240,000 new jobs in the private sector (governments everywhere are still shedding jobs). That means over the last two months the private sector has added almost 500,000 jobs. If you take the household survey, that number looks even better. So why did all the consumer sentiment numbers in March come out so awful? Looking deeper into the data we find that wages were once again flat, for the 4th time in the last five months. We are certainly not keeping up with inflation. The chart below shows real median household income since 1967. It is published in May of each year by the Census Bureau, so we don’t have the data for 2010, but it will not be good. Real median income, when the new data comes out, if I read the chart right, will not have grown for almost 14 years.

Gauging the Pain of the Middle Class - The many shortcomings of per capita G.D.P. have been widely discussed. For instance, its failure to account adequately for product quality improvements in areas like computers causes it to understate well-being.  The index also completely ignores the effects of changes in the distribution of income. Although the last flaw is potentially far more serious, it has received little attention, because the costs of income inequality1 are notoriously hard to measure. Yet a simple supplementary index can be calculated from readily available data that captures one of the most important ways that changing distribution patterns have affected middle-income families.  I call it the toil index2. It measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality. (Could the median earner aspire to any less?) Unlike per capita G.D.P., which, apart from brief recessions, grew at a strong and steady rate from the end of World War II until the recent downturn, the toil index has been much more volatile. Its movements suggest that recent increases in income inequality have imposed substantial economic costs on middle-income families.

There is No Great Stagnation in the Durables Sector -That is what Noah Smith finds when graphs TFP by durable and nondurable sectors.   Here is the stunning figure he provides:  Here is Smith: From this graph, it definitely looks like something big did happen to technological progress. But it looks like it happened not in 1973, as Cowen claims, but a decade earlier. In the 15 years to 1963, the two sectors progressed pretty much in tandem. But sometime in the early- to mid-60s, they diverged wildly, with nondurables TFP rising anemically through the late 70s and then basically flatlining until now. Durables TFP looks to have suffered its own very minor slowdown in the mid-70s (which is probably the reason why overall TFP looks like it took a turn around that time), but then exploded with unprecedented vigor after '93. Smith is responding to an earlier post of  mine that Tyler Cowen linked to yesterday.  In that post I showed using John Fernald's data that the TFP growth rate had slowed down dramatically since 1973.  Using the same data set, Smith shows us the Great Stagnation only is true for nondurable output.  For durable output there never is a slowdown.  How do we make sense of this finding?

The Servant Problem: In Search of the Lost Battalion of America’s Unemployed - The nation’s unemployment rate, officially pegged at 9.4% but probably nearer to 17%, in any event no fewer than 25 million Americans, a number more than equal to the entire population of North Korea, out of work or on the run. The metrics, so say President Obama, the Wall Street Journal, and A Prairie Home Companion, are not good. The stock markets may have weathered the storm of the recession, as have the country’s corporate profit margins, but unless jobs can be found, we wave goodbye to America the Beautiful.Not being an economist and never having been at ease in the company of flow charts, I don’t question the expert testimony, but I notice that it doesn’t have much to do with human beings, much less with the understanding of a man’s work as the meaning of his life or the freedom of his mind. Purse-lipped and solemn, the commentators for the Financial Times and MSNBC mention the harm done to the country’s credit rating, deplore the trade and budget deficits, discuss the cutting back of pensions and public services. From the tone of the conversation, I can imagine myself at a lawn party somewhere in Fairfield County, Connecticut, listening to the lady in the flowered hat talk about the difficulty of finding decent help.

Warning! Inequality May Be Hazardous to Your Growth - IMF Direct - Many of us have been struck by the huge increase in income inequality in the United States in the past thirty years. The rich have gotten much richer, while just about everyone else has had very modest income growth. Some dismiss inequality and focus instead on overall growth—arguing, in effect, that a rising tide lifts all boats. But assume we have a thousand boats representing all the households in the United States, with boat length proportional to family income. In the late 1970s, the average boat was a 12 foot canoe and the biggest yacht was 250 feet long. Thirty years later, the average boat is a slightly roomier 15 footer, while the biggest yacht, at over 1100 feet, would dwarf the Titanic! When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.   In fact, inequality matters. And it matters in all corners of the globe. You need look no further than the role it might have played in the historic transformation underway in the Middle East.

Self-Interest "Properly Understood" - Susie Madrak highlights a few passages from Joe Stiglitz Vanity Fair article on inequality: America’s inequality distorts our society in every conceivable way. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means. ... Inequality massively distorts our foreign policy. The top 1 percent rarely serve in the military... Plus, the wealthiest class feels no pinch from higher taxes when the nation goes to war: borrowed money will pay for all that. .America has long prided itself on being a fair society, where everyone has an equal chance of getting ahead, but the statistics suggest otherwise: the chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe. ... It is this sense of an unjust system without opportunity that has given rise to the conflagrations in the Middle East: rising food prices and growing and persistent youth unemployment simply served as kindling. With youth unemployment in America at around 20 percent (and in some locations, and among some socio-demographic groups, at twice that); with one out of six Americans desiring a full-time job not able to get one; with one out of seven Americans on food stamps (and about the same number suffering from “food insecurity”)—given all this, there is ... the predictable effect of creating alienation...

Do you think the poor are lazy? - Even if you said 'No,' the way we talk about wealth assigns moral superiority to the rich. Terms like 'the wealth gap' obscure basic truths about inequality, casting it as a natural economic function. Inequality is really a barrier made to keep others out. We can dismantle it, starting with our words. Americans are in deep denial about our wealth inequality. In the US, the richest fifth have 84 percent of the wealth – and most of us don’t consider this to be a problem. In fact, we don’t even guess at the distribution close to correctly. In a recent poll by Duke’s Dan Ariely and Harvard’s Michael Norton1, respondents thought that lucky fifth has more like 59 percent of all US wealth and favor them owning just 32 percent of it.  But our blindness to the amount of inequality and its effects on our society isn’t pure ignorance or apathy. It’s at least partly a function of how we talk about the issue. We say things like “the wealth gap” and “bridge the gulf” – phrases that obscure some basic truths about inequality.

As Minority Populations Grow - In 1970 there were 170 million non-Hispanic white Americans, and they represented 83 percent of America’s population. Today, there are 197 million non-Hispanic whites in this country, and they represent less than 64 percent of America’s population.If current trends continue at the same pace the 2050 Census measure an even more wonderfully diverse America, where my own demographic subgroup has become a minority.Without this increasing diversity, America’s population would have been largely stagnant. Over the last 40 years, our country’s population has increased by 106 million people. Seventy-four percent of that increase, 78 million people, came from the growth of the minority population. Over the last decade, the non-Hispanic white population increased by a paltry 2.26 million, less than a tenth of the overall population increase of 27 million. The different patterns of growth across the United States are also driven largely by growth in Hispanic and nonwhite populations. The chart below shows the relationship between the growth of a state’s population and the share of that growth accounted for by growth in the state’s minority population.

Forget Unemployment Extensions, Cutbacks More Likely -State attempts to pare back unemployment and an improving economy are likely to lead to a much shorter span of unemployment benefits next year.A combination of state and federal programs has offered up to 99 weeks of unemployment benefits to jobless Americans in the recession and subsequent recovery. That coverage is beginning to unwind as cash-strapped states move to reduce their share of benefits and other states become ineligible for federal programs.That’s partly how the jobless benefits program is supposed to work — 99 weeks of unemployment insurance weren’t meant to be offered indefinitely. But in some states the drop in duration is likely to be jarring, and may be coming as unemployment remains high. When the first extension of unemployment was signed in 2008, the unemployment rate was 5.6%. The rate has been coming down for the past few months, but remains at a still-elevated 8.8%. Most states offer regular, state-funded unemployment benefits for up to 26 weeks. Then unemployed workers can tap into the federally-funded emergency unemployment insurance program, which offers up to 53 weeks of additional benefits. If jobless Americans exhaust that, in some states they are eligible for extended benefits for up to 20 more weeks, which are federally funded through the beginning of 2012.

37,000 in NC face sudden loss of jobless benefits -- Roughly 37,000 North Carolinians will lose their unemployment benefits this month, an outcome that at least eight other states have managed to avoid by changing the calculations used to determine when the money can be paid out. North Carolina lawmakers, though, so far haven't shown interest in revising the formula, which some advocates say risks adding to the misery of an already stagnant job market by cutting off tens of thousands of the long-term unemployed from their benefits. "It's critical that we keep these benefits in place,". "Not just for the people themselves, but for their communities. When they lose their benefits, they cut back on spending, which hurts local businesses and contributes to the overall problem." The state Employment Security Commission was notified by the federal government late last week that the extended benefits program has to stop paying out by April 16. That's because a recent three-month average of the state's unemployment rate didn't equal or surpass 110 percent of three-month averages from 2010 or 2009.

Georgia teen unemployment hits 37% - Georgia has had unemployment rate higher than the national average for 41 months, but the Peach State’s teens have the toughest time finding a job. Georgia has a teen unemployment rate of 37.3 percent --- the highest of any state, according to a new report from the Employment Policies Institute (EPI), which analyzed U.S. Census Bureau data. Georgia and metro Atlanta’s overall unemployment rates were 10.2 percent in February. Nationally, the teen unemployment rate rose slightly to 24.5 percent in March, EPI reported, and the rate for black teens rose to 42.1 percent.“The statistics are devastating -- Nationally, nearly one in four teens is looking for work without success,”  “With summer approaching, the creation of a lower training wage would be an excellent way to boost job opportunities for teens in hard-hit states.”

Bail Burden Keeps U.S. Jails Stuffed With Inmates - Leslie Chew never learned to read or write. Now in his early 40s, he's a handyman, often finding a place to sleep in the back of his old station wagon.  When I first spoke to Chew last summer, he'd been inside the Lubbock County jail since the night he was arrested: 185 days, more than six months. "Well, I stole some blankets to try to stay warm," he says quietly. "I walked in and got them and turned around and walked right back out of the store." Chew is like one of more than a half-million inmates sitting in America's jails — not because they're dangerous or a threat to society or because a judge thinks they will run. It's not even because they are guilty; they haven't been tried yet. They are here because they can't make bail — sometimes as little as $50. Some will wait behind bars for as long as a year before their cases make it to court. And it will cost taxpayers $9 billion this year to house them.

Wash. state mulls prisoner release to save money - SPOKANE, Wash. (AP) — Like many states, cash-strapped Washington is looking to save money by reducing the size of its prison population. But the state has actually been releasing non-violent offenders for years, leaving relatively few inmates who would be good candidates for early release. Washington has only about 17,000 prison inmates, well below the average for a state of 6.6 million. That is not the case in all states. Huge budget deficits are causing politicians in many states to take a hard look at prisons, and the tough-on-crime laws that locked up more people for longer periods. At least two dozen states are considering early release of inmates to save money. Tougher sentencing laws have contributed to a fourfold increase in prison costs across the nation over two decades. The total cost of incarcerating state inmates swelled from $12 billion in 1988 to more than $50 billion by 2008.

Monday Map: State Debt Per Capita, 2009 - This week's Monday Map is a day late.  It shows debt held by state governments at the end of fiscal year 2009, per capita.

Infrastructure Cuts Would Make the Unthinkable Unsurvivable - It's no secret that the nation's infrastructure is in dire shape. Last year, the American Society of Civil Engineers gave US infrastructure a "D" rating and specifically bridges a "C," an average grade that might thrill mediocre students, but in this case means12 percentof the more than 72,000 bridges in the country are too old or "structurally deficient." Additionally, according to the Association of State Dam Safety Officials,4,400 damsare considered susceptible to failure. Despite ominous warnings from the country's engineers, infrastructure remains a thoroughly unsexy issue that causes people to nod off. Transportation networks and buildings are things we take for granted - structures that have always and will always be there. It isn't until infrastructure fails that we understand they are magnificent feats and begin to appreciate how much human effort it takes to maintain an acceptable level of safety during our daily commutes.

Interactive Map: Stronger Unions Create A Stronger Middle Class

Union-bashing brings backlash - By ratios of about two to one, respondents told pollsters that public-sector workers should not lose their rights to unionize. A slightly smaller majority didn’t want government employees to suffer cuts in wages or benefits, according to both Gallup/USA Today and New York Times/CBS polls. Seldom heard words, such as “collective bargaining,” began showing up on network newscasts. People who hadn’t thought much about unions, or didn’t think about them at all, evidently liked what they heard. All this reflects the emergence of a long-simmering issue: the anxiety of the middle class. With neither party offering a believable story of what caused the economy to crash or a plan to rebuild the security of the middle class, the labor movement is one of the few sources of a coherent opposition story and compelling program of reinvestment and restored wages.

We Work Hard, but Who’s Complaining? - WHEN a couple dozen brawny, uniformed and helmeted firefighters, led by a bagpipe player, marched through a crowd of pro-union protesters in Madison, Wis., last month, I knew, almost to a certainty, that Gov. Scott Walker had picked a fight with the wrong crew.  As the firemen assembled on the Statehouse steps, the swelling, boisterous crowd, which had raucously encircled and occupied the Capitol for days, pushing back against Governor Walker’s plan to strip public employee unions of their collective bargaining rights, all of a sudden slipped into silent reverence.  While the plan exempts policemen and firemen, the first responders rallied under the oldest first principle of militant unionism: An Injury to One is an Injury to All. And the presence of these mostly white, husky, mustachioed firemen — many with soot still speckling their uniforms — had highlighted a major issue that generally goes undetected by the news media when covering labor conflicts.

‘No cop in the state’ would arrest WI Senate dems - Wisconsin Senate Majority Leader Scott Fitzgerald was warned by legal representatives of three separate state agencies that ordering state troopers to forcibly return senate democrats to Madison would place his actions in a zone "outside the law", according to the Wisconsin State Journal. The Journal has obtained memos and e-mail from Fitzgerald's office and the office of Sergeant-at-Arms Ted Blazel through a public records request. Fitzgerald now admits in an interview with the Journal that his efforts to compel the Democrats back to the State House were "a mess" and that when he tried to give a statewide order for law enforcement to arrest the missing lawmakers, “There was no cop in the state that would enforce it.”

This Is What Resistance Looks Like - The phrase consent of the governed has been turned into a cruel joke. There is no way to vote against the interests of Goldman Sachs. Civil disobedience is the only tool we have left.  We will not halt the laying off of teachers and other public employees, the slashing of unemployment benefits, the closing of public libraries, the reduction of student loans, the foreclosures, the gutting of public education and early childhood programs or the dismantling of basic social services such as heating assistance for the elderly until we start to carry out sustained acts of civil disobedience against the financial institutions responsible for our debacle. The banks and Wall Street, which have erected the corporate state to serve their interests at our expense, caused the financial crisis. The bankers and their lobbyists crafted tax havens that account for up to $1 trillion in tax revenue lost every decade. They rewrote tax laws so the nation’s most profitable corporations, including Bank of America, could avoid paying any federal taxes. They engaged in massive fraud and deception that wiped out an estimated $40 trillion in global wealth. The banks are the ones that should be made to pay for the financial collapse. Not us. And for this reason at 11 a.m. April 15 I will join protesters in Union Square in New York City in front of the Bank of America.

Out Of Service: Milwaukee Budget Cuts Hit Bus Lines -- "It's been very frustrating to look through the want ads, look online, think about places I could work and realize, 'Nope, can't get there on the bus.'" Schulz is 53. She has years of experience as a legal secretary. But she does not own a car. Over the last decade, as Milwaukee County has inflicted relentless cuts to public transit, she has watched her primary means of transportation decay. After she was laid off in June 2009, a pattern emerged: She'd find what seemed like the perfect job opportunity, only to discover that bus service cuts had rendered it inaccessible. Working people like Schulz bear the strain of a crisis that has struck municipalities nationwide. As revenues fall and expenses balloon in the wake of the economic downturn, local officials have cut essential services in a frenzied attempt to balance budgets. Communities have closed libraries and schools. Governments have laid off workers and imposed deep pay cuts to those who remain. Some of the nation's statistically most dangerous cities have axed significant portions of their police forces.

Privatization: Maybe Good, Maybe Bad, Definitely Ugly -New York’s deputy mayor, Stephen Goldsmith, a champion of privatization, announced plans to “insource” tasks and services that the city previously privatized and assigned to contractors and consultants, citing opportunities to save money for the city. Isn’t saving money the motivation behind recent plans by Florida’s Republican leaders to privatize prisons and probation services? Governor Tom Corbett of Pennsylvania, likewise, announced earlier this month that he will study the benefits of privatizing state owned liquor stores. But he said that it “isn’t about the money. It’s about the principle. Government should no more run the liquor stores than it should run the pharmacies and gas stations.”  What, then, should governments be providing, and does privatization actually save money or inflate expenses? The answer is, it depends.There are services that have been proven easy to privatize, such as garbage collection. The task is simple and well defined: drive the truck, pick up the cans, dump the trash and don’t spill it on the street.  How do we ensure high quality service? Citizens will complain if it isn’t

Malloy tells agencies: Prepare for layoffs (CT) Time might be running out on talks aimed at obtaining $2 billion in savings and concessions from state unions over the next two years. Exactly five weeks after the start of closed-door discussions with the State Employees Bargaining Agent Coalition, Gov. Dannel P. Malloy's budget office on Wednesday ordered agency and department heads to make contingency plans that include massive layoffs."I am not doing anything I have not said before," Malloy told reporters in the Capitol complex. "This is the framework. It is the only framework I am going to support. If we don't get concessions, then there is going to be better than $1 billion in further reductions to spending, and there is no way to get to that without a lot of people losing jobs. That is just the reality."Malloy's negotiating team wants to obtain $1 billion a year for a biennial budget that's in a record deficit. Unions representing 43,000 workers in 31 bargaining units have been asked to consider several savings for the state, including paying more for insurance, making higher payments into their pensions, taking additional furlough days and raising the retirement age.

San Francisco's growing budget deficits threaten basic services - The City is looking at more years of massive budget deficits that threaten core services such as policing and street repair, according to a report released Thursday by the City Controller’s Office. While the controller lowered The City’s latest deficit projection for the upcoming fiscal year to $306 million from $380 million, the report painted a grim financial picture for the following years. There is a $480 million deficit projected for fiscal year 2012-13, and a $642 million deficit projected for fiscal year 2013-14 — which amounts to nearly $800 for every San Franciscan. The budget gloom and doom is fueled by increasing labor costs even though The City is operating with 2,000 fewer workers than 10 years ago. “We have watched this train wreck happening in slow motion,” . “The pension and benefit costs have gotten out of control. If we don’t take radical action, we are going to be slashing public services.”

Denver Schools $800 Million Sale to Help Escape JPMorgan Swap - The Denver public school system is borrowing $800 million to restructure pension debt and help escape part of a money-losing interest-rate swap with JPMorgan Chase & Co. (JPM)  Denver City & County School District No. 1, Colorado’s second-largest by enrollment, is issuing taxable securities with about $400 million in fixed-rate bonds today and about $400 million of variable-rate next week, to replace $750 million variable-rate debt and terminate a swap agreed with JPMorgan in April 2008.  The district is being forced to restructure the debt in the form of certificates of participation, because it is losing its standby purchase agreement with Dexia Credit Local, a unit of Dexia SA (DEXB), April 23.  “This is the best deal the board could unanimously agree on,” . “It was important for us to go forward with a united voice.”

Cleveland Metropolitan School Board Votes to Close 7 Schools - The Cleveland Metropolitan School Board voted 6-2 Tuesday evening to close seven schools, and layoff 702 Cleveland Teachers Union employees, including 643 classroom teachers in the district. Additional layoffs will be considered at an April 26 meeting, officials said. Interim CEO Peter Raskind is expected to propose laying off central office union and at-will employees. The staff cuts would be in addition to reduced salaries and benefits, which would save the district nearly $3.9 billion. The board said cost-cutting measures were necessary in trimming down the school district's projected $74 million deficit over the 2011-2012 and 2012-2013 school years.

Corbett says cash-strapped school districts need to consolidate - Ailing school districts such as Duquesne and Clairton, facing a drop in state aid and a withering tax base, need to consider consolidation, Gov. Tom Corbett said today. "Frankly, I think school districts around the state are going to have to start looking at can they continue to exist?" Corbett said his dip in popularity -- recent polls show has an approval rating of around 35 percent -- is a reaction to the steep cuts in state spending he proposed to close a projected $4.2 billion deficit without any tax increases. "Nobody, including myself, wants to just go in there and cut. ... We didn't have any painless choices," Corbett said. "A lot of people don't understand how bad it is." Corbett's budget proposal cuts K-12 spending by about $1 billion, but he acknowledged that could change as the Legislature writes the state's 2011-12 spending plan.

Public education funding in the spotlight - A small, but passionate group gathered Saturday to discuss the funding shortfall crisis facing public education for the upcoming school year.Elementary and secondary teachers held signs proclaiming their opinions about the decisions of Texas state legislators. “If you can read this, thank a teacher.” “Hey Austin, leave our kids alone.”And a sign reading “Is this the way to fix Education?” made out of duct tape in a telling comparison of how educators feel the state government is just trying to patch up what’s badly broken. “It’s important to call your legislators and let them know how these budget cuts affect your classroom,” Churck Isner said. Isner is the Texas State Teachers Association Regional president. Of importance to those gathered Saturday was the Texas House of Representatives debate on HB 1. TSTA members say that if HB 1 becomes law, it would cut $8 billion dollars state wide from public education. Members claim this will result in the firing of teachers, packing kids into overcrowded classrooms and closing neighborhood schools in many districts.

