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

Saturday, July 2, 2011

week ending July 2

Fed's Balance Sheet Expands To $2.869 Trillion In Latest Week - The U.S. Federal Reserve's balance sheet expanded in the latest week as the central bank came close to wrapping up its Treasury- buying program aimed at shoring up the economy. The Fed's asset holdings in the week ended June 29 climbed to $2.869 trillion, from $2.860 trillion a week earlier, it said in a weekly report released Thursday. The Fed's holdings of U.S. Treasury securities rose to $1.617 trillion on Wednesday, from $1.602 trillion. Thursday's report showed total borrowing from the Fed's discount lending window fell to $12.85 billion on Wednesday from $13.02 billion a week earlier. Borrowing by commercial banks remained at $17 million for the second straight week. Thursday's report showed U.S. government securities held in custody on behalf of foreign official accounts fell to $3.441 trillion, from $3.457 trillion the previous week. Meanwhile, U.S. Treasurys held in custody on behalf of foreign official accounts decreased to $2.702 trillion from $2.718 trillion from in the previous week. Holdings of agency securities climbed to $738.36 billion, from the prior week's $738.26 billion.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--June 30, 2011

US Fed set to extend emergency liquidity facility for ECB, BOE -- The U.S. Federal Reserve said Wednesday it was extending its emergency liquidity facility for its leading Western counterparts as Europe's sovereign debt crisis continues to fester. The U.S. central bank said its existing temporary U.S. dollar liquidity swap arrangements with the European Central Bank (ECB), the Bank of England (BOE), the Swiss National Bank and the Bank of Canada would be extended for one year from Aug. 1, the expiration of the current pact. The standby facility allows the foreign central banks to borrow U.S. dollars to lend to their own commercial banks to shore up their own short-term liquidity. The foreign central banks, and not the commercial banks, are liable for the borrowings. The agreements were crucial in supporting non-U.S. banks during the height of the financial crisis when they found themselves unable to obtain U.S. dollars in the short-term loan market to cover their own exposure to U.S. liabilities.

The dangers of relying on the Fed’s swap lines - The Fed has extended its dollar swap lines to the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank for another year. Bar a three-month hiatus between February and May 2010, the lines have been in place since December 2007. They are now due to expire in August 2012, just a few months’ shy of five years after their introduction. At the height of the crisis, more than 14 central banks had set up arrangements. The lines, set up to counter a lack of dollar liquidity for foreign banks with no access to Fed support, highlighted the dollar funding gap.   Of course, it was in the Fed’s interest to set up the swap arrangements. There was also stress in the US interbank market. But the pace with which it established and expanded the network is commendable. Yet it is dangerous to rely on the Fed to continue to provide such support.One might not always have a Fed chair as proactive as Ben Bernanke has proven in fighting crises. And, though the Fed is authorised to set up the arrangements under its Act, doing so could prompt a Congressional backlash.

NY Fed halts mortgage bond auction - The Federal Reserve Bank of New York has suspended plans to sell off the remaining mortgage bonds held by its Maiden Lane II vehicle, conceding that investors’ retreat from riskier assets had weighed on the auction. The decision highlights how the uncertain outlook for the US housing market and abundant supply of assets for sale had combined in recent months to damp demand for the securities the regulator chose to auction off over time. “Given prevailing market conditions for non-agency RMBS [residential mortgage-backed securities], we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public,” the New York Fed said. It sold only 36 of the 73 securities that it had intended to auction off on June 9. By contrast, a May 10 sale secured buyers for 74 of the 79 securities that were auctioned.For the month in between the two, the Markit ABX Index, a benchmark for such securities, slipped almost 6 per cent. The regulator “may resume the sale of securities from the Maiden Lane II portfolio individually and in segments over time as market conditions warrant through a competitive sales process”, the New York Fed said. “There will be no fixed timeframe for the sales.”

Fed Seen Buying $25 Billion a Month in Treasuries After QE2 Comes to End - The Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.  While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.  The central bank, which injected $2.3 trillion into the financial system after the collapse of Lehman Brothers Holdings Inc. in September 2008, will continue buying Treasuries to keep market rates down as the economy slows. “I don’t think the Fed wants to remove accommodation in any way, shape or form,”  “It’s quite natural for them to reinvest cash,” he said. “That effectively maintains the accommodative stance.”

The QE2 Experiment Ends‎ - Folks, today marks the end of several things—the month, the quarter and the half-year, which we discussed earlier this week. But it also marks the end of QE2— the Federal Reserve’s policy to stimulate the economy by buying treasury securities with money it created out of thin air. People will be arguing for years about whether or not quantitative easing did any good, but there is one thing about this ill-conceived experiment that no one can dispute: it expanded the Fed’s balance sheet significantly. Historically, the Fed balance is about 16% of GDP. With quantitative easing, we’ve expanded that up to 22%. And it’s not as if these treasury securities will suddenly be liquidated. Nope, the Fed bought to hold, so we’re going to live with this for years. What bothers me the most is that, by monetizing the national debt, we’ve essentially turned bonds to currency. That isn’t doing the dollar any favors. A few years ago, the government had a choice: grow or inflate. It chose to inflate. Great news for my Growthflation thesis (remember, there’s a disconnect between Wall St. and Main St.), but with little evidence of economic growth and job creation, it’s still a bitter pill to swallow.

QE2 worked, St. Louis Fed's Bullard says - The Federal Reserve’s innovative and controversial plan to pursue monetary policy through a second round of asset purchases, known as QE2, “worked in reality“ by helping avoid a bout of mild deflation akin to Japan, said James Bullard, president of the Federal Reserve Bank of St. Louis, on Thursday.  “QE2 has shown that the Fed can conduct an effective monetary stabilization policy even when policy rates are near zero,” Bullard said.  Late last summer, after the U.S. economy slowed down unexpectedly, the central bank decided to purchase $600 billion in Treasury securities in a second round of so-called quantitative easing — hence, the name QE2. The steady purchases will end later Thursday, according to the scheduled adopted by the policy-setting Federal Open Market Committee at the time.

Greenspan: Stimulus Failed - The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday. In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy. "There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview. "It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."

Economists’ Final Verdict on QE2 - Of course, not everybody thinks the end of QE2 will be disastrous. A great many economists, in fact, think QE2 was the real disaster. Of 49 economists surveyed recently by the WSJ, 20 of them, or nearly 41%, considered QE2 “unsuccessful,” meaning they thought the costs exceeded the benefits. Phil Izzo, keeper of the Real Time Economics blog and tireless compiler of the Journal’s monthly economists’ survey, has shared with MarketBeat the raw numbers from his latest survey, in which the dismal scientists were asked their opinions on QE2. The results are eye-opening. While the consensus is generally that the Fed buying $600 billion in Treasury debt was a good idea, it’s not a solid consensus by any stretch. A 59% “successful” rate on a test in school would have gotten you an “F.” When asked questions about the specific effects of QE2, 25% of economists say it created “unhelpful inflation worries,” while another 19% said it “didn’t have much impact on anything.”

The End of QE2: Did It Work? What Will Happen Next? – Thoma - Today marks the last day of the Fed’s financial asset purchase program known as QE2. What impact did QE2 have? What should we expect to happen now that it is ending? Traditionally, the Federal Reserve stimulates economic activity by lowering the short-term interest rates. A fall in the short-term interest rate reduces the cost of borrowing, and the hope is that this will lead to increased investment and increased consumption, particularly of consumer durables purchased on credit. But when short-term interest rates are already near zero and cannot be lowered any further, this type of policy is unlikely to have a large effect.  Fortunately, as Tim Duy and I note here, there are other ways for monetary policy to stimulate economic activity. When policy is eased, it also raises the price of stocks and other assets, weakens the value of the dollar, and changes expectations of future inflation. In addition, even when short-term rates are near zero, there can still be room to lower long-term rates. When all of the various channels for monetary policy to impact the economy are taken into account, it’s clear the policy worked. QE2 increased asset values leading to an increase in wealth and a noticeable impact on consumption, it reduced equity volatility and narrowed corporate bond spreads and thus played an important stabilization role, and the downward pressure on the exchange rate encouraged exports (see here for a nice infographic from the WSJ on the effects of QE2).

The Fed's QE2 is Over: Are we better off? - At the end of the day, the Federal Reserve's program to purchase $600 billion of medium term bonds, which has been dubbed QE2 - because it was the Fed's second round of trying to lower interest rates by buying bonds, which in economic terms is called quantitative easing - did complete the task it was supposed to. Interest rates, i.e. borrowing costs, dropped. Since the start of the program last fall, mortgage rates dropped from to a recent 4.6%, from 5%. Corporations, too, are now able to borrow more cheaply than they did before the program was started. Yet, most Americans didn't see the pay off. Falling house prices and tight credit kept many people away from the housing market. Corporations didn't seem to use the money they saved on borrowing to hire more workers, at least not recently. So we come to the end of QE2 and the economy seems to at best no better than when we started, and perhaps a bit worse. So is a program that fulfills its tasks but doesn't meet its goals a success or failure?

A QE2 Retrospective in Pictures - The Federal Reserve‘s second round of so-called quantitative easing comes to an end today, after $600 billion in Treasury-bond purchases over the past eight months. Chairman Ben Bernanke‘s stated goals: lower mortgage rates to boost housing, reduce corporate bond rates to encourage investment and raise stock prices to increase confidence and spending. Markets responded soon after the program was first hinted at by Mr. Bernanke in an Aug. 27 speech in Jackson Hole, Wyo. But the end goals proved more elusive. Our colleagues Matt Phillips and Stephen Grocer put together this graphical look back at what the Federal Reserve’s bond-buying program did and didn’t accomplish.

QE2: Fed bond purchases end, leaving mixed legacy as economic recovery lags - Thursday morning, a half-dozen or so staffers will gather in a small room on the ninth floor of the Federal Reserve Bank of New York building in Lower Manhattan. The traders will sit at computer terminals and buy $4 billion to $5 billion in U.S. Treasury bonds, using dollars newly created by the act of their clickety-clacking at their computers.When they finish, well before lunchtime, the Fed’s much-debated effort to strengthen the U.S. economy by buying $600 billion in bonds, launched in the fall, will be over. The effort, which became known in financial circles as the second round of quantitative easing, or QE2, was the Fed’s effort to avert a slip into another recession and toward deflation, or falling prices. As it ends, it shows more than anything the limits of the power of monetary policy to correct what ails the U.S. economy.

In U.S. Monetary Policy, a Boon to Banks - The most pronounced development in banking today is that executives have become bolder as their business has gotten worse.  The economy is clearly weaker than expected, and housing prices are falling throughout the land, eroding bank asset values. Yet regulators are on their heels in Washington as bankers and their lobbyists push back against the postcrisis regulations, even publicly condemning the new rules.  In a well-covered exchange1 [1], Jamie Dimon, JPMorgan Chase's chief executive, challenged Ben S. Bernanke, the Federal Reserve chairman, about the costs and benefits of the Dodd-Frank rules. More attention has been paid to the banker's audacity, but the response of the world's most powerful banking regulator was more troubling. Mr. Bernanke scraped and bowed in apology without mentioning the staggering costs of the crisis the banks led us into.  So this is a good occasion to step way back to understand just how good the banks have it today.

Fed's Bullard: Fed Risks Credibility With Rate Stance - The Federal Reserve runs the risk of damaging its credibility if it continues to pledge keeping its short-term federal-funds rate near zero for an extended period, St. Louis Federal Reserve Bank President James Bullard said Thursday. Use of the phrase "extended period" has been the hallmark of Fed policy statements as it aims to help the economy recover from the worst slowdown since the Great Depression.  The current stance reduces the Fed's options to grapple with any negative economic headwinds in the future, said Bullard.  "I don't think it's a viable option to say we're going to go into a super-extended period," Bullard added.  Bullard's comments came while meeting with reporters during a St. Louis Fed-sponsored conference, marking the end of the central bank's second quantitative easing program, or QE2.

Fed's Bullard: Big Bal Sheet Cld Turn Into Infl if Not Careful‎ - St. Louis Federal Reserve Bank President James Bullard warned Thursday against continuing to lengthen the "extended period" of an "exceptionally low" federal funds rate and against keeping the Fed's balance sheet enlarged indefinitely.  However, he also suggested he and the Fed's policymaking Federal Open Market Committee are in no hurry to tighten monetary policy and did not rule out additional easing.  For the foreseeable future, he said the FOMC will be "on pause" waiting for stronger economic data before changing policy. While in this pause, the Fed will maintain a "very stimulative" stance despite the end of the second round of quantitative easing on the day in which he was speaking.  He said he expects the economy to strengthen, but should further easing be required, an even longer "extended period" would not be "a viable option."

Australia's McKibbin: World must tighten policy -- Reserve Bank of Australia board member Warwick McKibbin Thursday joined international calls for tighter monetary policy settings globally, warning inflation pressures are building.  "There has to be a withdrawal of loose monetary policy at some point," McKibbin said at a conference hosted by the Melbourne Institute, an economic think tank.  "The U.S. Federal Reserve has to tighten policy, you cannot give away money and have a vibrant economy. There has to be in Europe a tightening of monetary policy and there has to be some adjustment in Asia," he said.  In recent years he has been a vocal advocate of tighter policy settings, pointing to rapid commodity price growth fueled by the emergence of China and India as a risk to the global economy.

Don't base monetary policy decisions on estimates of "slack" - THE Bank for International Settlements argues that due to high levels of structural unemployment there is less slack in the global economy than is commonly believed. They see higher inflation as a threat, and recommend that central banks tighten monetary policy. There are all sorts of problems with the BIS recommendation. First, central banks should target market inflation forecasts, and various market indicators suggest that US inflation will remain below 2% for the next 5 years. More importantly, it’s a mistake for central banks to base policy on estimates of “slack”, and/or structural unemployment.  We see frequent studies trying to estimate “the” multiplier or “the” level of structural unemployment, despite the fact that these concepts are not stable parameters, but rather highly sensitive to the policy regime. For example, the fiscal multiplier depends on how monetary policymakers respond to fiscal decisions; indeed the multiplier would be precisely zero if the central bank was successfully targeting inflation.

Monetary Policy in a Balance Sheet Recession (Wonkish) - Krugman - I agree with David Beckworth that Richard Koo is wrong to insist that monetary policy can’t do anything in a balance sheet recession. But I think Beckworth introduces unnecessary complications; also, Koo isn’t entirely wrong. Koo’s argument is that interest rates and monetary policy don’t matter because everyone is debt-constrained. That can’t be right; if there are debtors, there must also be creditors, and the creditors must be influenced at the margin by interest rates, expected inflation, and all that. That said, widespread credit constraints presumably reduce the number of players who can take advantage of lower rates. So the IS curve, while still downward-sloping, is probably steeper than normal, a point Mark Thoma has made.

What Successful and Unsuccessful Monetary Policy Look Like - Via Matt Yglesias we learn about the incredible recovery of the Swedish economy and how an aggressive monetary policy played a key role.  Specifically, the Swedish central bank expanded its balance to sheet to 25% of GDP versus the Fed's 15%, it set an explicit and clearly communicated inflation target, and charged a negative interest rate on excess reserves.  Swedish authorities also were not afraid to see their currency depreciate.  All of these steps would horrify the hard-money advocates in the United States, but I would ask to them to consider the benefits the Swedes are now enjoying: lower unemployment, higher real GDP growth, and less overall human suffering.   Just in case there are any lingering doubts about the benefits of more aggressive monetary policy, take a look a the level of nominal spending in both Sweden and the United States.  Nominal spending in both countries takes a big hit, but only in Sweden does nominal spending undergone a robust

Fed’s Lacker: Central Bank Needs to Focus on Inflation, Not Jobs -The Federal Reserve should focus on keeping prices under control, leaving the government to try to boost the U.S. economy and jobs, Richmond Federal Reserve Bank President Jeffrey Lacker said in an interview Friday. Though frustrated by a recovery that continues to be slow and choppy two years after the recession ended, Lacker said further monetary stimulus by the Fed would likely show up “almost entirely” in inflation, which is already too high. “Right now, the best contribution the Fed can make to the recovery is to keep inflation stable around 1.5% to 2.0%,” Lacker said in an exclusive interview. A traditional inflation hawk, Lacker is among those at the central bank who worry that prices could take off.

Behind the Numbers: PCE Inflation Update - FRB Dallas - This update, prepared by Dallas Fed Senior Economist Jim Dolmas, provides an in-depth analysis of the latest personal consumption expenditures (PCE) inflation data. Updates will be posted monthly, following the release of the official PCE data by the Bureau of Economic Analysis.

How Easy Is It to Forecast Commodity Prices? - NY Fed - Over the last decade, unprecedented spikes and drops in commodity prices have been a recurrent source of concern to both policymakers and the general public. Given all the recent attention, have economists and analysts made any progress in their ability to predict movements in commodity prices? In this post, we find there is no easy answer. We consider different strategies to forecast near-term commodity price inflation, but find that no particular approach is systematically more accurate and robust. Additionally, the results warn against interpreting current forecasts of commodity prices upswings as reliable and dependable signals of future inflationary pressure. In our NBER conference volume paper, “Commodity Prices, Commodity Currencies, and Global Economic Developments,” we do not attempt to answer questions such as “why are commodity prices so persistently high or low?” or “when will they start affecting inflation expectations?” Our purpose is more modest in that we assess how the information from a large dataset of indicators of global conditions may help predict future movements in commodity prices. Our forecast variables are cross-commodity price indexes, that is, we consider ten indexes taken from four distinct sources going back as far as 1973. Before we discuss our results, it may be useful to summarize briefly the approaches usually adopted to forecast commodity prices.

Forecasting Commodity Prices - With commodity prices exhibiting wide fluctations over the past few years, it's no wonder that many are interested in determining what procedure best forecasts. A recent New York Fed blog post tackles this issue. In a horse race between various economic, time series, and futures-based approaches...there is no obvious winner. Information from large panels of global economic variables can help, but their forecasting properties are by no means overwhelming. It all depends on the choice of the specific index and the forecasting horizon. ......For example, for one specific commodity price index, PLS regressions provide significantly better predictions than both autoregressive and random walk benchmarks when used to forecast one-month and one-quarter-ahead commodity prices. But when the forecasting horizon is six months or longer, the forecast performance of PLS regressions is no better than the statistical benchmarks. We find even less empirical support for the notion that commodity futures have strong predictive power.

Interest Rates Must Rise Globally To Curb Inflation: International Report - Global interest rates must rise to avoid high inflation becoming entrenched, the Bank for International Settlements said on Sunday. It also warned that delaying deficit cuts could risk intensifying the sovereign debt crisis and have grave consequences were investors to lose confidence in a major economy such as the United States. "With the arrival of sharper price increases for food, energy and other commodities, inflation has become a global concern," the BIS said in its annual report. "Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks." Of the four major central banks, the European Central Bank is the only one which has raised rates since the intensification of the financial crisis in late 2008. Central banks may have to raise rates at a faster pace than previously, BIS said, adding that as long as global growth is robust, food and commodity prices may remain high or even rise further.

The Urge to Purge - Krugman - Last year it was the OECD; now it’s the Bank for International Settlements. Once again, Very Serious men at an international organization seem determined to find reasons to tighten monetary policy in the face of a continuing deep slump. The BIS cites rising commodity prices and rising implied inflation forecasts based on interest rate spreads. The thing about reports like this, however, is that they have to be written and approved by committees, which means that they’re based on lagging data — and sure enough, both interest spreads and commodity price inflation are telling quite different stories these days. The report also argues that potential output has been permanently reduced by the slump, arguing in particular that “the destruction of human capital due to long-term unemployment” will weigh on growth. You might think that this was a reason to take urgent action to reduce long-term unemployment. But no. And, inevitably, there are the alleged parallels with the 1970s. Except their own data suggests hardly any parallel at all.

British Inflation: A Teachable Moment  Paul Krugman - Adam Posen gave a talk yesterday (pdf) about British monetary policy that drives home a point I’ve been meaning to make; namely, that what’s happening in Britain on the monetary front right now is very much a teachable moment for monetary policy more generally. The Bank of England faces the same kind conflict between what it should be doing and what it’s under pressure to do that faces the Fed, but in starker form.   Britain is currently experiencing relatively high headline inflation, more than 4 percent over the previous year. Yet the bulk of the rise in inflation clearly represents temporary or one-time factors: a rise in value-added taxes as temporary breaks introduced during the recession expired, commodity prices, and the once-off effects of the fall in the value of the pound against the euro. Nonetheless, the inflation hawks demand a rate rise, arguing that despite the still very depressed state of the economy, inflation must be nipped in the bud or it will turn into stagflation, 70s-style. What Posen points out is that the case for preemptive monetary tightening to head off stagflation is entirely based on the 70s experience; there have been no other similar episodes in history.

Soar Losers - Krugman - Like everyone who has argued that continuing low interest rates vindicate the Keynesian view of how macroeconomics works, I’ve faced a lot of claims that the low rates were artificial, that as soon as the Fed stopped buying bonds rates would soar. Some big-name private-sector people, notably Bill Gross, have made similar claims. I was puzzled by this view coming from Gross; pretty basic macro told us that to the extent that quantitative easing matters at all, it’s the stock of Fed holdings, not the flow of purchases, that matters. Anyway, the Fed has now stopped buying bonds; QE2 is over.  And the 10-year rate, although up a bit from its recent lows on optimism about the Greek austerity vote (why?), is still below 3.2%.

Interest Rates: A Dowist Perspective - Krugman - One of my principles of 21st-century public discourse is that nobody ever admits that they were wrong about anything. And so it is with the totally obvious failure of the prediction that interest rates would soar once the Fed stopped adding to its bond holdings. These predictions were made by many people early this year; here’s what actually happened: So sure enough, the usual suspects are claiming that the uptick at the end vindicates their argument. QE2-blamers were warning about soaring rates when the 10-year bond rate was 3.6 or 3.7; having it bump up to 3.2 after having briefly having fallen to 2.9 isn’t exactly what they were telling us would happen. But there’s also the behavior of other asset prices, in particular stock prices. If what we were seeing was a collapse of investor confidence in America, we’d expect to see stock prices falling. What we actually see is this: Yep, stock prices soared as interest rates ticked up. The people who claimed that the only thing keeping rates low was the fact that the Fed was buying bonds were wrong — full stop. But they will never admit it.

Deflation, Not Asset Price Bubbles - I see Mark Thoma links to Martin Feldstein. I think it is worth quibbling with this statement: Monetary and fiscal policies cannot be expected to turn this situation around. The US Federal Reserve will maintain its policy of keeping the overnight interest rate at near zero; but, given a fear of asset-price bubbles, it will not reverse its decision to end its policy of buying Treasury bonds – so-called “quantitative easing” – at the end of June I don't believe this is technically correct - it is not fear of asset bubbles that is the primary driver of Fed policy. To be sure, the Fed is a little more cautious about the potential damage that may result from asset bubbles. Federal Reserve Governor Janet Yellen identified the possibility of such bubbles emerging, and may inded be wary to throw more fuel onto that fire. That said, the issue of deflation, or, more specifically, lack of deflation, is the primary reason the Fed is likely to hold its ground. I think Federal Reserve Chairman Ben Bernanke made this pretty clear in his most recent press conference.