The Crisis of Public Education: Budget Cuts, Deficits, and the Lies Behind Them. While the country remains deep in recession, with official unemployment rates near 9%[i] and real unemployment over 20%[ii], a campaign is underway to balance state and local budgets by slashing public education at all levels. These attacks are carried out under the baseless assumption that the money has simply disappeared. Instead of investing in education to get out of the great recession, massive cuts aim to gut the entire system. Politicians seem more interested in fixing numbers on a budget sheet than fixing society’s problems. The basis for these cuts is that there is not money. This is the biggest lie of all. Over the last ten years, the US has spent over $1.17 trillion[iii] on never-ending wars and occupations with estimates of total costs clearing $3 trillion, [iv]  and spending over $964 billion this year for defense.[v] They’ve also given massive tax breaks for the rich and corporations on all levels, enriching the rich while taking from the poor. [vi] We’ve also seen massive increases in corporate welfare and bailouts.[vii]

Who’s Bashing Teachers and Public Schools and What Can We Do About It?  -The short answer to this question is that far too many people are bashing teachers and public schools, and we need to give them more homework, because very few of them know what they’re talking about. And a few need some serious detention But the longer answer is that the bashing is coming from different places for different reasons. And to respond effectively to the very real attacks that our schools, our profession, and our communities face, it’s important to pay attention to these differences. The parent who’s angry at the public school system because it’s not successfully educating his/her children is not the same as the billionaire with no education experience who couldn’t survive in a classroom for two days, but who has made privatizing education policy a hobby, and who has the resources to do so because the country’s financial and tax systems are broken. The educators who start a community-based charter school so they can create a collaborative school culture are not the same as the hedge fund managers who invest in charter schools because they see an opportunity to turn a profit or because they want to privatize one of the last public institutions we have left.

Sacrificing Teachers and Firefighters to Hoovernomics - America owes a debt of gratitude to such insightful Republican governors as Scott Walker of Wisconsin, John Kasich of Ohio, Rick Snyder of Michigan and Chris Christie of New Jersey. Were it not for them, many Americans - myself included - would still be thinking that today's state budget messes are mainly the product of a national economic crash caused by the reckless greed of Wall Street banksters and rich speculators, as well as the abject failure by political leaders to tax their super-wealthy campaign contributors in order to meet the growing needs in education and other essentials. Luckily, the GOP guvs have set the record straight by explaining that the budget woes are the fault of teachers who have health coverage and firefighters who get pensions.

Today’s teacher layoffs threaten tomorrow’s college classrooms -Teacher layoffs and other education spending cuts are thinning more than the current ranks of California's classroom instructors. The number of people training to be teachers also is plummeting, and that trend is likely to continue. Education experts are warning of a shortage of new teachers in a few years as large numbers of baby boomers start to retire from teaching jobs and larger numbers of youngsters enter elementary school. "It's a very dramatic decline," noted Dale Janssen, executive director of the state Commission on Teacher Credentialing. "It's kind of difficult to encourage people to become teachers when every time this time of year they hear about 20,000 pink slips going out." In California, the number of teaching credentials issued annually fell 29% during the last five years, from 28,039 in 2004-05 to 20,032 in 2009-10, according to a new report by the state Commission on Teacher Credentialing. The biggest decline, nearly a 50% drop during that period, was in the multiple subject credential usually required to teach elementary school youngsters, while some demand for high school math and science teachers remains.

Teachers bonuses undermines student learning - Recent efforts to improve teacher performance by linking pay to student achievement have failed because such programs often rely on metrics that were never intended to help determine teacher pay, contends Derek Neal, Professor of Economics at the University of Chicago."Many accountability and performance pay systems employ test scores from assessment systems that produce information used not only to determine rewards and punishments for educators, but also to inform the public about progress in student learning," Neal writes in the paper, "The Design of Performance Pay in Education." These testing systems make it easy, in theory, for policymakers to obtain consistent measures of student and teacher performance over time. But Neal argues that the same testing regimes also make it easy, in practice, for educators to game incentive systems by coaching students for exams rather than teaching them to master subject matter.

How We Teach Our Graduates Not to Teach - A new report came out recently on what the US can learn from the countries that most successfully educate their children. The most important recommendation? “Make a concerted effort to raise the status of the teaching profession.” While the U.S. is only second to Luxembourg in OECD countries’ spending on education, our money is misdirected, going to areas other than teacher salaries like bus transportation and sports facilities. And as the NYTimes notes, the results are clear:On average, American teenagers came in 15th in reading and 19th in science. American students placed 27th in math. Only 2 percent of American students scored at the highest proficiency level, compared with 8 percent in Korea and 5 percent in Finland. This recommendation comes at a time when the teaching profession is experiencing a brutal attack, as Republican governors (see: Scott Walker; also: Chris Christie) demonize them and their unions as vampires sucking state coffers dry and lazy ne’er-do-wells who have luxurious pensions and vacation time. But the degradation of the teaching profession isn’t a new phenomenon.

Brown warns of soaring UC costs in all-cuts budget - Gov. Jerry Brown on Wednesday began laying out the possible consequences of balancing California's remaining $15.4 billion budget deficit solely through spending cuts -- including a doubling of University of California tuition -- as he continues to push for a compromise with Republicans on his proposal for a special election on taxes. In an address Wednesday to the California Hospital Association, Brown said UC undergraduate fees could hit $20,000 to $25,000 a year if the Legislature approves and he signs an all-cuts budget. Current fees are nearly $12,000 for in-state students, plus thousands more for books and other fees, and are scheduled to rise by more than $900 a year next fall. Brown said California's universities and colleges are its "engine of creativity and wealth and well-being." "It's going to make it harder for people to go to school. You have higher loans, and the quality of life of California is being undermined," Brown told reporters afterward.

Americans' views of college access varied, often inflated -A study by Indiana University sociologists found that many Americans had inflated views of minority students' opportunities to attend college, yet a large contingent - around 43 percent of people surveyed - believed that low income students had fewer opportunities for college access. A quarter of the people interviewed thought minority and low-income students held a better position than middle-class students when it came to college access. Racial minorities, particularly African Americans, were more attuned to barriers in college access faced by disadvantaged groups.  "Understanding these perceptions is important because they have the potential to influence not only educational policy preferences, but also an individual's actions,"  "If you do not think you have the opportunity for a college education, you may not even apply."  Qualified students from low-income families were perceived as having less opportunity than other groups, according to the study, while qualified students who were racial or ethnic minorities were perceived as having more opportunities for a college education than other groups.

Wisconsin, Illinois pension woes weigh on munis — Municipal-bond investors have been demanding higher yields on bonds issued by states struggling with budget deficits and pension costs, adding a new layer to already contentious debates on tax hikes and benefit cuts. Yields on bonds issued by Illinois and Wisconsin, two states in the spotlight this year as lawmakers fought for controversial measures to increase revenues or rein in longer-term pension costs, have fallen from recent peaks as lawmakers took big steps to address their fiscal issues. “If we don’t see either steps taken, or some other source of credit deterioration, we start to get a little more worried,” said Adam Stern, an analyst at Breckinridge Capital Advisors, which oversees $13.5 billion in bonds, mostly municipal.

Indiana set to pay more for unfunded pensions - Indiana lawmakers plan to set aside more money in the next two-year budget to help deal with unfunded pension liabilities, but experts warn the amount needed to pay retirees will only grow in the next 15 years. The amount set aside for public workers’ pensions would increase from $835 million this year to $952 million in the second year of the $28 billion budget that has cleared the House and is pending before the Senate, the Evansville Courier & Press reported Friday. The proposed 14 percent increase is due in part to the state taking responsibility for local police and firefighter pensions in the property tax overhaul approved three years ago and increasing payments due as part of old pension plans that are being phased out. Pensions for public school teachers hired before 1996 were guaranteed, but no money was deducted from their paychecks or set aside by their schools. “The hens have come to roost on the benefit increases that were handed out in the good years,” said Steve Russo, executive director of Indiana’s pension funds.

Fed's Low Interest Rates Crack Retirees' Nest Eggs - In 2009, according to the most recent data available from the Labor Department, average annual investment income for the 24.6 million American households headed by people 65 and older amounted to $2,564. That figure is down 34% from 2007, and is the lowest since 2003. A recent survey by the Employee Benefit Research Institute indicated that one in three retirees had dipped deeper than planned into their savings to pay for basic expenses in 2010.  Most economists agree that the Fed's interest-rate policies, together with other measures, have helped avert a much deeper economic slump. Still, the situation for savers has become progressively worse since the Fed first lowered its interest-rate target close to zero in late 2008.  As of January, the average interest rate paid on relatively safe vehicles such as short-term savings accounts, time deposits and money-market funds stood at only 0.24%. That's one-tenth the level of late 2007 and the lowest on records dating back to 1959. Such depressed rates don't come close to compensating for inflation, which was running at an annualized rate of 5.6% in the three months ended February.

A coincidence?, by Richard Green: In 1959, the poverty rate among the elderly was 37.1 percent, or more than double the rate for all adults.  By 1969, it has dropped to 27.1 percent and by 1979 to 12.7 percent.  By 1999 it was 7 percent, or lower than the adult poverty rate.  Medicare, of course, came into being in the 1965.

Los Angeles May Freeze Retiree Health-Care to Save $525 Million - Los Angeles City Administrative Officer Miguel Santana proposed freezing the city's contribution to its retiree health-care plans for some union workers to save $525 million over five years. The proposal, which would cap the city's payments at a maximum of $1,190 a month per worker, will be considered by the City Council on April 12, Santana said in a telephone interview today. Any difference between the cap and actual health-care payments would be paid by the retirees.Mayor Antonio Villaraigosa reached a deal with employee unions March 24 that would save the cash-strapped city $400 million over four years by asking some workers for the first time to contribute 4 percent of their salary toward health-care costs in retirement. That agreement, which still must be ratified by the unions, would apply to about 14,500 full-time employees, Santana said. The current proposal would cover the rest of the city's 32,000 employees, including police officers and firefighters.

The Dependence Economy - Over the weekend I attended a talk by Credit Suisse’s chief economist, Neal Soss, on the structural and cyclical challenges facing the economy. The cheekily titled chart below — showing how much more dependent Americans have become on government money, including in many cases Tea Partiers — is taken from his presentation:The red line shows what share of personal income comes from wages — that is, what Americans earn from working. The blue line shows what share comes from transfer payments, which are made to individuals, usually by the federal government, through social benefit programs like unemployment insurance, disability insurance and Social Security. (Note that the two lines use different scales, shown on the vertical axes, and that the scale for wages does not start at zero.)

Men, Unemployment and Disability - In the worst economic times of the 1950s and ’60s, about 9 percent of men in the prime of their working lives (25 to 54 years old) were not working. At the depth of the severe recession in the early 1980s, about 15 percent of prime-age men were not working. Today, more than 18 percent of such men aren’t working. That’s a depressing statistic: nearly one out of every five men between 25 and 54 is not employed. Yes, some of them are happily retired. Some are going to school. And some are taking care of their children. But most don’t fall into any of these categories. They simply aren’t working. They’re managing to get by some other way. For growing numbers of these men, the federal disability program is a significant source of support. Disabled workers — men and women — received $115 billion in benefits last year and another $75 billion in medical costs. (Disability recipients become eligible for Medicare two years after starting to receive benefits.) That $190 billion sum is the equivalent of about $1,500 in taxes for each American household.   Motoko Rich of The Times and Damian Paletta of The Wall Street Journal have both written richly detailed articles on it recently.

Moving From Disability Benefits to Jobs - In an article today, I explore why Social Security is strained by the number of workers who now collect disability benefits, and why it is so difficult for these beneficiaries to go back to work.  Many, of course, suffer such severe disabilities that it is all but impossible to work. For them, the benefits provide an essential lifeline. For others, some work is possible, and economists and advocates for the disabled argue that if these people were provided with the right assistance and workplace accommodations, they might be able to work enough to leave the benefit rolls. But some economists and policy analysts argue that many beneficiaries who might work are discouraged from doing so because of the so-called “cash cliff” that stipulates that workers who earn even $1 more than $1,000 a month — a level deemed “substantial gainful activity” — will lose all their cash benefits once a nine-month trial period is completed. According to a paper submitted to the Journal of Vocational Rehabilitation by Tim Tremblay, Alice Porter and James Smith of the Vermont Division of Vocational Rehabilitation and Robert Weathers of the Social Security Administration, this cash cliff is a “substantial disincentive to work.”

Guest post: Regional Disparities in Health Spending in Medicare - Jason Shafrin, over at the Healthcare Economist, brings up an interesting paper examining the data from the Dartmouth Atlas. For those that are unfamiliar, the Dartmouth Atlas is a compendium of data examining Medicare spending per beneficiary, and then comparing that spending by geographic region. The differences are stark. I know. I use the Dartmouth Atlas data in my health policy talks all the time. The data was highlighted in an Atul Gawande article in 2009 on McAllen, Texas. Jason points us to an article from the New England Journal by Zuckerman...  “Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”

Number of the Week: U.S. Spends 141% More on Health Care - 141%: How much more the U.S. spends on health care, per person, than the average OECD nation. At a time when politicians in Washington are battling over — among other things — the future of the U.S. health-care system, it’s instructive to see just how well that system operates. According to the Organization for Economic Cooperation and Development, we’re doing a terrible job. A new report finds that the U.S. spends far more on health care than any of the other 29 OECD nations, and gets less health for its money. Annual public and private health-care spending in the U.S. stands at $7,538 per person, 2.41 times the OECD average and 51% more than the second-biggest spender, Norway. Meanwhile, average U.S. life expectancy is 77.9 years, less than the OECD average of 79.4. The OECD estimates that if the U.S. reached the efficiency level of the best-performing countries, the government could save the equivalent of 2.7% of economic output every year. That’s enough to solve about a third of the country’s budget-deficit problem.

Costing Out The Top 50 Medicare Procedures - With so many politicians focused on controlling the costs of Medicare, we thought it might be time to review what the most popular medical procedures paid for by U.S. taxpayer dollars actually are.  To that end, we adapted an interactive table originally presented by the Wall Street Journal in October 2010, which describes the Top 50 procedures, services and items that Medicare paid for in 2008, including the number of each performed, which to our knowledge is the most recent data available.  But unlike the WSJ, we went the extra mile and added an extra column to show the average cost of each procedure, service or item for which U.S. taxpayers paid through their Medicare taxes.

NC bill threatens to criminalize naturopaths, homeopaths, herbalists, midwives, aromatherapists as felons --Alternative health practitioners in North Carolina (NC) and their patients need your help to defeat a stealth bill that flew under the radar of most everyone in the natural health community. Senate Bill 31, which clarifies the penalties for the "unauthorized practice of medicine," essentially criminalizes the practice of unlicensed forms of medicine, which includes the work of many naturopaths, homeopaths, herbalists, aromatherapists, and even some midwives in the state. SB 31 states that anyone who practices medicine or surgery without having been first "licensed and registered to do so" will be guilty of a Class I felony. Class I felonies in NC are the least severe kinds of felonies, but they do include things like burning crosses on private or public property, and sexually exploiting children. So if passed, SB 31 will essentially make those who practice alternative medicine without an official, state-sanctioned license and permit, criminals of the likes of sexual predators and cross burners.

Guest post: Interstate Health Insurance Sales - One of the more common ideas often thrown around in health policy is the idea of allowing patients to purchase health insurance across state lines. The idea of course, is to allow patients access to potentially cheaper policies, and that by increasing competition, lower rates will ensue.  While this does not sound like the worst idea, there are several problems with this concept, the first, and most obvious, being regulatory. Insurance plans are regulated by each state, and each state has a mandatory minimum coverage. State regulators have legal authority to oversee all insurance matters within their state boundaries, but do not have the authority to oversee out of state plans. If a patient were to purchase insurance in a neighboring state, and then have a grievance or complaint against that company, the patients legal recourse might be very limited. Additionally, if they buy plans that do not meet the minimum coverage requirements of their own state, are there potential legal problems?

Health Care Thoughts: ACO Draft Regulations - On March 31st the Obama administration issued the draft regulations for Medicare Accountable Care Organizations (ACOs). ACOs are to eventually be the centerpiece of cost savings for the entire US health care system. This is the first peak at how the ACOs might be defined. In the "they never learn" category, the draft regulations are 429 pages long.  Okay, I read the beast, and have a couple of findings among the many dozens of pages of bureaucratic gibberish. 1. The sections delineating what an ACO should accomplish and how to do it are well formed and should be adoptable without much change. Whether these ambitious goals are attainable is a major question and concern. 2. The feds are not certain who should participate in the first round of Medicare ACOs and have laid out many options that will require a great deal of comment and time to sort out. I suspect the more limited options (physician and physician-extender providers and hospitals) will be used for the first round. It is likely the final regs will not be published until fall, and these ACOs are supposed to be operating January 1, 2012. This is a tight timeline.

The Rising Risk of Antibiotic Resistance - Scary theme of the week? Rising antibiotic resistance. Megan McArdle highlighted this challenge in her presentation at the Kauffman bloggers event on Friday; if you have a moment, check out her chart at the 2:00 mark, showing that resistance to new antibiotics has been developing faster and faster. You’ll hear more about resistance later in the week, as the World Health Organization will make make it the focus of Thursday’s World Health Day. It’s also the subject of a helpful overview in this week’s Economist. Antibiotic resistance isn’t new. Indeed, as the Economist notes, Alexander Fleming identified this threat in the 1940s. But it appears to be getting worse. Evolutionary pressure combines with market failure to speed the creation of resistant bacteria:

Broken market of the day: pharmaceuticals - Two highlights of the Kauffman Bloggers Forum were the presentations on the broken nature of the pharmaceuticals market. And they came from opposite ends of the left-right spectrum: Megan McArdle went first, followed by Dean Baker. McArdle’s talk was narrowly focused on antibiotics. The problem here is resistance: even before antibiotics start being tested, resistance to them starts showing up. McArdle’s thesis is that this isn’t just a problem of drugs and biological science, but is a market problem too.The size of the problem of multi-drug-resistant bacteria is immense: more than a million cases a year, many of which end in death. And the cause of the problem, McArdle says, is that “all of the incentives are bad”.For one thing, the suppliers of antibiotics — doctors and farmers — have no incentive to reduce the quantity of antibiotics they hand out. At the margin, for the individual patient or cow, there’s no great harm in feeding them antibiotics even if they don’t need them. Some patients even explicitly ask for antibiotics “just in case” the infection turns out to be bacterial. But in aggregate, this behavior is exactly what’s causing the rise of multi-drug-resistant bacteria. The way McArdle puts it, “pharmaceutical profits in Europe are marginal, and they’re volume-driven. And in antibiotics, the last thing you want is volume-driven profits.”

Why Gene Sequences Don't Equal Cures - One of the major disappointments of the new millennium so far has been the failure of genomics to yield promising new medical treatments. This was supposed to save pharma, and, not incidentally, us, by letting us read the very molecules where things first went wrong. But cures have not really been forthcoming, and a post by Derek Lowe suggests some of the reasons why: A new study, one of those things that could only be done with modern sequencing techniques, has given us the hardest data yet on the genomic basis of cancerous cells. This massive effort completely sequenced the tumors from 50 different breast cancer patients, along with nearby healthy cells as controls for each case.  Over 1700 mutations were found - but only three of them showed up in as many as 10% of the patients. The great majority were unique to each patient, and they were all over the place: deletions, frame shifts, translocations, what have you.

Nurses to dirty air supporters: Enough is enough - The Alliance of Nurses for Healthy Environment (ANHE) began in 2008 when a group of nurses decided enough was enough when it came to public health and the environment. Leaders in the nursing profession came together to “promote the integration of environmental health into nursing education, practice, research, and policy/advocacy work.” Their most recent target?  Protecting children, seniors, and others from smog and other air pollutants.   Smog can trigger asthma attacks, and exacerbate other respiratory ailments, particularly among children, seniors, and those already ill.   CAP’s Lee Hamill has the story. Unfortunately, the House of Representatives is about to vote today to block the Environmental Protection Agency from protecting these vulnerable populations from carbon dioxide pollution and the increase in smog due to global warming.

Oklahoma sees driest 4 months since Dust Bowl -  In most years, the dark clouds over western Oklahoma in the spring would be bringing rain. This year, they're more likely to be smoke from wildfires that have burned thousands of acres in the past month as the state and its farmers struggle with a severe drought. Oklahoma was drier in the four months following Thanksgiving than it has been in any similar period since 1921. That's saying a lot in the state known for the 1930s Dust Bowl, when drought and high winds generated severe dust storms that stripped the land of its topsoil. Neighboring states are in similar shape as the drought stretches from the Louisiana Gulf coast to Colorado, and conditions are getting worse, according to the U.S. Drought Monitor. The area in Texas covered by an extreme drought has tripled in the past month to 40 percent, and in Oklahoma it nearly doubled in one week to 16 percent, according to the monitor's March 29 update. An extreme drought is declared when there's major damage to crops or pasture and widespread water shortages or restrictions. While dozens of people in Kansas, Oklahoma and Texas have lost homes to the hundreds of grassfires that have torn through the parched landscape in the past month, the biggest losses are likely to come from the drought's effect on the wheat farmers planted last fall and hoped to harvest in June, they said.

USGS on Dust-Bowlification: Drier conditions projected to accelerate dust storms in the U.S. Southwest - Oklahoma now drier than the 1930s Dust Bowl - Drier conditions projected to result from climate change in the Southwest will likely reduce perennial vegetation cover and result in increased dust storm activity in the future, according to a new study by scientists with the U.S. Geological Survey and the University of California, Los Angeles. The research team examined climate, vegetation and soil measurements collected over a 20-year period in Arches and Canyonlands National Parks in southeastern Utah. Long-term data indicated that perennial vegetation in grasslands and some shrublands declined with temperature increases. The study then used these soil and vegetation measurements in a model to project future wind erosion. That’s from the USGS news release for its Proceedings of the National Academy of Sciences study, “Responses of wind erosion to climate-induced vegetation changes on the Colorado Plateau.” Dust-Bowlification — combined with the impact on food insecurity of Dust-Bowlification (and other extreme events) — is, I believe, the biggest impact that climate change is likely to have on most people for most of this century.

Wheat Gains as U.S. Crop Conditions Deteriorate to Worst Rating Since 2002 - Wheat gained after the U.S. Department of Agriculture said crop conditions in the country, the biggest exporter of the grain, declined to the lowest ratings since 2002.  About 37 percent of the U.S. crop was good or excellent, down from 65 percent a year earlier, the USDA said in a report on April 4, the first this year measuring conditions in all growing states. The reading was the lowest since 2002, when 31 percent got the top ratings. “The strength in wheat is likely attributable to concerns about the U.S.” southern Plains, said Justine White, an analyst at VM Group in London. “The USDA has downgraded the crop ratings for critical growing regions following persistent dry conditions and there are fears of production losses if conditions do not improve in the near future.”

U.S. Corn Futures Match All-Time High On Supply Concerns - U.S. corn futures matched their all-time high Monday as growing concerns federal forecasters will slash the outlook for supplies provided fresh fuel to a 10-month rally in prices. Corn for May delivery matched the June 2008 all-time high of $7.65 a bushel and set a new record settlement price of $7.60 1/4 a bushel at the Chicago Board of Trade. The previous highs were set in June 2008 during a broad-based surge in commodity prices that was quickly undercut by the global financial crisis.  Since last summer, corn futures have more than doubled on strong export demand, record U.S. ethanol output and steady buying by domestic livestock producers. Farmers have struggled to keep pace, even though the U.S. crop last year was the third largest on record. "It appears that consumption is progressing at a rate that cannot be sustained by available supplies," said Darrel Good, an agricultural economist at the University of Illinois. The record prices are rippling through the agriculture sector, from fueling record U.S. cattle prices to increasing demand for fertilizer as farmers look to plant more acres this spring.

Farmers look to earn their corn with new storage bins  - Soaring corn prices have sparked a rush by US farmers to build storage bins across the Midwest, with many hoping to profit from an expected shortage by hanging on to grain supplies. The rapid pace at which bins are being erected has made the glint of galvanised steel a more common sight in rural parts of the US, their growing presence a sign that farmers expect to fetch higher prices for their corn as the country’s stocks fall to critically low levels.  “Storage has had an incredible boom,” said Michael Swanson, agricultural economist at Wells Fargo. “Farmers have built more on-farm grain storage in the last three to four years than they’ve built in the previous 30.” Government economists believe that US corn inventories will fall sharply before combine harvesters start rolling in the autumn, to 675m bushels by August. Corn futures prices have doubled in a year to surpass $7.70 per bushel, breaking records set in the commodity price spike of 2008.  But farmers selling to merchants often fetch far less than Chicago futures prices, a discount known as “basis”. Holding back grain allows them to bet that discount will shrink, or futures rise, as supplies dwindle.

Wheat Seen Extending Rally as Corn Surge Spurs Swap in Feed for Livestock - The costliest corn in more than two years means livestock producers will feed animals more wheat, strengthening demand just as stockpiles shrink the most since 2007 and driving prices 4.5 percent higher in three months.  Wheat traded on the Chicago Board of Trade will jump to $8.60 a bushel as corn rises 4.3 percent to $8 a bushel, exceeding the record $7.9925 set in June 2008, according to Jonathan Bouchet from OTCex Group, a Paris-based brokerage. Wheat rose as much as 14 percent in the month after the Geneva- based analyst predicted a surge in January.  “The whole grain market is related through animal feed because producers tend to switch from corn to wheat,” said Bouchet. “Right now wheat is supported by the corn story.”  Corn rose 16 percent and wheat 13 percent since the U.S. Department of Agriculture said March 31 that corn stockpiles fell to a four-year low on March 1. Higher grains costs are adding pressure to food prices the United Nations says reached a record in February, contributing to protests across the Middle East and North Africa and toppling leaders in Tunisia and Egypt.

Monsanto chairman concerned about low level of corn supplies - Monsanto has acknowledged difficulties with the rollouts of its newest Roundup Ready to Yield soybeans and Smartstax corn seeds because farmers balked at paying up to $400 per bag for seeds. The company cut prices for some of its new seed lines last year. Monsanto said sales of Roundup Ready to Yield soybean lines would rise from 6 million acres last year to 13 million to 17 million of the estimated 76 million acres of soybeans expected to be planted in the United States this year.

Honeybees 'entomb' hives to protect against pesticides, say scientists - Honeybees are taking emergency measures to protect their hives from pesticides, in an extraordinary example of the natural world adapting swiftly to our depredations, according to a prominent bee expert. Scientists have found numerous examples of a new phenomenon - bees "entombing" or sealing up hive cells full of pollen to put them out of use, and protect the rest of the hive from their contents. The pollen stored in the sealed-up cells has been found to contain dramatically higher levels of pesticides and other potentially harmful chemicals than the pollen stored in neighbouring cells, which is used to feed growing young bees.

Gas Prices Affect Farmers On Many Fronts - As gas prices rise above $3.50 per gallon, drivers are feeling the pinch at the pump. However, farmers and ranchers are among the worst affected. "They both hold about 300 gallons, and they'll burn her up in a day," said rancher Mike Hammond, referring to the two tractors he owns. "That's eleven hundred bucks to fill her up," Hammond added. Tractors, with their low fuel efficiency, are not the most economical of machinery to operate, much less so during times of high gas prices. Hammond said his tractor operation costs have doubled since 2010. As the cost to operate a tractor rises, other goods, whose manufacturing or transport depends on fuel, are also rising. "Fertilizers are way up again, tires and everything,"

A Global Food Crisis In 2011 - The FAO's food price index has fallen slightly from its record-setting high in February, but this is not yet a cause for celebration.

    • » The FAO Food Price Index (FFPI) averaged 230 points in March  2011, down  2.9 percent from its peak in February, but still 37 percent above March last year. International prices of oils and sugar contracted the most, followed by cereals. By contrast, dairy and meat prices were up.
    • » The FAO Cereal Price Index averaged 252 points, down 2.6 percent from February, but still 60% higher than in March 2010. The past month was extremely volatile for grains, with international quotations first plunging sharply, driven largely by recent events in Japan and North Africa, before regaining most of their losses towards the end of the month, as markets reacted to a continuing tight world supply and demand condition. Rice prices also fell amid large availability in exporting countries and sluggish import demand...

Food and Macronutrients Around the World  - This post has a few graphs of very broad trends in food consumption around the world.  All data come from the FAO (FAOSTAT Food Supply section) and run from 1961 to 2007.  First up, above is the trend in total food supply in kCal/day/person for the world's largest areas (sorry Oceania).  You can see that all areas have had steadily growing food supply in broad brush strokes.  There are places in Africa where people are starving, but still, the average African eats about 25% more calories than his or her grandparents 40 years ago. There have been some setbacks - for example, European consumption fell in the early 1990s when the collapse of the communist world caused a sharp reduction in food production in Eastern Europe, pulling down the European average.  North American food supply peaked in 2005 and then fell slightly to 2007.   So this is further context to recent food price spikes.  Not only have farm prices been falling for decades previously, but the world has been getting better and better fed (at least as measured by quantity). 

Trends in Animal Product Consumption - The other day, I posted this graph which included the fraction of global cereal production going for animal feed: I was surprised to see that the fraction of cereal going for animal feed had been gradually declining for decades.  News stories are constantly talking about the rise of meat consumption in China and other developing countries putting pressure on agricultural commodity prices, so I was expecting to see that fraction rising, not falling.  This post has some graphs exploring the question further.  In particular, using the FAO Food Supply data, I computed the ratio of dietary calories coming from animal products (that is, meat, fish, eggs, and dairy products).  First, here is a selection of important developing countries:

Genetically modified cows produce 'human' milk - The scientists have successfully introduced human genes into 300 dairy cows to produce milk with the same properties as human breast milk.  Human milk contains high quantities of key nutrients that can help to boost the immune system of babies and reduce the risk of infections.  The scientists behind the research believe milk from herds of genetically modified cows could provide an alternative to human breast milk and formula milk for babies, which is often criticised as being an inferior substitute.  They hope genetically modified dairy products from herds of similar cows could be sold in supermarkets. The research has the backing of a major biotechnology company. The work is likely to inflame opposition to GM foods. Critics of the technology and animal welfare groups reacted angrily to the research, questioning the safety of milk from genetically modified animals and its effect on the cattle's health.

Slow-onset climate change a huge risk to food supply - FAO - But more gradual climate impacts – such as the emergence of prolonged droughts – could create much bigger challenges by fundamentally altering ecosystems and leading to long-term loss of productive land. That could bring “potentially disastrous impacts on food security” starting in 2050 to 2100, he said. To avoid that, “we must already today support agriculture in the developing world to become more resilient,” Muller said. The warnings are in line with a 2009 study in the academic journal Science that predicted that climate change would seriously alter crop yields in the tropics and subtropics by the end of this century. Without effective adaptation, that study suggested, half of the world’s population could face serious food shortages. The threat is particularly severe because the population of the world’s equatorial belt - from about 35 degrees north latitude to 35 degrees south latitude - is among the poorest on Earth and is growing faster than anywhere else, according to the Science study.

Multitude of Species Face Climate Threat - For decades, scientists have warned that humans may be ushering in a sixth mass extinction, and recently a group of scientists at the University of California, Berkeley, tested the hypothesis. They applied new statistical methods to a new generation of fossil databases. As they reported last month in the journal Nature, the current rate of extinctions is far above normal. If endangered species continue to disappear, we will indeed experience a sixth extinction, over just the next few centuries or millennia.The Berkeley scientists warn that their new study may actually grossly underestimate how many species could disappear. So far, humans have pushed species toward extinctions through means like hunting, overfishing and deforestation. Global warming, on the other hand, is only starting to make itself felt in the natural world. Many scientists expect that as the planet’s temperature rises, global warming could add even more devastation. “The current rate and magnitude of climate change are faster and more severe than many species have experienced in their evolutionary history,” said Anthony Barnosky, the lead author of the Nature study.

Rush to use crops as fuel raises food prices and hunger fears. China using Thailand's casava exports for biofuel  - But last year, 98% of cassava chips exported from Thailand, the world’s largest cassava exporter, went to just one place and almost all for one purpose: to China to make biofuel. Driven by new demand, Thai exports of cassava chips have increased nearly fourfold since 2008, and the price of cassava has roughly doubled. Each year, an ever larger portion of the world’s crops — cassava and corn, sugar and palm oil — is being diverted forbiofuels as developed countries pass laws mandating greater use of nonfossil fuels and as emerging powerhouses like China seek new sources of energy to keep their cars and industries running. Cassava is a relatively new entrant in the biofuel stream. But with food prices rising sharply in recent months, many experts are calling on countries to scale back their headlong rush into green fuel development, arguing that the combination of ambitious biofuel targets and mediocre harvests of some crucial crops is contributing to high prices, hunger and political instability.

The Truth, Still Inconvenient – Krugman - So the joke begins like this: An economist, a lawyer and a professor of marketing walk into a room. What’s the punch line? They were three of the five “expert witnesses” Republicans called for last week’s Congressional hearing on climate science.  But the joke actually ended up being on the Republicans, when one of the two actual scientists they invited to testify went off script.  The ringers (i.e., nonscientists) at last week’s hearing weren’t of quite the same caliber, but their prepared testimony still had some memorable moments. One was the lawyer’s declaration that the E.P.A. can’t declare that greenhouse gas emissions are a health threat, because these emissions have been rising for a century, but public health has improved over the same period. I am not making this up.   But back to Professor Muller. His climate-skeptic credentials are pretty strong: he has participated in a number of attacks on climate research, including the witch hunt over innocuous e-mails from British climate researchers. Not surprisingly, then, climate deniers had high hopes that his new project would support their case.  You can guess what happened when those hopes were dashed.

The looming crisis - MATT YGLESIAS writes: I can’t quite get my head around the combination of Washington’s obsession with decades-away projected fiscal shortfalls and it’s total lack of interest in decades-away projected climate disaster. If you asked me why the political prospects for addressing the climate crisis are so bleak, I’d say it’s easy to understand. The worst effects of it are in the fairly distant future, the rich old people who run the country will be dead by then, etc. But at the same time, everyone’s obsessed with the idea that Medicare will be too costly in 2070. It’s considered both brave and serious to focus like a laser on the problem even while simultaneously insisting that it’s politically unrealistic to propose any changes that take effect sooner than 2022.  Now obviously, there are lots of people out there who do care about both long-term crises. But there's no avoiding the fact that there's a huge asymmetry here, and I do wish that more opinion makers would reflect on its nature and implications.

In The Long Run -Yglesias is distressed over the fact that Very Serious People are focused on the long run budget but not long run climate problems I agree that its insane but of course in the other way around. 2070 is a long way away and being overly committed to highly sensitive projections is silly.  Still my baseline guesses are that

  1. The US is broke is a theme that resonates with people
  2. Being “responsible” with money is a sign of high status
  3. People are more familiar with budget disasters
  4. Money spent by Washington has the feel of money spent on Washington.

In both cases I think people are overly concerned about both of these issues. I am not sure which one represents the most overconcern. With climate disasters the possibility for complete mitigation is probably higher than the budget. That is, there is the possibility of technology that could render this problem about as bad Y2K. Not saying that we should count on this, but we shouldn’t ignore it either.

Gambling with the Planet, by Joseph E. Stiglitz -The consequences of the Japanese earthquake – especially the ongoing crisis at the Fukushima nuclear power plant – resonate grimly for observers of the American financial crash that precipitated the Great Recession. Both events provide stark lessons about risks, and about how badly markets and societies can manage them. Experts in both the nuclear and finance industries assured us that new technology had all but eliminated the risk of catastrophe. Events proved them wrong: not only did the risks exist, but their consequences were so enormous that they easily erased all the supposed benefits of the systems that industry leaders promoted.  Before the Great Recession, America’s economic gurus – from the head of the Federal Reserve to the titans of finance – boasted that we had learned to master risk. “Innovative” financial instruments such as derivatives and credit-default swaps enabled the distribution of risk throughout the economy. We now know that they deluded not only the rest of society, but even themselves. For the planet, there is one more risk, which, like the other two, is almost a certainty: global warming and climate change. If there were other planets to which we could move at low cost in the event of the almost certain outcome predicted by scientists, one could argue that this is a risk worth taking. But there aren’t, so it isn’t.

Scientists concerned massive pool of fresh water in Arctic Ocean could alter Atlantic currents - Scientists are monitoring a massive pool of fresh water in the Arctic Ocean that could spill into the Atlantic and potentially alter the key ocean currents that give Western Europe its moderate climate. The oceanographers said Tuesday the unusual accumulation has been caused by Siberian and Canadian rivers dumping more water into the Arctic and from melting sea ice. Both are consequences of global warming. If it flushes into the Atlantic, the infusion of fresh water could, in the worst case, change the ocean current that brings warmth from the tropics to European shores, said Laura De Steur of the Royal Netherlands Institute for Sea Research. German researcher Benjamin Rabe, of the Alfred Wegener Institute, said the Arctic’s fresh water content had increased 20 percent since the 1990s — about 8,400 cubic kilometers. That is the equivalent of all the water in Lake Michigan and Lake Huron together or double the volume of water in Lake Victoria, Africa’s largest lake.

Arctic Ocean freshwater will cause 'unpredictable changes on climate'; ice cap meltwater and river run-off could have significant impact on the climates of Europe and North America, say scientists -A vast expanse of freshwater in the midst of the Arctic Ocean is set to wreak unpredictable changes on the climate in Europe and North America, new scientific analysis has shown. The water – comprising meltwater from the ice cap and run off from rivers – is at least twice the volume of Lake Victoria in Africa, and is continuing to grow. At some point huge quantities of this water are likely to flush out of the Arctic Ocean and into the Atlantic, which could have significant impacts on the climate. Scientists say they cannot predict when this will happen though. "This could have an influence on ocean circulation," said Benjamin Rabe of the Alfred Wengener Institute. "It could have an influence on the Gulf Stream." At present, the freshwater acts as a "lid," preventing the warmer salty water below from meeting the ice, which would melt if the two mixed, according to Rabe. But while it is currently stable, this situation is likely to change as atmospheric circulation patterns shift, and as greater quantities of meltwater spill into the "lake." There were signs of an atmospheric change in 2009 that could have precipitated such an outflow, but that episode did not last.

NSIDC: What is the connection between Arctic sea ice and U.S. weather? - Over the 2010 to 2011 winter, news stories suggested a potential connection between a warming climate, low Arctic sea ice extent, and unusually cold weather this winter in the U.S. and Europe. What do scientists know about how sea ice affects the weather? Scientists have been exploring a possible link, but the question is far from settled. It makes sense that changing sea ice conditions could affect weather in the Arctic and other parts of the world. During the colder months, sea ice insulates the relatively warm ocean from the colder atmosphere. As sea ice declines, more heat can escape to the atmosphere in the fall and winter, affecting wind patterns, temperature, and precipitation. But while sea ice affects the atmosphere, the atmosphere also affects sea ice. Warmer air temperatures help prevent ocean water from freezing over in the first place, and winds can push the ice together, keeping ice extent lower. “It’s a highly coupled system,” said NSIDC Director Mark Serreze, “Cause and effect are difficult to unravel.”

Jeff Masters: The global tropical cyclone season of 2010: record inactivity - The year 2010 was one of the strangest on record globally for tropical cyclones. Each year, the globe has about 92 tropical cyclones -- called hurricanes in the Atlantic and Eastern Pacific, typhoons in the Western Pacific, and tropical cyclones in the Southern Hemisphere. But in 2010, we had just 67 of these storms -- the fewest since the dawn of the satellite era in 1970. The previous record slowest year was 1977, when 69 tropical cyclones occurred world-wide. Both the Western Pacific and Eastern Pacific had their quietest seasons on record in 2010, the Atlantic had its 3rd busiest season since record keeping began in 1851, and the Southern Hemisphere had a below average season. As a result, the Atlantic, which ordinarily accounts for just 13% of global cyclone activity, accounted for 28% in 2010 -- the greatest proportion since accurate tropical cyclone records began in the 1970s. Global Accumulated Cyclone Energy (ACE) for 2010 was the lowest since the late 1970s (ACE is a measure of the total destructive power of a hurricane season, based on the number of days strong winds are observed).

10-year window to save reef: expert - The Great Barrier Reef will be lost unless there is dramatic action to cut greenhouse gasses over the next 10 years, a climate change scientist warns. Professor Ove Hoegh Guldberg issued the warning ahead of an address to a major climate change conference starting in Cairns today. The director of the Global Change Institute at the University of Queensland says coral bleaching events are becoming more frequent due to rising sea temperatures and levels. He says the Great Barrier Reef could be gone within four decades unless carbon emissions are cut.

Tibetan glaciers melting, says Dalai Lama (AP) - The Dalai Lama said Saturday that India should be seriously concerned about the melting of glaciers in the Tibetan plateau as millions of Indians use water that comes from there. The Tibetan spiritual leader quoted Chinese experts as saying that the Tibetan glaciers were retreating faster than any elsewhere in the world. He called for special attention to ecology in Tibet. "It's something very, very essential," he said. The glaciers are considered vital lifelines for Asian rivers, including the Indus and the Ganges. Once they vanish, water supplies in those regions will be threatened. As these major rivers come from the Tibetan plateau and "since millions of Indians use water coming from the Himalayan glacier, so you have certain right to show your concern about ecology of that plateau,"

Satellite takes snapshot of depleted ozone layer over northern pole - ESA’s Envisat satellite has measured record low levels of ozone over the Euro-Atlantic sector of the northern hemisphere during March. This record low was caused by unusually strong winds, known as the polar vortex, which isolated the atmospheric mass over the North Pole and prevented it from mixing with air in the mid-latitudes. This led to very low temperatures and created conditions similar to those that occur every southern hemisphere winter over the Antarctic. As March sunlight hit this cold air mass it released chlorine and bromine atoms — ozone-destroying gases that originate from chlorofluorocarbons (CFCs) and break ozone down into individual oxygen molecules — predominantly in the lower stratosphere, around 20 km (12 mi.) above the surface. Ozone is a protective atmospheric layer found at around 25 km (15 mi.) altitude that acts as a sunlight filter shielding life on Earth from harmful ultraviolet rays, which can harm marine life and increase the risk of skin cancer and cataracts.

White House Promises Veto of Anti-E.P.A. Bill - In case there was any doubt, the White House on Tuesday issued a formal statement opposing a bill now before the House that would bar the Environmental Protection Agency from regulating greenhouse gases for the purpose of combating climate change. The bill, known as the Energy Tax Prevention Act of 2011, could come up for a vote as early as Wednesday and is almost certain to pass when it does. It has virtually unanimous support among the Republican majority and will probably draw votes from a few Democrats from coal and oil producing states.The measure, sponsored by Representatives Fred Upton, Republican of Michigan, and Ed Whitfield, Republican of Kentucky, would overturn the E.P.A.’s finding that carbon dioxide and other greenhouse gases pose a danger to human health and the environment. That finding, based on a broad scientific consensus, is the basis for pending regulation of carbon emissions from vehicles and large stationary sources like power plants, factories and refineries.

Senate Rejects Bills to Limit E.P.A.’s Emissions Program - The Senate on Wednesday rejected efforts to block the Environmental Protection Agency1’s program to regulate greenhouse gases, defeating four bills that would have limited the agency’s attempts to address global warming2.  The Senate voted as the House was debating a measure3 that would also halt the regulations by repealing the agency’s scientific finding that carbon dioxide and other heat-trapping gases are endangering human health and the environment. That bill is expected to pass the House on Thursday. President Obama4 has vowed to veto5 any such measure if it should reach his desk.  In the Senate, a virtually identical bill drew 50 votes, including 4 from Democrats, but fell shy of the 60 needed to avert a filibuster8.  Democratic alternatives that would impose less extreme limits on the E.P.A. regulation drew as many as 12 votes, putting the White House on notice that it risks further party defections unless it moderates the scale and pace of its proposed carbon rules.

Blowing Green Smoke - Blame Steven Chu, then, because when it comes to America's energy predicament, the president has been woefully misinformed. Mr. Obama pawned off a roster of notions and proposals already product-tested in the public meme-o-sphere. Almost everyone of these ideas is inconsistent with reality, based on faulty premises, or represents some kind of magical thinking. What they have in common is that they're ideas the public wants to hear, whether they are truthful or not, because we don't want to change the way we live.   The central idea in Mr. Obama's speech is that we will reduce our oil imports by one-third in a decade. This is a gross distortion of reality.  The truth is that our oil imports will be reduced automatically, whether we like it or not. The process is already underway. The nations that export oil to us are using much more of their own oil even while their supplies have passed peak production and entered depletion. Countries like Saudi Arabia, Venezuela, and Mexico have some of the highest population growth-rates in the world. They sell gasoline to their own people for less than a dollar a gallon. At the same time China and India are driving more cars and importing a lot more of the world's declining supply. (China has perhaps the equivalent of a four-year supply of its own oil in the ground, and India has next-to-zero oil of its own).