Bumbling Bernanke Bamboozled By Broken Bounce-back - Destiny put him at the helm of the Federal Reserve when a real estate bubble fueled by easy money, collapsed lending standards, rash derivatives gambling, and a bipartisan bailout upended the world's financial system. As the economy teetered at the edge of the abyss Helicopter Ben flew into action, flooding the planet with liquidity determined to smother any hint of demon deflation under mountains of fresh greenbacks. Hurrah, it worked! Prices are going up, slowly at the moment, but with every indication that we will soon be longing for the days when inflation was only in the single digits. Meanwhile debate continues on whether President Obama's czar-driven interference in the economy is increasing or decreasing the rate at which things are getting worse. So, Ben, now that you have saved us from the horror of cheaper stuff why isn't the economy bouncing back like it has after every other recession? Come on, mumble some sphinx-like inanities to reassure us. It worked for your predecessor. "We don't have a precise read on why this slower pace of growth is persisting" is not going to cut it. Grab a thesaurus and pull out whatever comes after "temporary factors" and "persistent headwinds."

IMF Forecasts Slow U.S. Growth, Warns on Debt - The International Monetary Fund Wednesday forecast a slow pick up in U.S. growth over the next half-decade, with continuing housing market woes, high unemployment and its budget problems weighing on the economy. In the fund’s annual review of the U.S. economy, the IMF also warned the U.S. risks losing credibility in the debt markets, potentially causing a sudden spike in the cost of debt and a downgrade by rating agencies. “Fiscal policy consolidation needs to proceed as debt dynamics are unsustainable and losing fiscal credibility would be extremely damaging,” the IMF cautioned. Months of negotiations between lawmakers and the White House over both raising the near-term debt ceiling to pay for the current budget and how to balance the governments books in the coming years have yet to yield a solution. “The main policy challenge is to implement a substantial and durable fiscal consolidation effort while ensuring that the still-fragile recovery remains on track,” fund staff said.

I.M.F. Offers a Different Take on U.S. Growth - We pay a lot of attention to the Federal Reserve’s economic forecasts. It’s worth paying at least a little attention to a second opinion offered Wednesday by the International Monetary Fund, which houses another of the world’s largest herds of economists just three city blocks away. The I.M.F. foresees a much less happy and prosperous future for the United States. The fund, in its annual report on the American economy, said growth will not top 3 percent through 2016:

2011: 2.5 percent
  2012: 2.7 percent
  2013: 2.7 percent
  2014: 2.9 percent
  2015: 2.9 percent
  2016: 2.8 percent

Those are abysmal numbers that imply that the United States has no imminent prospect of recovering the losses sustained during the recession, and that the American economy has been shunted onto a path of lower growth. As the I.M.F. notes, one important consequence is that millions of Americans would remain unable to find work for years to come. The Fed, by contrast, predicted last week that growth will accelerate. It said the economy would expand up to 2.9 percent this year, up to 3.7 percent in 2012 and up to 4.2 percent in 2013.

What’s Happening to the US Economy? - The American economy has recently slowed dramatically, and the probability of another economic downturn increases with each new round of data. Monetary and fiscal policies cannot be expected to turn this situation around. The US Federal Reserve will maintain its policy of keeping the overnight interest rate at near zero; but, given a fear of asset-price bubbles, it will not reverse its decision to end its policy of buying Treasury bonds – so-called “quantitative easing” – at the end of June. Moreover, fiscal policy will actually be contractionary in the months ahead. The fiscal-stimulus program enacted in 2009 is coming to an end, with stimulus spending declining from $400 billion in 2010 to only $137 billion this year. And negotiations are under way to cut spending more and raise taxes in order to reduce further the fiscal deficits projected for 2011 and later years. So the near-term outlook for the US economy is weak at best. Fundamental policy changes will probably have to wait until after the presidential and congressional elections in November 2012.

Fed's Raskin Says Income Inequality Hinders Economy's Ability to Recover...Federal Reserve Governor Sarah Bloom Raskin said the financial inequality resulting from stagnating incomes for most Americans and rapid growth in wealth for the richest 1 percent is hindering the U.S. economic recovery.  “This inequality is destabilizing and undermines the ability of the economy to grow sustainably and efficiently,” Raskin said today to a forum in Washington sponsored by the New America Foundation. The disparities help “drag down maximum economic growth and are anathema to the social progress that is part and parcel of such growth,” she said.  Raskin backed the Fed’s unanimous decision last week to sustain record monetary stimulus with the aim of spurring the economic recovery and reducing unemployment, which rose last month to 9.1 percent. Policy makers boosted their forecasts for unemployment and cut their forecasts for growth this year and next while deciding to maintain the Fed’s System Open Market Account domestic securities holdings near $2.66 trillion and its main interest rate near zero.

Debt Hamstrings Recovery - The Federal Reserve is just days away from ending one of the major steps to aid the U.S. economy—but the effort has done little to solve the original problem: The government and individuals alike are still heavily in debt. Around the globe, the inability of governments and households to reduce their debt continues to cast a shadow over Western economies and the financial health of individuals. Today, U.S. consumers have more mortgage and credit-card debt than they did five years ago, and the U.S. budget deficit is worsening. At the same time, European governments are having to throw billions more euros at Greece to keep it afloat.  The repercussions are likely to play out for years to come in the form of patchy economic growth, further government market intervention—such as last week's decision by oil-consuming nations to release more oil onto the markets—and frequent financial-market swings.  The fundamental problem is that reversing the trend of piling on the debt requires some combination of cutting spending, growing income or the economy, and inflation. But wage growth is stagnant and home prices, which underpin much of the debt problem, are still falling.

Hoenig Calls For Rebalancing, Hits Congress On Deficit Talks - The U.S. economy is constrained by excessive spending and too little savings, Federal Reserve Bank of Kansas City President Thomas Hoenig said Thursday, arguing that a rebalancing was needed to shift the world's largest industrialized nation toward "more sustainable sources of demand" and economic activity. Hoenig implicitly criticized the low interest rates that have come to define U.S. monetary policy. Saying loose monetary policy could create "new sources of fragility," the central banker warned that asset prices could eventually over-inflate because of the Fed's stimulative policy. The central banker cast doubt on how much rock-bottom interest rates could help alleviate high U.S. unemployment, currently above 9%. Saying that low rates posed a long-term danger to economy's health, he added that growth prospects were far more dependent on consumers saving more and the government spending less.  Hoenig added that with major changes to savings and investment, the U.S. could once again rival other fast-growing countries in Europe and Asia that have undertaken broad reforms and have been rewarded with healthy economies.

The number that's killing the economy - When you're talking about the economy, start the conversation and end the conversation with the number 350. That number reflects the total debt Americans and their government owe as a percentage of the gross domestic product, the total of everything produced in the country. That number is what's killing the U.S. economy. Each month recently, we've been bombarded with bad numbers: Only 54,000 jobs added in May, unemployment at 9.1%, housing prices down 33.1%, and on and on. These numbers, though, are all symptoms. If we continue, every 30 days, to focus on these numbers -- well, we're like the doctor of an AIDS patient who can only see his patient's lesions, pneumonia and bronchitis. Yes, each one of those can kill the patient, but he'll never get better until you focus on the underlying disease. Debt is this economy's AIDS. And that debt is represented by the number 350. We spend a lot of time talking about federal government debt. But the debt I'm talking about reflects -- yes, federal government debt -- but also, more importantly, business and household debt. Over the past 20 years, the U.S. private sector -- consumers and businesses -- has taken on historic levels of debt.

Consequences Of Economic Collapse - For the last three years, I’ve been warning my viewers on Youtube about the inevitable collapse of the U.S. Empire. I’ve discussed how the U.S. government is so far into debt that it can’t even pay off the interest on it’s debts. Like all dying empires, the U.S. has over-expanded in Asia with unnecessary wars of greed, spent more than it can ever pay back, degraded into extreme corruption and devolved into a systemic ponzi model. The state governments have massive amounts of pensions that are underfunded, many cities can’t even provide basic services (such as education, fire protection and law enforcement) and the national economy has lost its manufacturing prowess. Essentially, America has transported into a ponzi economy where everyone uses credit cards to buy cheap junk that is made in third world countries. So you see why I believe that this is fundamentally unsustainable. This economic model of largess spending will collapse, which begs the question: So what the social consequences of an economic collapse?

Surprisingly, May Was A Decent Month For Economic Activity Overall - The broad trend in U.S. economic data held up surprisingly well in May, considering the downgrade in expectations lately. The Capital Spectator’s Composite Economic Index (an equally weighted mix of 18 indicators) gained 0.9% last month, reversing April’s slight retreat. The portion of leading indicators in that mix fared even better, jumping 1.8% in May. Overall, May was a respectable month for growth, despite various signs of trouble in some isolated areas. We shouldn’t minimize the warnings signs. In particular, the sharp fall in job growth is disturbing, although it's still unclear if it has legs. Meantime, the overall picture is still one of forward momentum. That’s encouraging because it offers some hope that the economy could withstand a slowdown in growth in the labor market, at least for a short period. There’s also good news when we look at rolling year-over-year change in a broad measure of the economy. The CS Composite Economic Index is higher by nearly 6% for the 12 months through May. That’s the fastest annual pace in more than a year and it suggests that the economy still has a fair amount of expansionary momentum, perhaps more so than generally recognized.

The ‘strong-dollar’ policy of the US - The strong-dollar policy is a US government policy based on the assumption that a strong exchange rate of the dollar is both in the US national interest and in the interest of the rest of the world. The policy was first enunciated by the then-Secretary of the Treasury Robert E Rubin, shortly after he succeeded Lloyd Bentsen as US Secretary of the Treasury on 11 January 1995. The strong-dollar rhetoric of the US government contrasts with a weak-dollar reality. This column argues that talking a strong-dollar talk while walking a weak-dollar walk has damaged the reputational capital of the US monetary and fiscal authorities. That has reduced their ability to use statements of intent or announcements of future policy actions to influence markets.

Dollar seen losing global reserve status - The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn. More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.The results were not weighted for assets under management. That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency. UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management. The results are the latest sign of dissatisfaction with the dollar as a reserve currency, amid concerns over the US government’s inability to rein in spending and the Federal Reserve’s huge expansion of its balance sheet.

How Fast Is the US Dollar's Share of International Reserves Declining? - On June 30, the International Monetary Fund (IMF) will release an update of its Currency Composition of Official Foreign Exchange Reserves (COFER) database. The most recent release on March 31 indicated that over the eight quarters to the end of 2010, the dollar’s quantity share of all countries’ foreign exchange reserves had decreased by a substantial 3.5 percentage points and the euro’s share had increased by 1.5 percentage points. The trend was interpreted by some as suggesting that the dollar was losing favor as a reserve currency, in particular relative to the euro, perhaps because of widespread concern over US fiscal and monetary policies. That perception may have been based on incomplete information, however. In fact, these data can be distorted by the pace of reserve accumulation by individual countries as well as by the specific reserve currency preferences of those countries.

Worst demand in a year for U.S. 5-year note sale (Reuters) - The U.S. government sold $35 billion worth of five-year debt on Tuesday in its weakest auction for such bonds in a year, which could raise worries the market has become too expensive after a long rally. It was also the second auction in as many days to attract weak demand, which could put pressure on the U.S. Treasury if this proves to be a sign that investors are fretting about budget problems in the United States. Investors bid for 2.59 times the amount on offer, which was the lowest for that maturity since June 2010. Indirect bids, which include large institutional investors and buyers such as foreign central banks, amounted to 37.62 percent of the sale -- the lowest since February. Bonds had been rallying almost nonstop since early April on worries the U.S. economic recovery was running out of steam and fears that the potential for a default in Greece would roil growth-oriented markets such as stocks and commodities.

The shadow of the bond vigilante - THERE'S no shortage of reasons to feel bearish about the prospects for American government debt. Gross debt is approaching 100% of GDP. The Congress seems willing to toy with America's credit status in an effort to make political points. And the Fed's latest episode of bond-buying, QE2, has just ended.  And yet, the yield on the 10-year bond is at 3.2%—precisely where it was in December of last year, and June of last year, and May of 2009, and November of 2008. The yield on the 10-year got down this low for a brief moment in 2003; before that, rates were well above the current level going back to the Eisenhower administration. As recently as February the yield was above 3.7%. When politicians began worrying about the arrival of bond vigilantes early in 2010, the yield was around 4%. What I'm trying to say is that yields on American debt are low, low, low. And yet, it seems likely that economic writers will soon be fretting about those bond vigilantes once again. Why? Over the past week, the yield on the 10-year bond has risen about 12%.

China fund chief: U.S. must reduce deficit - The U.S. should reduce the fiscal deficit percentage of its gross domestic product to maintain U.S. dollar's dominant status in international monetary system, the head of China's state pension fund said Sunday. The greenback is weakening and the U.S. must reduce its fiscal deficit ratio to GDP to a level that lower than average levels of major developed countries and emerging economies to maintain its status, Dai Xianglong, chairman of the National Council for Social Security Fund said in a keynote speech delivered to a forum here. Dai is also a former governor of China's central bank. The stability of the U.S. dollar is not only of U.S's interest, but also in line with the other country's interest, added Dai. China wants yuan to become an important currency in the International Monetary Fund's special drawing right basket by 2015 and becoming an international reserve currency is a key step in the process of yuan internationalization, said Dai.

Don't be distracted by Greece: Americans must also face financial facts - Forget Greece. Or at least put Greece to one side: the real financial disaster waiting to happen is on the other side of the Atlantic. It is a disaster born of self delusion, in a nation that prides itself on plain speaking and openness. There is much to be celebrated in the United States. The things, material and intellectual, that people want and admire still tend to be American. But they (and we) face a huge looming crisis. It transcends politics and political candidates – it is much bigger than Michele Bachmann's hair or Barack Obama's thesaurus – and sometime soon they are going to have to face it. It's the debt. America's federal government debt is growing at $40,000 per second. It has reached $14 trillion, whatever that means. More comprehensible perhaps is this fact: the debt will soon match the entire GDP of the United States. Outside wartime, that has never happened before."

Chris Martenson on the Debt Crisis in Greece and What’s Ahead For the U.S - Jim Puplava welcomes Chris Martenson on Financial Sense Newshour to discuss the debt crisis in Greece and its implications for the US. Chris sees a political failure in both countries in coping with skyrocketing debt. The implications for the US are dire if policies do not change soon regarding the explosion of debt at all levels in the US. Chris is the author of a popular website, His Crash Course video series explores the intertwining significance of the "three E’s"—the economy, energy, and environment and offers articulate, dynamic insight into the workings of our monetary system.

Greek Threat Is Peanuts Compared With US Debt - Black Swan Author - Greece's economic ills are a trivial menace to the global economy compared with the much graver threat posed by a heavily-indebted and seemingly immobile U.S. government, Black Swan author Nassim Taleb said Monday. "There is a serious problem in the U.S.," Taleb said after speaking at a business conference here. "The U.S. deficit is around $1.5 trillion. It's far more dangerous than Greece." Taleb said investors and government officials around the world are unwise to focus so much on Greece when the real "elephant in the room" in the U.S. Greece accounts for less than 2.5% of gross domestic product in the E.U., said Taleb, while the U.S. represents about a fifth of global economic output. "Greece is peanuts. Everyone is talking about Greece but the real threat is the U.S. It's a time bomb," "Anyone who wastes saliva talking about Greece doesn't know what he's talking about. So let's talk about the real problem."

How America can avoid a Greek tragedy - What happens in Athens today will determine Greece's economic future for years to come, and have a huge impact on the stability of Europe's monetary union and the global recovery. Parliamentarians are gathering to vote on a painful package of austerity measures aimed at reducing the government's yawning budget deficit, controlling its ballooning debt and convincing the rest of the euro zone to continue to support the country with rescue funds. If passed, the Greeks may hold off a sovereign default – at least for now – but will probably send their economic prospects into an ice age. If rejected, Greece will almost certainly default, worsening Europe's debt crisis and threatening to spread turmoil throughout global financial markets. The tragedy unfolding in Greece means even more than that. With much of the developed world – including the U.K., Japan, and yes, the U.S. – facing heavy state debt burdens, the events taking place in Greece are a glimpse into the future for many of the global economy's most important nations. As politicians in Washington wrangle over the debt ceiling, budget cuts and taxes, we have to ask the question: Is the U.S. heading in the same direction as Greece?

Fort Knox: What to Do with Old Yeller - Should the U.S. sell off its gold reserves to pay down debt? That's the latest idea being tossed around by gold bug Ron Paul. Not only would selling Old Yeller help the U.S. pay its bills, says libertarian Paul, but it would put more gold in the hands of the American people and pull back the reins on the Federal Reserve, which is printing money like mad and debasing the value of our currency. So insistent is Paul about this strategy that he challenged the government to a gold audit to make sure its stash of bullion at Fort Knox is really all there. (According to the Treasury's inspector general, it is.) So is selling it a good strategy, or is Paul just a crazy kook?When it comes to the concept of gold, it can be hard to tell. With the price of gold up 24% in the past year, the gold bulls are everywhere. And our country has a long history of obsessing over gold, which Thomas Frank describes quite well in the latest issue of Harper's Magazine: Money cranks are part of a long tradition in American life, and just as there was an attractive democratic subtext to the free-silver agitation of the 1890s, so there is an attractive moral idea behind the hard-money mania of the present day.. Even if the central bankers' intentions are good, reasons the metalhead, they are still bound to screw things up…

U.S. should declare 'bankruptcy' -- How should the United States deal with its growing debt problem? Ron Paul thinks declaring "bankruptcy" might be a good idea. The Texas congressman and Republican presidential candidate was discussing Greece's fiscal trouble with Iowa radio host Jan Mickelson on Monday when he was asked, "If bankruptcy is the cure for Greece, is it also the cure for the United States?" "Absolutely," Paul replied. Of course, sovereign nations can't declare bankruptcy the same way a corporation might. Instead, the government would be unable to fulfill its obligations, and would stop making payments on its debt, resulting in a default.  Greece is currently embroiled in a debate1 over how to pare back its social programs and government spending to secure another bailout for paying its debts.  Paul said social programs -- medical care and other benefits -- have pushed Greece to the edge2, and the United States should take note. "The big message there is the fact that the people who are seeing they are losing their benefits and their free medical care and all, are rioting in the streets," Paul said. "That is the problem, and we are not immune from that."

Standard & Poor’s: Default On Debt Will Turn T-Bills Into Junk Bonds - Standard & Poor’s has said that if the United States defaults on the bond interest payments that will come due on August 4th, it will downgrade our credit rating from AAA to D, the rating typically assigned to junk bonds: (Reuters) – The United States would immediately have its top-notch credit rating slashed to “selective default” if it misses a debt payment on August 4, Standard & Poor’s managing director John Chambers told Reuters. Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said. “If the U.S. government misses a payment, it goes to D,” Chambers said. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.” (….) S&P is not the first agency to say it will downgrade the United States if a payment is missed. Rival credit rater Moody’s on June 2 was the first to say it would downgrade the United States shortly after a possible ceiling-related default, but not as deeply — to the Aa range.

U.S. to Take $100 Billion 'Hit' on Lower Bond Ratings, FT Says - The U.S. bond market would take a “hit” with losses of as much as $100 billion if the government’s Aaa credit rating is downgraded, the Financial Times reported, citing a research arm of Standard & Poor’s. The higher yields and lower prices of such a downgrade would force the Treasury to pay $2.3 billion to $3.75 billion more a year in interest, the FT said, citing analysts at S&P Valuation and Risk Strategies, a research team separate from the ratings company, a unit of McGraw-Hill. Ratings reductions to AA or A would lead to declines of 2 percent and 3.2 percent, respectively, in the price of the 10- year Treasury note, sending yields higher, the analysis indicates. The 30-year bond’s price would fall 3.9 percent and 6.3 percent under those scenarios, the newspaper said

Debt Ceiling: A Downgrade Would Be Costly - This is for all those who say that not increasing the debt ceiling will have no impact whatsoever...

  • 1. Two rating agencies -- Moody's and Fitch -- have already said that they will consider downgrading U.S. debt from its current triple A rating.
  • 2. The Financial Times today published a story that said: Investors in the US government bond market could face losses of up to $100bn if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill, the parent of Standard & Poor’s. A ratings downgrade that results in higher bond yields and lower prices could also mean the US Treasury paying $2.3bn-$3.75bn a year more in interest on financing a $1,000bn annual budget deficit.

Pimco’s El-Erian Says U.S. Debt Default Might Have ‘Catastrophic’ Effect - Pacific Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian said a short-term default by the U.S. on its debt might have “catastrophic” legal consequences.  “We would be in the land of the unpredictable” if lawmakers fail to reach an agreement to raise the $14.3 trillion debt ceiling and the U.S. misses a payment “simply because of the technical linkages,” U.S. lawmakers are seeking a path to increasing the debt limit and to cutting at least $1 trillion from the long-term deficit before an Aug. 2 deadline. “My advice is please try and get together and solve this issue in the context of a medium-term reform package,” El-Erian said. “If you can’t do that and you’re going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered.”

Time's Nearly Up: Raise the Ceiling - Zandi - Most times, the questions I'm asked as an economist are as wide-ranging as the groups I speak to. But these days, everyone asks the same questions: When will we get more jobs? Why aren't businesses hiring more? Where are the jobs going to come from? Can policymakers do anything to help?  It may be difficult therefore to see how the job market will gain traction in the foreseeable future. Yet it will, most fundamentally because U.S. companies are in great financial shape.  The lack of confidence is in part a hangover from the Great Recession, which brought our biggest banks and businesses literally to their knees. The only salve for that nightmare is time. The other weight on the collective psyche comes from the government's fiscal challenges. . Given our seemingly dysfunctional political process, business executives can't see how the Obama administration and House Republicans will come to terms. Businesses won't cut workers because they don't know how this is going to play out, but they also won't hire more until the picture clears. Breaking the budget impasse is thus key to getting more jobs.

Yet Another Debt Ceiling Rant: Political Theater Can Be Expensive - Is it wise to write yet another post on the sheer craziness of the debt ceiling debate? Does underscoring the sense of urgency simply give strength to dark forces who are trying to leverage the threat of default for their political gains? Perhaps so, but the other way lies madness. We’ve got to talk truth about the stakes here because they’re so high. If that’s so, why do interest rates remain low? Why are investors in ten-year US treasury bonds accepting 2.93% interest today instead of insisting on a big rate premium the way bond investors in, oh, I don’t know…GREECE are?? Because they assume we’ll get our act together and raise the debt ceiling well in advance of Aug 2. That’s the date when the Treasury will have exhausted their ability to move money around to cover their obligations while staying under the debt limit.  But what if that assumption should weaken?  After all, it doesn’t take a default to spook bond investors. 

Obama joins talks as US faces default - President Barack Obama enters bipartisan negotiations today aimed at making by far the largest cuts in history from federal budget deficits and avoiding a first-ever government default. Little more than five weeks remain before the government runs out of borrowing authority, which could eventually cause delays in contract payments, tax refunds or even Social Security benefits. A default also could spook world financial markets and prompt ratings agencies to lower the United States’ triple-A credit rating.Yet the White House and Republicans in Congress remain deeply divided over potential tax increases and cuts to popular entitlement programs, such as Medicare and Medicaid, that could help reduce budget deficits by more than $2 trillion over the coming decade. The key to a deal appears to be what types and amounts of new revenue Republicans can agree to include. While GOP leaders have ruled major tax increases “off the table,” they have not ruled out more targeted efforts.