Yes, wind and wave power are renewable; New Scientist pulls a Charlie Sheen - The once-excellent New Scientist, which has started running seriously flawed climate stories, as we’ve seen, now runs this stunner: Wind and wave energies are not renewable after all Build enough wind farms to replace fossil fuels and we could do as much damage to the climate as greenhouse global warming Rubbish.  Indeed, what is surprising about this entire piece is just how much misinformation it contains.  You can read the original, unsexy, somewhat opaque (and probably wrong) paper submitted to Philosophical Transactions of the Royal Society here. In fact, New Scientist has misrepresented Kleidon’s research.  He coauthored a new open access paper in Earth System Dynamics, “Estimating maximum global land surface wind power extractability and associated climatic consequences,” which has been severely critiqued by multiple sources, including folks like Stanford’s Mark Jacobson (here and below), whom I trust a great deal.

Natural gas moving forward -- The Denver Post reported the opening on Saturday of stations offering compressed natural gas to drivers in Grand Junction and Rifle, towns along Interstate 70 in western Colorado, making it possible to drive a vehicle fueled by compressed natural gas from Denver to Los Angeles.The Glenwood Springs Post Independent offered this account: The use of CNG fuel on the Western Slope has long been stymied as a "chicken-and-egg" scenario. No one wanted to invest in CNG cars or trucks because there were no filling stations, but there were no filling stations because no one was driving CNG vehicles.  Technological breakthroughs in drilling methods have turned natural gas into a resource that the United States has in abundance. But what is the appropriate role of government in promoting the transition to more use of this resource for transportation?

Could Shale Gas Power The World? - Until recently, natural gas was the forgotten stepsister of fuels. It provides about a quarter of U.S. electricity and heats over 60 million American homes, but it's always been limited — more expensive than dirty coal, dirtier than nuclear or renewables. Much of Europe depends on gas for heating and some electricity — but the bulk of the supply comes from Russia, which hasn't hesitated to use energy as a form of political blackmail. The fuels of the future were going to be solar, wind and nuclear. "The history of natural gas in the U.S. has been a roller-coaster ride," says Tony Meggs, a co-chair of a 2010 Massachusetts Institute of Technology gas study. "It's been up and down and up and down."  Natural gas is up now — way up — and it's changing how we think about energy throughout the world. If its boosters are to be believed, gas will change geopolitics, trimming the power of states in the troubled Middle East by reducing the demand for their oil; save the lives of thousands of people who would otherwise die from mining coal or breathing its filthy residue; and make it a little easier to handle the challenges of climate change — all thanks to vast new onshore deposits of what is called shale gas.

Some Realism On Shale Gas - Shale gas is back in the news recently after Obama hearted the shale gale in his energy speech ("Recent innovations have given us the opportunity to tap large reserves, perhaps a century's worth of the shale under our feet,"), and Daniel Yergin (full disclosure: he wrote The Prize) has a lengthy piece in the WSJ along with an interview in which he says a bunch of stuff. It turns out that the US and Canada also had a 100 year supply of natural gas in 2001: "Natural gas is also plentiful. An estimated 2,449 trillion cubic feet of reserves in the United States and Canada is enough to meet today's demand for 100 years."  In the interim there was a panic in 2005:

Deteriorating Oil and Gas Wells Threaten Drinking Water Across the Country - In the last 150 years, prospectors and energy companies have drilled as many as 12 million holes across the United States in search of oil and gas. Many of those holes were plugged after they dried up. But hundreds of thousands were simply abandoned and forgotten, often leaving no records of their existence.Government reports have warned for decades that abandoned wells can provide pathways for oil, gas or brine-laden water to contaminate groundwater supplies or to travel up to the surface. Abandoned wells have polluted the drinking water source for Fort Knox, Ky., and leaked oil into water wells in Ohio and Michigan. Similar problems have occurred in Texas, New York, Colorado and other states where drilling has occurred.

World Bank to limit funding for coal-fired power stations - The World Bank is planning to restrict the money it gives to coal-fired power stations, bowing to pressure from green campaigners to radically revise its funding rules. The new proposals would not mean an end to funding for fossil fuels, but would represent a departure from previous regulations. Under these rules, the bank has provided sizeable financial support for coal-fired power stations in the developing world in spite of protests from governments and green groups. Under the proposed new rules, only the very poorest countries would be eligible to receive grants or loans for building new coal-fired power stations, and then only if they could prove they were necessary and that alternatives – such as renewable energy – were not feasible.

World Bank to the poor: ‘Coal’s good enough for you! - The World Bank -- famous for funding gobsmackingly huge, planet-killing coal-fired power plants -- is changing its tune, sort of. Under a new set of proposed rules, the Bank would only be allowed to fund gobsmackingly huge, planet-killing coal-fired power plants in the world's poorest countries. Progress! Okay, that sounds dastardly, but it’s a little complicated. The world's poorest countries are exactly the countries that will suffer most under climate change, so less coal is good (though no coal would be better). But they’re also the countries for whom energy poverty represents an even bigger threat than climate change, meaning that knocking out a cheap energy source could be disastrous. The World Bank’s basically offering a shitty solution to a shitty problem.Green groups are already accusing the bank of greenwashing. I guess it depends on whether or not you think the new rules -- under which the world's middle-class countries are ineligible for coal, but plenty eligible for renewables -- represent progress. Could this have anything to do with the Bank's recent addition of renewables expert Dan Kammen? The man is famously opposed to subsidizing fossil fuels, after all.

Solar Costs May Already Rival Coal, Spurring Installation - Solar panel installations may surge in the next two years as the cost of generating electricity from the sun rivals coal-fueled plants, industry executives and analysts said.Large photovoltaic projects will cost $1.45 a watt to build by 2020, half the current price, Bloomberg New Energy Finance estimated today. The London-based research company says solar is viable against fossil fuels on the electric grid in the most sunny regions such as the Middle East.“We are already in this phase change and are very close to grid parity,” Shawn Qu, chief executive officer of Canadian Solar Inc. (CSIQ), said in an interview. “In many markets, solar is already competitive with peak electricity prices, such as in California and Japan.”

Canada's power grid needs $293B infusion: report - Canada’s power grid will need an annual investment of $15 billion for the next 20 years in order to maintain aging facilities and meet rising demand, according to a report released Thursday. Canada’s Electricity Infrastructure: Building a Case for Investment, a study funded by the Canadian Electrical Association and conducted by the Conference Board of Canada, suggests that a total investment of $293.8 billion is necessary between now and 2030 to service old infrastructure and boost power generation from renewable sources like wind, solar and biomass energy. "We want to be open and frank with Canadians, because this will all be reflected in the price of electricity,"

A Rebuttal To Nuclear Fans - A Perspective From India - All commentators claiming that radiation from nuclear power plants is safe should get on a flight to Japan today and start physically helping with the clean up at the Fukushima plant. Otherwise their words are just hot air. George Monbiot, the hero of the progressive greens has become a convert to nuclear power because of the Fukushima disaster (2). You can read Monbiot’s reasoning on his blog (2), but the crux of his argument is that we have to be pragmatic and realistic if we are to halt climate change. I think his argument is born of desperation rather than reason. In many ways it is naive and I hope to explain why below. Every nuclear power advocate is claiming that a new generation of nuclear power plants will be safer than the Fukushima-era plants. In what way? There is no valid evidence for this. Safe nuclear is as much a marketing fantasy as clean coal. Same as the empty safety claims that were touted back in the 70s when Fukushima was designed and built by General Electric, Toshiba, and Hitachi.

Nuclear regulators probe fault at Alabama reactor (Reuters)– Tennessee Valley Authority officials met nuclear regulators on Monday to explain the failure last year of a key valve used to operate a reactor cooling system at a nuclear plant in Alabama. Word of the malfunction, which occurred last October at the Browns Ferry plant in northern Alabama, comes amid public demand for reassurance over the safety of U.S. nuclear reactors after an earthquake and tsunami last month caused a crisis at Japan's Fukushima nuclear plant. Browns Ferry and the crippled Fukushima plant both have Mark 1 boiling water reactors made by General Electric. TVA officials said they discovered the fault when they tried to cool uranium at the Alabama plant's No. 1 reactor during a refueling outage only to find that a valve in the secondary containment system did not work. "There was never any danger to the public. We shut the plant down,"

Japanese Government Covered Up Surging Radioactive Fallout Data - Zero Hedge first disclosed data originating from the SPEEDI (System for Prediction of Environment Emergency Dose Information) database, which showed that while radiation in the Ibaraki prefecture were about 30 times above normal, the core affected regions were "Under Survey." In subsequent posts we compared the "Under Survey" category to one step below what the BLS does on a daily basis - i.e., make up stuff. But at least in Japan, they did not even make data up: they just refused to release it. Well, we now have official confirmation from NHK that once again our well-grounded skepticism (and cynicism) was as usual absolutely spot on: "It has been learned that the Japanese government withheld the release of computer projections indicating high levels of radioactivity in areas more than 30 kilometers from the troubled Fukushima Daiichi nuclear power plant. The estimates were made on March 16th following explosions at the plant by an institute commissioned by the government using a computer system called SPEEDI. The system made its projections on the assumption that radioactive substances had been released for 24 hours from midnight on March 14th, based on the available data." Of course, had the disastrous SPEEDI data been reveled in time, not even the hundreds of billions (or trillions in Yen) of emergency money pumped by the BOJ, would have been able to prevent a complete market disaster. In other words: Nikkei 1; Human Life 0.

Strontium Isotopes Travel the U.S. in Disguise, Evade 100% of EPA Monitoring Stations, End Up in Moscow - According to an article by Agence France Presse on April 1,"Radon, a company set up in Moscow to monitor radioactivity and dispose of radioactive waste in central Russia, has been detecting traces of iodine and strontium isotopes since last week, deputy director Oleg Polsky said." ['Moscow 'detects radioactive particles' ] If radioactive strontium isotopes were detected in Moscow, then the Japanese, Canadian and American authorities must have detected it too and are lying.  Why would the Japanese, Canadian and American authorities be lying?   Yes, the scientific community and governmental institutions in North America have lost all credibility.  When a deadly chemical is in your midst and your protectors will not tell you the truth, it's time to SURVIVE THE DEMISE.   Read the right sidebar...

Cars, Houses, Human Remains: Debris From Japan Is Headed Toward U.S.  - The stories keep coming about what could be some grisly and disturbing discoveries along the coasts of Hawaii and the western U.S. for the next several years. Last week, The Associated Press wrote about how scientists expect that over the next one to three years "wind and ocean currents eventually will push some of the massive debris from Japan's tsunami and earthquake onto the shores of the U.S. West Coast." Yesterday, CNN said that "the Hawaiian islands may get a new and unwelcome addition in coming months — a giant new island of debris floating in from Japan." It relied in part on work done by the University of Hawaii's International Pacific Research Center

Snapshot: Japan's nuclear crisis - Following are main developments after a massive earthquake and tsunami devastated northeast Japan and crippled a nuclear power station, raising the risk of an uncontrolled radiation leak.
  • - Japan has asked Russia to send a floating radiation treatment plant, used to decommission nuclear submarines, which will solidify contaminated liquid waste from the Fukushima Daiichi plant, Russian media reported.
  • - Operator Tokyo Electric Power (TEPCO) is releasing, until Friday, 11,500 tonnes of contaminated water from the plant into the sea to free up more storage space for water with much higher levels of radioactivity.
  • * TEPCO has begun paying "condolence money" to people evacuated from around its stricken plant.
  • * A Japanese official said the effort to fill a crack in the concrete pit of the complex's reactor No. 2 with sawdust, newspapers with polymers and cement does not seem to be working.
  • - Japan has warned it could take months to stop radiation leaking from the nuclear plant.

Concern Over Radioactive Fisheries Products Rising - Concern is rising in Korea over the safety of fisheries products after radioactive water was reported to have leaked into coastal waters near Japan’s earthquake-stricken nuclear plant in Fukushima.  Energy Justice Action (EJA), a domestic civic group that is critical of nuclear power, said Sunday that the country cannot afford to be complacent after the leak of contaminated water was detected.  A cracked concrete pit at the No. 2 reactor in Fukushima is a possible source of the outflow although the precise origin and amount are now being scrutinized by its operator, the Tokyo Electric Power Corp.  Radiation levels in the pit at issue measured higher than 1,000 millisieverts an hour, which amounts to up to 330 times the dose the resident of a developed country receives naturally per year on average.

Japan race to find radiation leak path - Workers at Japan's quake-hit nuclear plant are using dye to try to trace the route of highly radioactive water flowing from a reactor into the sea. The source of the leak was identified at the weekend as a 20cm (8in) crack in a concrete pit at reactor 2.Earlier efforts to plug the hole using a highly absorbent polymer failed.Meanwhile, the plant's operator, Tepco, says it has no choice but to dump 11,500 tonnes of much less contaminated water at sea from Tuesday.The move is to free up storage space at the Fukushima Daiichi facility for water with much higher levels of radioactivity. Workers must keep spraying water on the reactors to stop them overheating, but pools are building up at the power plant, says the BBC's Roland Buerk in Tokyo.

Plan to plug radioactive water leak fails at Fukushima plant - Attempts to fill in a crack with concrete at Japan’s damaged Fukushima-1 nuclear power plant have failed, with radioactive water still leaking into the Pacific Ocean, NHK TV reports.  The channel noted that efforts to stop the leak began on Saturday and continued on Sunday, without yielding the expected results. The leak is so big that the concrete simply cannot harden.  It could take several more months to bring Japan's tsunami-ravaged nuclear plant under control, Yukio Edano, Japanese Chief Cabinet Secretary said Sunday, as quoted by Kyodo news agency.  The operator of the plant, Tokyo Electric Power Co is now going to use a special absorbent polymer to plug the leak. The company also plans to pump out the radioactive water from the basements of the plant.

Japan nuke plant dumps radioactive water into sea (AP) - Workers began pumping more than 3 million gallons of  Workers began pumping more than 3 million gallons of contaminated water from Japan's tsunami-ravaged nuclear plant into the Pacific Ocean on Monday, freeing storage space for even more highly radioactive water that has hampered efforts to stabilize the reactors. It will take about two days to pump most of the less-radioactive water out of the Fukushima Dai-ichi nuclear complex, whose cooling systems were knocked out by the magnitude-9.0 earthquake and tsunami on March 11. Radioactivity is quickly diluted in the ocean, and government officials said the dump should not affect the safety of seafood in the area. Since the disaster, water with different levels of radioactivity has been pooling throughout the plant. People who live within 12 miles (20 kilometers) have been evacuated and have not been allowed to return. The pooling water has damaged systems and the radiation hazard has prevented workers from getting close enough to power up cooling systems needed to stabilize dangerously vulnerable fuel rods.

Guest Post: Tepco Dumps 11,500 Tons of Radioactive Water Into the Pacific - Kyodo news reports: Tokyo Electric Power Co. on Monday took the unprecedented measure of dumping 10,000 tons of low-level radioactive water in the Pacific Ocean from a facility at its crippled Fukushima Daiichi nuclear power complex to make room for the storage of more highly contaminated water, which is hampering restoration work at the plant. Nishiyama also said that it had become necessary to release 1,500 tons of groundwater, also containing radioactive materials, found near the Nos. 5 and 6 reactor turbine buildings out of concern that the water could drown safety-related equipment.Of course, the government said there was “no major health risk”, even though:The level of radioactive substances in the water is up to 500 times the legal limit permitted for release in the environment.Whether or not this release is serious (the concentrations will certainly be high at the immediate release site, even if dispersion ultimately reduces the radioactivity to trivial levels) the fact that the reactors are still not under control means releases like this are likely to continue.

TEPCO Knew Radiation In Seawater Is 7.5 Million Above Normal Before It Started Dumping Radioactivity In Sea On Monday -  While a few weeks back TEPCO scrambled to lie to the public that a reading 10 million times higher than normal was really just 100,000 times above threshold, today TEPCO finally admitted the truth that radioactive Iodine 131 readings taken from seawater near the water intake of the Fukushima No. 1 nuclear plant's No. 2 reactor reached 7.5 million times the legal limit. This means Godzilla is most likely very close to hatching. But it gets worse: "The sample that yielded the high reading was taken Saturday, before Tepco announced Monday it would start releasing radioactive water into the sea, and experts fear the contamination may spread well beyond Japan's shores to affect seafood overseas." In other words, as TEPCO was dumping 11,500 tons of radioactive water in the sea, it already knew, but kept away from the public, the radiation was nearly ten million times higher than legal limits. At this point we truly marvel at the stoic ability of Japanese people, and most certainly its east-coast fishermen, whose jobs are finished as nobody will want to buy any fish in the foreseeable future for fear of radioactive toxicity, to accept such lies, very often with an intent to hurt, day after day, without anger spilling over in some form of violence.

Japan pays 'suicide squads' fortunes to work in stricken nuclear plant as 'battle is lost for reactor two' -- Four reactors at stricken plant to be decommissioned --Subcontractors offered £760 a day - 20 times going rate - to brave radiation levels but some refuse --One expert who designed reactor says race to save reactor two is 'lost' --Radiation levels in sea water 3,335 times higher than normal --Readings are almost three times worse than last week --Unmanned drone photographs plant from the air amid health fear for pilots -  Workers at the stricken Fukushima nuclear plant are being paid vast sums of money to brave high radiation levels - as experts warn that the race to save the facility has been lost. Subcontractors are reportedly being offered up to 100,000 yen a day (£760) - 20 times the going rate - but some are still refusing the dangerous work. Radiation levels are still extremely high at the plant, with water around the reactors emitting a highly dangerous 1,000 millisieverts per hour.

Tepco Plugs Leak of Highly Radioactive Water From Reactor - Tokyo Electric Power Co. said it stopped highly radioactive water leaking into the sea from a pit near one of the reactors at its stricken nuclear station north of Tokyo, after five days of trying to stem the flow.  Tepco, as the company is called, will take steps “to prevent further outflow of high-level radioactive materials to the ocean” from the Fukushima Dai-Ichi station that was damaged by an earthquake and tsunami last month, it said in a statement.  Radioactivity in fish exceeding health guidelines was detected for the first time off Japan’s coast yesterday after the leak and as Tepco dumped millions of gallons of water with lower levels of radiation into the sea to make space to store more dangerous fluids. Sealing the crack in the pit will help reduce the threat to the public, said Hironobu Unesaki, a nuclear engineering professor at Kyoto University.

Nitrogen Injection Planned at Reactor - Tokyo Electric Power Co. began preparations Wednesday to inject nitrogen into one of the damaged reactors at the quake-hit Fukushima Daiichi nuclear power complex to prevent the possibility of a hydrogen explosion amid signs reactors at the plant are slowly stabilizing.  "We are thinking of putting in nitrogen gas to prevent a hydrogen explosion, to reduce such a risk," a Tepco spokesman told Dow Jones Newswires, adding that there was a possibility hydrogen gas may be accumulating in the No.1 reactor. The move, which a nuclear-safety-agency official downplayed as precautionary, could take place as early as Wednesday evening, the Tepco spokesman said. He added that it would be the first time the measure has been taken during the crisis at the plant.

Preventing blasts a focus at Japan nuclear plant -  After notching a rare victory by stopping highly radioactive water from flowing into the Pacific on Wednesday, workers at Japan's flooded nuclear power complex turned to their next task: injecting nitrogen to prevent more hydrogen explosions. Nuclear officials said there was no immediate threat of explosions like the three that rocked the Fukushima Dai-ichi plant not long after a massive tsunami hit on March 11, but their plans are a reminder of how much work remains to stabilize the complex.Workers are racing to cool down the plant's reactors, which have been overheating since power was knocked out by the 9.0-magnitude earthquake and tsunami that killed as many as 25,000 people and destroyed hundreds of miles of coastline.Unable to restore normal cooling systems because water has damaged them and radioactivity has made conditions dangerous, workers have resorted to pumping water into the reactors and letting it gush wherever it can. Superheated fuel rods can pull explosive hydrogen from cooling water, so now that more water is going into the reactors, the concern is that hydrogen levels are rising.

NYT: Core of Stricken Reactor Probably Leaked, U.S. Says -  The United States Nuclear Regulatory Commission1 said Wednesday that some of the core of a stricken Japanese reactor had probably leaked from its steel pressure vessel into the bottom of the containment structure, implying that the damage was even worse than previously thought.  The statement came as the Tokyo Electric Power Company, the operator of the Fukushima Daiichi plant, started to inject nitrogen into the reactor containment vessel of unit No. 1 to prevent a possible explosion.  The Nuclear Regulatory Commission’s statement regarded unit No. 2, and the agency underscored that its interpretation was speculative and based on high radiation readings that Tokyo Electric had found in the lower part of unit No. 2’s primary containment structure, called the drywell. The statement said that the commission “does not believe that the reactor vessel has given way, and we do believe practically all of the core remains in the vessel.”

Japan Government Silent Over Radiation Data To Public - It was learned on Monday that despite daily forecasts, Japan's Meteorological Agency has been withholding data over the radioactive substances released from the troubled Fukushima I nuclear plant. A report by the Yomiuri Shimbun said such secrecy casts doubts as to the government's handling of information about the nuclear crisis and is receiving criticisms from home and overseas for not releasing its own forecasts. Upon the request of the International Atomic Energy Agency (IAEA), the state sends information to the agency as to the time the radioactive particles are released, duration and their reach. The data is then fed into a supercomputer that includes wind direction to know where the substances will go and their amount to where they will spread.But such data are not disclosed to the Japanese public, the report said.Germany and Norway has been monitoring their own observations and publish them in their Websites.

Ongoing Cover Up of Nuclear Crisis By Governments and Nuclear Power Companies  - I've previously documented that Japanese seismologists and nuclear engineers warned years ago that the risks of a large-scale nuclear accident in Japan were high, with one Japanese seismologist warning in 2004 that the risk of a nuclear accident was: Like a kamikaze terrorist wrapped in bombs just waiting to explode. I also showed that whistleblowers have been ignored: And after the March 11th disaster, the Japanese government has been covering up information. Indeed, nuclear engineer Arnie Gundersen points out that American and Japanese governments and nuclear companies are covering up many core facts concerning the Japanese nuclear crisis.

Closing Ranks: The NRC, the Nuclear Industry, and TEPCO are Limiting the Flow of Information (vimeo) Arnie Gundersen discusses inconstancies between what the NRC, TEPCo, and the Nuclear Industry are saying privately and publicly. Documents from the French nuclear firm, Areva, and the NRC reveal what the industry knows about the Fukushima disaster.

Japan: After Latest Earthquake, Multiple Nuclear Plants Have Lost External Power and Are Operating on Emergency Backup Generators - National broadcaster NHK announced that the quake measuring 7.4 on the Richter Scale was in fact the biggest since the March 11 disaster. The epicenter was off the coast of Sendai, and blackout are now occurring in a wide area of Tohoku, NHK said. At 12:10 a.m., Tokyo Electric Power Co, operator of the crippled Fukushima Daiichi nuclear power plant, announced that the latest quake has had no influence on the facility. Elsewhere the news is more worrisome. NHK says power cuts are occurring at the Onagawa nuclear power plant in Miyagi Pref.,  north of Fukushima, although radiation levels around the plant remain unchanged so far. At 12:23 a.m. the Nuclear and Industrial Safety Agency, an arm of the Japanese government, began holding an emergency press conference. An official said external sources of electricity have been cut to both the Higashi-Dori nuclear power plant in Aomori Pref and the Rokkasho nuclear recycling plant, which I wrote about in the latest issue of Forbes magazine . Both facilities are in Aomori Prefecture, near the tip of Japan’s main island, and are reportedly operating normally via on-site emergency generators.

Panel Suspends Work On Revising Nuclear Energy Guidelines - The government's nuclear energy commission announced Tuesday it would suspend its work to revise the nation's nuclear energy platform in the wake of accidents at the Fukushima No. 1 and No. 2 nuclear power plants. The nation's policy of promoting nuclear power generation is facing a major shift, and the entire energy policy will likely be changed significantly.  The Japan Atomic Energy Commission of the Cabinet Office has been working on revising the current Framework for Nuclear Energy Policy, which was compiled in October 2005.  This is the first time work to revise the nuclear power promotion framework has been suspended. The policy stipulates the nation's long-term plans for nuclear energy. "Nuclear policy can't ignore public opinion. In the wake of such serious accidents, it's appropriate to suspend revisions [to the framework],"

Lack of Data Heightens Japan’s Nuclear Crisis - Nearly one month after Japan1’s devastating nuclear accident, atomic energy experts, regulators and politicians around the world are still puzzling over a basic question: How much danger is still posed by the Fukushima Daiichi nuclear power plant? That depends to a considerable extent on how hot the uranium fuel rods at the power plant remain, and whether fuel has escaped its containment, or might still do so. Yet remarkably little is known for sure about what is really happening inside the reactors because some areas remain far too radioactive for workers to approach, and some instruments have malfunctioned.  The paucity of data and the conflicting estimates of what the available information really means have prompted a series of confusing analyses and a rift between officials in Japan and those overseas — and even between one member of Congress and the United States Nuclear Regulatory Commission2.

Russia Ready To Dispatch Radiation Processing Vessel To Japan - Russia is ready to send a unique vessel which can process radioactive liquid to Japan, the ship’s captain announced. This comes as another powerful earthquake hit the country’s northeast, leading to a radioactive spill at one of the nuclear plants.  As Japan continues to be shaken by a series of aftershocks following the powerful earthquake that hit the country on March 11, Russia announced that a special factory to process liquid radioactive waste, the “Landysh”, is ready to deploy to Japan at any moment.  The factory is used in Russia to service Russian Pacific Fleet submarines and in 10 years of work it has processed over 5,000 tons of radioactive waste. It was constructed as part of a nuclear disarmament partnership program between Russia and Japan using Japanese budget money. 

U.S. Sees Array of New Threats at Japan’s Nuclear Plant - United States government engineers sent to help with the crisis in Japan1 are warning that the troubled nuclear plant there is facing a wide array of fresh threats that could persist indefinitely, and that in some cases are expected to increase as a result of the very measures being taken to keep the plant stable, according to a confidential assessment prepared by the Nuclear Regulatory Commission2. Among the new threats that were cited in the assessment, dated March 26, are the mounting stresses placed on the containment structures as they fill with radioactive cooling water, making them more vulnerable to rupture in one of the aftershocks rattling the site. The document also cites the possibility of explosions inside the containment structures due to the release of hydrogen and oxygen from the water used to cool the cores, and offers new details on how semimolten fuel rods and salt buildup are impeding the flow of water meant to cool the nuclear cores.

Japan's ocean radiation hits 7.5 million times legal limit - The operator of Japan's stricken Fukushima nuclear plant said Tuesday that it had found radioactive iodine at 7.5 million times the legal limit in a seawater sample taken near the facility, and government officials imposed a new health limit for radioactivity in fish. The reading of iodine-131 was recorded Saturday, Tokyo Electric Power Co. said. Another sample taken Monday found the level to be 5 million times the legal limit. The Monday samples also were found to contain radioactive cesium at 1.1 million times the legal limit.

Amid Nuclear Crisis, Japan’s Tepco Planned New Reactors - Even as it struggled to contain the world’s worst nuclear disaster in a quarter-century, Tokyo Electric Power Co.1 late last month quietly set out big plans for the future: It proposed building two new nuclear reactors at its radiation-spewing Fukushima Daiichi power plant2. Tokyo Electric, known as Tepco, informed Fukushima prefecture on March 26 of its desire to start building the reactors as early as next spring, local officials said. That was just two weeks after an explosion at the utility’s tsunami-crippled complex set off a cascade of catastrophes. The proposal was then included in a formal report submitted to authorities in Tokyo on March 31 as part of an annual process designed to assess Japan’s future electricity supply. When Tepco notified Fukushima’s energy department of its new reactor plans, Nozaki immediately told Fukushima’s governor, Yuhei Sato, who reacted with fury. “What is going on?” he fumed. Nozaki met the head of Tepco’s local branch and told him “we definitely cannot accept” the building of new reactors. A Tepco team from Tokyo was given the same “no way” message. The electricity company, said Nozaki, was told by prefectural officials “to sort out problems on the ground first and stop thinking about new reactors.”

Experts From Korea, Japan To Meet Over Nuke Crisis - South Korea and Japan will hold a meeting of nuclear experts next week to discuss measures to deal with the aftermath of massive radioactive leaks from the Fukushima Daiichi nuclear plant, officials said. he plant in northeastern Japan has been a focal point of international attention since its reactors went out of control after being hit by the March 11 killer earthquake and tsunami.Japan began dumping more than 11,000 tons of contaminated water into the ocean this week after dousing the overheating reactors with it, triggering health concerns among neighboring countries.A South Korean foreign ministry official told reporters on Friday that the release of radioactive water will be one of the issues to be discussed when the nuclear experts of Japan and South Korea gather next week, possibly in Japan.

Fukushima: A Nuclear Threat to Japan, the U.S. and the World - For several weeks, radioactive leaks from the Fukushima nuclear power plants have been incapacitating a large part of Japan. Information from the Japanese government and TEPCO, the power company that operates the site, has been sparse, often incomplete and sometimes contradictory. A confidential assessment by the Nuclear Regulatory Commission obtained by The New York Times suggests that the damaged Fukushima Daiichi plant is far from stable. The report concludes that the Fukushima plant is facing a wide array of fresh threats that could persist indefinitely. The Fukushima disaster has become more than a local, regional or national Japanese event. The worldwide implications of the event are becoming apparent: though a major leak in a maintenance pit of the plant has been plugged, there is still a great likelihood that significant amounts of radioactive water will continue to be released into the Pacific Ocean; the worldwide Just-In-Time manufacturing cycle has been interrupted; and increased levels of radiation have been detected on the U.S. East Coast.

US ‘unprepared’ for Japan-style nuke accident -  A US nuclear reactor near Baltimore would come dangerously close to meltdown within two days of a disaster on the scale of what happened in Japan three weeks ago, a lawmaker said, citing a draft report by the US nuclear watchdog. At a hearing in the House of Representatives' energy and commerce committee Wednesday, Democratic Congresswoman Diana DeGette said a study conducted last year by the Nuclear Regulatory Committee (NRC) raised "grave questions about US preparedness to address reactor accidents." The NRC modeled what would happen at two US nuclear power plants in the event of a major accident such as the one still unfolding at Fukushima in Japan three weeks after a massive earthquake and tsunami knocked out power that is critical to cooling the reactors' cores and "pools" of spent fuel rods.

Unlearned lessons from Chernobyl and Fukushima - After Reactor No. 4 blew up at Chernobyl power station on April 26, 1986, the resulting disaster took two years and 650,000 people to clean up. Except it will never really be cleaned up. Nuclear fallout and waste can be moved and sequestered, but not deactivated. Even today the meltdown at Chernobyl leaks radiation through cracks in the vast "sarcophagus" of steel and concrete that was intended to seal it. The whole area around it is still deeply, if unevenly, contaminated. And that contamination isn't confined to Ukraine. A quarter-century later, there are farmers in Wales whose lamb is too radioactive to sell, and just last summer thousands of wild boar hunted in Germany were declared unfit for human consumption for the same reason.

'Worse Than Chernobyl': When the Fukushima Meltdown Hits Groundwater - Fukushima is going to dwarf Chenobyl. The Japanese government has had a level 7 nuclear disaster going for almost a week but won’t admit it. The disaster is occurring the opposite way than Chernobyl, which exploded and stopped the reaction. At Fukushima, the reactions are getting worse. I suspect three nuclear piles are in meltdown and we will probably get some of it. If reactor 3 is in meltdown,  the concrete under the containment looks like lava. But Fukushima is not far off the water table. When that molten mass of self-sustaining nuclear material gets to the water table it won’t simply cool down. It will explode – not a nuclear explosion, but probably enough to involve the rest of the reactors and fuel rods at the facility.Pouring concrete on a critical reactor makes no sense – it will simply explode and release more radioactive particulate matter. The concrete will melt and the problem will get worse. Chernobyl was different – a critical reactor exploded and stopped the reaction. At Fukushima, the reactor cores are still melting down. The ONLY way to stop that is to detonate a ~10 kiloton fission device inside each reactor containment vessel and hope to vaporize the cores. That’s probably a bad solution.

Guardian: Oil price hits two and a half year high - The oil price has hit its highest level since the financial crisis, amid continuing supply fears over the conflict in Libya and renewed optimism about global economic growth. The cost of a barrel of Brent crude, sourced from the North Sea, hit $119.95 on Monday, its highest level since August 2008. US crude rose to $108.74 on Monday morning, its highest level since September 2008. Brent had reached its previous post-Lehman Brothers collapse high on 24 February when the revolt against Libyan leader Muammar Gaddafi was gathering pace. The oil price has been driven higher in recent weeks by the repeated refusal of Iran, which currently chairs the Opec group of oil-producing nations, to support an increase in production. Last Friday, Iranian oil minister Massoud Mirkazemi said there was "no need" for an emergency meeting, where an output hike could be agreed. Kuwait, though, appears more concerned. Faruq al-Zanki, the chief executive of national conglomerate Kuwait Petroleum, said that he would rather see the oil price at between $90 and $100 a barrel.

High Oil Prices Leading to More Energy Options - For the US, the huge and growing alternative to crude oil is Canada's oil sands. New mines and refineries are being installed in Canada, and new pipelines are being built to deliver the product to US refineries and customers. Many of the environmental concerns over oil sands development are being answered by evolving new technologies. Another promising approach to liquid fuels is gas-to-liquids (GTL). The new Pearl GTL plant in Qatar is beginning preliminary operation. Making syngas. In the gasifier at around 2,200-2,650°F (1,400-1,600°C) methane and oxygen from an air separation plant are converted into a mixture of hydrogen and carbon monoxide known as synthesis gas, or syngas. The reaction produces heat, which is recovered to produce steam for power.

Any oil price pullback could be temporary - As a trickle of oil began flowing from war-torn Libya this week, some market watchers saw signs the recent surge in the price of crude may be subsiding.  But until the shooting stops — in Libya and the rest of the oil-rich Middle East — the situation will remain murky. Most experts are predicting a short-term drop in prices, but the long-term threat to global supplies remains unclear. The price of Brent crude backed off its 2-1/2-year high of $123 a barrel Wednesday amid reports that an oil tanker left the Libyan port of Tobruk carrying the first shipment of crude sold by rebels, who control the country's east. That would mark the first shipment of Libyan oil since the fighting erupted early last month, taking roughly 1.5 million barrels a day off the global oil market. But the restoration of oil shipments represents just a drop in the bucket of estimated global demand of close to 89 million barrels a day, according to the International Energy Agency. And no one is expecting Libyan production to return to full capacity anytime soon

Despite Gulf oil spill, rig owner executives get big bonuses - Declaring 2010 “the best year in safety performance in our company’s history,” Transocean Ltd., owner of the Gulf of Mexico oil rig that exploded, killing 11 workers, has awarded its top executives hefty bonuses and raises, according to a recent filing with the U.S. Securities and Exchange Commission. That includes a $200,000 salary increase for Transocean president and chief executive officer Steven L. Newman, whose base salary will increase from $900,000 to $1.1 million, according to the SEC report. Newman’s bonus was $374,062, the report states. Newman also has a $5.4 million long-term compensation package the company awarded him upon his appointment as CEO in March 2010, according to the SEC filing.

BP Expected To Resume Drilling In Gulf of Mexico After Deal With U.S. Regulators - BP plans to restart deepwater drilling in the Gulf of Mexico this summer a year after the fatal Deepwater Horizon rig explosion triggered the worst oil spill in history. US regulators have given the firm approval to start work on 10 wells in the Gulf that were halted by a moratorium on drilling imposed after the spill, according to the Sunday Times. BP declined to comment. The move is likely to fuel public anger and comes days after it emerged that the US justice department is considering manslaughter charges after the devastating oil spill, which killed 11 workers and caused an environmental crisis. Drilling could start as early as July, less than 15 months after the disaster.

Alaska Considering Rollback of Oil Profits Tax - In 2007, Alaska enacted an increase in the oil profits tax dubbed Alaska's Clear and Equitable Share (ACES). The tax is essentially a progressive tax on oil companies: a 25% base rate (up from 22.5%), with the rate increasing on a sliding scale as the price of oil in excess of cost rises. ACES was pushed and signed into law by then-Governor Sarah Palin (R), who recently defended ACES in a statement. Alaska Gov. Sean Parnell (R) and some legislators are now working to repeal the tax. Proponents of the repeal say it has greatly harmed the oil industry; opponents of repeal say that those claims are exaggerated. Officials estimate that repeal would reduce state revenues by $8 billion over five years. More:

A Short Aerial Tour Of The Arrival Of Canadian Oil In The United States - With apologies to Trevi, who triggered the idea for this post by not only sharing the original article, but also hunting down the TransCanada pipeline’s Illinois terminus, I’ve put together a short aerial tour of the infrastructures — the pipeline is essentially invisible, being buried underground, but attendant tank farms, pumping stations, and refineries leave obvious marking patterns on the land — so helpfully mapped by NPR.This tour is split into two components: first, TransCanada’s Keystone pipeline system (PDF), which runs from Alberta through Manitoba via a fork in Nebraska to endpoints in Illinois and Oklahoma, and second, trucking corridors in Montana and Idaho, used by both Imperial Oil and ConocoPhilips.

The Oil Industry: Refined Tastes - Decades of poor returns from turning crude oil into petrol, diesel and other fuels have convinced the Western oil giants to get out of the business. In their place come mainly state-run oil firms from Asia, the Middle East and Latin America, and private equity.Essar, an Indian conglomerate, this week paid Shell $1.3 billion for the Stanlow refinery in north-west England. In February, state-owned PetroChina paid $1 billion for a half-share in Scotland’s Grangemouth refinery and in another at Lavéra in the south of France. Many more refineries are for sale in Europe and America. Britain’s BP, which is raising cash to pay the bill for the Deepwater Horizon oil spill, wants to sell two huge ones in America. Valero, an American refiner, may show interest, though it has just bought a plant in Wales from Chevron for $1.75 billion.

Oil hits $120 after strike in Gabon - Oil prices rose above $120 a barrel for the first time since mid-2008 on Monday as supply disruption in Gabon, a small African producing nation, compounded continuing losses from Libya. The outages come just as refiners in the Atlantic basin are expanding their operations ahead of the driving season, the summer holiday period when US petrol demand surges, bidding up the market for high-quality, light, low-sulphur crude oil.  Although oil strikes are relatively normal in west Africa and Gabon is a small producer, the stoppage comes at a time of particular sensitivity to any disruption in the market as a result of the conflict in Libya and unrest in the Middle East. In London, ICE May Brent rose to a session high of $120.63 a barrel, the highest since August 2008. It later traded at $120.13 a barrel, up $1.44 on the day. In New York, Nymex May West Texas Intermediate rose to a session high of $108.78. Total and Shell said on Monday that they had stopped oil production in Gabon, which usually pumps about 240,000 barrels a day, amid a nationwide strike in the oil sector

Fears For Global Recovery As Oil Hits $120 Mark - Brent crude, the London benchmark, had been trading around $115 per barrel for a fortnight, but the price has crept up over the past couple of days as the military action in Libya shows no sign of easy resolution. It closed at $121.06 – a two-and-a-half year high – on Monday. A strike by oil workers in Gabon has also disrupted supply. A number of analysts claim that $120 is the specific "danger point" at which the cost of oil starts to move above 5.5pc of total global economic output. Deutsche Bank says this "has historically been an environment where global growth has come under pressure". On top of this, estimates from the International Monetary Fund suggest that every extra $10 on the price of oil shaves 0.2pc off world growth.

The silly price of petrol – how high can it get? - While looking at fiscal policy with my AS Economists, we looked at the role of duties particularly fuel duties after the 1 penny reduction on fuel in March’s budget. What´s interesting is comparing how much different countries pay in tax on fuel and it´s surprising to see that we in Europe pay significantly more than consumers in the US (see chart below).   Clearly, taxing fuel is a great revenue raiser for governments and the graph below really highlights the low Ped of fuel as consumption has barely changed over the years as the price has risen. In light of this, the Chancellor’s penny reduction was regarded by many as insignificant - if it was passed on at all. In addition, people are complaining about how higher fuel costs are eroding standards of living including this US based blogger who noticed the price of a gallon had risen to as much as $4.00 in some parts, up from $1.71 in 2001. Incidentally, taxes make up only 13% of the price of petrol in the US (see graphic below), small fry when compared to the 70+% in some European countries.

It's a gasoline world: Fuel connections everywhere What do these things have in common? Libyan leader Moammar Gadhafi. The Japanese earthquake and tsunami. Wall Street volatility. A cranky, even angry American populace.Answer: They all have something to do with gasoline. No matter what happens in the world today, just about everything points back to fuel and the tricky politics that emerge when prices spike. Is it any wonder, then, that a recent Associated Press-GfK poll shows a correlation between the country's more pessimistic outlook and rising gas prices. The issue also has taken on greater importance to Americans. . Last fall, 54 percent called gas prices a highly important issue to them personally, but 77 percent said that in the latest poll. Many don't expect relief from soaring gas costs anytime soon: Two-thirds say they expect the higher prices will cause financial hardship for them or their families in the next six months. That group includes more than a third who say gas cost spikes will cause serious financial hardship. And that is on top of a still-poor economy.

IMF: ‘Increased Scarcity’ Ahead for Oil Markets - Governments should brace for “increased scarcity” in global oil markets and the risk of additional sharp price increases in the coming years, the International Monetary Fund warned Thursday. While the effect of scarce supplies may only be a “minor constraint” on the global economic expansion in the medium to long term, the IMF said, “such benign effects on global growth should not be taken for granted since scarcity or its growth effects could be more significant.”“In practice, it will be difficult to draw a sharp distinction between unexpected changes in oil scarcity and more traditional temporary oil supply shocks, especially in the short term when many of the effects on the global economy will be similar,” the IMF said in a chapter of its World Economic Outlook released Thursday. The full report will be released next week ahead of the IMF’s spring meeting, where rising commodity prices are expected to be discussed.

WTI oil trading over $111, IMF joins the peak oilers party - WTI oil futures open Friday’s trading session over $111 a barrel and oil prices are at new 2011 highs, as the IMF joins the peak oilers party with a message that the global economy was entering a period of scarcer oil that could drive prices up rapidly. US Light crude oil futures for May 2011 delivery was trading at $111.22 a barrel, 06.50 GMT this morning in electronic trading on the NYMEX. WTI oil futures closed yesterday’s trading session at $110.29, a new 2011 high. The new analysis by the IMF (International Monetary Fund) said that market tensions were increasing between growing demand for oil from fast growing emerging market economies, like China, and production constraints due to maturing oil fields. “There is a risk that the tensions between oil demand and supply trends could intensify again and prices could rise rapidly.” “The increases in the trend component of oil prices suggest that the global oil market has entered a period of increased scarcity.” the IMF said in initial chapters of its World Economic Outlook report, which will be released in full on Monday.

US, NATO allies join scramble for Libya's oil - A US delegation arrived in the eastern Libyan city of Benghazi Tuesday for talks with the Transitional National Council, the political arm of the so-called rebels fighting against the regime of Colonel Muammar Gaddafi. The visit follows the announcement Monday in Rome that the Italian government has recognized the council in Benghazi as the sole legitimate government of Libya. Italy is only the third nation to take this step, following recognition of the TNC by France and Qatar, the oil-rich Persian Gulf emirate.