Debt Divide Remains As President Steps In - The White House and Congressional Republicans remained deeply divided on Monday over whether a budget-cutting deal tied to a debt limit1 increase should contain new federal revenues.  As President Obama2 welcomed Senator Harry Reid of Nevada, the majority leader, and Senator Mitch McConnell of Kentucky, the Republican leader, to the White House for separate budget negotiations, his spokesman, Jay Carney, said Republicans must be willing to consider tax changes, including the elimination of “loopholes” that benefit corporations.  “It’s the only way to get it done if you want to do it right and you want to do it in a way that is fair and balanced and ensures that the economy continues to grow and continues to create jobs,” Mr. Carney told reporters.  But even before Mr. McConnell met with the president, he dug in deeply against proposals for new tax revenue, suggesting that the deal should be struck mainly by cutting spending. New taxes, he said, would harm the economy.

'Big Boys' Focusing on Narrower U.S. Debt Deal as Deadline Nears - President Barack Obama and Republicans are narrowing the debate on a deficit-cutting plan to a reduction of $1 trillion to $2 trillion, though whether that would settle the issue through the 2012 presidential election remains in doubt, according to budget and debt experts. White House press secretary Jay Carney insisted yesterday that a “significant” deal is still possible, even as Republicans and Democrats show little signs of compromise on entitlements and taxes, and Republicans remain firm in their demand for spending cuts in excess of the debt-limit increase. The clock is ticking closer to Aug. 2 -- the date when, the Treasury Department estimates, the U.S. risks a default on its debt obligations. “We’re going to get a small package and pray that it gets us past the election,”

US Debt Deadline Unlikely to Deviate Much - U.S. Treasury Secretary Timothy Geithner is not expected to significantly shift the Aug. 2 date when the government will have exhausted all of its emergency measures to stave off default, a source familiar with the administration's efforts said Monday. That means the Obama administration and Congress still have about a month to reach a deal to raise the $14.3 trillion debt limit on how much the government can borrow. After that date, the Treasury Department will run out of money to pay government bills, including interest on U.S. debt. Delayed or missed debt payments would rock financial markets and could send the country into a new recession, top Wall Street and policymakers have said. The source requested anonymity because the source was not authorized to speak on behalf of the administration and warned the projections were not final. The Treasury Department is due to provide congressional leaders with an updated forecast as early as Friday. A significant shift in the Aug. 2 drop-dead date would fuel suspicions among a growing group of Republicans that the deadline can be ignored and that the administration is fear-mongering.

Obama Targets $72 Billion Business Tax Break; Republicans Balk - Barack Obama’s proposal to end a business tax break worth $72 billion is among the tensions the president may confront as he meets today with Senate Minority Leader Mitch McConnell in an effort to revive bipartisan talks over reducing the debt, three persons familiar with the issue say.  Ending the so-called last-in-first-out, or LIFO, provision, a method of accounting for inventory costs, was among options offered by White House officials for raising $400 billion in revenue over 10 years during seven weeks of negotiations led by Vice President Joe Biden, the people said, speaking on the condition of anonymity because they weren’t authorized to comment publicly.  Republicans want a multitrillion-dollar debt-reduction package as part of a vote to increase the nation’s $14.3 trillion borrowing limit by Aug. 2. The LIFO provision was among possible revenue increases that Republicans opposed when the Biden talks, which included two Republicans and four Democrats, collapsed last week. Biden criticized Republicans for trying to keep President George W. Bush-era tax breaks while advocating cuts in Medicare.

Bachmann: White House uses "scare tactic" on debt limit - Rep. Michele Bachmann, R-Minn., said Sunday it was not true that the U.S. government would default on its loans if the debt limit were not raised, and accused the Obama administration of using "scare tactics" to push its agenda. In an appearance on CBS' "Face the Nation," Bachmann, who is vying for the Republican presidential nomination, said she has "no intention" of voting for a hike to the limit, and argued that lawmakers should be focused on cutting spending rather than incurring more debt. "It isn't true that the government would default on its debt," Bachmann told CBS' Bob Schieffer. "Because, very simply, the Treasury Secretary can pay the interest on the debt first, and then, from there, we have to just prioritize our spending. I have no intention of voting to raise the debt ceiling," she emphasized.

An annotated guide to the economics of Michele Bachmann - Bachmann stated that she would not vote to raise the debt ceiling "until I see a serious legitimate reduction in spending." When questioned about the possible disastrous financial consequences of a failure by the United States to make good on its obligations, she blithely dismissed any possible negative fallout. "The interest on the debt can easily be paid for .... and that would mean that we wouldn't default. Then we would continue the full faith and credit of the United States. I think these are scare tactics by the Obama administration, because clearly this is the Obama debt, this is the Obama deficit and this is the very poor working Obama economy. " Bachmann is making the argument here that the U.S. can choose to pay its creditors -- the various holders of government-issued debt -- first, and thus not technically be in default. It's an open question whether credit rating agencies and bond investors will accept that technicality. China might get paid in full, but millions of Americans would immediate get stiffed. Of course, Bachmann doesn't mention that choosing such a strategy would require extraordinarily severe and immediate spending cuts -- around $4.5 billion a day -- in programs such as Social Security, Medicare, defense, unemployment benefits, et cetera. Economists generally agree -- the negative economic impacts of such drastic short-term cuts in government spending would almost surely drive the U.S. straight back into recession.

Financial Markets Snooze Though the Deficit and Debt Debate - Fiscal hawks (including me) often warn about what would happen to financial markets if Washington doesn’t get the deficit under control, and, worse, can’t manage its debt limit mess. I am convinced that, sooner or later, investors will stampede for the exits, leaving not only government but the rest of us to suffer the consequences of both skyrocketing interest rates and plunging stock prices. But I have to admit, there is absolutely no sign that the markets care at the moment. They are far more obsessed with tiny Greece than the massive U.S. debt.  And some of the most outspoken bond vigilantes, such as PIMCO’s Bill Gross, sound like they are far more worried about the federal government’s investment deficit than its red ink. Paradoxically, all this scares me more than ever. Washington and New York have never understood each other, and we could be heading for yet another of their periodic failures to communicate. This last happened in 2008 when Congress briefly rejected the financial market bailout–the TARP. The stock market promptly plunged 770 points. There is nothing more frightening than a surprised market.

Analysts: Failure To Raise Debt Ceiling Means 44% Spending Cut, 10% Drop In GDP, Recession - As we get closer to the August 2nd deadline to raise the debt ceiling, estimates are starting to come out of what a failure to raise the ceiling might mean and it isn’t pretty: New analysis by the Bipartisan Policy Center (BPC) which has been shared extensively with members of Congress estimates that the Treasury Department would not be able to pay all its bills and would need to implement an immediate 44 percent cut in federal spending in the event of a default. On an annualized basis, the cut in spending alone is a 10 percent cut in GDP, BPC scholar Jay Powell told reporters. The report released Tuesday concludes that Treasury would not be able to pay all its bills between Aug. 2 and “probably” not later than Aug. 9 if the debt ceiling is not increased. The day-by-day picture of default shows a 44 percent cut in federal spending. It concludes that the daily inflows of revenue and outflows of obligations are “lumpy” and it would be difficult for Treasury to prioritize 80 million different payments. For the month of August, the deficit from Aug. 3 to Aug. 31 would be $134 billion. “The result would be chaotic,” he said, noting the current inability of Treasury computers to handle the payments.

Failure to Raise U.S. Debt Ceiling Would Idle 800,000 Workers, Group Says -The U.S. government wouldn’t be able to fund about 50 percent of its obligations and would have to furlough about 800,000 federal workers if Congress fails to approve an increase in the $14.3 trillion debt ceiling, a coalition of former budget officials says.  Sometime in the first half of August, no funding would be available for the Departments of Veterans Affairs, Education, and Housing and Urban Development, as well as unemployment insurance and Internal Revenue Service refunds, according to a report by the Bipartisan Policy Center in Washington.  “The reality would be chaotic,”  “Treasury would be picking winners and losers.”  The report represents a challenge to Senator Pat Toomey of Pennsylvania, Representative Michele Bachmann of Minnesota and other Republicans who dismiss the risks of a government default.

Obama Proposes $600 Billion In Tax Hikes - The White House announced today that it is seeking to raise $600 billion in revenue through new taxes and the elimination of corporate subsidies as part of a deal to lower the deficit and raise the debt ceiling.  President Barack Obama is trying to ensure that any spending cuts agreed to are also offset by tax increases — something Republicans have said they will oppose at all costs. White House Spokesman Jay Carney echoed the calls of many Democratic legislators, saying any deal must include tax hikes or the elimination of subsidies, setting the stage for a showdown with Republicans over the next five weeks. Here's the list of proposed changes from The Associated Press.

  • End some subsidies for oil and gas companies.
  • Tax private equity or hedge fund managers at higher income tax rates instead of lower capital gains rates.
  • Limit itemized deductions for the nation's highest earners.
  • Change the depreciation formula for corporate jets.
  • Repeal tax benefit for an inventory accounting practice used by many manufacturers.

The Debt Ceiling Deal Is In Shambles - President Barack Obama yesterday took charge of the negotiations over raising the debt ceiling and reducing the federal budget deficit.  Both parties have drawn lines in the sand on deficit reduction, with Democrats demanding tax increases and/or the elimination of corporate subsidies and Republicans calling both unacceptable. The White House yesterday offered a plan to raise $600 billion through tax hikes and the elimination of various subsidies. This drew an immediate and negative response from Republicans, who have been saying for a week that any deal that includes new taxes (or whatever euphemism is employed) simply will not pass.  Among the few things both side agree on, is that an increase in the debt ceiling must be offset by cuts to the federal deficit equal to (or greater than) the increase in the borrowing limit. The negotiations, led until last week by Vice President Joe Biden, managed to find about $1 trillion in agreed spending cuts, but broke down when Republicans walked out over any discussion of tax increases.

S&P Would Cut US to D on Default, Moody's May Lower to Aa - Standard & Poor’s would cut the U.S. credit rating to its lowest level and Moody’s Investors Service said it will probably reduce its ranking if the government fails to increase the debt limit, leading to a default. S&P would lower its sovereign top-level AAA ranking to D, the last rung on its scale, John Chambers, chairman of the company’s sovereign rating committee, said in an interview yesterday. Moody’s said it would probably assign a position in the Aa range, or within three steps of its highest level. “We believe the debt ceiling will be raised and the government won’t default,” Chambers said in New York. “Otherwise we wouldn’t have a AAA rating on the U.S. government. It’s evolving as we expected.”

Boehner: Nobody Believes US Headed for Default - House Speaker John Boehner says President Barack Obama is spending far too much time worrying about the 2012 election at the expense of what Americans really want — a leader who is willing to take decisive action on the moribund economy. Boehner also said that despite dire warnings, nobody truly believes a loan default is in the U.S. future. Hannity asked Boehner the status of debt-ceiling negotiations, stalled last week when the two GOP participants walked out over Democratic reluctance to abandon tax-increase rhetoric. The Fox host also wanted to know why Democrats continue to push for tax hikes when Republican leaders have made it clear there was no chance — or has the GOP stepped back from the demand. “I’ve made it clear to the president, we are not going to raise taxes — you can’t raise taxes on the very people that we expect to invest in our economy and to create jobs,” Boehner said. “Secondly, there are no votes in the Congress in the House or in the Senate — there’s not a majority to raise taxes on anyone. So, tax increases are off the table. And I’m not sure they’ve gotten the message yet — I’m just not sure that they’ve been dealing with reality.”

Speaker Boehner doesn't have the numbers - HOUSE Speaker John Boehner is fond of saying that a debt-ceiling deal that raises taxes cannot pass the House of Representatives. Slice the numbers a bit more carefully and you can easily conclude the opposite: a deal that doesn’t raise taxes won’t pass, either. Why is this? Mr Boehner’s party controls 240 of the 435 seats in the house. That means that if more than 22 of his members vote against a deal, he will need some Democrats to pass it. I don’t know of any precise count of Republicans who have sworn to vote against any increase in the debt ceiling. But Chuck Conlon, the veteran budget guru over at CQ (a sister publication of The Economist) points me to the Republican Study Committee’s “Cup-Cap-Balance” letter. Its 103 signers imply they won’t vote to raise the ceiling unless three conditions are met: halving of the deficit via spending cuts next year; implementation of a statutory spending cap of 18% of GDP; and a balanced-budget amendment to the constitution. (The letter is here; the signatories are here.) Needless to say the odds even one of these conditions are met, much less all, are close to zero.

Sheila Bair Warns Lawmakers on Debt Ceiling Delay - Sheila Bair had some blunt words for Republican lawmakers who’ve said it would be no big deal if Congress doesn’t raise the debt ceiling. Ms. Bair said “it’s really a very dangerous game” to draw out raising the debt limit. She was testifying before the Senate Banking Committee, her final hearing before she leaves the agency. Ms. Bair said she is passionate about the need to establish a long-term deficit-reduction plan, but “in the short term, to play around with even talking about a default, even a so-called technical default on U.S. debt, I think is really highly problematic.” Specifically, Ms. Bair, herself a Republican, said that if the markets get spooked – even if the debt ceiling is ultimately raised – the consequences could have long-lasting impact on interest rates, which would hurt consumers, businesses and even the national debt itself.  If the government gets close enough to default, even if it doesn’t happen, “you’ve increased interest costs, you’ve increased Treasury’s borrowing costs and you’ve created a bigger deficit problem. So why even go there? Why even flirt with it? I just don’t understand it – it’s very harmful and will make the budget deficit worse.”

Blinder Says Budget Impasse Should Raise Wall Street Concerns -- The risk that lawmakers will fail to reach an agreement on the U.S. debt ceiling may be underestimated by financial-market participants, said Alan Blinder, a former Federal Reserve vice chairman. "I find too many market people, Wall Street people, unconcerned, which tells me that if this actually happens, it's going to be like a cold slap in the face," Blinder said today in a Bloomberg Radio interview. "I don't know what probability to put on this. It's not huge. It's certainly way under 50 percent. But it's not zero."Democrats and Republicans have been negotiating to find a way to cut the long-term deficit and raise the nation's debt ceiling before the projected end of the government's borrowing ability on Aug. 2. Two major ratings companies -- Moody's Investors Service and Standard & Poor's -- said that failure to reach agreement could put the U.S. government's top credit rating in jeopardy. "One of the worst ideas I've heard -- but this could actually happen -- is they just raise the debt ceiling enough to let this go another month and then we play it out again, and again, and again," "I don't view that as a solution. I view that as a horror show."

Zandi: Markets Will Become Turbulent in July If Debt Ceiling Isnt Raised - Mark Zandi, chief economist of Moody’s Analytics, said the market impact of failing to raise the $14.29 trillion debt ceiling by Aug. 2 could become severe by late July. At a breakfast hosted by the Christian Science Monitor, here’s how Mr. Zandi told reporters things could play out. “I think if we get on the other side of July, particularly as we move to the second and third week of July and nothing is happening, if the world looks like it is today, I think people are going to start getting nervous one investor at a time. And it’s going to start showing up in rising bond yields, a weakening equity market. Then all of the sudden we’re going to get to a day when we’re going to get a critical mass of investors saying, ‘You know what, this may not happen, we better attach a probability to an Aug. 2 misstep.’ And markets are going to start going south. And of course the rating agencies are going to start responding too…so if, we get to the end of July, I think the policy makers will see it quite clearly.” He said if the ceiling isn’t raised by Aug. 2, “it’s going to be a TARP moment,” . And then what? “The dark scenario is so dark I can’t imagine it,” he said.

IMF Urges U.S. Debt-Ceiling Increase to Avoid a 'Severe Shock' to Economy - The International Monetary Fund said today global markets will suffer if the U.S. Congress fails to approve an increase in the $14.3 trillion debt ceiling and cautioned about the risk of a downgrade in the country’s credit rating. “The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,” the IMF said in a report on the U.S. economy. The report said a failure to reach a budget and debt compromise could result in a “sudden increase in interest rates and/or a sovereign downgrade.” The IMF, in releasing a statement on the annual report, said that risks to the U.S. include housing market weakness and the European debt crisis. “These risks would also have significant global repercussions, given the central role of U.S. Treasury bonds in world financial markets,” the IMF said. “We’re confident that the participants are well aware of the potential risks of a debt default in the U.S. and will avoid those dangers,”

Report predicts chaos if U.S. prioritizes payments (Reuters) - Any attempt to prioritize federal payments if Congress fails to raise the U.S. debt limit and the country defaults would rapidly descend into chaos, according to an independent study released Tuesday. If the U.S. government cannot borrow more money to meet its obligations past Aug. 2 -- the Treasury's deadline for raising the federal borrowing limit -- it will be unable to pay between 40 to 45 percent of the 80 million payments it makes every month, the report says. After analyzing thousands of publicly available documents, including the Treasury's daily cash outlays, the Washington-based Bipartisan Policy Center concludes that prioritizing payments to avoid default -- which some conservative Republican lawmakers advocate -- is essentially impossible. Treasury Secretary Timothy Geithner has been making the same argument for months -- prioritizing can't be done.  The policy center estimates that between Aug. 3 and Aug. 31, the Treasury will receive $172 billion in revenues but have approximately $307 billion in obligations, leaving a monthly deficit of $135 billion.

Could Obama Just Ignore the Debt Ceiling? - In the ongoing debate over raising the debt ceiling, one option has not had much prominence: whether the Obama administration could ignore it altogether, and just spend the money it owes anyway. Would that be legal? Matthew Zeitlin at The New Republic spoke with a few political scientists, budget wonks and constitutional scholars who argue that it would be.  An excerpt: Garrett Epps, a legal journalist and professor at University of Baltimore School of Law, has made an even broader argument in a pair of articles for The Atlantic’s website. In an interview, Epps told me that there was a strong argument that the debt ceiling is unconstitutional because it exceeds the legislative branch’s power of the purse. The argument goes like this: Because Congress already appropriated the funds in question, it is the executive branch’s duty to enact those appropriations. The debt ceiling, then, is legislative “double-counting,” because the executive branch is obligated to spend the money Congress appropriates, without having to go back and ask again for permission.

14th Amendment: Democratic Senators See Debt Ceiling As Unconstitutional -- Growing increasingly pessimistic about the prospects for a deal that would raise the debt ceiling, Democratic senators are revisiting a solution to the crisis that rests on a simple proposition: The debt ceiling itself is unconstitutional. "The validity of the public debt of the United States, authorized by law... shall not be questioned," reads the 14th Amendment. "This is an issue that's been raised in some private debate between senators as to whether in fact we can default, or whether that provision of the Constitution can be held up as preventing default," Sen. Chris Coons (D-Del.), an attorney, told The Huffington Post Tuesday. "I don't think, as of a couple weeks ago, when this was first raised, it was seen as a pressing option. But I'll tell you that it's going to get a pretty strong second look as a way of saying, 'Is there some way to save us from ourselves?'" By declaring the debt ceiling unconstitutional, the White House could continue to meet its financial obligations, leaving Tea Party-backed Republicans in the difficult position of arguing against the plain wording of the Constitution.

What Debt Limit? Plan B is the 14th Amendment -Plan B would be to simply disregard the debt limit altogether on constitutional grounds, an idea I suggested in The Fiscal Times on April 29. University of Baltimore law professor Garrett Epps made a similar suggestion in The Atlantic on May 4. The essence of the argument involves section 4 of the Fourteenth Amendment to the Constitution, which reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” In my view and that of Prof. Epps, this means that the president would have constitutional authority to take extraordinary measures to protect the public credit and prevent a debt default even if it means disregarding the debt limit, which is statutory law subordinate to the Constitution. I now feel even more strongly that the Fourteenth Amendment trumps the debt limit.

Senate Dems Touting 14th Amendment To Avoid GOP Ransom Demands On Debt Ceiling. Could Impeachment Follow? - This story by Ryan Grim and Samuel Haass from The Huffington Post is well worth a few minutes of your time.  Their bottom line is that Senate Democrats are starting to see the 14th Amendment to the U.S. Constitution as a way to deal with the impasse over the debt ceiling the GOP has created.  According to Grim and Haass (and a number of others I've spoken with in recent weeks) the amendment, which states "The validity of the debt of the U.S. shall not be questioned," effectively makes a statutory debt ceiling either moot or unconstitutional. Grim and Haass assume that the only possible redress would be in the courts.  I'm convinced, however, that the GOP would have a number of political options.  In particular, the House could...or perhaps almost certainly would...begin immediate impeachment proceedings against both the president and Treasury secretary.  And the articles of impeachment likely would not be limited to the borrowing beyond the debt ceiling issue.  Everything from military activities in Libya to bailouts for the auto industry to whether Obama really is a U.S. citizen would be considered.

Sen. Bernie Sanders: We Will Not Balance the Budget on the Backs of Working Families - At a time when the richest people and the largest corporations in our country are doing phenomenally well, and, in many cases, have never had it so good, while the middle class is disappearing and poverty is increasing, it is absolutely imperative that a deficit reduction package not include the disastrous cuts in programs for working families, the elderly, the sick, the children and the poor that the Republicans in Congress, dominated by the extreme right wing, are demanding. In my view, the President of the United States of America needs to stand with the American people and say to the Republican leadership that enough is enough.  No, we will not balance the budget on the backs of working families, the elderly, the sick, the children, and the poor, who have already sacrificed enough in terms of lost jobs, lost wages, lost homes, and lost pensions.  Yes, we will demand that millionaires and billionaires and the largest corporations in America contribute to deficit reduction as a matter of shared sacrifice.  Yes, we will reduce unnecessary and wasteful spending at the Pentagon.  And, no we will not be blackmailed once again by the Republican leadership in Washington, who are threatening to destroy the full faith and credit of the United States government for the first time in our nation’s history unless they get everything they want.

Erickson To GOP: ‘Hold The Debt Ceiling Hostage’ - An influential conservative activist is explicitly calling on Republicans to hold U.S. creditworthiness hostage until Democrats agree to pass a constitutional amendment requiring Congress to slash federal spending until the budget is balanced. Erick Erickson -- a CNN contributor and founder of the conservative website Red State -- says Republicans should refuse to raise the nation's borrowing limit, likely triggering a catastrophic debt default, until a two-thirds majority in both the House and Senate sign on to the Balanced Budget Amendment. "Make it clear that until you do get the votes necessary for passage you will obstruct and block an increase in the debt ceiling," Erickson wrote in a Wednesday morning post. "Hold the debt ceiling hostage. If the Democrats want the debt ceiling raised, they need to send [the BBA] out to the states for ratification. They can fight to stop it there. But do this for me -- draw a line in the sand. You force a vote and then another vote and then another vote until you get the two-thirds needed in both houses and don't you dare give up fighting against the debt ceiling increase until you get that two-thirds vote. The rules in this fight must be different. You must keep blocking until they give you what you want."

Debt Limit Stakes - Krugman - So, here’s where we are on the debt limit discussions: Democrats have agreed to large spending cuts, but are holding out for doing something about a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.  And Republicans walked out. Think about it. There’s a significant chance that failing to raise the debt limit could provoke a renewed financial crisis — and Republicans would rather take that chance than allow a reduction in tax breaks on corporate jets..

Avoiding a Bad Budget Deal - President Obama has backed himself into a corner on the budget negotiations, where he’s allowed deficit hawks from both parties to define “progress” as a ten-year deal to cut the projected deficit by a huge amount. In fact, his own Bowles-Simpson Commission led the way. Obama has also lost the framing battle over whether it’s acceptable to hold an increase in the debt ceiling hostage in order to achieve a deal as Republican congressional leaders have done. This is now taken for granted. Both assumptions make for bad policy, and they’re bad politics for Democrats. The result is that Republicans can dig in their heels and make radically far-right demands, which include refusing to raise taxes and insisting on devastating program cuts. Of course, we’ve seen this movie before: Obama breaks the logjam by making most of the concessions.

Obama to hold more debt talks with Senate Democrats (Reuters) - President Barack Obama will hold another round of talks with Senate Democratic leaders on Wednesday on raising the U.S. debt ceiling, the White House said on Tuesday."We believe there is the opportunity here for a substantial compromise on a significant deficit reduction agreement that is done in a way that's balanced," White House press secretary Jay Carney told reporters traveling with the president.  He declined to say if other White House meetings with lawmakers were planned this week, including with Republicans. The president met with Senate leaders of both parties on Monday to keep talks alive on raising the country's $14.3 trillion debt ceiling, after negotiations led by Vice President Joe Biden stalled. But neither side has hinted at compromise.

Getting to a Trillion - If revenues are to be in the budget package that the President and Congressional leadership are now negotiating—and be in there, they must—they will almost surely come from cutting tax expenditures.   Those are the one trillion worth of tax revenues forgone each year due to tax breaks for various activities in the code.   Politicians of both parties recognize that many of these tax breaks are loopholes, as seen in the vote a few weeks ago to end the $6 billion annual tax subsidy for ethanol, which garnered 34 R’s in the Senate. There’s even a little list going around town of tax expenditures that might get cut in the deal, including oil and gas subsidies, favorable tax treatment for inventories  (corporate jets!). The thing is, back in April, when President Obama set out his budget guidelines for this aspect of the talks, he said he wanted a cool trillion in revenues, out of deal that reduced deficits over 12 years by $4 trillion. So, connecting all these dots, it seemed like a good idea to think about various ways to get to a trillion in savings through cutting tax expenditures.  Here’s a menu, with rough cuts of the savings over 10 years.

Obama shifts debt-talk tactics, drops call to end Bush tax cuts - President Obama, seeking a Republican agreement to raise the nation's $14.3 trillion debt ceiling by Aug 2, will not insist that any deal include an end of President Bush's controversial tax rates on the wealthy. Obama's tactics are coming into clearer focus: they involve seeking higher taxes not on a broad swath of high income earners but on a narrower band of the super rich, such as owners of private jets. This means that those who earn $250,000 have got a reprieve. The White House said Monday that the president is pushing the GOP to agree to eliminate some tax breaks and for businesses and loopholes for wealthier taxpayers, but is not trying to eliminate the across-the-board rates introduced by President Bush.  Obama still wants to scrap those rates, but with time running out on the debt-ceiling talks, he is making it clear Monday that he has a new range of targets.

Obama backs trillions in "painful spending cuts" - At a press conference Wednesday, US President Barack Obama reiterated his determination to impose trillions of dollars of spending cuts on the elderly, the sick, school children and college students. He appealed to congressional Republicans to agree to a handful of minor tax increases on the wealthy to provide the fig leaf of what he called a “balanced” program of deficit reduction. Obama embraced deficit reduction as the central priority of his administration. He described budget-cutting in the same terms as the Republicans, calling it, “part of an overall package for job growth over the long term. It’s not the only part of it, but it’s an important part of it.” The claim that deficit reduction creates jobs is an absurdity that until recently would have found support only among the free market ideologues of the ultra-right. The practical effect of slashing federal spending will be to further contract the US economy, adding to the impact of the destruction of 535,000 jobs through state and local government budget cuts over the last two years. The social impact of the budget cuts will be even worse: undermining and ultimately destroying social programs on which tens of millions of people depend, including health care, education, environmental protection and a secure retirement.

Full Text: Geithner Letter Responding to Republicans on Debt Limit - Treasury Secretary Timothy Geithner pushed back against calls from a group of Republican lawmakers to prioritize paying interest on debt and cut spending instead of raising the debt ceiling. Here is the full text of his letter and the full text of the original letter Geithner is responding to:

Obama Assails Republicans as Gulf in U.S. Debt-Limit Talks Remains Wide - President Barack Obama accused Republicans of siding with corporate jet owners over children and the elderly in deficit negotiations and compared Congress’s work ethic unfavorably with that of his pre-teen daughters. Obama’s comments underscored the distance between the White House and Republicans on talks to cut the deficit and raise the government’s debt limit as Standard & Poor’s warned it would downgrade U.S. debt to junk status in the event of a default and the Senate canceled its July 4 recess to continue talking. “The yellow light is flashing,” Obama said yesterday during a news conference, warning of dire consequences if Congress doesn’t raise the borrowing limit before Aug. 2, when the Treasury Department projects it will no longer be able to meet all its obligations. “This is a jobs issue,” he said. “This is not an abstraction. If the United States government, for the first time, cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable.”

Those reckless Republicans - When House Majority Leader Eric Cantor walked out of the debt-ceiling negotiations last week in a hissy fit, he once more dramatized the simple truth that cannot speak its name. This Republican Party is addled by an extremist ideology and cankered by a vengeful partisanship. In a time of national crisis, it is locked into ideological litmus tests — no new taxes — and opposed to anything the “Kenyan, socialist” president might propose. This makes the routine difficult and the necessary impossible. Republicans threaten to blow up the world economy by refusing to lift the debt limit without getting drastic cuts in the deficit. Puffed up with locker-room bravado, they set a high bar — more than $2 trillion in deficit reduction over 10 years, a dollar or more for every dollar hike of the debt limit.

If the U.S. Defaults, Eric Cantor Makes Money - According to the Wall Street Journal, House Majority Whip Eric Cantor stands to gain financially from a U.S. default on the debt ceiling. Putting his money where his mouth is? Eric Cantor, the Republican Whip in the House of Representatives, bought up to $15,000 in shares of ProShares Trust Ultrashort 20+ Year Treasury ETF last December, according to his 2009 financial disclosure statement. The exchange-traded fund takes a short position in long-dated government bonds. In effect, it is a bet against U.S. government bonds—and perhaps on inflation in the future.  You may recall that last week, Cantor pulled out of debt ceiling talks, increasing the possibility of default. And why shouldn’t he? If the U.S. defaults, he’ll make money on his investments. He’ll still have a job because he’s in a safe seat. And an economic collapse makes it more likely that a Republican wins the White House in 2012, which would make Eric Cantor more powerful.

Wonkbook: The debt-ceiling deal so far - A bit more information has trickled out over the last few days detailing the exact state of the budget negotiations when they collapsed. Both sides, as they often said, were shooting for about $2.4 trillion in deficit reduction over 10 years. They'd already agreed on around $1 trillion in spending cuts and were making good progress on the rest of it. But Democrats insisted that $400 billion -- so, 17 percent -- of the package be tax increases. And that's when Republicans walked. Specifically, the Obama administration was looking at a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.  It's almost not worth going into the details on those particular tax changes because the Republican position has held that the details don't matter: there can't be any tax increases, full stop.

An imbalanced debate won't lead to a balanced solution - Last night on the Ed Show, guest-anchor Thomas Roberts asked me whether Bernie Sanders's populism was a viable alternative in the debt-ceiling debate. My response, and it's an odd one to have about a self-proclaimed socialist from Vermont, was "what populism?" I'm not questioning Sanders's ideological bona fides here. The fact that he's a pragmatist in legislative debates doesn't diminish from the populism that animates his politics. But "shared sacrifice" — which is what Sanders is calling for — isn't populism. A plan consisting of 50 percent tax increases, which would mean a tax cut against a world in which the Bush tax cuts expired, isn't radical. That's about what President George H.W. Bush agreed to in the early ’90s, actually. Steve Benen puts it well. "We have a Democratic Senate and a Republican House," he writes, "but the notion of an equitable, 50-50 split is thought of as fanciful nonsense backed only by liberal extremists. When Republicans demand a 100-0 split in their favor, meanwhile, and failure to do so will mean they cause a recession on purpose, this is somehow just routine and predictable.”

The Debt Ceiling Fight Continues - Matt Yglesias, Jonathan Chait, Kevin Drum, Greg Sargent, Chait again and Ross Douthat all debate, using Obama’s December 2010 press conference and Obama’s indifferent and confused answer to the question about the then upcoming debt ceiling fight, whether or not the current debt ceiling battle is a disaster based on Obama’s generous naivety about debate and good faith in the GOP (“I’ll take John Boehner at his word…You can’t just stand on the sidelines and be a bomb thrower”) or more-or-less where he wants to be, using the GOP as the villains to get the agenda he’s always wanted. The two things that jump out from the press clip for me are, first, re-watching President Obama’s response to Ambinder’s question he clearly didn’t understand it at first, either the stakes or the concerns about this being an ugly battle.  That is shocking to me. Second, his administration has been pushing for some sort of deficit reduction for some time, but if I had to bet I bet he expected the GOP to meet him half-way through the power of debate and good faith in your opponent.  That they aren’t going to, and that it’s even money he goes along with some awful plan to cause a double-dip recession and massively rupture the safety net, is exactly what anyone could have told him last year.

GOP chilly to Obama's call to deal with debt ceiling, skip the fireworks - Republicans on Wednesday greeted coolly President Obama’s challenge that they deal immediately with raising the debt ceiling and related issues, with  one key GOP senator urging Democrats3 to give up their Fourth of July break to work on the issue. At his news conference, Obama called on Congress to pass a variety of economic measures -- free trade4 as well as patent reform. But he reserved his most direct language for the stalemate over raising the debt ceiling, repeating his call for a balanced approach that would include increasing revenues. The House’s top Republican immediately decried the position of the president and fellow Democrats, saying again that the GOP would not accept any tax hikes.  “The president's remarks today ignore legislative and economic reality and demonstrate remarkable5 irony,” Speaker John Boehner6 said in a prepared statement. “The president is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes7 would pass the House. The votes simply aren’t there -- and they aren’t going to be there.

Debt Deal Must Come by Mid-July to Avert Default, Officials Say (Bloomberg) -- Negotiators will need to reach agreement on raising the U.S. debt limit no later than July 22 so that legislation can get passed in time to stave off a default on U.S. debt, two Democratic officials familiar with the talks said. The Senate yesterday canceled its July 4 recess to remain in session next week during debt-limit talks after President Barack Obama a day earlier called on Congress to stop taking vacations while the debt-ceiling talks are unresolved. An agreement will have to be reached by some point between July 15 and July 22 in order to write a bill and comply with congressional rules requiring advance publication before consideration, said the officials, who spoke on condition of anonymity to discuss the negotiations. The officials said the timeline was necessary in order to raise the legal debt ceiling by Aug. 2, the date the Treasury Department projects it will no longer be able to meet U.S. obligations.

News from EPI: Prominent economists call on Congress to raise debt limit - In this letter, 235 world-renowned economists called on federal policymakers to immediately raise the federal debt ceiling without making drastic cuts to federal spending.  The economists are signatories to an open letter to Congress organized by the Economic Policy Institute and the Center for American Progress.  Read Full Letter

Gridlock in Washington is hurting the US economy - The decision by Harry Reid, the majority leader in the Senate, to cancel next week’s planned recess in order to advance discussions on the US debt ceiling is a welcome indication that Washington is beginning to view the debt issue with more urgency. Viewed from overseas, the American political system has started to appear dysfunctional in recent weeks. Democracy is inherently a messy process, but it is still unsettling for foreign holders of US debt to see the Congress openly discussing whether there might be advantages in forcing the Treasury to “prioritise” its future payments so that the flow of interest obligations can be maintained. As Tim Geithner, Treasury secretary, has pointed out, “prioritisation” means that the US would fail to meet many of its domestic obligations which have previously been legislated. That would be taken as a strong signal of a nation in financial distress. Even worse, there would be an immediate deflationary shock to the system of up to 10 per cent of gross national product as the budget deficit is forcibly closed, which would certainly send the global economy back into recession.

What Is This “Washington”? - Mitch McConnell, Senate Republican Leader, quoted in Bloomberg: “We have seen the consequences of giving Washington a blank check. My message to the president is simple: It’s time for Washington to focus on fixing itself. It’s time Washington take the hit, not the taxpayers.” That sounds good (if you don’t like “Washington,” that is), but what does it mean? McConnell wants people to think that their tax dollars go to feed some animal named “Washington,” and therefore our budget problems can be solved by simply feeding Washington less — without “taxpayers” taking the hit. That might be true if “Washington” simply consumed money for its own sake, but the problem is that most of the federal budget isn’t consumed by the federal government.

Social Security Benefits Cuts Are Part of Debt Ceiling Negotiations - Stealth Social Security benefits cuts are potentially part of the debt ceiling deal currently being negotiated by President Obama and the Congressional Republican leadership, per Politico:Already on the table are more than $1 trillion in discretionary 10-year spending cuts and hundreds of billions more in changes affecting farm subsidies, college aid and retirement benefits for federal workers. Additional savings from health care programs like Medicare and Medicaid are in the offing, as well as a potential $300 billion change in the government’s inflation calculator affecting Social Security benefits and some revenues.Changing the inflation calculation for Social Security benefits from CPI to chained CPI is a benefit cut by stealth.  Using the low inflation number would result in slightly smaller Social Security benefits every year. While the cuts would take place in small yearly increments, the cumulative effect would be that over a seniors lifetime they would get tens of thousands less from Social Security (PDF ).

The Social Security Benefit Cut in the Debt Limit Talks - One of the more insidious possibilities in a debt limit deal is the use of something called “chained CPI,” which would result in changes to how the government calculates the annual cost of living adjustment. This would impact both how tax brackets change on an annual basis, and also how the COLA gets applied in federal programs, particularly Social Security. And it would save quite a bit of money, around $300 billion over 10 years if applied to the whole of government. Congressional aides have confirmed that this is on the table in any deal. Let’s look at reductions in the growth of Social Security benefits, for example. The Congressional Budget Office estimates a reduction in benefits from the baseline by $108 billion over 10 years. According to Social Security’s chief actuary, beneficiaries who retire at age 65 and receive the average benefit would get roughly $500 less in their annual benefit at age 75, and $1,000 less at age 85. The benefit cut compounds over time, as the COLA adjustment reduces every year. As this would take effect immediately, it also represents a benefit cut for current retirees.

Boehner's Economic Terrorism - We have a potential catastrophe of national default, an event whose consequences are unknowable but which could quite easily wreck the US and global economies, profoundly damage people's savings, raise interest rates and destroy jobs for a very long time. In most countries, the goal of the entire political class is to avoid such a thing if at all possible. Greece is currently facing down riots in order to slash its deficit. Britain is entering a period of profound austerity. All of this pain is to prevent the worst possible crisis to hit a country: default. All responsible politicians understand this is something to be avoided at all costs. Conservatives especially see any weakening of the full faith and credit of sovereign governments or the EU as very destabilizing to growth and democratic stability. So here we are in the USA, with our own awful debt crisis, and the possibility of default and one of  the two major parties is saying effectively: bring it on. Even more amazing, it is the conservative party that seeks the collapse of the global economy if they do not get their way on every single thing.

More on the Medicare-for-Revenues Swap Floated in Debt Limit Deal - Last week I noted that Max Baucus gave away the endgame in the debt limit talks – aside from the $1.5 trillion or so in spending cuts already agreed to, further cuts to Medicare would have to be teamed with co-equal increases in revenue. This would destroy the competitive advantage for 2012 by giving Republicans a get out of jail free card for their Medicare-ending budget. Instead, Republicans would excoriate their opponents for this new round of cuts to Medicare, something that won them the election in 2010 and which they continue to try in ads this year. It almost doesn’t matter what the substance of these cuts are; they will be spun by Republicans as “Medicare cuts that hurt seniors,” even though they would be voting for them as part of a deal.  Indeed, the $500 billion in cuts through ending Medicare Advantage overpayments and other payment reforms, which were in the Affordable Care Act, are also in the Paul Ryan budget that almost every Republican voted for, but that hasn’t stopped the parade of accusations.

Why The GOP's New Budget Idea = R.I.P USA - Is our 1937 moment in the not too distant future?  It’s beginning to look that way.  House Republicans are using the debt ceiling debate as their bargaining chip to “cut, cap and balance”.  According to The Hill this means:  Substantial cuts in spending that will reduce the deficit next year and thereafter.  Enforceable spending caps that will put federal spending on a path to a balanced budget.  Passage of a balanced-budget amendment to the U.S. Constitution — but only if it includes both a spending limitation and a supermajority for raising taxes, in addition to balancing revenues and expenses. Of course, this is all being done in the name of avoiding our inevitable insolvency (there’s no such thing as the USA running out of the currency it has a monopoly supply of, but that’s for another discussion).  As I’ve previously mentioned, when the private sector is desirous of paying down debt and acquiring increased savings that savings must come from somewhere.  The result of the balance sheet recession is that spenders have been forced to to turn into savers.  As the MMT work on sectoral balances proves, this savings must come from the foreign sector or the government sector.  With the US now running a current account deficit of 4% it is imperative that the government sector run a deficit in excess of 4% in order for the private sector to be able to save.  If this were not the case, the private sector would be forced into deficit and the economy would contract.  This occurred repeatedly in Japan in the 90′s and is currently occurring in the periphery nations of Europe.  Austerity is not helping as so many said it would in 2008.  Instead, it is causing near depression throughout the region.  Were it not for 10% budget deficits in the USA you can be certain that we would be suffering a similar economic decline.  Fortunately, we have not allowed ourselves to be scared by the persistent fear mongering with regards to our imminent (mythical) insolvency.

To the Limit, by Paul Krugman - In about a month, if nothing is done, the federal government will hit its legal debt limit. There will be dire consequences if this limit isn’t raised. At best, we’ll suffer an economic slowdown; at worst we’ll plunge back into the depths of the 2008-9 financial crisis.  So is a failure to raise the debt ceiling unthinkable? Not at all.  Many commentators remain complacent about the debt ceiling; the very gravity of the consequences if the ceiling isn’t raised, they say, ensures that in the end politicians will do what must be done. But this complacency misses two important facts about the situation: the extremism of the modern G.O.P., and the urgent need for President Obama to draw a line in the sand against further extortion.  Let’s talk about how we got here.

Is August 2 Or July 22 The Day The Government Turns Into A Budget Pumpkin? - There was some speculation last week that Treasury was about to announce that, because of higher revenue collections than had been expected, the day the federal government's cash needs would go critical would be changed from from the previously announced August 2 to August 22. That speculation was shown to be idle -- at best -- when Treasury released a statement yesterday saying that nothing had changed and August 2 was still the date.  A second date -- July 22 -- popped up in some news reports last last week and was immediately assumed by many to be the new drop dead date.  Not true: July 22 is the date the White House says a big budget deal has to be completed so that there's time to get the agreement drafted into legislative language and passed by both house before the government turns into a fiscal pumpkin on August 2.

What's a Crisis and What Isn't -Laura D’Andrea Tyson - Long term, the United States faces a fiscal challenge that must be tackled –- but it is not an immediate fiscal emergency. In the labor market, though, there is an immediate crisis, the worst since the Great Depression.  According to the latest estimates from the Congressional Budget Office, if current fiscal policies are maintained, federal debt held by the public could rise to an unprecedented 187 percent of gross domestic product in 2035 from 62 percent of gross domestic product at the end of 2010.  This is neither a desirable nor a sustainable outcome. Long before we got there, the United States would lose the confidence of investors, igniting a spike in interest rates, a collapse of the dollar, a global financial crisis and a devastating recession.  But with substantial excess capacity in the economy, there is no evidence that the federal deficit is driving up interest rates and crowding out private spending. What’s slowing the pace of recovery is not too much government borrowing but too little private spending.

14th Amendment Option: You Can't Demand Ransom If There's No Hostage - I have no doubt at this point that much of the talk about a 14th Amendment to the U.S. Constitution strategy to deal with the debt ceiling impasse is just being used for leverage. After all, we're still a month away from August 2 -- the date the Treasury currently says the finances of the United States will turn into a pumpkin and the country won't have enough cash to pay all its bills -- so there's still plenty of time to work out an agreement. Because of this, some of the daily developments relating to Section 4 of the 14th Amendment...which until CG&G's Bruce Bartlett raised it back in April has never before been much of a topic of discussion for budgeteers...has to be considered as negotiating rather than just analysis.  Nevertheless, some of what's happening is clearly having an impact on current thinking.

GOP compromise on debt: Cut military spending? - As President Obama prepares to meet Monday with Senate leaders to try to restart talks about the swollen national debt, some Republicans see a potential path to compromise: significant cuts in military spending. Senior GOP lawmakers and leadership aides said it would be far easier to build support for a debt-reduction package that cuts the Pentagon budget — a key Democratic demand — than one that raises revenue by tinkering with the tax code. Last week, Republicans walked out of talks led by Vice President Biden, insisting that the White House take tax increases off the table. In listening sessions with their rank and file, House Republican leaders said they have found a surprising willingness to consider defense cuts that would have been unthinkable five years ago, when they last controlled the House. While the sessions have sparked heated debate on many issues, Rep. Peter Roskam (Ill.), the deputy GOP whip, said there are few lawmakers left who view the Pentagon budget as sacrosanct.

Missing Iraq cash 'as high as $18bn' - Osama al-Nujaifi, the Iraqi parliament speaker, has told Al Jazeera that the amount of Iraqi money unaccounted for by the US is $18.7bn - three times more than the reported $6.6bn. Just before departing for a visit to the US, al-Nujaifi said that he has received a report this week based on information from US and Iraqi auditors that the amount of money withdrawn from a fund from Iraqi oil proceeds, but unaccounted for, is much more than the $6.6bn reported missing last week. The Los Angeles Times reported last week that Iraqi officials argue that the US government was supposed to safeguard the stash under a 2004 legal agreement it signed with Iraq, hence making Washington responsible for the cash that has disappeared. Pentagon officials have contended for the last six years that they could account for the money if given enough time to track down the records. The US has audited the money three times, but has still not been able to say exactly where it went.

War costing US at least $3.7 trillion - When President Barack Obama cited cost as a reason to bring troops home from Afghanistan, he referred to a $1 trillion price tag for America’s wars. Staggering as it is, that figure grossly underestimates the total cost of wars in Iraq, Afghanistan and Pakistan to the U.S. Treasury and ignores more imposing costs yet to come, according to a study released Wednesday. The final bill will run at least $3.7 trillion and could reach as high as $4.4 trillion, according to the research project “Costs of War” by Brown University’s Watson Institute for International Studies. ( In the 10 years since U.S. troops went into Afghanistan to root out the al Qaeda leaders behind the Sept. 11, 2001 attacks, spending on the conflicts totaled $2.3 trillion to $2.7 trillion.

‘War on terror’ set to surpass cost of Second World War - The total cost to America of its wars in Iraq and Afghanistan, plus the related military operations in Pakistan, is set to exceed $4 trillion – more than three times the sum so far authorised by Congress in the decade since the 9/11 attacks. This staggering sum emerges from a new study by academics at the Ivy-league Brown University that reveals the $1.3 trillion officially appropriated on Capitol Hill is the tip of a spending iceberg. If other Pentagon outlays, interest payments on money borrowed to finance the wars, and the $400bn estimated to have been spent on the domestic "war on terror", the total cost is already somewhere between $2.3 and $2.7 trillion.  And even though the wars are now winding down, add in future military spending and above all the cost of looking after veterans, disabled and otherwise and the total bill will be somewhere between $3.7 trillion and $4.4 trillion.