Exposed: The US-Saudi Libya deal - You invade Bahrain. We take out Muammar Gaddafi in Libya. This, in short, is the essence of a deal struck between the Barack Obama administration and the House of Saud. Two diplomatic sources at the United Nations independently confirmed that Washington, via Secretary of State Hillary Clinton, gave the go-ahead for Saudi Arabia to invade Bahrain and crush the pro-democracy movement in their neighbor in exchange for a "yes" vote by the Arab League for a no-fly zone over Libya - the main rationale that led to United Nations Security Council resolution 1973.  The revelation came from two different diplomats, a European and a member of the BRIC group, and was made separately to a US scholar and Asia Times Online. According to diplomatic protocol, their names cannot be disclosed. One of the diplomats said, "This is the reason why we could not support resolution 1973. We were arguing that Libya, Bahrain and Yemen were similar cases, and calling for a fact-finding mission. We maintain our official position that the resolution is not clear, and may be interpreted in a belligerent manner."

Saudis Switch To Solar, Nuclear At Home, Saving Oil For Export - Sunny Saudi Arabia plans to shift most of its domestic energy use to solar and nuclear power, diverting more oil to exports, a Saudi official said yesterday at the Third Saudi Solar Energy Forum in Riyadh. “The use of alternative sustainable and reliable resources reduces dependency on hydrocarbons and keeps them as a source for income for future generations,” said Khalid Al Sulaiman, the vice president for renewable energy at a center called the King Abdullah City for Atomic and Renewable Energy. In conjunction with Sulaiman’s speech, the Saudi government published a statement through the Middle East and North Africa News Network that emphasized Saudi Arabia’s growing energy demands — from 43 gigawatts in the summer of 2010 to more than 120 gigawatts in 2030— because of population growth and development.

US Military Warns Of Oil Shortages By 2015 With Significant Economic And Political Impact, Especially On Weak Countries, India And China - A report issued by the US Joint Forces Command has a rather bleak view on US oil production, and on peak oil in general. In a foreword to the report issued by General James Mattis, he warns that "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day." Does this mean that oil, just like in the Bush administration, is about to become a "strategic interest", which coupled with the upcoming discoveries of non-existent weapons of mass destruction, would result in some additional geopoltical tensions particularly in the middle east? With nuclear tensions between Iran and Israel already at boiling hot levels, will Uncle Sam decide to make landfall in the Persian Gulg once again? More from the General: "While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India."

China under pressure over Saudi rise - China is doing its utmost to avoid contagion from the Arab revolutions. At the same time it is trying to anticipate developments in the Middle East and get on the right side of history - instead of impotently mourning strongmen it couldn't save and military interventions it couldn't prevent - by championing the Palestinian peace process.  However, Beijing's Middle East initiatives may be scuppered by its two biggest energy suppliers - and mortal enemies - Iran and Saudi Arabia.  In mid-March, China dispatched its special envoy for Middle East affairs, Wu Sike, on a swing through Israel, Palestine, Syria, Lebanon and Qatar. Wu's stated aim was to highlight the central importance of the Palestinian peace process to security in the Middle East. His interlocutors appear to have listened politely. It's difficult to say for sure, since his visit was virtually ignored by the regional press. Chinese media dutifully reported his earnest statements about how the Palestinian question could not be marginalized, even in the current turmoil.

How Oil and Food Prices Impact Asia, and Other Economic Tidbits - The Asian Development Bank is out with its annual Development Outlook for 2011 and as is the tradition with big sweeping economic reports from multilateral financial institutions (IMF, World Bank Et al.)  the best tidbits tend to be in the report’s shaded boxes that drill down on specific topic. Should food and oil prices rise 30% in 2011 and not fall too sharply in 2012, economies of developing Asia (China, Hong Kong, India, Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand) would together see a 0.7 percentage point hit to growth. The worst affected countries would be Singapore, the Philippines and Taiwan, which would each see growth fall 1.0 percentage points. The least affected, China, Malaysia and Thailand.That’s quite a mild hit in a region where the ADB expects growth to hit 7.8% this year. The more serious effect will be on inflation. The same scenario of 30% increases in 2011 would add 1.7 percentage points to inflation. The projected impact would be highest in India and Singapore in 2011, where inflation would rise by more than 2 percentage points each. Oil, rather than food, would have a bigger impact on inflation, says the ADB.

India Halts All Food Imports From Japan After Fukushima Fish Found With Excess Radioactivity - After dumping thousands of tons of radioactive water in the sea, Japan appears to have been stunned to find that the radioactive content of various fish has surged and is now above just imposed radiation safety thresholds. From Kyodo: 'Japan hastily set a legal limit Tuesday for the permitted level of radioactive iodine in seafood as safety concerns spread overseas in the wake of continuing leaks contaminated water into the Pacific Ocean from the crippled Fukushima Daiichi nuclear power plant. The limit of 2,000 bequerels per kilogram set by the Ministry of Health, Labor and Welfare for radioactive iodine in marine products such as fish and shellfish is the same as that already adopted for vegetables, Chief Cabinet Secretary Yukio Edano told a press conference. The imposition of the limit followed the detection by Japanese authorities 4,080 bequerels per kilogram of radioactive iodine in young sand lance caught Friday off Kitaibaraki in Ibaraki Prefecture, which prompted the health ministry to consider setting a limit for fish and clams. Different young sand lance, also caught near Kitaibaraki, were found to be contaminated with 526 bequerels per kilogram of radioactive cesium, exceeding the legal limit of 500 bequerels already set by Japan.'

Japanese Mayor, Disgusted With The Government's Crisis Response, Appeals For Help To The Entire World - The mayor of Minami Soma city, located 25 km away from the Fukushima plant, had decided to bypass the traditional channels in requesting assistance out of disgust and frustration with the government's handling of the disaster, and instead is appealing to the entire world via this soon to be viral video clip which was recorded over a week ago but is only now making the rounds. In the clip, mayor Katsunobu Sakurai says: "We are left to ourselves... we risk dying of hunger." Minami Soma, once a city of over 70,000 and which may now be down to as little 20,000, is asking for volunteers to do what the Japanese government refuses to do: namely to help those most in need of if not help, then at least potentially life-saving information. The mayor expresses his disappointment at the lack of support from the central government for the city’s remaining residents, and accuses the government of not providing sufficient information to help in the decision making process. Making things worse is that the remaining citizens, many of whom who are trying to evacuate, are unable to do so as there is no gas or means for transportation.

Governor of Fukushima and Mayor of Town Near Nuclear Reactors Slam Government Response to Nuclear Crisis - The governor of Fukushima slammed Japan's nuclear agency for failing to provide timely radiation data. As Japan Today notes: Fukushima Gov Yuhei Sato expressed anger at the central government’s nuclear safety agency on Sunday for its late release of radioactivity data related to local farm produce, shipments of which have been partly restricted amid the ongoing nuclear crisis. It takes a few days for the results of each test to be released, according to Sato.  ‘‘Can’t you increase the number of examiners? The lives of farmers are at stake. It’s a matter of whether they can live tomorrow,’’  And the mayor of Minami Soma - a city 25 kilometers from the stricken Fukushima nuclear complex - is appealing to the world community to help provide food and other essentials, as the Japanese government isn't doing much to help, other than telling people to stay indoors, and is providing insufficient information on the nuclear crisis. The mayor says that - since the government has told people to stay indoors - the stores supermarkets and banks are all closed, and people are "as if under starvation tactics". There is not enough gas, and so it is difficult to evacuate.

Japan Monetary Base +16.9% On Year In March - The monetary base in Japan surged 16.9 percent on year in March, the Bank of Japan said on Monday, standing at 112.743 trillion yen. That was sharply higher than analyst expectations for a 5.8 percent increase following the 5.6 percent rise in February. Banknotes in circulation were up 3.7 percent on year, while coins in circulation were flat. Current account balances surged an annual 88.7 percent, including an 86.1 percent jump in reserve balance. The seasonally adjusted monetary base saw a spike of 255.2 percent on year to 112.147 trillion yen.

A hard look at Japan's debt problem - Yesterday in this space, I asked if investors would come to reassess the riskiness of developed economies and usher in a “sea change” in how money is allocated around the world. Could Japan, the most indebted of all industrialized countries, be the trigger to start that dramatic process? Since the devastating earthquake and tsunami that ravaged northeastern Japan last month, the pitiful financial state of Japan's government has come into ever greater focus. The reconstruction could place an extra burden on an already strained budget, while it could be difficult for policymakers to undertake the badly needed retrenchment in deficits and spending with the economy slowing and disaster victims still in need of aid, nudging the country closer to a possible debt crisis. But how vulnerable is Japan to such a crisis? The answer is amazingly complicated.

Japan Disaster To Cost Australia $2b - Treasurer Wayne Swan says the Japanese earthquake and tsunami is likely to cut about $2 billion from Australia's export earnings. His comments came as workers at Japan's crippled nuclear plant struggled to stop a radioactive water leak into the Pacific and rescue crews entered the third and final day of a massive last-ditch search for bodies, more than three weeks after the catastrophe struck. While cherry blossoms opened in Tokyo, temperatures plunged again, leaving tens of thousands of homeless shuddering in evacuation camps along the ravaged north-east coast of Japan's main Honshu island. Japan is Australia's second largest trading partner, but its economy has been hit hard by the deadly tsunami and ongoing nuclear crisis."Preliminary Treasury estimates show that the earthquake and tsunami will cut demand for our bulk commodity exports in the short term and likely slash around $2 billion from export earnings in 2010-11," Mr Swan said in a statement. Mr Swan says the Japanese disasters will cut a quarter of a percentage point from Australia's growth figures.

Roubini Calls for Hard Landing in China (After 2013) -  Yves Smith - During the financial crisis, pronouncements by Nouriel Roubini would move markets. Even though he still commands attention, in a investment environment driven by blind faith in the munificence of central banks, being focused on the real economy isn’t as relevant as it once was. And Roubini may have erred in trying to maintain his high profile when the trajectory of the economy was hard to discern (recall the seemingly unending debates over V versus U versus W shaped recoveries? The net result is the new normal has been designated a recovery when it it looks more to be a sideways waffle).By contrast, China has trends underway that simply cannot be sustained, but a command economy can keep that sort of thing going well past its sell by date. The biggest is the staggering dependence of its economy on investments. No major economy has had investment as a percent of GDP at 50% for a sustained period. This is a textbook case of Austrian malinvestment. So Roubini’s call is interesting, in that he sees an ugly end in China as inevitable but not imminent. From Roubini via an e-mail alert:

China's tricky wage dynamics - FT BEYONDBRICS has a nice discussion of recent increases in Chinese wages, which includes this chart: It's worth reading the analysis at the link, but I'll just add a few thoughts here. First, the chart provides some important context for debates over the speed of appreciation of China's currency. If you're a country competing with Chinese exporters, you don't much care whether Chinese manufacturing wages are rising or the currency is appreciating; both make production in your country look more attractive. The urban-rural disparity is worth noting, particularly against the backdrop of Chinese inflation-fighting. A rural worker whose wages haven't increased much in recent years will find rising food and energy prices to be extremely painful. If China acts somewhat more aggressively toward inflation than expected, this could be one reason why—the government does not want to deal with hundreds of millions of angry rural workers.

China's economy: The middle-income trap | The Economist - AS A brief follow-up to this morning's post on Chinese wage growth, let me draw your attention to a new working paper by Barry Eichengreen, Donghyun Park, and Kwanho Shin. Here's the abstract: Using international data starting in 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates. So at around $17,000 per capita output, countries run into two constraints. First, the sectoral shift from agriculture to industry has nearly run its course and a larger portion of the population is working in the slower-productivity-growth service sector. And second, the scope for rapid catch-up growth due to adoption of technology is limited by the fact that the economy is now much closer to the technology frontier.

Liberate China's Workers - There is no legal right to strike in China, but there are strikes every day. Factory workers, hotel employees, teachers and taxi drivers regularly withdraw their labor and demand a better deal from their employer. Strikes are often successful, and these days strike leaders hardly ever get put in prison. It may seem ironic that workers in a nominally Communist country don’t have the right to strike, and that workers are apparently willing to defy the Communist Party by going out on strike. But China effectively abandoned Communism and embraced capitalism many years ago. And in a capitalist economy, strikes are a fact of life. Chinese scholars, government officials and even some businessmen have long recognized this fact and have called for the restoration of the right to strike, which was removed from the Constitution of the People’s Republic of China in 1982. Deng Xiaoping feared that the economic reforms he was introducing would lead to labor unrest.

China Raises Interest Rates to Counter Inflation Pressure -China raised interest rates for the fourth time since the end of the global financial crisis to restrain inflation and limit the risk of asset bubbles in the fastest-growing major economy. The benchmark one-year lending rate will increase to 6.31 percent from 6.06 percent, effective tomorrow, the People’s Bank of China said on its website at the end of a national holiday. The one-year deposit rate rises to 3.25 percent from 3 percent.The move comes as a surprise to some, after Credit Suisse Group AG, Morgan Stanley and Bank of America-Merrill Lynch said officials may pause in tightening. While Japan’s disaster and Europe’s debt woes are clouding the global outlook, Premier Wen Jiabao’s government is more focused on the estimated 5 percent jump in consumer prices last month, said analyst Shen Jianguang.It’s “very significant” that China raised rates before the March inflation data has even been announced, said Shen, This is a good preemptive move.”

Hidden Losses and Little Reform; China May Be Slowing More Than You Think - Michael Pettis at China Financial Markets discusses financial reform (actually the lack thereof in China), as well as an observation on China's Growth. Pettis writes .... Three months ago during their 2010 Q4 conference, the PBoC said that they believed that the global economic recovery would continue in 2011, although they acknowledged a great deal of uncertainty. The PBoC also said that stabilizing the price level was their top priority, and the central bank planned to control the “main gate” of liquidity inflows and to bring credit growth to “normal” levels. Chen Long at SWS notified me yesterday of a change in tone. In their 2011 Q1 conference earlier this week the PBoC said that the fundamental basis of the global recovery is not very solid. The central bank still acknowledges that stabilizing price levels is an important task, but they only refer to “managing liquidity efficiently”. What does this imply? I suspect it means that policymakers are becoming a little more concerned with slowing growth and a little less concerned about domestic overheating. As I argued in the past few newsletters, growth may be slowing more quickly than Beijing would like, and combined with the very volatile external environment, I suspect they are going to be cautious about too much more tightening. We will see how many more interest rate hikes and reserve requirement hikes we are likely to get in the next quarter.

As China Grows, So Does Its Appetite for American-Made Products - America’s huge trade deficit with China has raised concerns about American competitiveness and jobs moving overseas. But a new study offers a glimmer of hope to Americans: Last year, American exports to China soared 32 percent to a record $91.9 billion. A study by a trade group called the U.S.- China Business Council says China is now the world’s fastest-growing destination for American exports. While United States exports to the rest of the world have grown 55 percent over the past decade, American exports to China have jumped 468 percent. Most of those exports have come from California, Washington and Texas, which have shipped huge quantities of microchips, computer components and aircraft. But states that produce grain, chemicals and transportation equipment have also benefited. The trend seems like good news for the White House. Last year, President Obama announced a new initiative that aims to double American exports by 2014. A major focus of that effort is China, now the world’s second-largest importer behind the United States.

Gains and Losses from Trade with China -From the conclusion to a provocative paper by David Autor, David Dorn, and Gordon Hanson, entitled The China Syndrome: Local Labor Market Effects of Import Competition in the United States: our study suggests that the rapid increase in U.S. imports of Chinese goods during the past two decades has had a substantial impact on employment and household incomes, benefits program enrollments, and transfer payments in local labor markets exposed to increased import competition. These e¤ects extend far outside the manufacturing sector, and they imply substantial changes in worker and household welfare. The authors reach these conclusions using an interesting instrumental variables approach, where the instruments for import growth into US commuting zones using Chinese import growth into other income countries. The relationship between employment and (instrumented) import exposure is illustrated in Panel B of Figure 3.

Trade Deal With Colombia Said to Be Reached - The Obama administration will announce — perhaps as early as Wednesday — that it has reached agreement with Colombia on a free trade pact, a United States official said on Tuesday.  The agreement, the second such deal with Colombia in four years, will still need to be ratified by Congress.  But with Republicans now in control of the House and pressuring Mr. Obama to move ahead on trade pacts that were negotiated by the George W. Bush administration, the Colombia trade deal now has a better chance of getting through legislative hurdles than it did earlier, trade experts said.

South Africa’s Unemployment Puzzle - Among the havoc wrought by the global financial crisis, unemployment ranks at the top. This discussion often focuses on the situation in advanced countries. Unemployment in the United States, for example, continues to hover around 9 percent. Take that and double it. Then you can begin—yes, just begin—to get a sense of the magnitude of the problem in South Africa. Unemployment in South Africa now stands at some 24 percent. Youth unemployment is phenomenally higher still at some 50 percent. Unemployment in South Africa was already very high before the crisis due to a number of structural factors—such as mismatches between the kinds of jobs available and workers’ skills, or large distances between population centers and where businesses are located. But, the enormous job losses during 2008-09 made the already dire situation much worse. South Africa did not have a financial crisis and its recession was, relatively speaking, mild. Still, the country lost proportionately as many formal sector jobs (1 million) as those countries at the center of the global financial crisis.

Fraud and death in Indonesia - FOR a week now, Jakarta's rich and connected have been appalled by twin scandals at Citibank’s Indonesia operations. A relationship manager at the bank’s wealth management division appears to have stolen Rp. 17 billion ($2m) from clients. In what must be a terrible coincidence, Citibank debt collectors also seem to have killed a customer—a local politician, it turns out—who disputed his credit card bill. The Financial Times piece linked above focuses on the $2m fraud, presumably because embezzlement tends to have higher material impact to earnings, but the recent murder at Citi's premises is arguably more damaging to the bank's reputation. According to Irzen Okta, his bill was Rp. 48 million (around $5,500) but Citi claims the actual figure was Rp. 100 million. Mr Okta went to contest the bill at Citi's premises but, after a seemingly grizzly interrogation—the press has fixated on blood stained curtains—he did not return.

Waiting for the great rebalancing - Pressures are building up for a rebalancing of the world economy. The private sector has long been trying to send a large net flow of capital from the world’s relatively sluggish rich countries to its dynamic emerging ones. But the governments of the latter have resisted, by intervening in currency markets and sending the capital back as official currency reserves. But forces now at work in the world economy seem likely to bring this recycling to a natural end. If so, that would be very helpful, though it would also create new challenges. Mervyn King, governor of the Bank of England, has given an account of the role of the so-called global imbalances in February’s Financial Stability Review of the Banque de France. This “uphill” flow of capital from poor to rich countries, predominantly into supposedly safe assets, had important consequences: a reduction in the real rate of interest; a rise in asset prices, particularly of housing in several countries, not least the US; a reach for yield; a wave of financial innovation, to create higher yielding, but supposedly safe assets; a boom in residential construction; and ultimately a huge financial crisis. The follies of finance and failures of regulation bear the blame. But global developments – not just the so-called “savings glut, but the form that those flows took – helped create the conditions for the disaster.

Financial globalisation: Myths and reality - Conventional wisdom states that financial globalisation has been advancing since the mid-1980s, particularly in developing countries. It also states that this should have fostered international portfolio diversification and consumption smoothing. But this column takes a closer look at the data and argues that neither financial globalisation nor portfolio diversification has grown significantly in emerging markets over that period.

IMF gives ground on capital controls - The International Monetary Fund has proposed its first ever guidelines for using controls on flows of speculative capital, legitimising a controversial tool that it once campaigned against. The guidelines – which are not yet official Fund policy – say that countries can control capital inflows when their currency is not undervalued, when they already have enough foreign exchange reserves, and when they are unable to use monetary or fiscal policy instead. The IMF said that around one-quarter to one-third of a group of countries that it studied are “currently likely” to meet its criteria for the use of controls. The framework is the IMF’s attempt to recognise the short-term use of capital controls to manage inflows of “hot money” but distinguish them from long-term barriers against foreign capital. The framework represents a big shift by an institution that spent the mid-1990s campaigning for free flows of capital, only to be embarassed by the Asian financial crisis of 1997-98, which showed the dangers of a sudden withdrawal of mobile foreign money.

United Diagrams of Europe

Europe’s Subprime Quagmire - Back in 2007-2008, when the financial crisis was still called the “subprime” crisis, Europeans felt superior to the United States. European bankers surely knew better than to hand out so-called “NINJA” (no income, no job, no assets) loans. These days, however, Europeans have little reason to feel smug. Their leaders seem unable to come to grips with the eurozone’s debt crisis.Banks in Ireland and Spain are discovering that their customers are losing their jobs and income as the construction bust hits the national economies. And one could argue that a loan to the government of Greece or Portugal affords little more security than a NINJA loan. Indeed, lending to governments and banks in the European periphery represents the European equivalent of subprime lending in the US (which was also concentrated in a few sunshine states).Given the many similarities between the two crises’ basic features, European leaders could learn a lot from the US experience.

Ireland Bows to Trichet on Bondholders as Bank Rescue Reaches $142 Billion - Ireland yielded to the European Central Bank to protect bondholders even as its bailout bill for the region’s worst banking crisis moved to as much as 100 billion euros ($142 billion) after stress tests. The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today. The ECB agreed to provide “ongoing” funding for the banks, he said. Ireland agreed yesterday to inject as much as 24 billion euros into four banks, while leaving bondholders untouched. The government already funneled 46.3 billion euros into the financial system and set up an agency that paid more than 30 billion euros to assume risky property loans. The total equates to about two-thirds the size of the Irish economy.  As recently as March 28, Agriculture Minister Simon Coveney said the government planned to impose losses on senior bondholders in the banks to cut the costs of its bailout. “Taking all of the losses of the banking system and putting them on the balance sheet of the government doesn’t make sense,” Nouriel Roubini said “Eventually, the back of the government will be broken.”

Greece braces for new cuts on higher deficit reports - Greece braced for the possibility of fresh austerity measures after Sunday newspapers reported its public deficit for 2010 was far greater than previously estimated. Both Kathimerini and Eleftheros Typos newspapers said the deficit for 2010 was 10.6 percent of gross domestic product, which would be 1.1 percent more than the 9.5 percent previously thought. The finance ministry refused to comment but Finance Minister George Papaconstantinou had already acknowledged Wednesday that deficit would be "higher than 9.5 percent", without saying by how much.