Cost of Wars May Exceed $6 Trillion - A new report from Brown University's Watson Institute for International Studies estimates that the total direct and indirect costs of the wars in Iraq and Afghanistan may exceed $6 trillion over time. That figure comes from combining congressional appropriations for the wars over the past decade ($1.3 trillion), additional spending by the Pentagon related to the wars ($326 - $652 billion), interest so far on Pentagon war appropriations, all of which was borrowed ($185  billion), immediate medical costs for veterans ($32 billion), war related foreign aid ($74 billion), homeland security spending ($401 billion), projected medical costs for veterans through 2051 ($589 - $934 billion), social costs to military families ($295 - $400 billion), projected Pentagon war spending and foreign aid as troops wind down in the two war zones ($453 billion); and interest payments on all this spending through 2020 ($1 trillion). The report also includes some sobering statistics about the human costs of the war, which the media and government sources have also tended to underestimate. In particular, the report tallies the number of U.S. contractors killed (2,300) and wounded (51,031), casualties barely mentioned at all even as we hear often about the tally of dead U.S. soldiers (6,051). In addition, the number of U.S. soldiers wounded in the war zones is extremely high, in part because of advances in trauma medicine: 99,065. Many of these wounded veterans will require care for the rest of their lives and those costs are a key reason for the very high long-term costs of the war. Finally, the overseas civilian casualties of the wars have been considerable, on top of the 3,000 Americans killed on September 11, 2001: 174,500 in Iraq, Afghanistan, and Pakistan, with most of these deaths in Iraq. In addition, some 7.8 million people have been forced from their homes and displaced by the wars.

Among The Costs Of War: $20B In Air Conditioning - The amount the U.S. military spends annually on air conditioning in Iraq and Afghanistan: $20.2 billion. That's more than NASA's budget. It's more than BP has paid so far for damage during the Gulf oil spill. It's what the G-8 has pledged to help foster new democracies in Egypt and Tunisia. "When you consider the cost to deliver the fuel to some of the most isolated places in the world — escorting, command and control, medevac support — when you throw all that infrastructure in, we're talking over $20 billion," Steven Anderson tells weekends on All Things Considered guest host Rachel Martin. Anderson is a retired brigadier general who served as Gen. David Patreaus' chief logistician in Iraq. Why does it cost so much? To power an air conditioner at a remote outpost in land-locked Afghanistan, a gallon of fuel has to be shipped into Karachi, Pakistan, then driven 800 miles over 18 days to Afghanistan on roads that are sometimes little more than "improved goat trails," Anderson says. "And you've got risks that are associated with moving the fuel almost every mile of the way."

What we could have bought with the $4 trillion we spent on Iraq and Afghanistan - Here's a look at what we could have done with that money, had we spent it on something besides stoking Americans' confusion over whether or not the world's 1.5 billion 'Muslims' are in fact a monolithic group whose every member is a terrorist.

  • Provide 280 million people with 100 percent renewable energy (based on this study of moving the entire planet to renewables).

  • Pay for America's entire high-speed rail system eight times over -- and that's according to a deliberately high, rail-hostile estimate from the CATO institute.

  • Pay for a comprehensive preschool system for every child in America 40 times over. Preschool has been shown to be one of the single most effective interventions for disadvantaged children. (Universal preschool would cost $100 billion, according to NPR's Planet Money.)

  • Wipe out our entire yearly trade imbalance with China 14 times over -- if we gave the money to China, and we could force its citizens to use the money to buy our stuff, anyway

  • Pay off almost half the mortgages in the U.S. If we spent this money on ourselves instead of our overseas escapades, it would mean something like 18 million households could start living rent-free. (Total U.S. mortgage debt is around $10 trillion.)

CBO’s Analysis of DoD’s Future Years Defense Program - CBO Director's Blog - In most years, the Department of Defense (DoD) provides a five- or six-year plan, called the Future Years Defense Program (FYDP), associated with the budget it submits to the Congress. Because decisions made in the near term can have consequences for the defense budget well beyond that period, CBO—at the request of the Senate Budget Committee—has examined the programs and plans contained in DoD's latest FYDP (issued in April 2011) and projected their budgetary impact in subsequent years. Today’s study is the newest in an annual series and updates the projections contained in CBO's Long-Term Implications of the Fiscal Year 2011 Defense Budget, published in February 2011. In February 2011, DoD requested an appropriation of $671 billion for 2012. Of that amount, $554 billion was to fund the "base" programs that constitute the department’s normal activities, such as the development and procurement of weapon systems and day-to-day operations of the military and civilian workforce. The remaining $118 billion was requested to pay for overseas contingency operations—the wars in Afghanistan and Iraq and other military activities elsewhere.

Pentagon costs rising fast, CBO warns - The Congressional Budget Office on Thursday projected that higher costs for weapons systems and health care will increase the Pentagon budget by $40 billion over the next five years at a time when President Obama and many lawmakers are looking to cut military spending. The new projection, of $594 billion in spending for 2016, is $25 billion higher than the Pentagon’s estimates.The report notes that health-care costs for the Defense Department have outpaced those elsewhere. It also says that “the costs of developing and buying weapons have historically been, on average, 20 percent to 30 percent higher” than Pentagon estimates. Defense officials already were concerned about the rapid growth of the Military Health Care System. Next year’s request for $51 billion represents about 9 percent of the overall Defense Department base budget. If no steps are taken to halt the growth of the health-care program, the nonpartisan CBO projects that costs would grow to $92 billion by 2030, nearly double the amount requested for fiscal 2012.

The Deficit Is Worse Than We Think = Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. The 10-year rise in interest expense would be $4.9 trillion higher under "normalized" rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market. To some extent this is a controllable risk. The Federal Reserve could act aggressively by purchasing even more bonds, or targeting rates further out on the yield curve, to slow any rise in the cost of Treasury borrowing. Of course, this carries its own set of risks, not the least among them an adverse reaction by our lenders. Suffice it to say, though, that given all that is at stake, Fed interest-rate policy will increasingly have to factor in the effects of any rate hike on the fiscal position of the Treasury

Low Interest Rates Conceal A Bigger National Debt - Former White House economist Larry Lindsey took to The Wall Street Journal’s op-ed page today to show how the nation’s debt is actually much worse than most experts think. As interest rates start to rise from their current low levels, total federal spending will also increase substantially because the U.S. will have to pay more in interest on its debt obligations. Here’s Lindsey: At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. The 10-year rise in interest expense would be $4.9 trillion higher under "normalized" rates than under the current cost of borrowing.  An extra $5 trillion over 10 years is an astonishingly high figure. Current plans to balance the budget are politically unpalatable, which makes it difficult to imagine what austerity plan would be required to rein in spending if interest rates were to spike in the near to medium term.

Obama debt-panel leaders: Make $2T in cuts -- Democrats ought to agree to GOP lawmakers' demands for $2 trillion in spending cuts over 10 years, the heads of U.S. President Barack Obama's fiscal panel said. The money would be a "down payment" on "a $4 trillion-plus, gimmick-free fiscal consolidation package that stabilizes and then reduces our debt as a share of the economy," Erskine Bowles, White House chief of staff in the Clinton administration, and former Sen. Alan Simpson, R-Wyo., said in an op-ed piece published in The Hill Tuesday. A fiscal consolidation package is "what this country needs -- and what the American people deserve," they said. But a fiscal overhaul can't be done by the Aug. 2 deadline when the U.S. Treasury Department says the federal government faces default if the $14.3 trillion debt ceiling isn't raised, Bowles and Simpson said. Hence, a two-part approach, they said.

This Is Very Bad: Barack Obama Fail Department, by Brad DeLong: Can't anybody in the White House play this game? Barack Obama Transcripts: There are a lot of folks out there who are still struggling with the effects of the recession. Many people are still looking for work or looking for a job that pays more. ...But there are ... steps that we can take right now that would help... Of course, one of the most important and urgent things we can do for the economy is something that both parties are working on right now, and that's reducing our nation's deficit... No. No. No. No. No. No. NO. NO!!!!!!!!! Absolutely the last thing, the last thing, the country needs is to cut federal spending or raise taxes in fiscal 2011, 2012, and it is now looking like fiscal 2013 as well. Absolutely the last thing the country needs. It gets worse. Obama:[B]ecause of the work that's been done, I think we can actually bridge our differences. ... Nobody wants to put the creditworthiness of the United States in jeopardy. Nobody wants to see the United States default. ... Does Obama read? There are some people who are looking forward to a default.

Barack Herbert Hoover Obama -  Krugman - From today’s radio address: Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.  Yep, the false government-family equivalence, the myth of expansionary austerity, and the confidence fairy, all in just two sentences. Read this and this to see why he’s wrong. This is truly a tragedy: the great progressive hope (well, I did warn people) is falling all over himself to endorse right-wing economic fallacies.

The 11th hour stimulus push - Recovery Act money has dried up. The Fed's bond buying program will end this month. Economic growth remains anemic, and there are signs of further slowing. What's a government to do? After all, the U.S. spent trillions of dollars in the wake of the financial crisis to put its thumb in the dike and get the economy back on track. Enter Senate Democrats. Harry Reid and company are starting to talk about a basket of measures they say will stimulate the economy: a payroll tax cut, a tax holiday for corporate profits held overseas and infrastructure and green energy investments. Thanks to the tax deal struck in late 2010, workers are enjoying bigger paychecks this year. Employees normally pay 6.2% on their first $106,800 of wages into Social Security, but they are now paying only 4.2%. That tax break is set to expire at the end of the year, and Democrats would like to extend it. The White House has even floated the idea of extending the measure to employers. Republicans have been cool to the idea so far.

Two Can Play This Game - Pimco's Bill Gross recently published School Daze, School Daze, Good Old Golden Rule Days. Like all those who think America's problems can be fixed, Bill had some excellent insights into the problems themselves, but advocated solutions (an infrastructure investment bank, government work programs) which don't have a snowball's chance in Hell of actually being implemented. Thus Bill did not get at why real change is impossible in the United States. There is seemingly an endless supply of commentary of this sort. Yves Smith of Naked Capitalism picked up the ball and ran with it, citing Marshall Auerback of New Deal 2.0. Apparently, now is the time to bring back Franklin Roosevelt's policies. Bill Gross cited GE’s Jeff Immelt, Fareed Zakaria, Jeffrey Sachs and Paul Krugman. Jobs outsourcer Jeff Immelt? Capitalist cheerleader and Newsweek airhead Fareed Zakaria? Needless to say, inconsistencies, implausibilities and absurdities don't matter when, like Bluto in Animal House, you're on a roll.

Wrong To Be Right - Paul Krugman - Atrios is annoyed at David Wessel, and rightly so. I’d summarize Wessel’s column a bit differently: it’s roughly “Some people thought from the beginning that the stimulus should have been much bigger. Hahaha! Also, it turns out that the stimulus was too small, so we need some more.”  This is actually a fairly familiar thing from my years as a pundit: the surest way to get branded as not Serious is to figure things out too soon.  But something else struck me about Wessel’s piece: among the things he suggests to raise employment is passing more free trade agreements. Where did that come from? The case for free trade is about microeconomics, about raising efficiency. There’s no particular reason to think that trade liberalization is good for fixing problems of inadequate demand. I mean, you learn in Econ 101 that aggregate spending is Y = C+I+G+X-M; that is, consumer spending, plus investment spending, plus government purchases, plus exports, minus imports. Trade liberalization raises X, but it also raises M. For any individual county it can go either way; for the world as a whole it’s a wash, since total exports equal total imports.

A Small Note on the Stimulus Debate - Krugman - One small followup on the issue of being prematurely right about the stimulus being too small: you might think that hippies like me were basing their views on some wild and crazy, unorthodox version of economics, while the wise, judicious people who thought that $787 billion was just right were using standard analysis. But actually it was the other way around. The case for a much bigger stimulus came out of basic textbook macroeconomics, and could be justified by fancier but still standard models as well. The argument for doing much less was, by contrast, based on a combination of seat of the pants intuition and political symbolism: policy makers believed, based on no evidence, that a big stimulus would unnerve the bond market, and/or that a temporary boost would be enough to restore all-important confidence, or that it was politically crucial that the number be well under the magic $1 trillion mark.

The Big Interview with Barton Biggs -- Barton Biggs is the second market professional I have seen in recent weeks unexpectedly espousing public works programs to deal with the jobs crisis. First, it was Bill Gross talking about a job guarantee and public works programs. Now, we’ve got Barton Biggs doing the same thing. Biggs spoke to the Wall Street Journal’s Simon Constable saying the U.S. needs to invest in a massive public works program, and that rich people and corporations should pay more taxes.  In this week’s Big Interview, Barton Biggs has a lot more to say too. But the works progam stuff is what stands out and what the WSJ has stressed as well. Video below.

Hedge Fund Hippies - Krugman - Noted: Don’t expect the economy to perk up any time soon. The U.S. and Europe are set to grow at an anemic pace for the foreseeable future unless the government can step in with an enormous fiscal stimulus, according to a veteran investor. Barton Biggs, managing partner at multibillion dollar hedge fund Traxis Partners, painted a bleak outlook for the developed world with only huge government intervention likely to improve things. Mr. Biggs, former chief global strategist for U.S. investment banking powerhouse Morgan Stanley, demanded the U.S. government temporarily return to ideas used in the Great Depression as a way to get the country back to higher growth. “What the U.S. really needs is a massive infrastructure program … similar to the WPA back in the 1930s,” he says. The plan would be to employ some of the many unemployed people, jump start the economy, as well as help catch up with Asia, which is building state-of-the-art infrastructure from new mechanized port facilities to high-speed trains. He suggested financing such building through the sale of U.S. Treasuries.  But as we know, only bearded hippies professors who don’t know anything about the real world of big money say things like this.

Orzag for State-Contingent Stimulus -In a column for Bloomberg, former CBO chief and White House budget director Peter Orszag writes:...[P]olicy makers should provide additional macroeconomic support in 2012 by extending the existing payroll tax holiday. But more than that, Congress should link the payroll tax to the unemployment rate. This would allow the tax holiday to automatically calibrate itself to existing conditions, providing support only when the economy is weak. If necessary, the underlying payroll tax rate could be raised to make this mechanism budget-neutral. As I said back in April, one of the main lessons I've drawn from recent experience is that the recovery act would have been much better if the support for the economy had been made state-contingent like this.  This is a way of overcoming two problems: (i) uncertainty about the speed of recovery (or lack thereof) and (ii) the political system's utter inability to deal with timing issues (nicely explained in Orszag's piece), as evidenced by the absurdity that it appears that we are heading for significant fiscal tightening even as nearly 14 million people remain unemployed.

New federal budget charts with latest CBO data - Last year I made some handy charts with CBO’s long-term budget outlook. In various ways they were better than the charts CBO made available. Judging from their popularity on the internet, I’d say people liked them. Here are updates of them using the 2011 projection. A key difference between these figures and last year’s is that CBO included a year-by-year long-term forecast of interest on the debt, which as far as I know they’ve never done before (and, I’ll add, is something that really annoyed me). So, these figures show both the primary budget (all non-interest spending) and the total budget (which includes interest spending). After the figures are my brief thoughts, all of which I’ve expressed before.

A fiscal policy fit for the next crisis - The debt-ceiling talks in Washington have stumbled again. The sticking point, as before, is taxes. Republicans refuse to raise them and Democrats are insisting on it. The drama and the walkouts are part of the show: in all likelihood a deal of some sort will still be struck before the August 2 deadline. Whether it is a good deal for the country is another question. A good deal means avoiding abrupt fiscal tightening in the short term – a point Federal Reserve chairman Ben Bernanke emphasised last week – while bringing long-term public borrowing under control. These arguments are well understood, even if the country’s politicians are ignoring them. Another topic, though, has received no attention at all. It is at least as important. This is the issue of fiscal capacity. By this I do not just mean getting public debt back under control. That matters, obviously. To retain counter-cyclical fiscal policy as an option in the next recession, the debt ratio will have to fall. The Congressional Budget Office just estimated that on unchanged policies, the ratio of public debt to gross domestic product would be 100 per cent by around 2020 and would then rise literally off the chart, making activist fiscal policy impossible. This is the argument for fiscal control that Democrats should have been making all along, and still are not. Important as it will be to get the debt ratio down, thus re-arming fiscal policy for future use, the question of fiscal capacity – the ability to respond to economic downturns with fiscal countermeasures – goes further.

How to Achieve a Sustainable Budget Deficit -The United States budget deficit has become a crucial issue lately, and not just because it’s about to put us over the debt limit. The concern is not so much that the deficit is unusually large right now, as we’re still recovering from an unusually bad recession. The problem is that over the next several decades, even if the economy moves back to full employment, the fiscal outlook looks unsustainable. What does an unsustainable budget look like? Imagine that Uncle Sam takes out a loan (the national debt) to buy an investment (the US economy). As long as the economy grows faster than the debt, everything’s great. Even when Uncle Sam falls short on his monthly payments and borrows even more to make up the difference (the federal deficit), lenders aren’t going to panic as long as the economy keeps growing faster than the debt. Everyone knows Uncle Sam is getting richer, so he can afford the bigger debt.

Spending in Disguise - Republicans are demanding a deficit-reduction package that’s entirely spending cuts. Democrats insist that revenues must also be included. Are these positions completely irreconcilable? Not if both sides are willing to attack the spending hidden in our tax code. I explore this idea for finding common ground in a new essay in National Affairs, “Spending in Disguise”: A great deal of government spending is hidden in the federal tax code in the form of deductions, credits, and other preferences that seem like they let taxpayers keep their own money but are actually spending in disguise. Those preferences complicate the code and often needlessly distort family and business decisions. Their magnitude raises the possibility of a dramatic reform of the tax code—making it simpler, fairer, and more pro-growth—that would amount to both cutting spending and increasing government revenue at once, and without raising tax rates.

The ‘Tastes Great, Less Filling’ Approach to Cutting the Deficit - I’ve often remarked that fiscal responsibility seems like a great idea — until you get right down to it. While policymakers are quick to promote themselves as fiscally responsible in the abstract, they loathe having to talk about the specific policies and hard choices that would actually reduce the deficit. Discussion of the particular solutions, like painful tax increases and spending cuts, calls attention to the mutual-sacrifice costs more than the common-good benefits. And tax increases are seen as directly contrary to the Republican antitax, free-market orthodoxy, just as spending cuts go against the Democratic ideal of a proactive and progressive government. That is, unless the tax increases are really spending cuts, and unless the spending cuts aren’t the usual kind of spending cuts. I refer to the tax increases and spending cuts that would result from reducing tax expenditures — the subsidies that are run through the tax code via exemptions, deductions, credits, and preferential tax rates. Reducing tax expenditures is a strategy that I believe is an essential component of any bipartisan solution to the deficit problem.

A Tax By Any Other Name - If I understand correctly, Congressional Republicans will not support job killing tax increases of any kind as part of a plan to reduce the federal deficit. They may, however, support non-job killing revenue raisers.  Newspapers are full of unnamed GOP sources talking about how the leadership might sign on to (or at least not object to) such ideas as ending some ethanol subsidies or changing the way business inventories are taxed. More broadly, Marty Feldstein, who was President Reagan’s chief economic adviser, has proposed limiting the benefit of individual tax preferences. There are many ways to curb the value of deductions and credits. In his recent budgets, President Obama proposed capping their economic value at 28 percent for those in the top two tax brackets. More recently, Obama aides have talked about curbing tax breaks for those making $500,000 or more. Feldstein would cap deductions at no more than 2 percent of income for all taxpayers. There are important differences among these ideas. While they all seem very complicated, each could generate substantial new revenues without raising tax rates.

Will Higher Taxes Tank the Economy? - The main sticking point in negotiations between Republicans and Democrats on deficit reduction measures to accompany a rise in the debt limit is whether higher revenues should make any contribution. A key Republican concern is that any tax increase would depress the economy.Given the slow patch that the economy is going through, any realistic threat to growth is one that has to be taken seriously. But the Republican position that spending cuts are expansionary while tax increases are depressing is not logically consistent. Both spending cuts and tax increases affect the economy in roughly the same way in the short run – by reducing aggregate demand. Fiscal contraction, whether on the tax side or the spending side, will have a negative effect under current economic conditions.

Today's WSJ Supply-Side Nonsense - The Wall Street Journal's editorial today plumping for higher economic growth through -- you'll never guess -- regressive tax cuts exposes the largest current logical problem at the heart of the anti-tax argument: a failure to acknowledge that the Bush tax cuts are currently in place. Here's the Journal insisting that ... the problem with the budget right now is that we're growing too slowly. Right. We're growing really slowly even though the Bush tax cuts have been in place since 2001, and the beloved super-regressive second round of Bush tax cuts since 2003. That would suggest that the Bush tax cuts are not the cure for slow economic growth.

The Payroll Tax Needs a Vacation-  Almost 14 million people were officially counted as unemployed last month. There were almost 9 million part-time workers who wanted, but couldn’t find, full-time jobs; 28 million in jobs they would have quit under normal conditions; and an additional 2.2 million who wanted work but couldn’t find any and dropped out of the labor force. If the economy could generate jobs at the median wage for even half of these people, national income would grow by more than 10 times the total interest cost of the 2011 deficit (which was less than $40 billion). So anyone who says that reducing the deficit is more urgent than reducing unemployment is saying, in effect, that we should burn hundreds of billions of dollars worth of goods and services in a national bonfire. We ought to be tackling both problems at once. But in today’s fractious political climate, many promising dual-purpose remedies — like infrastructure investments that would generate large and rapid returns — are called unthinkable.

Fed’s Kocherlakota Calls on Congress to Change Tax System - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota called on Congress to change the nation’s tax system in a way that discourages banks and households from accumulating debt. Consumer and bank leverage reduce stability in the financial industry and increase the potential for a crisis like the one that struck the U.S. from 2007 to 2009, Kocherlakota said today in a speech in Big Sky, Montana. Regulators are trying to avert a repeat of the turmoil that began with the collapse of the U.S. subprime-lending market and that has led to $2.08 trillion of writedowns and credit losses at financial firms. The regulatory overhaul signed into law last year by President Barack Obama makes the Fed supervisor for institutions deemed systemically important. “The U.S. tax system encourages leverage by providing incentives for households to take on more mortgage debt and financial institutions to finance through debt,” Kocherlakota said in remarks to the Colorado, Montana & Wyoming Bankers Associations. It does so “even though both are potentially destabilizing.”

2011: The Number of Pages in the U.S. Tax Code - For a Fourth of July challenge, how many pages does it take for the CCH Standard Tax Reporter to fully document the U.S. tax code as it stands in 2011?  If you answered 72,536, you're right. Note that we didn't say "you win"!...

Why Nobody Understands the Income Tax: The Case of the Homebuyer Credit - After the American housing market collapsed, Congress decided in 2008 to encourage people to buy homes by offering a tax credit of up to $7,500 to first-time buyers in the last nine months of 2008 and the first half of 2009. (Buyers in the second period later got a better deal from the 2009 stimulus act, in some cases retroactively.) As many as a million taxpayers took advantage of that offer, even though they would have to repay the credit later. When the housing market failed to recover, Congress upped the ante. People buying their first homes during the first 11 months of 2009 could get as much as $8,000, this time as an outright gift—they wouldn’t have to repay it. When that, too, failed to jumpstart the economy, Congress extended the offer through April 2010. This time, even people who had owned a home for at least five years could take the credit for buying a new house but Congress sliced the maximum benefit to $6,500 for those repeat buyers. You had to close any deals by June 30, unless you couldn’t, in which case you had until September 30. And if you were in the military, the Foreign Service, or the intelligence community and serving overseas, all the deadlines were pushed out a year.

Who Doesn’t Pay Federal Income Taxes (Legally) - Senator Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, recently asserted that it was appalling that about half of all those who file federal income tax returns pay nothing and said this was proof that income taxes must not be raised to reduce the deficit, because the burden would necessarily fall on just half of households. But the growth of the non-income-taxpaying population is largely a result of Republican tax policies. The earned-income tax credit is the main reason those with low incomes are largely exempted from federal income taxes. Originated by Gerald Ford, it was expanded by both Ronald Reagan and George H.W. Bush as a better way to help the working poor than raising the minimum wage, which they believed would increase unemployment. According to the Tax Foundation, in 1974, before the earned-income tax credit was instituted, 19.2 percent of tax filers had no federal income tax liability. This rose to 25.2 percent in 1975 when the credit took effect.

78,000 tax filers with incomes of $211,000 to $533,000 who will pay no federal income taxes this year - Bruce Bartlett talks about who does and doesn't pay federal taxes, and notes that "the growth of the non-income-taxpaying population is largely a result of Republican tax policies." He also notes that: There are 78,000 tax filers with incomes of $211,000 to $533,000 who will pay no federal income taxes this year. Even more amazingly, there are 24,000 households with incomes of $533,000 to $2.2 million with zero income tax liability, and 3,000 tax filers with incomes above $2.2 million with the same federal income tax liability as most of those with incomes barely above the poverty level.

Obama: 'It's Only Fair' to Ask Rich to Give Up Tax Breaks… Rejecting Republican demands for massive cuts in federal programs while maintaining tax breaks for the wealthy as not “sustainable,” President Obama used a press conference Wednesday to argue that serious negotiations about balancing the budget and addressing deficits and debt must include plans to end tax breaks for “millionaires and billionaires, oil companies and corporate jet owners.” Making the case that new tax revenue will be needed—in combination with cuts—to achieve even a measure of balance in budgeting, Obama said, “You can’t reduce the deficit without having some revenue in the mix. And the revenue we’re talking about…is coming out of folks who are doing extraordinarily well.”  Rejecting the notion that there is anything “radical” about demandig that the wealthiest Americans share the sacrifice that is being demanded of working Americans, the president explained: “If you are a wealthy CEO or hedge fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the 1950s. And they can afford it. You can still ride on your corporate jet. You’re just going to have to pay a little more

Americans Support Higher Taxes. Really. - Contrary to Republican dogma, polls show that the American people strongly support higher taxes to reduce the deficit and improve income inequality. Following are 19 different polls since the first of the year that say so.

Biggest Tax Avoiders Win Most Gaming $1 Trillion U.S. Tax Break - Cisco Systems Inc. (CSCO) has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people. Now Cisco, the largest maker of networking equipment, wants to save even more -- by asking Congress to waive most federal taxes due when multinationals bring such offshore earnings home. Chief Executive Officer John T. Chambers has led the charge for the tax holiday, which would be the second since 2004. He says it would encourage companies to “repatriate” as much as $1 trillion held abroad, spur domestic investment and create jobs. Cisco’s techniques cut the effective tax rate on its reported international income to about 5 percent since 2008 by moving profits from roughly $20 billion in annual global sales through the Netherlands, Switzerland and Bermuda, according to its records in four countries. The maneuvers, permitted by tax law, show how companies that use such strategies most aggressively would get the biggest benefit from the holiday, said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles. “Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?”

A Tax Holiday for Repatriated Corporate Profits: The Costs Exceed the Benefits - As Bloomberg’s Jesse Drucker notes today, corporations are lobbying for a tax holiday on repatriated profits. First, on the benefits, how much investment and job creation would we expect from this? If firms were short of cash, and that shortage was constraining their ability to invest, then having a new source of cash could have a large effect on investment. But available cash is not a problem right now. Firms are sitting on mountains of cash — they have all the resources they need to make investments already — and making the mountain a little bit higher isn’t going to change much. Furthermore, we have some experience with this. A similar tax holiday was enacted in 2004, and the same promises were made about investment and job creation. But the evidence shows that “firms mostly used the repatriated earnings not to invest in U.S. jobs or growth but for purposes such as repurchasing their own stock and paying bigger dividends to their shareholders. Moreover, many firms actually laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders.”

Don’t Fall for a Repatriation Holiday - Recent weeks has brought much chatter — from both Republicans and Democrats — about offering companies a temporary tax holiday for repatriating foreign earnings. A typical proposal would effectively tax any repatriated earnings at 5.25% this year, rather than the usual rates which can be as a high as 35%. Proponents tout this as a form of economic stimulus. But, as my Tax Policy Center colleagues Bill Gale and Ben Harris point out, that’s doubtful. In “Don’t Fall for Repatriation” at Politico, they say: In addition, firms are unlikely to invest the repatriated funds. Congress passed a similar repatriation tax holiday in 2004 and required firms to create domestic jobs or make new domestic investments to get the tax break. Nonetheless, the firms, on average, used the tax break to repurchase shares or pay dividends — not to increase investment. Bill and Ben also note the costs of a repatriation holiday: First, allowing repatriation today means less taxable corporate profits in the future — which would translate into less government revenue.Second, and perhaps even more costly than the lost revenue, would be the dangerous precedent that firms would expect regular repatriation holidays

Repatriation is the Last Refuge of Scoundrels - Krugman - OK, not quite. But the idea of granting a tax holiday for corporations that repatriate income they’ve kept overseas, and on which they have avoided taxes, is one of the worst ideas I’ve heard in a long time. (And that’s saying something in these days and times). It figures, then, that my politically clued-in friends tell me that it’s an idea gaining lots of support on the Hill, even among progressives. So, what’s wrong with this, aside from the fact that any short-term gain in revenue will be much more than offset by future losses? The answer is, it would do absolutely nothing — zip, zero — for job creation.  But, say the advocates, it would put cash in the hands of businesses, which would then invest that cash, right? Um, aren’t people reading the financial news? Major corporations — and this is what we’re talking about — are awash in cash, which they aren’t investing in new plant and equipment because they don’t see enough consumer demand to justify expanding capacity. Instead, they’re paying down debt, buying back their own stock, and in general using cash for just about everything except job creation.

Cash Is Not the Problem - Krugman - A couple of followups to my repatriation post. First, are corporations really awash in cash? Yes. Here’s corporate cash flow versus business investment spending; since not all investment spending comes from corporations, this actually understates the degree to which corporations are taking in more cash than they are willing to invest: Second, banks are also sitting on large amounts of cash that they aren’t lending: These aren’t abstruse points. On the contrary, the fact that corporations aren’t investing as much as they could has become a major right-wing talking point, with repeated claims that companies are holding back because of political uncertainty. Actually, they’re holding back because they don’t see enough consumer demand — but in any case, cash is not the problem.

Geithner to Exit? - Timothy Geithner may take the second half of the summer off. Bloomberg is reporting that the Treasury Secretary is considering leaving his post after the debt ceiling debate is resolved. The deadline for that is August 2nd. After that, the government can't pay its bills. That puts Geithner out the door sometime in the next few weeks. The striking thing about that the news is how many economic advisors have fled or left the Obama administration recently. Geithner like the others is citing personal reasons. His son wants to finish high school in New York. But you have to credit the weak economic condition for some of this, and Obama's inability to do more to lower the unemployment rate. Bloomberg says Geithner's exit would leave two top economic positions open. But it will really be three. The head of the Council of Economic Advisors, which is being vacated by Austin Goolsbee, the Treasury Secretary job and the head of the Consumer Financial Protection Agency.

Goolsbee: Talk of Geithner Leaving Is ‘Bit of a Surprise’ - Mr.  Goolsbee, chairman of the White House Council of Economic Advisers, said it was a “bit of a surprise” for him to hear of reports suggesting Mr. Geithner was thinking of leaving. Mr. Goolsbee, speaking on CNBC, said he hadn’t heard from Mr. Geithner on the topic. He called Mr. Geithner a good friend, adding: “I feel like “we’ve been through at least two or three wars together.”   Goolsbee and Geithner have served during the U.S.’s worst economic downturn since the Great Depression. In recent weeks, Mr. Geithner’s “overwhelming focus” has been on getting Congress to agree to raise the nation’s debt ceiling. Failure to do so, the Treasury secretary has warned, would have catastrophic economic consequences.

Geithner Staying (for Now) - Treasury1 Secretary Timothy F. Geithner2 said Thursday that he planned to stay in his job “for the foreseeable future.”  Normally, that would not qualify as news. But Mr. Geithner’s comments came in a frenzied afternoon of speculation after news reports that he was considering leaving the Obama administration in the coming months, after a deal is reached with Congress to reduce the budget deficit.  Mr. Geithner’s comments, made at a conference in Chicago organized by former President Bill Clinton, were clearly intended to douse that speculation, underscoring how worried the White House is about the potentially destabilizing effect of his departure as it struggles with a fragile recovery and holds tough negotiations with Congress to avert a debt crisis.  “I live for this work, it’s the only work I’ve done, and I believe in it,” Mr. Geithner said in reply to a question from Mr. Clinton about his career plans. “I’m going to be doing it for the foreseeable future.”

Barack Obama And Wall Street — A Lover's Quarrel - Americans do not want to face up to their problems. This unpleasant fact almost goes without saying, but there is complexity. The owners of this country set the agenda through the media, and even in the best of societies most people will never be conscious enough to question the twaddle they are bombarded with every day. However, the educated "management" class in this country also accepts this nonsense without question. I am fond of the word corruption. I use it frequently because the shoe fits. When Americans refuse to acknowledge their problems, they are refusing to see that politics is the servant of money. Campaign contributions are bribes. This should be simple to understand, but the wall of denial is impenetrable. Americans are aware that their interests are not being served, but will not ask themselves why. Their self-deception about how this country works is perfect. Thus, the vast majority of Americans watching the Daily Ticker video below would not notice that anything is amiss. Wall Street money guy Steven Rattner joined Dan Gross and Aaron Task to ask Obama & Wall Street: Is the Love Affair Really Over?

Thomas Curry to Head Currency Comptroller’s Office - President Obama1 announced Friday that he would nominate Thomas J. Curry to lead the Office of the Comptroller of the Currency2, which oversees hundreds of national banks, including the giants Bank of America, JPMorgan Chase and Wells Fargo. Mr. Curry, a longtime state banking regulator in Massachusetts, has served for the last seven years as one of the five directors of the Federal Deposit Insurance Corporation.  Mr. Curry’s nomination responds to the demands of Senate Democrats that the White House replace the acting head of the comptroller’s office, John G. Walsh, whom they regard as obstructing key aspects of the law passed last year to overhaul financial regulation3.

The U.S. Is a Kleptocracy, Too - Yesterday, I noted that Greece Is a Kleptocracy; the U.S. is a kleptocracy, too. Before you object with a florid speech about the Bill of Rights and free enterprise, please consider the following evidence that the U.S. is now a kleptocracy worthy of comparison to Greece:

  • 1. Neither party has any interest in limiting the banking/financial cartel. The original Glass-Steagal bill partitioning investment banking from commercial banking was a few pages long, and it was passed in a few days. Our present political oligrachy spends months passing thousands of pages of complex legislation that accomplishes essentially nothing.
  • 2. Our stock markets are dominated by insiders. It is estimated that some 70% of all shares traded are exchanged in private "dark pools" operated by the TBTF banks and Wall Street, and the majority of the remaining 30% of publicly traded shares are traded by high-frequency trading machines that hold the shares for a few seconds, or however long is needed to skim the advantages offered by proximity to the exchange and speed.
  • 3. The rule of law in the U.S. has been divided into two branches: one in name only for the financial Elites and corporate cartels, and one for the rest of us mere citizens.
  • 4. Just as in Greece, taxes are optional for the nation's financial Elites.

Special Report: A little house of secrets on the Great Plains… (Reuters Investigation) - The secretive business havens of Cyprus and the Cayman Islands face a potent rival: Cheyenne, Wyoming. At a single address in this sleepy city of 60,000 people, more than 2,000 companies are registered. The building, 2710 Thomes Avenue, isn't a shimmering skyscraper filled with A-list corporations. It's a 1,700-square-foot brick house with a manicured lawn, a few blocks from the State Capitol. Neighbors say they see little activity there besides regular mail deliveries and a woman who steps outside for smoke breaks. Inside, however, the walls of the main room are covered floor to ceiling with numbered mailboxes labeled as corporate "suites." A bulky copy machine sits in the kitchen. In the living room, a woman in a headset answers calls and sorts bushels of mail. A Reuters investigation has found the house at 2710 Thomes Avenue serves as a little Cayman Island on the Great Plains. It is the headquarters for Wyoming Corporate Services, a business-incorporation specialist that establishes firms which can be used as "shell" companies, paper entities able to hide assets

“Somalia has slightly higher standards than Wyoming and Nevada” (Corporate Secrecy Edition) -- Yves Smith - We’ve taken an interest in tax havens thanks to Nicholas Shaxson’s book Treasure Islands, which is a must read. Although the book gives a historical account of the rise of what he calls “offshore”, which includes forms of tax avoidance that extend beyond the use of secrecy jurisdictions, which gives the UK the leading role, Shaxson discusses is that the US is the now the biggest tax haven in the world. He discussed briefly the role of Wyoming, which has incorporation rules that are so lax that it is trivial to hide the owners of Wyoming domiciled companies. An article in Reuters fleshes out this topic in more detail. I encourage you to read it in full. Key extracts: The secretive business havens of Cyprus and the Cayman Islands face a potent rival: Cheyenne, Wyoming….All the activity at 2710 Thomes is part of a little-noticed industry in the U.S.: the mass production of paper businesses…The hotbeds of the industry are three states with a light regulatory touch-Delaware, Wyoming and Nevada. The pervasiveness of corporate secrecy on America’s shores stands in stark contrast to Washington’s message to the rest of the world...

Clinton Pimps Some More for His Bank and Corporate Benefactors - Yves Smith - Of the many low points of the Clinton presidency, one was its questionable money dealings. Remember how Hillary managed to turn $1000 into $100,000 via successful commodities trading? Of course, it was clearly bogus, impossible even for an expert. Among other telltale signs: her trades were almost always executed at the best price of the day.  And there was the cheapening of the Presidency. Remember the monetization of the Lincoln bedroom? The rush to give big ticket speeches and ink book deals? The Clintons have been remarkably brazen about their efforts to cash in. So it should be no surprise given that the Clinton Global Institute has a roster of big name corporate patrons that Slick Willy is perfectly happy to carry their water. Of course, he offers some gestures to the left, as if that will camouflage what he is up to. Today’s sightings include: From The Hill: Former President Clinton suggested Thursday that the implementation of the Dodd-Frank financial reform be slowed. Clinton was generally positive on the law as a whole, but suggested regulators should parcel out the new rules bit by bit for the benefit of businesses. Clinton via Bloomberg: Former U.S. President Bill Clinton endorsed a tax holiday on repatriating offshore profits with conditions, taking a position contrary to the Obama administration.

Confessions of a Financial Deregulator - DeLong - Back in the late 1990’s, in America at least, two schools of thought pushed for more financial deregulation. The first school of thought, broadly that of the United States’ Republican Party, was that financial regulation was bad because all regulation was bad. The second, broadly that of the Democratic Party, was somewhat more complicated.  Depression-era restrictions on risk seemed less urgent, given the US Federal Reserve’s proven ability to build firewalls between financial distress and aggregate demand. New ways to borrow and to spread risk seemed to have little downside. More competition for investment-banking oligarchs from commercial bankers and insurance companies with deep pockets seemed likely to reduce the investment banking industry’s unconscionable profits. It seemed worth trying. It wasn’t. Analytically, we are still picking through the wreckage of this experiment.  Moreover, how to restructure the financial system remains unclear.  It may even be the case that we ought to return to the much more tightly regulated financial system of the first post-World War II generation. That system served the industrial core well, at least as far as we can tell from the macroeconomic aggregates. We know for certain that our more recent system has not.

Fed official: Bring back tough Wall Street rules-- The outgoing chief of the Federal Reserve Bank of Kansas City said Monday that the new Wall Street reform law doesn't do as much to keep big banks from threatening the financial system as a New Deal law repealed a decade ago.Thomas Hoenig, speaking at a forum in Washington, said he wants a return to the days when commercial banks that took deposits were barred from making investment trades. The so-called Glass-Steagall law was repealed in 1999, after more than 60 years of walling off commercial banks from investment banks.Hoenig said new reforms fail "to employ one remedy used in the past to assure a more stable financial system -- simplification of our financial structure through Glass-Steagall-type boundaries," at the forum sponsored by the Pew Financial Reform Project and New York University Stern School of Business. Some, including Hoenig, blame the financial crisis in 2008 on the demise of that wall, which encouraged giant commercial banks to make big and bad investment gambles, causing them to teeter on the edge of failure and requiring taxpayer bailouts.

Basel Panel Proposes Higher Reserves for ‘Too Big to Fail' Banks… - After nearly two years of political jousting, a panel of global regulators said on Saturday that banks deemed too big to fail would have to set aside an additional cushion of capital reserves in what is the centerpiece of their efforts to avoid a repeat of the 2008 financial crisis.  The chief oversight group of the Basel Committee on Banking Supervision proposed that the world’s largest and most complex banks would need to hold a reserve of high-quality capital of between 1 and 2.5 percent of their assets to cope with any unforeseen losses. That would be on top of their proposed minimum capital levels for all banks, currently set at 7 percent of assets.  Regulators plan to impose the surcharge on a sliding scale, based on several factors including the bank’s size, complexity and the closeness of its ties to other large trading partners around the world.  And in what appears to be a nod to regulators pressing for even higher requirements, the committee proposed an additional surcharge on banks who grow larger or engage in risky activities that would “increase materially” the threat they pose to the financial system.

Biggest Banks Must Hold 2.5 Percentage Points More Capital in Basel Accord - Global regulators said banks deemed too big to fail must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis. The additional capital buffers will range from 1 percentage point to 2.5 percentage points, the Basel Committee on Banking Supervision said in a statement today. From 28 to 30 banks, including as many as eight in the U.S., may face surcharges, according to a person familiar with the discussions, who declined to be identified because the negotiations are private. Many banks are “vigorously lobbying” against being branded as systemically important, Sheila Bair told U.S. lawmakers. The Basel committee has said internationally active banks should hold core Tier 1 Capital of 7 percent of their risk- weighted assets, and the additional requirements are for banks it considers systemically important financial institutions, or those whose collapse would harm the global economy. The extra fee must be met by banks building up their core reserves, and not by issuing so-called contingent capital instruments such as CoCo bonds, the committee said today.

Capital and liquidity: whose problem? - Jon Daniellsson of the LSE has spotted something odd about the Basel III debate on capital levels: In the ongoing debate on Basel III, one of the most contentious issues has been the level of bank capital. One might think that the countries making the biggest public noises about problems of excessive risk-taking and speculation would be exactly those demanding higher capital. After all, higher capital directly reduces leverage and risk taking, increasing safety.Surprisingly, it is the opposite. The main champions for more capital are the US, UK and Switzerland,  The opposition is led by Germany and France.  And he speculates darkly about the reasons why the French and Germans oppose giving national regulators discretion to impose higher capital levels than the new Basel III minimum (7% of RWAs): Perhaps, the real reason for the French and German opposition to variable capital standards can both be found in weaknesses in those countries’ bank assets and their willingness to use taxpayers’ money to bail out the banks.

Stress Testing and Bank Capital Supervision - SF Fed Economic Letter - Stress testing was a potent tool in the supervision of bank capital during the financial crisis. Stress tests can enhance supervision of bank capital by providing a more forward-looking and flexible process for assessing risks that might not be fully captured by risk-based capital standards. The level and quality of capital among large banking organizations has increased notably since the introduction of stress tests during the financial crisis.

Shadow spreading across international banking - A few weeks ago, Mike Farrell, head of Annaly Capital, a New-York based, non-bank finance firm, wrote a letter to his investors that pointed out that “in times of chaos ... those that survive aren’t necessarily the biggest or the bravest.” Instead, “the survivors are those that are smart, nimble and, yes, lucky enough to avoid the pitfalls of uncertainty,” he declared. “Large banks may be restricted in the types of risk they can take and the businesses they can be in, but ... we are building a company that is prepared to perform through these tumultuous times.” Just a bit of New York marketing spin? Perhaps. But Mr Farrell’s letter reveals a much bigger Wall Street trend: namely the degree to which non-bank finance companies, such as Annaly, are now spreading their wings with a new sense of confidence – and entrepreneurial hunger. For notwithstanding the fact that the recent financial crisis largely started in the non-bank sector – or “shadow-bank” world – thus far, at least, Western regulators have focused most of their reform efforts on the regulated banks. More specifically, while the new rules linked to Basel and Dodd Frank are significantly tightening capital standards for regulated banks, they largely spare non-banks, such as investment vehicles, hedge funds and interbank brokers

Kansas City Fed chief wants tougher Wall Street reform -- The outgoing chief of the Federal Reserve Bank of Kansas City said Monday that the new Wall Street reform law doesn't do as much to keep big banks from threatening the financial system as a New Deal law repealed a decade ago. Thomas Hoenig, speaking at a forum in Washington, said he wants a return to the days when commercial banks that took deposits were barred from making investment trades. The so-called Glass-Steagall law was repealed in 1999, after more than 60 years of walling off commercial banks from investment banks. Hoenig said new reforms fail "to employ one remedy used in the past to assure a more stable financial system -- simplification of our financial structure through Glass-Steagall-type boundaries," at the forum sponsored by the Pew Financial Reform Project and New York University Stern School of Business. Some, including Hoenig, blame the financial crisis in 2008 on the demise of that wall, which encouraged giant commercial banks to make big and bad investment gambles, causing them to teeter on the edge of failure and requiring taxpayer bailouts.

Dodd-Frank Rekindles Old Debate - One of the most classic American political debates — state versus federal law — is surfacing again in the banking sector, as regulators work to put in place the financial reforms passed a year ago in Washington.  At issue is whether state banking regulators will be undercut by their federal counterparts when it comes to consumer financial protection laws. Banks, state regulators and consumer advocates have been sparring in legalese-filled comment letters over the last month in response to rules proposed by the Office of the Comptroller of the Currency1, which regulates national banks.  Even the Treasury Department has criticized the comptroller’s rules2 and sided with state officials, saying the rules do not hew closely enough to the Dodd-Frank legislation intended to rein in Wall Street.  A portion of the Dodd-Frank legislation is dedicated to pre-emption, the ability of federal law to trump state laws. Banks, consumer groups and states are now arguing over what the intent of the legislation was.

Is Dodd-Frank reviving the Shadow Banks? - In the past few months, it appears, shadow banks, financial firms that make loans but aren't actual banks, seem to be making a come back. In case you have forgotten about these things already, shadow banks are financial firms, like hedge funds or money market funds or even insurance companies, that aren't real banks - no deposits, no branches, no ATMs - but make loans nonetheless. And, oh yeah, they might have caused the financial crisis. Paul Krugman said, shortly after the financial crisis was over, that one of the main things financial reform must do was to bring "non-bank banking out of the shadows." But Dodd-Frank, according to some recent reports, is doing exactly the opposite. Here's why: Earlier this month, the NYT's Dealbook reported that a number of start-ups were turning to hedge funds to get loans after being rejected by their bank. The company in the article Rentech, which is in the clean energy business, got $100 million loan from a hedge fund. The NYT says the business was moving to hedge funds because banks were worried about making risky loans. But an article in Financial Times today puts the revival of shawdow banking square at the feet of Dodd-Frank.

Hoenig: Big banks are fundamentally inconsistent with capitalism  - Hoenig, like many Fed leaders from the Reserve banks outside of Washington and the money centers in New York, Boston and San Francisco, is more comfortable with safe and boring banking than the higher risk model that brought the global economy to its knees. Hoenig recommends re-imposing Glass-Steagall but allowing banks to engage in , underwriting securities and advisory services, and asset and wealth management services as well. This is an important speech criticising the status quo in money, banking and politics from one of America’s most respected regulators. I have embedded a copy of the full piece below.