IMF wants Greece to restructure debt – Der Spiegel (Reuters) - The International Monetary Fund (IMF) is privately pushing Greece to restructure its debt soon in view of the unsustainable fiscal burdens it is carrying, marking a change of course, German magazine Der Spiegel reported. Without citing any sources, it wrote on Saturday that high ranking IMF officials were recommending this to European governments due to Greece's current debt pile that is roughly one-and-a-half times its entire annual economic output.Since the IMF believes current measures no longer suffice, it would like to see either the interest rates on the debt lowered, the maturities extended or straightforward haircuts taken on the debt. Although it believes Greece should soon begin discussions with creditors over a debt restructuring, it is still not willing to call for the move openly out of fears this could add even further pressure to Portugal and its sagging government balance sheet, Der Spiegel said.

Report: IMF to demand Greek debt restructuring - Der Spiegel reports this morning that the IMF is requesting a restructuring/rescheduling of Greek debt. According to this report, high ranking IMF officials had requested such action to be taken in conversations with European politicians. The IMF wants Greece to start talks with its creditors relatively soon, but the article also says that the IMF is not yet ready to come out publicly in support of a rescheduling, to avoid putting pressure on Portugal.  The IMF denied the Spiegel report . "As we have said consistently, the IMF supports the Greek government's position of no debt restructuring and its determination to fully service its debt obligations. Any reports claiming otherwise are wrong," an IMF spokeswoman told Reuters.    The big political news over the weekend was the decision by Jose Luis Zapatero to stand down as Spanish prime minister and Socialist party leader at next year’s general elections. The Sunday El Pais story said his withdrawal from the leadership came at the worst possible time for the country. His image was in ruins, never before had a Spanish leader such a low popularity rating. It is down 10-percentage points to the opposition, according to opinion, and unlikely to win the 2012 general elections.

IMF denies rumours that Greece about to default - European Union and International Monetary Fund (IMF) officials arrived in Athens yesterday as rumours swirled around the markets the IMF now favours a "restructuring" of Greece's crippling national debt - in effect a default. The IMF has denied this.Tensions are also high because a widely expected rate rise by the European Central Bank (ECB) this Thursday, from 1 per cent to 1.25 per cent, seems set to add to the troubles of all the peripheral eurozone economies by increasing the cost of servicing their debts and by depressing economic growth further. Reports in the German press suggested that some in the IMF wanted the Greek Government to "restructure" its debt soon - and default on the existing terms, conditions and returns attached to its debts. Options are said to include "forgiveness" of some debt, extending the maturity of bonds, or lower interest payments.

Spain’s Deficit Fight Risks Setback as Zapatero Quits Election - Spain’s efforts to reduce its budget deficit and rebuild investor confidence may suffer a setback as Prime Minister Jose Luis Rodriguez Zapatero bows out of next year’s election. Investors had rewarded Zapatero’s austerity package, Spain’s toughest in three decades, sending the country’s borrowing costs lower even as bond yields in neighboring Portugal soared to euro-era records. The currency bloc’s fourth- largest economy now faces a period of political uncertainty that may disrupt measures crucial to Spain’s fiscal survival. “The politics are turning more difficult,” “There has been a lot of money coming into Spain; it started to underperform on Thursday and Friday and I suspect that underperformance will continue as a result of this.”Spain is the latest in a list of euro-area countries facing political upheaval after voters in Ireland ejected the Fianna Fail government from office in the wake of a bank crisis that left it in need of an 85 billion-euro ($121 billion) bailout. In Germany, Chancellor Angela Merkel’s Christian Democrats have been punished in local elections as voters balk at the prospect of funding bailouts elsewhere in Europe.

Fat lady is singing but Socrates still in denial - We are getting towards a breaking point for Portugal. The yield on five-year bonds soared to 9.91% yesterday, higher than the yield on Ireland’s bonds when it was bailed out last November. Credit default swaps valuations imply a default probability of 40%, up from 30% a month ago, the FT reports. Portugal faces a test in the markets on Wednesday, with an auction of up to €2bn in short-term bills. Although debt managers are expected to raise the money, they are likely to be forced to pay high yields. Last Friday, Portugal successfully sold over €1.6bn in bonds in an extraordinary auction after having lined up investors to buy the debt beforehand, according to Reuters.  At the informal eurogroup/ecofin on Friday in Budapest, Portugal will be an agenda point. Reuters quotes an EU official as saying: "They should stop messing around with us and tell us what the situation is, both in terms of the economic analysis and in terms of the political situation. That will take up a large part of the meeting on Friday.” While there were no talks so far on Portugal asking for an EU/IMF bailout, and none were likely this week or over the weekend. talks were under way to establish what the situation of Portugal really was. Eurozone officials seem to be confident that Portugal has enough cash reserves to meet €4.3bn redemption payments in April, though FT Aphaville calculated last week that Portugal could be short by €1bn of cash to pay back in April.

Moody's downgrades Portugal bond rating to Baa1 - Moody's Investors Service on Tuesday downgraded Portugal's long-term government-bond ratings by one notch to Baa1 from A3, and put the rating on review for possible downgrade. Moody's said it sees increased political, budgetary and economic uncertainty in Portugal, following the recent resignation of the government, complicating the government's ability to reach "ambitious" deficit-cutting targets. Moody's said short- and medium-term funding challenges are another reason for the downgrade, while it's also concerned about last week's revisions to the estimates for budget deficit and government debt for fiscal consolidation. "It is very unlikely that the long-term debt markets will reopen to the Portuguese government or to the Portuguese banks to any meaningful extent until the government is able to take action to dispel doubts over its commitment and ability to implement the fiscal program," the credit-rating firm said in a statement.

Moody's cuts Portugal, says bailout needed urgently - Credit rating agency Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matter of urgency.The cut in Portugal's long-term rating to Baa1 from A3 still leaves Moody's evaluation of its debt two notches higher than fellow agency Standard and Poor's but a notch below that of Fitch Ratings.Moody's said the debt was still under negative review, with further downgrades dependent on Lisbon's ability to secure medium-term funding."The limited migration of the rating to Baa1 (and not lower) in today's action, reflects Moody's assessment that assistance would be provided by the other members of the euro zone if Portugal needs financing on an expedited basis before it can obtain funds from the European Financial Stability Facility (EFSF)," Moody's said in a statement."Moody's believes the new government will likely approach the facility as a matter of urgency."

Top Portugal banks threaten to shun govt bonds - Portugal's biggest banks will stop buying government bonds and are urging the caretaker administration to seek a short-term loan to secure financing until a June 5 election, business daily Jornal de Negocios reported on Tuesday. The heads of Banco Espirito Santo, Millennium bcp and Banco BPI met with the governor of the Bank of Portugal on Monday to pass on their views, Jornal said. Nobody at the central bank was immediately available to comment on the report. But Carlos Santos Ferreira, head of Millennium bcp, Portugal's biggest private bank, said in a television interview late Monday that it was "indispensable that the country seeks a short-term loan".

Debt crisis pushes Portugal's bond yield higher - The yield on Portugal's 10-year bonds is rising for the 10th straight session and has reached a new record high of 8.56 percent. Portugal is in the grip of a debt crisis and can't afford that borrowing cost, making it likely the country will soon need to ask for a bailout like Greece and Ireland last year. Portugal is due to repay a euro4.5 billion loan in April and has an almost euro5 billion bond repayment two months later - a tall order for the cash-strapped eurozone nation.  Ernst & Young said in a report Monday it expected Portugal to accept a financial rescue package by June.

Portugal on verge of bailout - In the wake of a sovereign debt ratings downgrade by the rating agency Moody's, Portuguese five-year bonds are trading with a yield of 10%. As a result, Portugal has leapt over Ireland into fourth place on the credit default swaps list of highest default probabilities amongst sovereign debt issuers. A bailout by the European Union is a certainty, according to Moody's. The caretaker government under Prime Minister José Sócrates continues to insist there have been no discussions about a bailout. This is not credible. Mr. Sócrates was forced to call a new general election as his austerity budget was rejected by the Portuguese parliament. Subsequently, the country's debt was downgraded by both S&P and Moody's. Last week, we also learned that the Portuguese had missed their deficit target of 7.3pc last year. The deficit ended at 8.6pc. The country also revised 2009's deficit up to 10pc from the previously reported 9.3pc figure.

Portugal Banks Threaten To Shun Debt, Urge Bailout - Portugal's main banks have threatened to stop buying government debt, urging the caretaker cabinet to seek a short-term loan to tide it over a pre-election limbo that prompted another credit rating downgrade on Tuesday. Bankers said the country urgently needs a bridge loan of up to 15 billion euros ($21 billion) to secure financing until a June 5 snap general election. The chief executive of Portugal's second-largest bank, Ricardo Espirito Santo Salgado, told TVI television banks could not continue lending to the state under current conditions. "It is urgent to request it (a loan), it is serious if it is not done because it is necessary to neutralize the effect of the rapid rise in interest rates, to calm markets and calm down the Portuguese who are facing elections," the CEO said late Tuesday. "We are in a situation in which banks are being damaged; naturally they cannot give more credit to public companies and the state under current conditions," he said.

Portugal sees "irreparable damage" in debt cost - Portugal's caretaker government, fighting to avoid a bailout, said on Wednesday a political crisis had caused "irreparable damage" after borrowing costs rocketed as it sold a billion euros in short-term debt. The sale of 6- and 12-month treasury bills brought some temporary relief for a country grappling with soaring rates, political uncertainty, rating downgrades and a warning by local banks they may no longer be able to buy government debt.But the yield on 12-month T-bills spiked to 5.902 percent from 4.311 percent three weeks ago, and on six-month bills to 5.117 percent from 2.984 percent, highlighting the financial pressure ahead of big redemptions this month and in June."I suspect that as far as the market is concerned, funding at these levels can only be viewed as a temporary measure," said Peter Chatwell, rate strategist at Credit Agricole.

Is Portugal heading for a disorderly default? - Portuguese newspapers reported that the "over-exposed" banks decided during talks on Monday to press Jose Socrates' caretaker government to ask the EU executive for a "bridging loan" Jornal de Negocios quotes Ricardo Salgado, the head of Banco Espirito Santo, Portugal’s second-largest listed bank, saying that the sequence of events is so fast now that there is really no alternative.  He said: "It is urgent to request it (a loan), it is serious if it is not done because it is necessary to neutralise the effect of the rapid rise in interest rates, to calm markets and calm down the Portuguese who are facing elections." Salgado also warned that Portugal’s banks cannot lend more to the state, though admits that there are other sources of financing. Earlier the chief of major Portuguese lender Millennium, Carlos Santos Ferreira, said it was “indispensable the country seeks a short-term loan” of at least €10bn.  The European Commission warned that Portugal will not be able to secure a bridging loan from its European partners without agreeing first to an international debt bailout under strict conditions, AFP reports.   Market analysts start to wonder whether it is already too late for Portugal to apply for an EFSF loan.  Christoph Weil, chief economist of Commerzbank told Der Standard that such an application takes weeks to process, meaning that Portugal might have to seek bilateral aid from EU countries instead.

Portugal's Finance Minister: We Now Need EU Aid After All  0 Portugal's prime minister said Wednesday his country has asked for financing assistance from the European Union due to its high debts and difficulty raising money on international markets. "The government decided today to ask the European Commission for financial help," Prime Minister Jose Socrates said.Portugal becomes the third financially troubled eurozone country after Greece and Ireland to request assistance from Europe's bailout fund and the International Monetary Fund. Analysts expect Portugal will need up to €80 billion ($114.4 billion). Such an announcement had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy. Following a rejection of additional austerity measures by its parliament last month, Portugal has seen its borrowing costs rise to unsustainably high levels.

Portugal’s PM calls on EU for bailout -- Portugal has joined Greece and Ireland on the casualty list of Europe's sovereign debtors after its prime minister, José Sócrates, requested a European Union bailout. The dramatic decision came in the middle of a political crisis that has left the country in limbo and with spiralling interest rates on its debt. "I want to inform the Portuguese that the government decided today to ask ... for financial help, to ensure financing for our country, for our financial system and for our economy," Sócrates said in a televised address. "This is an especially grave moment for our country," he added. "Things will only get worse if nothing's done." Sócrates said that the bailout, which analysts said could be between €70bn (£61bn) and €80bn was "the last resort".

Portugal to apply for EU financing after all - In a dramatic U-turn Jose Socrates announced that Portugal asked for financing from the European Union on Wednesday, saying the risks to the economy had now become too great to do it alone as borrowing rates soared in recent weeks, Reuters reports. “I tried everything, but in conscience we have reached a moment when not taking this decision would imply risks that the country should not take," Socrates said in a televised address.  Jornal de Negocios has his statement in full. Socrates  announcement comes after Portugal’s banks threatened that they may no longer be able to buy government bonds and after the T-bill auction on Wednesday, in which Portugal sold €1bn in six- and 12-month treasury bills, but paid a painfully high price: 5.12% interest for six-month bills compared with 2.98% at the previous auction early March. The agency paid an average yield of 5.9% on the 12-month T-bills, compared with 4.33% at the last auction March 16.   José Manuel Barroso said that the European Commission had received the request for financial assistance on the part of José Sócrates and will treat this matter "the most expedient manner possible." The IMF has not yet received a request. Germany made it clear that Portugal could only call on a European Financial Stability Facility (EFSF), ruling out country-to-country bridging loans, AFP reports. Portugal will have to agree to tough austerity targets to obtain a bailout, and how quickly a deal can be negotiated at the start of an election campaign is unclear.

Portugal seeks €80bn bailout as third nation falls to eurozone crisis - Portugal finally capitulated to reality last night and followed Greece and Ireland in formally seeking an €80bn bailout from her eurozone partners and the IMF to save her from default on unsustainably high foreign debts. The Portuguese prime minister, Jose Socrates told his people in a televised address that Portugal was throwing the towel in after a year-long struggle to solve her problems without outside assistance. Mr Socrates said: "We have reached the moment. This is an especially grave moment for our country, and things will only get worse if nothing's done." He said a bailout was "the last resort". Portugal has been forced to pay unsustainably high rates of interest to foreign investors; the fact that a loan from the EU and the IMF would be cheaper is the brutal calculus that lies behind this national humiliation. . As with Greece and Ireland before her, the doleful pattern of futile resistance has repeated itself: profuse official denials of help followed by intolerable market scepticism and pressure; and chaos before Europe's leaders were able to get ahead of events.

And then there were three - IT WAS no secret that Portugal was in dire straits. Just last week, The Economist wrote in a leader: Portugal’s prime minister resigned on March 23rd after failing to win support for the fourth austerity package in a year. The country’s credit rating was slashed to near-junk status on March 29th, while ten-year bond yields have risen above 8% as investors fear Portugal will have to turn to the European Union and the IMF for loans. The economies of both Greece and Ireland, Europe’s two “rescued” countries, are shrinking faster than expected, and bond yields, at almost 13% for Greece and over 10% for Ireland, remain stubbornly high. Investors plainly don’t believe the rescues will work. They are right. These economies are on an unsustainable course, but not for lack of effort by their governments. Today José Sócrates, the country's prime minister, officially requested a bail-out from the European Union, after several credit downgrades and steady increases in Portuguese bond yields made it clear that the nation would be unable to fund itself without assistance. Portugal's fate was likely sealed by the recent revelation that its economy was on pace to contract in 2011.

Euro Crisis: Portugal Reaches for Bail Out - Portugal has requested an emergency bail out from the European Union to address it’s sovereign debt crisis. It becomes the third Euro Area economy to require help from European partners in the wake of bail outs for Ireland and Greece. The move came after the Portuguese government was forced to pay an interest rate of more than 5% for borrowing money for just one year and in the expectation of the European Central Bank raising policy interest rates in the near future. The Portuguese economy has a major state-sector debt crisis as our Timetric chart below shows. And the economy has been performing poorly for several years with rising unemployment and a steep fall in relative living standards. Already several of Europe’s new economies (including Slovenia and the Czech Republic) have overtaken Portugal in terms of income per capita (PPP adjusted).  Portugal’s long-term credit rating was downgraded by Moody’s by one notch to Baa1 earlier on this week.

Another PIIG to slaughter: What's next for Europe? - It came as no surprise to anyone following the ongoing euro zone debt crisis that Portugal on Wednesday finally asked the European Union for a bailout. Pressure on the country's beleaguered leadership had been intensifying for weeks, as it became harder and harder for the cash-strapped government to raise money on international markets at an acceptable cost. With mounds of debt coming due over the course of the year (see these scary charts), markets had been betting for months that Lisbon would have no choice but to tap the EU's $1 trillion rescue fund. "It is time to assume the responsibility to the country," Portugal's outgoing Prime Minister Jose Sócrates told the nation. "It is in the name of national interest that I tell the Portuguese people that we need to take this step." Whether inevitable or not, the latest euro zone debt crisis raises some serious questions about Europe's economic future, and how its leaders are dealing with the zone's many problems.

Portugal Bailout May Reach $129 Billion - Portugal will need as much as €90 billion ($128.98 billion), including €10 billion in June, under a bailout package from the European Union and the International Monetary Fund, people familiar with the situation said Thursday Terms of the rescue package for Portugal,will be discussed in more detail at a meeting of EU finance ministers in Hungary beginning Friday. A formal request for aid will be submitted Thursday, said a Portuguese government spokesman.  It will take about two to three weeks to work out an austerity program to accompany a bailout for Portugal with the help of the European Commission.

Portugal must agree "harder" reforms to get aid - European finance ministers said Portugal must make deeper budget cuts and privatize state firms in return for a bailout that could be agreed by mid-May. Portugal bowed to pressure from financial markets and its European partners this week and became the third euro zone country after Greece and Ireland to request financial help from the European Union and the International Monetary Fund. Finance ministers from the 17-nation single currency area met at a palace north of Budapest on Friday to discuss the sovereign debt crisis that has haunted the bloc for over a year, with Portugal the main focus of their talks. Portuguese Prime Minister Jose Socrates resigned last month after parliament rejected a new round of budget austerity meant to help the country meet its deficit reduction targets for 2011. The main opposition party has backed the request for aid, but negotiations on an economic adjustment program -- a precondition for assistance -- are likely to be tough as cross-party consensus will be needed.

Portugal told to implement reforms ahead of bailout - Europe's rich countries pushed Portugal to make deeper-than-planned budget cuts in the heat of an election campaign in exchange for an emergency aid package estimated at €80 billion. In an unprecedented intervention in national politics, euro-area finance ministers said Portugal can win relief by mid-May as long as it makes cuts that go beyond measures that failed to pass parliament in March and led to the government's downfall. "We stand ready to negotiate immediately this ambitious program, which should comprehend an ambitious fiscal adjustment, structural reforms," said European Central Bank president Jean-Claude Trichet, adding that it should fully safeguard financial stability in Portugal and the euro area. Last month's austerity plan "is a starting point", European Union economic and monetary commissioner Olli Rehn told reporters ... "It is indeed essential in Portugal to reach a cross-party agreement ensuring that such a program can be adopted in May."

Under pressure -POOR, POOR Portugal: Portugal now joins Greece and Ireland in the euro zone’s intensive-care ward. Its public debts are nowhere near as monumental as Greece’s; its banks not as reckless as Ireland’s. It has succumbed because of a humdrum failure to rein in wage increases and to modernise a bureaucracy schooled in tallying the quiet remains of the first global empire, as well as an inability to coax upstanding family companies, which for centuries have crafted textiles, ceramics and shoes, into competing with the Chinese. As a result, harsh as it may seem, a country whose collective memory is still scarred by the austerity demanded by the IMF in the early 1980s must once again subject itself to tough reforms demanded by foreigners. As my colleague wrote yesterday, the European Central Bank has now piled on by raising its benchmark interest rate, despite little sign in the data that inflation is a problem which needs to be addressed now. The hawkish ECB is putting strong upward pressure on the euro, which won't make life the least bit easier on those Portuguese textile, ceramic, and shoe exporters. And the hits just keep on coming:Europe’s rich countries pushed Portugal to make deeper-than-planned budget cuts in the heat of an election campaign in exchange for an emergency aid package estimated at 80 billion euros ($115 billion).

European Debt Crisis Morphs Into New Phase: Mohamed El-Erian -- Portugal’s decision to follow Greece and Ireland in seeking a European Union-led bailout may mark a watershed in the region’s debt crisis. Instead of a falling domino that threatens to topple countries higher up the credit- quality ladder, the latest aid request will likely speed up the debt restructuring of the three countries in Europe’s intensive- care unit.  Portugal’s need for emergency assistance became inevitable last month once its parliament rejected the government’s plans for yet another round of austerity. With help coming from the European Central Bank, Portugal will now access emergency funds from other governmental sources to meet its debt obligations and to reduce the probability of a banking crisis. While Portugal is the third euro-zone country to go down this road in less than a year, the next phase will likely play out differently. Portugal is negotiating for a bailout in the run-up to its June elections. As such, it will find it hard to provide the policy commitments deemed critical for the type of EU and International Monetary Fund support keeping Greece and Ireland afloat.

Spain Rules Out Becoming Bailout Victim After Portugal Succumbs -- Spain has insisted it will not become the next victim of the eurozone debt crisis after Portugal finally bowed to widespread pressure on Wednesday night and joined Greece and Ireland in requesting a European Union bailout. Attention turned to Spain as investors questioned whether Portugal's decision to seek help would bring calm to Europe or help to drag Madrid into the mire. Elena Salgado, the Spanish economy minister, said on Thursday morning that the risk of contagion "is absolutely ruled out... it has been some time since the markets have known that our economy is much more competitive". Germany's deputy finance minister, Werner Hoyer, also attempted to calm the situation by telling Reuters that there was no risk of a chain reaction spreading across the Iberian peninsula from Lisbon to Madrid.