Too Big to Fail or Too Big to Change - Two and half years removed from the worst financial crisis since the Great Depression, the investing public has grown increasingly frustrated with the lack of criminal prosecutions of, and absence of truly significant fines levied against, the senior executives and companies responsible for igniting the subprime meltdown. Pundits have criticized the Securities and Exchange Commission (the “SEC”) and the Department of Justice (the “DOJ”) as capitulating to the interests of “big finance,” citing SEC settlements that have been characterized as mere “slaps on the wrist” and the DOJ’s failure to convict a single executive responsible for creating the “great recession” despite significant evidence of intentional misconduct.  Now, more than ever, private lawsuits are needed to supplement the existing regulatory structure, both to ensure that shareholders are adequately compensated for their losses and to send a strong message that fraudulent conduct will not be tolerated.

Fed Caps Debit Card Fees for Merchants - The Federal Reserve Board1 voted on Wednesday to limit the fees that banks2 collect from retailers each time a customer makes a purchase to an average of 21 cents a transaction, a cut of nearly 50 percent from what banks and credit card companies currently earn. The cap is a defeat for banks generally, although the news was not as bad as banks expected... Banks currently charge merchants an average of 44 cents for a debit card transaction.  The rules were approved on a 4-to-1 vote by the Fed’s Board of Governors.  The new limits include a transaction fee of 21 cents plus an assessment of 5 basis points — 0.05 percent of the transaction amount — for fraud reduction costs, an element that could raise the overall fee by a penny or two on average. The fee cap is a result of the Dodd-Frank financial regulation3 act, which was signed into law last July. The law required the Federal Reserve to determine whether the fees charged to process debit card transactions were “reasonable and proportional to the cost incurred” by the bank that issued the cards.

Federal Reserve Cuts Debt Fees Less Than Expected: A Defeat for Financial Reform? - The Federal Reserve decided to cut the amount banks could charge on debt card transactions in half. The Fed, which was required under the financial reform bill Dodd-Frank to set a limit for what banks could charge retailers to process debt card transactions, capped the so-called swipe fees at $0.21 to $0.24 - depending on the size of the transaction - down from an average of $0.44 before the law was passed. That decision had both sides of the debate - retailers and banks - claiming defeat. And it has some saying the prospects for financial reform in general are doomed.  Retailers were pushing for the Fed to set the limit as low as $0.12, and back in December the Fed said it would comply. But after some heavy lobbying from the banks, the Fed appears to have balked, and raising the limit to double what they originally proposed. Nonetheless, the banks still are claiming defeat. They say the fees at half of what they used to be won't be high enough to cover the cost of running their debt card networks, forcing them to raise rates elsewhere or take a loss.

The Fed Bails Out the Banks...Again - If anyone doubted who set the marching tune for the Federal Reserve Board, it was sure clear today. The Fed announced its final rule under the Durbin Interchange Amendment, and it was quite the handout to the big banks.   The Durbin Amendment instructed the Fed to pass rules that clarified its instruction that debit interchange fees must be reasonable and proportional to the incremental cost of authorizing, clearing, and settling an individual debit card transaction.  The Fed came out with a proposed rule last December that solicited comments on two alternative safe harbors.  One was for a flat fee of 7 cents per transaction, the other for 12 cents per transaction. The Fed also solicited comments on whether debit cards should have to be routable on 2 unaffiliated networks or on 2 unaffiliated PIN and 2 unaffiliated signature debit networks (4 networks total).  Well, today the Fed came out with the final rule, and what a surprise.   Instead of picking between the 7 or 12 cent safeharbors, the Fed now has adopted a 21 cent plus 5 basis points on transaction volume safe harbor.  So the Fed tripled the safeharbor! 

The Fed caves in to banks, interchange edition - I could really do with a lot more transparency from the Fed on why exactly it’s decided to almost double the maximum permitted debit interchange fee. The bank lobby certainly had a lot to do with it — but the bank lobby always said that the Fed was simply doing what it was forced to do under the Durbin amendment to Dodd-Frank, and that therefore Dodd-Frank itself had to be changed. When the Durbin amendment survived, however, suddenly the banks realized they had a Plan B — to lobby the Fed. And the Fed, it turns out, is even more susceptible to such lobbying efforts than Congress is. The sole dissent among the Fed governors was from Elizabeth Duke, who said that the new fee was too low.Clearly the facts on the ground didn’t change between December, when the Fed came up with its 12-cent figure, and today. And now the Fed has proved itself susceptible to intense lobbying, you can be sure that the banks will keep their lobbyists active on all manner of rules and regulations which have to be promulgated under Dodd-Frank. Never mind what the law says, just make sure the regulators do what you want!

Federal Reserve Raises Swipe Fee Cap In Victory For Wall Street -- The Federal Reserve delivered the punchline Wednesday to the year-long joke that has been the lobbying blitz over debit card swipe fees. Amid heavy Wall Street pressure, the Fed nearly doubled the amount it will allow banks to charge retailers and consumers under a new regulation while effectively exempting an entire class of debit card transactions from the rule altogether. The swipe fee debate dominated the Senate for months, as nearly the entire U.S. retail industry battled banks in Capitol Hill backrooms. The central bank initially proposed a 12-cent limit on those fees in December, following a Fed survey of banks that found that the median cost of processing a debit card transaction was 7 cents, with an average cost per swipe of 4 cents. The 12-cent cap would have left banks with a profit margin of about 70 percent on debit cards based on the median cost, but represented a reduction of almost 75 percent from the current average swipe fee of 44 cents per transaction. Wall Street has been pressuring the Fed all year to reconsider the rule, and on Wednesday, that pressure paid off: The central bank raised its proposed cap on swipe fees to 21 cents, plus 0.05 percent of the transaction amount and 1 cent to cover the costs of protecting against fraud. All told, the Fed said it will allow banks to charge a maximum of 24 cents per transaction, on average.

The Politics of the Durbin Rulemaking - It goes without saying that I think the Fed did a real jerk move on the Durbin Amendment rulemaking. But the more interesting issue is why?  The Fed didn't have any new data to work with after the proposed rulemaking in December. Sure, it had lots and lots of comments, and there was some a crazy amount of lobbying. But it's hard to see what that lobbying would have accomplished in the January-June window that it hadn't in the July-December window.  Instead, I think that the volte-face was the result of bigger picture Federal Reserve Board politics. For the Fed, interchange is the regulatory issue that they have with merchants. The Fed doesn't have to handl-vandl with merchants on other regulations. But the same can't be said about the banks. The Fed has an on-going regulatory relationship with the banks that it has to manage.  And interchange just isn't a very important issue for the Fed. It's not a regulatory duty that they wanted in the least. So the Durbin Amendment rulemaking offered Bernanke (and the other Governors) a low-cost way a chance to throw the banks a bone and build up some goodwill before the gloves come off on the real fight about capital adequacy levels.

Consumer Agency Outlines Supervisory Role -—The new consumer-finance agency outlined six areas that could be subject to its supervision, including debt-collection firms and prepaid-card companies, as it asked for public comment on which nonbank financial firms it should oversee. The Consumer Financial Protection Bureau's announcement Thursday marked a first step in its effort to police firms that largely have escaped federal scrutiny. The agency was set up last year by the Dodd-Frank regulatory-overhaul law."In recent years…companies providing consumer-financial services have grown significantly and they have not been subject to the same oversight" as banks, said Elizabeth Warren. "Consumers deserve the peace of mind that financial companies, banks and nonbanks, are following the rules." The six areas outlined comprise debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing and related activities; prepaid cards; and debt-relief services. The bureau also identified automobile loans and personal loans as large sectors that could fall under its supervision.

What Can The CFPB Do To Regulate Payday Lenders? - Even though the CFPB cannot cap interest rates on payday loans, there is still plenty that the CFPB can do to regulate these lenders. But what should the Bureau do? Some of the trickiest aspects of the payday lending issue have nothing to do with interest rates, and everything to do with how the loans are marketed and used. Even the staunchest consumer advocate would likely look favorably upon a loan product that allowed people who could not otherwise get credit to borrow money for occasional, unexpected, emergency expenses. I suspect that most would agree that this would be a good and useful loan product even if it cost $15 or $20 for every $100 borrowed, as long as the product were used only occasionally to smooth consumption. In reality, these loans are rarely short –term or occasional. Empirical data show that the loans are often used habitually. The average loan is rolled over numerous times, and many consumers pay on the same loan for years at a time. Moreover, the loans are most frequently used to pay regular, recurring bills like rent and utilities, not for emergencies. This means that once one has borrowed the money, if the person cannot pay it back with the fee, he or she now has another monthly or bimonthly bill to pay.

America’s unique hatred of finance reform - Despite the moment's anti-union/anti-government sloganeering, the American employees who are paid the highest publicly financed salaries are not state and municipal workers -- nor even our $400,000-a-year president. That distinction goes to the bank executives who are now being paid record salaries -- salaries that continue to be financed by ongoing taxpayer-sponsored bailouts (and yes, huge bailouts are still happening). We don't hear much about this because the United States government still promotes the fallacy that our banks are not publicly subsidized institutions subject to requisite public control like, say, a utility company might be. Instead, despite all evidence to the contrary, Washington pretends that these are corporations operating in a free market, ignoring the fact that an actual free market would have destroyed many of these very same entities back in 2008. Nonetheless, the nonsensical free-market apocrypha lives on because it serves such an important a purpose for banks and the U.S. politicians they own -- namely, to successfully thwart the push not just for full-on bank nationalization, but for even minimal financial regulation.

How corporations award themselves legal immunity -  Worried about the influence of money in American politics, the huge cash payouts that the US supreme court waved through by its Citizens United decision – the decision that lifted most limits on election campaign spending? Corporations are having their way with American elections just as they've already had their way with our media. But at least we have the courts, right?  Wrong. The third branch of government's in trouble, too. In fact, access to justice – like access to elected office, let alone a pundit's perch – is becoming a perk just for the rich and powerful.  Whether it's in your employment contract or the paperwork for a cell phone, it's odds on that the small print says you can't sue

Stiglitz, Frank Respond to 'Reckless Endangerment' Allegations - Friday on the NewsHour, New York Times finance specialist Gretchen Morgenson and co-author Josh Rosner, a longtime housing analyst, talk about their new bestseller, "Reckless Endangerment" (no. 17 on the Times list this week). The book is a sustained indictment of Washington's role in the housing crisis and highlights the role of the so-called GSEs - the Government-Sponsored Enterprises, Freddie Mac and most especially, Fannie Mae, both of which were taken over by the Treasury when they teetered in 2008.In "Reckless Endangerment" and in the extended, multi-location interview with them on the NewsHour, Morgenson and Rosner take aim at Massachusetts congressman Barney Frank and Nobel laureate Joseph Stiglitz, one-time head of President Clinton's Council of Economic Advisors. We asked both men to respond to the on-air charges, at a length commensurate with the charges themselves, and so they did.

The real causes of the economic crisis? They’re history - They say that winners get to write history. Three years after the meltdown of our financial markets, it’s clear who is winning and who is losing. Wall Street — arms outstretched in triumph — is racing toward the finish-line tape while millions of American families are struggling to stay on their feet. With victory seemingly in hand, the historical rewrite is in full swing. The contrast in fortunes between those on top of the economic heap and those buried in the rubble couldn’t be starker. The 10 biggest banks now control more than three-quarters of the country’s banking assets. Profits have bounced back, while compensation at publicly traded Wall Street firms hit a record $135 billion in 2010.  Meanwhile, more than 24 million Americans are out of work or can’t find full-time work, and nearly $9 trillion in household wealth has vanished. There seems to be no correlation between who drove the crisis and who is paying the price.

Treasury Assails OCC on Draft Rule - The Treasury Department criticized a fellow regulator for violating the intent of Congress's financial-regulation overhaul, saying a draft rule provides national banks too broad a shield from state consumer-financial laws. The latest conflict among some officials comes as they approach a series of deadlines to implement the Dodd-Frank Act and has once again put the Republican acting director of the Office of the Comptroller of the Currency, John Walsh, in the spotlight. In a letter, Treasury officials contend the proposal by the OCC, the federal regulator of national banks, has ignored the law's language. In many cases, state consumer regulations are tougher than federal laws. The OCC's proposal "is inconsistent with the plain language of the statute and its legislative history," Treasury General Counsel George Madison wrote to Mr. Walsh, in a letter reviewed by The Wall Street Journal.

CFTC Eyes Trades Ahead of IEA News - The Commodity Futures Trading Commission is reviewing suspicious trading in oil futures that preceded Thursday's news that countries around the world were releasing stockpiles of crude oil, according to a published media report. The report, posted on The Wall Street Journal's Web site Saturday, cited one person familiar with the CFTC's actions.  Oil prices fell in the hours before the International Energy Agency announced that 60 million barrels of crude would be released from strategic stockpiles.  This indicates that some traders could have learned of the decision ahead of time, the report said, citing the source. It could also be that someone leaked the IEA's decision. The agency must coordinate with its 28 member nations before making major decisions, meaning many people may have been privy to the information before it was announced, the report noted.

Failing Upward, Version 3,452,227 (aka the Wages of Nearly Bringing Down the Global Economy) - Yves Smith - Corporate American, and apparently important agencies, much prefer to hire people who’ve had Big Jobs, no matter how poorly they’ve performed in them, that are very similar to the one at hand, rather than hire someone who relevant skills and experience but for whom a Big Job would be a step up.  You cannot make this up. From the Banking Times, “Ex-Lehman chief risk officer appointed World Bank treasurer,” hat tip Richard Smith: The World Bank has appointed Madelyn Antoncic as its new vice president and treasurer. Ms Antoncic served as Lehman Brothers’ chief risk officer from 2002 to 2007 and following the collapse of the bank, stayed on for a year as managing director and senior advisor at the Lehman Estate, helping to maximise value for creditors… In her new role, Ms Antoncic will be responsible for maintaining the World Bank’s standing in financial markets and for managing an extensive client advisory, transaction, and asset management business.

JPMorgan Scores Victory for Repeat Offenders - Read just about any article in the financial press about a Securities and Exchange Commission settlement with some accused fraudster, and you probably will see two lines bound to get a lot of eyes rolling.  One is that the defendant neither admitted nor denied the SEC’s claims. The other is that the penalties include a court injunction or SEC order barring the alleged crook from breaking the securities laws in the future, as if it had been perfectly legal to violate them beforehand. No one, it seems, ever gets nailed for anything.  As if that weren’t maddening enough, here’s an open secret: The SEC hardly ever enforces these obey-the-law orders. This brings us to last week’s headline-grabbing settlement between the SEC and JPMorgan Chase & Co. (JPM)’s securities arm over a toxic bond deal four years ago called Squared CDO 2007-1.

While Fighting To Block SEC Investigation Of Goldman Sachs, Rep. Darrell Issa Bought Goldman Sachs Bonds - Oversight Committee Chairman Rep. Darrell Issa (R-CA) raised hell last year to stop the federal government from investigating Goldman Sachs regarding allegations that the company defrauded investors. Issa’s investigation of the SEC’s investigation into Goldman Sachs stole the headlines and reinforced Goldman Sach’s claim that they had done nothing wrong. Explaining his defense of Goldman Sachs, Issa said he was representing the views of ordinary Americans who are worried about the “growth of government and the growth of government wanting to become more complex, with more agencies and more control over our lives.” However, recent personal finance disclosures reviewed by ThinkProgress paint a different picture of Issa’s motivations. According to documents filed recently with the House Clerk, Issa went on a buying spree of high yield Goldman Sachs bonds at the same time he was running defense for the investment bank in Congress. From February to December of 2010, Issa bought 12 Goldman Sachs High Yield Fund Class A bonds, each worth up to $50,000 (view page 10 the disclosure here). Many of the bonds were purchased in the months after he filed his letter to the SEC. The $600,000 in new Goldman Sachs investments added to Issa’s multimillion dollar accounts managed by the company, valued from $5.1 to $15.5 million.

How Much Would It Cost To Buy Congress Back From Special Interests? Here's a thought: let's buy our Congress back from the special interests who now own it.  A seat in the U.S. Senate is a pricey little lever of power, so we better be ready to spend $50 million per seat. Seats in smaller states will be less, but seats in the big states will cost more, but this is a pretty good average. That's $5 billion to buy the Senate. A seat in the House of Representatives is a lot cheaper to buy: $10 million is still considered a lot of money in this playground of power. But the special interests-- you know the usual suspects, the banks, Wall Street, Big Pharma, Big Insurance, Big Tobacco, the military-industrial complex, Big Ag, public unions, the educrat complex, trial lawyers, foreign governments, and so on--will fight tooth and nail to maintain their control of the Federal machinery, so we better double that to $20 million per seat. Let's see, $20 million times 435.... That's $8.7 billion to buy the House of Representatives. It seems we're stuck with the corporate toadies on the Supreme Court, but the President could scotch the people's plans to regain control of their government, so we better buy the office of the President, too. It seems Obama's purchase price was about $100 million, but the special interests will be desperate to have "their man or woman" with the veto power, so we better triple this to $300 million. Add these up and it looks like we could buy back our government for the paltry sum of $14 billion. This is roughly .0037% of the Federal budget of $3.8 trillion, i.e. one-third of one percent. That is incredible leverage: $1 in campaign bribes controls $300 in annual spending--and a global empire.

How Greed Destroys America - If the “free-market” theories of Ayn Rand and Milton Friedman were correct, the United States of the last three decades should have experienced a golden age in which the lavish rewards flowing to the titans of industry would have transformed the society into a vibrant force for beneficial progress.After all, it has been faith in “free-market economics” as a kind of secular religion that has driven U.S. government policies – from the emergence of Ronald Reagan through the neo-liberalism of Bill Clinton into the brave new world of House Republican budget chairman Paul Ryan. By slashing income tax rates to historically low levels – and only slightly boosting them under President Clinton before dropping them again under George W. Bush – the U.S. government essentially incentivized greed or what Ayn Rand liked to call “the virtue of selfishness.” Further, by encouraging global “free trade” and removing regulations like the New Deal’s Glass-Steagall separation of commercial and investment banks, the government also got out of the way of “progress,” even if that “progress” has had crushing results for many middle-class Americans.

Government lying about debt crisis! - Now, here we are halfway into 2011 and they’re at it again — this time with a complete package of misleading statements and lies that make all previous ones seem candid by comparison.

  • Lie #1. They’re again saying that the debt crisis of 2008-09 is “history.” The truth: The core cause of the crisis — the gigantic pyramid of high-risk derivatives — has never gone away. Quite the contrary, the pile-up of derivatives on the books of major U.S. banks is now much larger — $244 trillion, compared to less than $200 trillion before the debt crisis, according to the U.S. Comptroller of the Currency (OCC).
  • Lie #2. They say that America’s largest banks have virtually no exposure to a Greek debt default or a broader European sovereign debt crisis. The truth: All major European and U.S. banks are linked through an even larger global network of derivatives, now representing more than $600 trillion, according to the Bank of International Settlements. Therefore, even though U.S. banks may not hold large amounts of European debts themselves, they are directly exposed to European banks that do hold large amounts of loans to Greece, Ireland, Portugal, and others in jeopardy.
  • Lie #3. They insist that America’s largest banks are safe. The truth: The largest U.S. banks continue to hold nearly all of the derivatives in the country. Goldman Sachs has $44.9 trillion in derivatives.

U.S. Money Funds Risk Losses if Europe Crisis Spreads - The European debt crisis would pose a threat to U.S. money-market mutual funds if a rash of sovereign defaults caused big banks to fail to meet obligations within the next three months. “It would take a very rapid decline and not just in the smaller European countries” for the debt crisis to threaten U.S. money funds, “You’d probably have to see Spain and Italy get into difficult shape.” Greek lawmakers are scheduled to vote this week on a five- year austerity plan for the cash-strapped nation to secure more international aid and avoid the euro-area’s first sovereign default. Money funds could be hurt by a default because they have lent to European banks that, in turn, have lent to Greece and other heavily indebted European countries. U.S. money funds eligible to buy corporate debt had about $800 billion, or half their assets as of May 31, in securities issued by European banks, Fitch Ratings estimated. European lenders held more than $2 trillion at year-end in loans to Greece, Portugal, Ireland, Spain and Italy, the most indebted European countries, the Bank of International Settlements estimated.

American Distrust Of Banks Reaches Highest-Recorded Level: Gallup - The recession might be officially over, but American views toward the institutions that brought the economic system close to collapse have never been worse.  According to a new poll by Gallup, 36 percent of Americans now say they have "very little" or "no" confidence in U.S. banks, the highest percentage on record since Gallup first started tracking that data. Those saying they have a "great deal" or "quite a lot" of confidence in banks has also stagnated, stuck at 23 percent for the second straight year, after falling to a low of 22 percent in 2009.  Safe to say it's been a tough year in the banks' public relations departments. U.S. banks have spent much of the past year aggressively lobbying against the implementation of Dodd-Frank financial reform. This week, Treasury Secretary Timothy Geithner called out banks for the "huge amount of money [spent by banks] to erode, weaken, walk back" financial reform. Indeed, the largest-lobbying institutions of last year spent 2.7 percent more in the first months of this year in an attempt to combat rules including higher capital requirements and restrictions on swipe fees.

Unofficial Problem Bank list at 1,003 Institutions and State Stress Level - Note: this is an unofficial list of Problem Banks compiled only from public sources. This post includes an update to stress rates at the state level (see comments and sortable table at bottom). Here is the unofficial problem bank list for July 1, 2011.  Changes and comments from surferdude808:  This week there were two additions to the Unofficial Problem Bank List, which pushed the number of institutions on the list to 1,003 and assets to $419.9 billion. With it being a relatively quiet week, we thought it would be a good time to update the analysis of examining which banking markets have been under the greatest stress since the on-set of the crisis.  When ranking markets with a minimum of 15 institutions at year-end 2007, Arizona has experienced the most stress with nearly 58 percent of its institutions having failed or being identified as a problem. The state of Washington is second at 54.6 percent. The other stressed banking states ranked in the top ten include Nevada (52 percent), Florida (52 percent), Oregon (45 percent), Georgia (44 percent), California (40 percent), Utah (42 percent), South Carolina (33 percent), and Idaho (32 percent).

How the Bailout Killed Local Lending—And How Some States Hope to Bring It Back - The Wall Street bailout of 2008 has radically altered the banking business. The bailout was supposed to keep credit flowing to Main Street, but it has wound up having the opposite effect. Small and medium-sized businesses have traditionally been the main engines for increasing employment, and they need bank credit for their working capital; but today credit to local businesses has collapsed nearly everywhere. That’s why so many states—the total is now fourteen—are considering turning to state-owned banks to get local credit flowing again. The credit collapse of September 2008 was triggered by the speculative activities of giant Wall Street banks. These profligate banks, which would have gone bankrupt without federal support, have emerged from the crisis bigger and more powerful than before. The federal government has supported and subsidized bank consolidation, resulting in the elimination of more than a thousand community banks by takeover or failure. The five largest banks now hold 40 percent of all deposits and 48 percent of all bank assets. These banks—Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and PNC—currently control more deposits than the next largest 45 banks combined.

Government: The Dominant Player in US Credit Markets? - Yves Smith - The latest column by Gillian Tett provides further support for our pet thesis: that the role of the state in banking is so great and the subsidies so wideranging that they cannot properly be considered private companies and should be regulated as utilities.  Key extracts: By the time you read this column today, a fascinating shift will almost certainly have occurred in the nature of US finance: for the first time the government will be the biggest source of outstanding home mortgage and consumer credit loans in the US, eclipsing private sector banks or investors… There are at least three lessons to ponder. First, the data provide a powerful sign of just how distorted the US financial system remains in the aftermath of the great credit crunch… The second fascinating point, though, is the cognitive dissonance surrounding this pattern. Six years ago, when I first started writing about the credit markets, I often heard US financiers praise America’s capital markets as the most developed system of free market finance in the world. Indeed, techniques such as securitisation were presented as a natural outcome of American enthusiasm for free market ideals. But the dirty secret behind this rhetoric was that government-backed institutions such as Fannie and Freddie were playing an important role in the modern financial system, even before the credit crisis erupted. And what is remarkable now, given that the role of Fannie and Freddie has swelled, is just how little debate this patter continues to generate. I agree that there is cognitive dissonance aplenty. As we discussed in ECONNED at considerably length, the concept of “free markets” is inconsistent and internally incoherent.

New York's AG Takes on the Banks - The most powerful Wall Street banks are used to getting their own way, especially with politicians, but New York’s attorney general is trying to turn the tables on them. Eric Schneiderman is digging into the accumulating evidence of massive fraud and false documentation revealed by the foreclosure mess and asks a potentially explosive question: How bad is it? The answer could prove devastating for some of the largest financial institutions in the land, confronting them with huge new losses and maybe renewing the banking crisis the Obama administration thought it had resolved. Perhaps that’s why law-enforcement agencies, state and federal, have not undertaken a thorough investigation of the scandal—they’re afraid of what they might find. The newly elected New York AG has been obliquely warned that his inquiry could “blow up the economy,” but he ignores the scare talk. If the evidence is there, it should definitely put the banks on the defensive, for a change.

New York Attorney General Steps Up Probe Into BofA-Merrill Disclosures - Another headache from the financial crisis is flaring back up for Bank of America Corp. New York state Attorney General Eric Schneiderman has issued subpoenas seeking new depositions from the Charlotte, N.C., bank's chief executive and other current and former executives, according to people familiar with the situation. The subpoenas are a sign that Mr. Schneiderman, who became New York's top law-enforcement official this year, doesn't intend to drop the civil-fraud investigation of Bank of America begun more than a year ago under predecessor Andrew Cuomo.

$8.5 Billion Deal Near in Suit on Bank Mortgage Debt - Bank of America is completing an agreement to pay $8.5 billion to settle claims by investors that purchased mortgage securities that soured when the housing bubble burst, according to people briefed on the deal. It represents what is likely to be the single biggest settlement tied to the subprime mortgage boom and the subsequent financial crisis of 2008.  The settlement would wipe out all of the company’s earnings in the first half of this year, and it could also provide a template for deals with other big banks that face tens of billions in similar claims.   “It’s about time the industry resolves issues from the financial crisis and focuses more on righting their companies and improving the economy. This is the most significant step since the financial crisis that helps do that.”  The proposed settlement is with a group of more than 20 investors that include the asset managers Pimco, Metropolitan Life and BlackRock, as well as the Federal Reserve Bank of New York. Together they hold mortgage-backed securities that represent more than $100 billion in home loans from Bank of America, the nation’s biggest bank by assets.

Bank of America Likely to Settle Case with NY Fed, Pimco, Blackrock for $8.5 Billion - Yves Smith - I must confess I am surprised that Bank of America is close to settling a litigation threat by a group of investors headed by the New York Fed, Pimco, and Blackrock, which was discussed in the media quite a bit last fall for a reported $8.5 billion. While most threatened litigation is settled out of court, this case in theory had to overcome procedural hurdles for any suit to be filed, and no group of investors had ever surmounted this impediment. Chris Whalen similarly noted that BofA could simply tell the investors to “pound sand.” However, we had noted that if it moved forward, that this type of case, a representation and warranties case, is always settled because they are too expensive to fight in court. And representation and warranties cases of this type (which would demand that the servicer make the originator buy back dud loans) requires that the investors not merely prove that the seller lied, but that the lies were THE reason that the losses on specific mortgages took place (as opposed to normal “shit happens” loan losses, meaning due to unemployment or other loss of income, death, and disability). That means even if the judge approves the use of a sample that each side still will argue on the individual cases within that sample. Think how many loans that would involve across what as of the last sighting was reported to be 115 deals. Because these case are so costly to pursue, settlements historically have been 10% to 15% of the value of the loans alleged to have been misrepresented.

Bank of America Mortgage Settlement: Big Banks Could Be Forced to Repay $45 Billion - Eight months ago, when approached by investors to repay a portion of their losses in mortgage bonds, Bank of America CEO Brian Moynihan said no way. He said that his firm had followed the rules and that he was going to fight this one to the end. The outcome of that "fight" may indicate that the big banks are far from paying their tab for the mortgage mess. On Tuesday, Bank of America reportedly agreed to pay $8.5 billion to investors who lost money on mortgage bonds purchased before the housing bust. The settlement covers $424 billion dollars in bonds that were tied to mortgage lender Countrywide, which Bank of America purchased in early 2008. On that basis, $8.5 billion seems small, and that Bank of America got away with a good deal. But Tuesday's settlement also shows once again how badly Wall Street and the big banks either mis-judged or lied about the size of their potential losses on mortgage bonds. Bank of America, for example, told its own investors at the end of last year that it had $1.4 billion in unresolved repayment claims from private investors. It appears Bank of America is about to pay nearly 6 times that amount.

Just When I Thought it was Safe to Click a Headline - I just couldn't resist clicking "Bank of America to pay $8.5 billion settlement over mortgages". Finally the Bankers are paying for destroying the economy. My enthusiasm rapidly faded as I read the article. Then I read "Shares of Bank of America Corp. jumped more than 4 percent, or 48 cents to $11.30 before the market opened". I should have stopped at the headline. More whining after the jump.
$ billion can be a very small amount of money. In this case it is a settlement for the alleged fraud committed by Countrywide. So the deal is that, if you destroy the economy, you might make $8.5 billion less than you expected. In particular "The settlement ... covers 530 trusts with original principal balance of $424 billion."

The BoA MBS Settlement - The $8.5B dollar figure of the Bank of America settlement with a cohort of MBS investors has gotten all the attention, but I think there's a bunch of more interesting things going on than the price tag.  Still, it's hard not to talk about the price tag, so let's get that out of the way.  Then we can get into servicing, documentation, and the question of whether anyone can/will object to the settlement. BoA looks like a dog in any court, and recent rulings in putback or rep/warranty cases have been holding that they can be done by sampling, rather than by "onesies and twosies" as Judge Crotty of the SDNY memorably put it.  And if BoA is willing to pay out $8.5B when the investors haven't even gotten to the loan files, they must be hiding something pretty bad. Frankly, it's just hard to know how to price this. If I were an MBS investor, however, I'd hesitate to take the offer. The investors would be probably able to get to the loan files one way or another, even if it takes some time, and that would give them far better information for pricing a settlement.

BofA “Settlement”: Not a Done Deal, and Not a Good Deal for Investors -- Yves Smith - The so-called Bank of America settlement, in which the Charlotte bank is set to pay $8.5 billion (plus some additional expenses) to settle representation and warranty liability on 530 mortgage trusts representing $424 billion of par value, is being hailed as a possible template for other mortgage issuers and servicers.  I sure hope not, because some of the things I see in this deal look plenty troubling. Since this settlement has a lot of constituent elements and I want to cross check my reading with lawyers on this beat (I’ve been in contact with some, but they have not digested the documents fully either), I’ll simply flag a few high level issues. The deal is not done. The settlement is actually between the trustee, Bank of New York, and Bank of America. The deal is subject to a so-called Article 77 proceeding. Objections are to be filed by October 31 and the hearing to approve the settlement is set for November 17.  The deal should be presumed to be favorable to Bank of America. Let’s just look at this from a game theory perspective.  The investors had to overcome procedural issues even to be able to litigate. And MBIA, which is suing over similar issues but didn’t have the procedural impediments, is three years into litigation with Countrywide and is not very far along. This sort of case is a war of attrition and as a result, as we have indicated, even if the facts are lousy, there is reason to think that an eventual settlement would not be all that large even relative to the value of loans being disputed.

What Sexual Favors Were Exchanged So That Clinton (and Bloomberg) Pimped for the $8.5 Billion BofA Mortgage Settlement? - Yves Smith - The noted financial services industry analyst Bill Clinton weighed in on the proposed $8.5 billion Bank of America mortgage settlement. Per Bloomberg: Former President Bill Clinton said Bank of America Corp. (BAC)’s accord with mortgage-bond investors may give more “underwater” borrowers a chance to cut the amount owed on their home loans. “You’d relieve the anxiety of countless Americans who would know they could hold onto their homes,” Clinton, 64, said in an interview yesterday with Bloomberg Television’. There is “enormous potential” to reduce the drag of U.S. housing on the economy if aspects of the Bank of America settlement are applied to the entire industry, Clinton said. The government could give an incentive to have that happen, he said. We must note that it seems rather peculiar that a former President would give a such a ringing endorsement to a deal. His approval was based on a feature that heretofore has not attracted much comment: that that Charlotte bank would be required to turn the servicing of delinquent loans over to special sub servicers. The argument is that special servicers can do a better job of giving principal mods.  Note the key word is “can,” not “will”. We’ll return to that, but let’s consider the matter of incentives, starting with Clinton.

BoA Settlement and Servicing - Yves Smith has a provocatively entitled post about the BoA MBS settlement.  Yves appropriately excoriates Bill Clinton for saying some plain old stupid things about the settlement (namely that it is going to have a meaningful impact on principal reduction mods--it ain't and can't.  $8.5B is a drop in the negative equity bucket, and it isn't being used for principal reduction mods anyways), but I think the more interesting part of the post is a discussion of the servicing provisions in the settlement.  Yves is skeptical that mandatory subservicing will make much of a difference. I tend to agree, but think it's important to note when subcontracting special servicing has worked and when it hasn't. There are a bunch of small special servicers that have been doing much more aggressive mods (including principal reduction mods) than any of the big boys, but, and here's the but, they're doing it because they're working with a very different business model. They aren't doing an MSR-driven business. Instead, they are either doing fee for service or they have purchased the loans directly (at something less than face), which gives them the ability to do principal reductions (with refinancing as their exit strategy).

Right to Rent: Will the Obama Administration Finally Fix Housing? - The concept of "right to rent" has been floating around Washington for almost four years. Under this proposal, foreclosed homeowners would be allowed to remain in their house as renters, paying the market rent, for a substantial period of time (e.g. five years) following a foreclosure. While several bills have been introduced in Congress, President Obama may now have a new opportunity to take the lead on this issue. The overwhelming majority of mortgages that have been issued since the financial meltdown in September of 2008 have been bought by Fannie Mae and Freddie Mac or insured by the Federal Housing Authority. This has led to an interesting, but predictable, outcome. Rather than being a problem for banks to deal with, the problem of foreclosures is now primarily a government problem, since the federal government now owns and controls Fannie and Freddie. This means that President Obama no longer has to beg the banks to allow people to stay in their homes. He can do it himself. And, he can show the banks how to do it right.

NY AG Schneiderman: I’m Not Signing Onto Foreclosure Fraud Settlement -He’s not going for it. In the strongest comments from a Democrat to date about the state AG settlement with top banks over foreclosure fraud, New York Attorney General Eric Schneiderman vowed to oppose the deal, striking a near-fatal blow to the effort.  New York Attorney General Eric Schneiderman expects to lead opposition to what he called a “quick, cheap settlement” of a 50-state investigation into foreclosure practices. Schneiderman put the monetary settlement being discussed with the largest U.S. mortgage servicers at $20 billion to $25 billion and said he will take “the hardest line” against it. New York launched its own investigation two months ago and, Schneiderman said, has found the problem is much deeper. He said he was “stunned” to find the multi-state probe so lacking that no documents or witness depositions had been obtained.“We have no leverage,”

MERS Evidence of Immortal Mortgages Claimed as Active Loan After Fraudclosure or ShortSale - Eight mortgages long fraudclosed and two mortgages long past short sale, from Palm Beach County, Florida all in CWALT 2006- OC8 and all show ACTIVE in the MERS system. Countrywide - Bank of America - Bank of New York Mellon - BAC Home Loans What entity or entities are claiming these phantom assets on their books? CWALT 2006 - OC8 I am doing a detailed study of the 46 Palm Beach County, Florida loans in this trust as an exemplar and a lesson. (Chosen because this is the trust that allegedly holds the Pino loan which is the subject of a fraudclosure case currently in the Florida Supreme Court) PINO CASE - FL Supreme Court readies for case on Fraudclosure docket (4th DCA opinion here) FL Supreme Court docket here and document links here. and Ice Legal answer brief here. ) Forty six (46) loans out of 6,734 were propounded upon Palm Beach County properties at the birth of this trust. Only ONE SINGLE LOAN of those original 46 is current and "performing" in the industry parlance. We'll keep an eye on that one loan.

Bank Errors Continue to Cause Wrongful Foreclosures - Four years into the foreclosure crisis, banks say they've made major improvements in how they handle struggling homeowners. They've promised, for example, not to foreclose on homeowners who are being considered for mortgage modifications. But that's still happening. Such cases are particularly senseless, because simply modifying the mortgage by reducing the monthly payment might be in the interest not only of the homeowner, but also of the investor who owns the mortgage. Regulators have done little to stop the practice, and the "problem appears to be getting worse," said Kevin Stein, associate director of the nonprofit California Reinvestment Coalition [1].  Last month, the coalition surveyed 55 foreclosure-avoidance counselors throughout the state. Collectively they serve thousands of borrowers every month. Almost all of the counselors, 94 percent, reported having worked with clients who'd lost their homes while under review for a modification. About half of the counselors reported this happened "often." This year's totals, which are due to be publicly released next week, are higher than those in the group's survey last year [2].

Switching Foreclosure Rules in the Middle of the Game - Yves Smith has an interesting post up on Naked Capitalism about Florida Governor Rick Scott suggesting that Florida could switch from judicial to nonjudicial foreclosures as a way to solve its foreclosure overload. (At a Congressional hearing last fall, the head of BAC testified that 70% of judicial foreclosures are in Florida, a testament to that state's high default rate and large population among judicial foreclosure states.)   Putting aside the political questions of whether should engage in such a change and whether the votes are there, I think there's a really interesting legal question lurking in the suggestion. Can a state change from judicial to nonjudicial foreclosure as applied to existing mortgages?  The question has some parallels in retroactive application of changes in the bankruptcy law to the detriment of secured creditors (generally a no-no, but Supreme Court cases leave open the possibility of a public interest exception to retroactivity).  I would think that the same analysis would apply to state foreclosure law changes as to bankruptcy law, namely, whether the change has deprived a party of a property right.  In the case of foreclosure law, the answer is clearly yes.  

US Bank Halts Evictions in Oregon After Judge Reverses Foreclosure - Yves Smith  - Oregon judges have delivered a series of setbacks to servicers and securitization trusts. A recent decision, Hooker v. Northwest Trustee Services, ruled that assignments of the beneficial interest (as in, transfers of the note) needed to be recorded. That makes any foreclosure in the name of the mortgage registry MERS a non-starter, since MERS was never and could never be the holder of the beneficial interest. This will have little impact going forward, since MERS has instructed servicers to stop foreclosing in its name, but there are plenty of foreclosures in the pipeline that were initiated in the name of MERS.  The latest move is that Judge Grand reversed a foreclosure sale due to the failure of the parties representing the lender to satisfy the requirements of Oregon’s recording statute. To put it mildly, foreclosure actions are seldom reversed. The decision is terse but it has wideranging ramifications. The Oregonian provided a good write-up of the case. Key extracts: A Columbia County judge has blocked U.S. Bank from evicting a Vernonia woman whose home it purchased in foreclosure, concluding in a case with far-reaching implications that her lenders had not properly recorded mortgage documents. Last week’s action appears to be the first in which an Oregon judge has halted an eviction and declared a foreclosure sale void after the fact. The ruling, if it stands, raises questions about the validity of other recent foreclosures in the state and could create serious problems for lenders and title companies, as well as for buyers of such properties

Man falls behind on payments, mortgage company has home trashed - Imagine coming back to your home after being away a few weeks and finding the locks changed and the home trashed. That's what happened to Chris Boudreau of Brooksville. "I used to have a couch, a sofa, a couple of end tables, a TV, DVD  player, tapes and cabinet... but  they are now gone."Photos: Man's home trashed by mortgage company It happened after 21 Mortgage Corporation in Knoxville, which is Boudreau's lender, hired a local company to do the job. The mortgage company spokesperson refused to talk to us, but we talked to Boudreau's attorney, Tom Altman. He says he told the woman Florida has strict mortgage foreclosure laws and they were being violated by the company.But the Hernando Sheriff's Office apparently has no interest in enforcing those laws... or burglary, breaking and entering and trespassing, either. They say it is a civil matter, even though everything from the house was taken or thrown in the dumpster. The wedding dress belonging to Boudreau's wife was even cut to shreds.

Strategic-default rate still high, despite drop - Strategic defaults, in which homeowners walk away from their home despite being able to afford their mortgage payment, are on the decline, after peaking in the fourth quarter of 2008, according to a report this week from Experian. Twenty percent of mortgages with payments 60 days or more past due were strategic defaults in the fourth quarter of 2008, according to the report. The strategic-default rate fell to 17% by the second quarter of 2010, the most recent quarter for which data is available. No doubt, the incidence of strategic default is still high, compared with several years ago. In the fourth quarter of 2004, for example, it’s estimated that 4% of all defaults were strategic. Until home prices rise and maintain higher levels, the rate of strategic default is expected to remain elevated. “Homeowners have to see for themselves that their neighbors’ houses are selling for higher prices,” the report read. “So far, home prices nationwide continue to decline in most regions.”

Major banks may give away discarded residences to cut losses - City officials are in preliminary talks that could lead to donations of foreclosed and abandoned properties from the banks holding the mortgage loans. Negotiating for an exit strategy from the mortgage meltdown, representatives for a foreclosed properties servicer that works with major banks met Monday with Dayton city officials to discuss the abandoned properties. How the early discussions will shake out is unknown, but a potential outcome includes transferring some properties clogging up bank balance sheets to a land bank or some other public entity, a move that occurred earlier this year in Chicago. In May, Bank of America announced a collaboration with the city of Chicago and a community group to give away 150 vacant and abandoned properties in and around the city. A bank spokesman said the bank agreed to pay as much as $10,000 per home for demolition, according to the Chicago Sun-Times.

Foreclosure Sales Plummeted in May - There are significantly fewer foreclosure sales today than there were before foreclosure moratoria were put into place during the Robogate scandal last fall and foreclosure sales are declining.The precipitous drop in foreclosure sales is keeping foreclosure inventories high in many markets. In fact, the number of mortgages that are 90 or more days delinquent, combined with the foreclosure inventory at the end of May outpaced foreclosure sales by 50:1. The May Mortgage Monitor report released by Lender Processing Services, Inc. shows that mortgages that are 90 or more days delinquent combined with the foreclosure inventory totaled 4,084,557. With foreclosure sales at 78,676 at month end, the volume of serious delinquencies and foreclosures remains high. The May data shows that the biggest drop in foreclosure sales has been seen in East Coast states, with a decline of 96 percent in DC, 80 percent in Maryland, 79 percent in New York, and 75 percent in New Jersey. The average time spent in foreclosure continues to extend, with more than 33 percent of borrowers in foreclosure not having made a payment in over two years

Fannie Mae and Freddie Mac Serious Delinquency Rates decline in May - Fannie Mae reported that the serious delinquency rate decreased to 4.14% in May, down from 4.19% in April. This is down from 5.15% in May of 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Freddie Mac reported that the Single-Family serious delinquency rate decreased to 3.53% in May from 3.57% in April. This is down from 4.06% in May 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are loans that are "three monthly payments or more past due or in foreclosure". Some of the rapid increase in 2009 was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent.  Now the serious delinquency rate is falling as Fannie and Freddie work through the backlog of loans and either modify the loan, foreclose, short sale, or the loan cures.  The normal serious delinquency rate is under 1%, so this is still very high. At the current pace of improvement, it will take 3 or 4 years to get back to "normal".

LPS: Mortgage Delinquency Rates decreased slightly in May - According to LPS, 7.96% of mortgages were delinquent in May, down slightly from 7.97% in April, and down from 9.74% in May 2010.  LPS reports that 4.11% of mortgages were in the foreclosure process, down from 4.14% in April. This gives a total of 12.07% delinquent or in foreclosure. It breaks down as:
• 2.27 million loans less than 90 days delinquent.
• 1.92 million loans 90+ days delinquent.
• 2.16 million loans in foreclosure process.
For a total of 6.35 million loans delinquent or in foreclosure in May. This graph shows the total delinquent and in-foreclosure rates since 1995. The total delinquent rate has fallen to 7.96% from the peak in January 2010 of 10.97%. A normal rate is probably in the 4% to 5% range, so there is still a long way to go. However the in-foreclosure rate at 4.11% is barely below the peak rate of 4.21% in March 2011. There are still a large number of loans in this category (about 2.16 million). This graph provided by LPS Applied Analytics shows the aging for the in-foreclosure bucket. About 34% of those 2.16 million loans in the foreclosure process have not made a payment in over 2 years. Another 35% have not made a payment in over a year (but less than 2 years).

US Mortgages: 26.8% Rejection Rate - Mortgage application denial rates last year were highest in the South and along the Rust belt, according to a WSJ analysis. Here’s the WSJ:The percentage of mortgage applications rejected by the nation’s largest lenders increased last year, spotlighting how banks’ cautious lending practices are hampering the nascent housing market recovery. In all, the nation’s 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators.Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

HousingTracker: Homes For Sale inventory down 8.5% Year-over-year in June - A couple of key points on existing home inventory: 1) Changes in inventory usually lead prices. 2) The NAR method for estimating inventory has probably led to inventory being overstated for the last few years (along with sales). It appears this discrepancy started in 2007 (or earlier), and the error has probably increased since then.  Keeping those two points in mind, here is a repeat of a graph I posted last week. This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change.  According to the NAR, inventory decreased 4.4% year-over-year in May from May 2010. This was the fourth consecutive month with a YoY decrease in inventory. So even though inventory (and months-of-supply) is still very high, it appears that inventory is now decreasing. I think the HousingTracker data  might be a better estimate of changes in inventory (and always more timely). Ben at is tracking the aggregate monthly inventory for 54 metro areas. This graph shows the NAR estimate of existing home inventory through May (left axis) and the HousingTracker data for the 54 metro areas through June. The third graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

Case Shiller: Home Prices increase in April - S&P/Case-Shiller released the monthly Home Price Indices for April (actually a 3 month average of February, March and April). This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities). Note: Case-Shiller reports NSA, I use the SA data. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 31.8% from the peak, and up slightly in April (SA). The Composite 10 is still 1.6% above the May 2009 post-bubble bottom (Seasonally adjusted). The Composite 20 index is off 31.8% from the peak, and down slightly in April (SA). The Composite 20 is slightly below the May 2009 post-bubble bottom seasonally adjusted. The second graph shows the Year over year change in both indices. The Composite 10 SA is down 3.1% compared to April 2010.  The Composite 20 SA is down 3.9% compared to April 2010.  The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices. Prices increased (SA) in 9 of the 20 Case-Shiller cities in April seasonally adjusted. Prices in Las Vegas are off 58.6% from the peak, and prices in Dallas only off 8.8% from the peak.

Home Prices Up For First Time In 8 Months - Home prices in most major U.S