If Spain fails, it will be too expensive to save - The working assumption throughout the financial crisis is that Greece, Ireland and Portugal are all "manageable" – even in the worst case scenarios they are simply too small to threaten the existence of the eurozone by exhausting its resources. Spain, it is readily agreed, is on a different scale. As the fourth largest economy in the eurozone a potential Spanish bailout has so far been too horrible for Europe's leaders to contemplate. Her sovereign debt is spread too widely, her international trade too substantial to her neighbours; her financial system too integrated with that of Germany and France and Italy – and the UK.  Like the US investments banks in the financial crisis, Spain is "too big to fail" – but also too large and costly to save. The real question, even more urgent and crucial is whether another eurozone and IMF loan is really the answer. Many of Spain's banks, like Ireland and for that matter the UK's are busted, their bad debts are so large that they will never be able to function again. Like Portugal and Greece, Spain has a fundamentally uncompetitive labour market, though she has tried to reform it.

Goldman Sachs Says Portugal Is Last Euro Nation to Seek Bailout - Portugal is likely to be the last euro region country to seek an international bailout after the government yesterday joined Greece and Ireland in seeking aid, Goldman Sachs Group Inc. said. “We do not expect any other EMU sovereign to be in need of financial assistance,” said Francesco Garzarelli, Goldman Sachs’s London-based chief interest-rate strategist, in a report to clients. While Goldman doesn’t expect any “principal impairment” for bonds sold by Ireland and Portugal “a ‘voluntary’ extension of the maturity profile of Greek debt is likely.’” Portugal is aiming for a package that may be worth as much as 75 billion euros ($107 billion), two European officials with knowledge of the situation said. Bond yields have surged since Socrates offered to resign on March 23 after parliament rejected proposed budget cuts.

Trichet: welcome to my great big fat Euro fiasco - It's Vorsprung Durch Technik versus "manyana", cold efficiency versus laid-back Mediterranean sloth, it's the Europe of no motorcyle helmets versus the Europe of precise train timetables. It is every cultural stereotype you've ever heard about the two kinds of people who inhabit this continent.  And for now, economically, it's valid: there are two Europes and they are diverging. It's no longer a two speed Europe: it's a two tier Europe with the bottom half spiralling into low growth, penury and social crisis - and the top tier is booming. German industrial output, up 15% year on year today, stands in contrast to a slump in Ireland, Greece and now - once the austerity kicks in for real - Portugal.Portugal last night joined the club of countries needing a bailout. It'll probably take E80bn to sort out - but that's not the problem. The problem is the conditions attached will be further austerity: the very austerity the Portugese parliament rejected; and - from an objective standpoint more important - which will make it difficult for Portugal ever to grow its way out of crisis.

Debunking the Idea That Labor Productivity is the Cause of Euro Periphery Woes -  Yves Smith  - “Periphery” seems to be the new euphemism for the Countries Formerly Knows As PIIGS (which sometimes confusingly includes Belgium, since its finances aren’t so hot either).The stereotype about these Whatever You Want to Call Them countries is that they are less productive than export powerhouse Germany, ergo they need to Work Harder and Accept Lower Wages (liberal use of capitals due to the force which which these pronouncements are typically made). But this thinking does not stand up well to analysis, as a VoxEu post by Jesus Felipe and Utsav Kumar demonstrates. They contend that conventional wisdom relies on unit labor costs, which is a flawed metric:….most often, researchers use sector or economy-wide data when they calculate unit labour costs. This implies that they do not construct unit labour costs using physical data. Instead, the denominator is aggregate labour productivity, calculated as the ratio of nominal value added to a deflator, and then this is divided by the number of workers. This is a unitless magnitude. The two notions of unit labour costs, in physical terms and aggregate, are not the same; and the latter is not just a weighted average of the former….

German Banks Are Critical of Tough Standards for Stress Tests - A review of European banks could become a day of reckoning for some troubled German institutions, amid signs that the authorities may impose a tough standard for the funds that can be used to meet reserve requirements.  The European Banking Authority, which is conducting the stress tests, is expected to announce in the coming days how it will define capital reserves, the money that banks are required to set aside for unforeseen shocks.  Representatives of Germany’s public sector banks, while insisting the institutions are healthy, have expressed alarm in recent days that the standard may require them to exclude much of the borrowed capital they use to bolster their reserves. As a result, some German banks could fail the test, analysts said.  The tougher requirement would “create a danger that healthy institutions could be artificially made to appear sick,” Heinrich Haasis, president of the German Savings Banks Association, said in a statement Friday.

European Bank Stress Tests to Hit German Banks Hard — European banks that fail a planned checkup by regulators in June will be required to present a recovery plan that could force some weaker institutions, particularly in Germany, to raise more capital or even wind down their operations, according to documents released Friday.  The European Banking Authority released more details of how it will conduct the so-called stress tests of 90 of Europe’s largest banks. The parameters include more rigorous scrutiny of the capital that banks hold in reserve in case of unexpected losses. That is in response to criticism that a stress test last year was too easy and failed to restore confidence in European banks.  Analysts welcomed what they said is shaping up as a more-thorough examination of the banking system. However, the rules appear to create a problem for some German landesbanks by disqualifying a portion of the funds they now use to meet regulations on shock-absorbing reserves.

Is Germany competitive? Is Norway? - Every now and then, I read an article or a commentary in which the author complains about or praises Germany’s alledged competitiveness. For authors and readers, this claim probably seems obvious. After all German cars and machinery are worldwide without comparison (not sure that is true, though) and it runs a huge current account surplus. Combine that with the cliché about oh-so efficient Germans and the story must sound plausible. But is any of that true? How do we know whether a country is „competitive“? And what does that mean anyway?Before we start our exploration, let’s review why people think Germany is competitive:

  • it has very successful firms,
  • it has a high current account surplus,
  • its wage growth has been relatively low during the last 20 years,
  • and random observations on Germans in general „show“ their compeitiveness

Germany is competitive on a relative basis whether it's productivity, standard of living, or prices - Rebecca Wilder - The point of this article is to demonstrate that Germany has enjoyed increased 'competitiveness' as measured by productivity levels and relative prices. But the clarity of Germany's 'competitiveness' cannot be established by using German data in the form of a black box - a bird's-eye view of the region is the only way to see this. In a very well written piece, Kantoos highlights that the German current account surplus is more a function of reduced investment and productivity passing through to low market-clearing wages than it is 'competitiveness', per se. While I agree with his economic analysis, I disagree that Germany is not competitive - Italy, yes; Germany, no. The term 'competitiveness' is rather non-discriminatory. It can refer to a lot of things. Below, I discuss national competitiveness, i.e., measuring a country's relative position in the global market place. In contrast, micro-level competition - firms compete in various industries for market share and profits - is not really relevant here. The fact that we're talking about a nation's competitiveness means that it's not clear how to measure competitiveness. Let's explore.

Germany’s Future Turns East as Exports to China Eclipse U.S.  - Germany is bettering its European rivals in the race to harness Chinese growth as exports to the Asian nation begin to outstrip those to the U.S.  With its consumers and companies sating their appetite for power turbines, cars and electronics, China became Germany’s largest non-European customer at the end of last year, helping drive up share prices from BASF SE to Bayerische Motoren Werke AG. Economists expect data tomorrow to show German exports rose the most in five months in February as China’s share of foreign sales continues to grow. “This is a turning point in Germany’s economic history,”  “China could become the largest export market of all by 2015.” The U.S. has been Germany’s most important trading partner beyond European borders since the end of World War II, a relationship that helped turn the country into a pillar of economic and political stability for the west. Now, with China becoming the main impulse for world growth, Germany’s exporters of machinery, consumer goods and luxury cars are increasingly turning to the east.

The trouble with the European Stability Mechanism -- The meeting of the European Council on 24-25 March focused on shoring up the battered Eurozone infrastructure through the European Stability Mechanism. This column argues that the mechanism is seriously flawed. It says it is unlikely to withstand the shock of a severe financial crisis and may even spread the damage to high-debt countries, while leaving the Eurozone in the grip of paralysing vetoes.

How Would ECB Easing Help the Eurozone? - In my previous post I argued the ECB could help the Eurozone not just by refraining from interest rate hikes, but by easing monetary policy.  I said doing so would lead to a real appreciation in the core economies of Germany and France and a much needed real depreciation in the periphery.  This would not solve the periphery's problems, but it would make them more manageable.  This is an argument I fist heard from Ryan Avent and I find it compelling.  Let me explain it in more depth. If the ECB were to ease monetary policy, it would cause inflation to rise more in those parts of the Eurozone where there is less excess capacity.  Currently, there is less economic slack in the core countries, especially Germany.  The price level, therefore, would increase more in Germany than in the troubled periphery.  Good and services from the periphery would then be relatively cheaper.  Thus, even though the exchange rate among them would not change, there would be a relative change in their price levels.  This  would make the Eurozone periphery more externally competitive. 

ECB breaks rank and raises interest rates - The European Central Bank has become the first of the four major central banks to lift policy interest rates since the start of the global financial crisis. This on the same day as Portugal applying for emergency support in a bail out that might be worth Euro 80 billion. David Blanchflower, a former member of the Monetary Policy Committee has called the move “a big mistake” hinting that Spain - where more than 80% of mortgages are on variable interest rates - is more vulnerably to financial distress than many are prepared to admit.  The ECB is starting to move their policy interest rates towards normal levels - but this tightening of monetary policy starts with the Euro Area suffering 10 per cent unemployment - it takes a hawkish central bank to start increasing the cost of borrowing money when one in ten people in the currency union is out of work and when the Euro has already been appreciating against the US dollar threatening the strength of an export-led recovery for the currency union. They were forced to reverse a rate rise in the autumn of 2008 when the financial crisis took hold. Might they have to do the same sometime this summer?

Up they go -- THE day after Portugal threw in its hand and asked for rescue funding from the EU, the European Central Bank increased the pressure on the beleaguered economies of southern Europe and Ireland by raising interest rates. The quarter-point rise in the main policy rate, from 1% to 1.25%, had been so heavily advertised that a failure to follow through on the message of "strong vigilance" in March – code for an impending rate increase – would have been knocked the ECB’s credibility. But the timing was unfortunate, to say the least. The rationale for the move is in any case far from convincing. Yes, inflation has risen to 2.6%, above the bank’s target of a bit below 2%. But as Jean-Claude Trichet, the ECB’s president, said today, the increase in inflation in early 2011 has largely reflected higher commodity prices. Unless these set off a wage-price spiral, they should have a temporary rather than enduring effect on inflation.

“We will continue to monitor very closely” -Jean-Claude Trichet used the expression “monitor very closely”, which apparently translates as an interest rate rise in two or three months. This was probably the most important real news, following the well-flagged decision to raise interest rates from 1 to 1.25%. The ECB did not widen the corridor, which is now 0.5%-2%. Nor did Mr Trichet announce an Irish medium term financial package, which suggests that the opposition in the governing council is substantial. The news of the ECB’s rate rise made the headlines everywhere, and writers were quick to point out that the decision was controversial, and they cited economists pointing towards danger for the peripheral countries, especially for the housing markets in Spain and Ireland, which are highly dependent on the Euribor money market rates.   Reuters had an interesting article citing seven reasons why the Fed won’t follow the ECB – which we are condensing two five. The first is the dual mandate that includes unemployment, which doubled since the start of the crisis in the US. Second, the Fed’s anti-inflation credentials remain in tact, there is no need to prove them to the market; third, the Fed focuses on core inflation, while the ECB targets headline inflation; fourth, labour market transmission mechanisms are different: more bargaining power for European unions; and fifth, the US is still afraid of a repeat of the Great Depression.

Merk Commentary: ECB Takes Away Punch Bowl - Today, the European Central Bank (ECB) raised its main refinancing rate by 0.25% to 1.25%.  ECB President Trichet has long argued that its monetary policy is independent of the "extraordinary measures" put in place to support the financial system. However, it was only earlier this year that the market took Trichet's suggestions that he may raise rates seriously, even as the sovereign debt crisis remains unresolved. The role of a central bank is to take away the punch bowl when necessary, to pursue its mandate, not to be a cheerleader. The ECB's move can be seen as a stern signal to the banking system and governments to get their act together. Ultimately, the fate of each individual nation is in that country's hands, just as the fate of each bank rests with it's respective management. The Eurozone as a whole, however, will not wait for local or corporate politics.

Why People Say "Eeh!" When They Learn About the ECB - Krugman - The first thing to say is that overall eurozone numbers look very much like US numbers: a blip in headline inflation due to commodity prices, but low core inflation, and no sign of a wage-price spiral. And the ECB is not making sense: it’s raising rates even as its official acknowledge that the rise in headline inflation is likely to be temporary.But there’s another, euro-specific aspect to this story. I was spared the need for chart-making by this very good post by Paul Mason, who gives us this: During the eurobubble years, there were huge capital flows to peripheral economies, leading to a sharp rise in their costs relative to Germany. Now the bubble has burst, and one way or another those relative costs need to be brought back in line. But should that take place via German inflation or Spanish deflation?But what the ECB is in effect signaling is that no inflation in Germany will be tolerated, placing all of the burden of adjustment on deflation in the periphery. From the beginning, euroskeptics worried about one-size-fits-all monetary policy; but what we’re getting is worse: one-size-fits-one, Germany first and only. That’s a recipe for a prolonged, painful slump in the periphery; large defaults, almost surely; a great deal of bitterness; and a significantly increased probability of a euro crackup.

The Countdown Has Begun for the Eurozone Breakup - The ECB decided to raise interest rates today, despite the strain it is going to put on the Eurozone.  Michael T. Darda explains in the WSJ what this could mean for the currency union: If the ECB starts to tighten policy as expected, it could be a "lights out" situation for the beleaguered European periphery and a potential threat to the euro zone itself.In more blunt terms, this move may have begun the countdown to the Eurozone breakup.  It is hard to see how else this can turn out.  The Germans--the folks who really call the shots in Europe--are reluctant to see the need debt restructuring in the periphery and are equally reluctant to provide bailouts large enough to fix the problem. So far the Germans have been kicking the can down the road on these issues. With ECB monetary policy now tightening they will soon run out of road to kick can down.  Maybe the breakup was inevitable from the start and this is just hastening that outcome.  After all, the Eurozone is not an optimal currency area (OCA).  But if Europeans do want to save their currency union the ECB should be easing monetary policy not tightening it.  Doing so would make it far easier to make the structural adjustments necessary to bring the Eurozone closer to an OCA.

Europe's $2 Trillion of Distressed Debt Set to Outstrip US -- The distressed debt market in Europe is set to outstrip the U.S. for the first time as the region’s sovereign crisis forces banks to sell $2 trillion of underperforming assets, Strategic Value Partners LLC said. “The opportunity set in Europe is very attractive and rich,” . “It far exceeds the U.S. for the first time.” Strategic Value Partners, which oversees $4 billion, is among hedge funds eyeing Europe as the fallout from the credit crisis and governments’ austerity measures trigger fire salesBy comparison, U.S. banks have announced they need to sell $800 billion of assets since the credit crisis, Strategic Value Partners calculations show. Distressed debt typically yields at least 10 percentage points more than government bonds. Hedge funds dedicated to buying the debt earned an average 4.1 percent return this year after reaping 23 percent last year.

Economics vs politics in the eurozone - The basic laws of economics are threatening to pull the eurozone apart, just as politicians are trying to pull it together. As usual, the ECB is stuck in the middle of the mess, and it doesn't like it one bit. For two and a half years, interest rates in the big industrial economies have only gone one way - down. Central banks slashed rates to historic lows in the wake of the financial crisis and then left them there. But not any more. Now the ECB has broken ranks, with today's long-anticipated quarter point rise.  Jean-Claude Trichet says not to assume it's the first of many. Unlike Mervyn King, he seems to think that a single rate rise can improve your anti-inflationary credentials, without endangering the recovery. But, today of all days, you have to consider which eurozone recovery he's talking about.  Germany grew by 3.6% in 2010 - and the forecast for 2011 is 2.5%. We found out today that German industrial production in February was nearly 15% higher than a year ago. That is what you call a recovery. And crucially, Germany accounts for 28% of eurozone GDP. Spain, Portugal, Greece and the Republic of Ireland between them only account for 17% of eurozone GDP.

OECD Frets Over Inflation - Economic growth in the world's richest countries outside disaster-stricken Japan is gaining strength, the Organization for Economic Cooperation and Development said Tuesday in an upbeat interim assessment, but warned that a rise in commodity prices may push up inflation expectations. "We are relatively upbeat; it seems that the recovery is gaining strength," OECD Chief Economist Pier Carlo Padoan said in an interview, noting that Group of Seven economies could reach annualized growth of about 3% in the first half of the year. Still, he noted that "we may be at the beginning of second-round effects, with commodity prices feeding into inflation expectations."

Special Report On Pensions: Too Much, Too Young - WHEN MOST LABOUR was agricultural, people generally toiled in the fields until they dropped. The idea of formal retirement did not become feasible until work moved from farms to factories. In 1889 Otto von Bismarck famously introduced the world’s first (modest) pension scheme in Germany. In the 20th century, when universal suffrage became widespread, a period of retirement after work was seen as a mark of a civilised social democracy.  After the second world war pension provision increased markedly, but the number of elderly people was still quite small (see chart). In the 1970s and 1980s caring for them seemed easily affordable. Many countries even reduced their retirement ages. The demographic picture looks different now that the baby-boomers are starting to retire. In 1950 there were 7.2 people aged 20-64 for every person of 65 and more in the OECD. By 1980 the ratio had dropped to 5.1. Now it is around 4.1, and by 2050 it will be just 2.1. In short, every couple will be supporting a pensioner.

More than 1.5 million 'lose out' on universal state pension - More than 1.5 million people will lose out if a universal state pension is introduced, experts warned. The new flat rate is expected to be unveiled by the Government next week and will bring to an end the current tiered system which sees some pensioners receive a state pension of up to £200 a week.  The new flat rate of £155 will be brought in around 2015 and will only affect new pensioners.  However, the Department of Work and Pensions’ own figures shine a spotlight on the numbers who will miss out because they could have received a higher amount of more than £150 a week under the old system. The introduction of a universal state pension is part of the Government’s overhaul of Britain’s retirement system, which include the end of the default retirement age from next week.The losers will be in for a nasty shock when they find out that they have less state pension to look forward to in the future but they are going to have to keep on paying the same amount of National Insurance. 

Battle Starts Over British Bank Rules - As Wall Street banks fight to fend off further regulation, the battle in Britain over how best to manage financial institutions considered too big to fail is just beginning.  On Monday, a volley will be fired at the country’s politically and economically powerful financial sector by a government-backed commission, which is expected to propose that Britain’s largest banks take steps to separate their trading and deposit-taking functions. That goes further than the financial reforms signed into law in the United States last summer, which do not draw as clear a line between speculative trading and more traditional banking services. While British regulators are expected to propose that banks make structural changes to defuse the threat from institutions considered too big to fail, their counterparts in Washington have focused on putting in place shock absorbers to mitigate the effects of another financial crisis. These American rules include making banks hold more capital to cushion unexpected losses and giving new legal powers for regulators to help failing financial institutions unwind in a way that does not threaten the entire system.

Bank reforms ‘are high noon’ for coalition - The coalition faces a "high noon" over its plans for the major banks as the government's independent commission on banking prepares to set out ideas for a possible wide-ranging reform of the industry following of the financial crisis. Analysts at Goldman Sachs predicted Barclays could be most affected by proposals from Sir John Vickers and his four commissioners, followed by the bailed-out Lloyds Banking Group and Royal Bank of Scotland. HSBC and Standard Chartered are likely to be least affected by the reforms, which could force banks to dramatically change the way they run their operations. The 200-page interim report was handed confidentially to senior ministers and their advisers as well as regulators tonight, ahead of formal publication at 7am on Monday. The banks will receive a copy an hour earlier. Such is the sensitivity of the report, every page of every copy has been stamped with the recipient's identity.

Here, there, and everywhere - Standard Chartered might go to Hong Kong: Standard Chartered considering its domicile options 17th September 2010, HSBC is all of a tizzy:HSBC reveals plans to quit London for Hong Kong 5th March 2011- HSBC: Remaining in UK is preferred option 7th March 2011 - Paris attempts to prise HSBC from London 5th April 2011. Barclays, meanwhile, feels the call of New York: Will Barclays Turn Its Back on Britain? 30th March..though they may have a disappointment coming, because…Over there In JPMorgan’s Dimon Warns of Regulatory ‘Nail’ in Coffin, 31st March 2011, Dimon informs us that actually, the US may be overregulated, too: Too large a disparity in capital requirements between Europe and the US would mean “you’re pretty much putting the nail in our coffin for big American banks,” he said. And their clients will go overseas as as well: Attacking another aspect of Dodd-Frank, Mr. Dimon said rules requiring companies to put up collateral as they trade derivatives would “damage America”. Gesturing at the chief executive of Caterpillar, Mr. Dimon predicted the industrial company would take its derivatives business to Singapore. Meanwhile Greenspan, in Dodd-Frank fails to meet test of our times, 29th March 2011, thinks it’s even worse than that:

Nasty choices in a time of raising of rates - - What Mervyn King, governor of the Bank of England, called the Nice (“non-inflationary, consistently expansionary”) decade has vanished. In its place, we see what I would now call the Nasty (“nightmare of austere and stagflationary years”). Nasty times create nasty choices: should the monetary policy committee respond to the inflationary overshoot by tightening, despite economic fragility and fiscal austerity? Or should it continue to assume that the overshoot will end?  I remain convinced the latter is the better choice and so agree with yesterday’s decision to leave rates unchanged and not to follow the lead of the European Central Bank, which raised rates from one per cent to 1.25 per cent, the first increase in three years. But the choice is now a hard one, not least since the MPC’s forecasts have been wrong for so long. Credibility may be at stake. In addition to the inflation report and the minutes of the MPC, members of the committee produce illuminating speeches. Spencer Dale, the chief economist, who backed a quarter-point increase last month, gives a useful analysis of what has gone wrong in his “MPC in the dock”.

Global Interest Rates: Where Are They Rising? – interactive graphic - As the European Central Bank made its first rate increase since 2008 today, it might be a good time to see where central banks around the world stand. Click on the following map for an interactive timeline of rate cuts and increases around the world, as well as a snapshot of where global central banks stand now.

No comments: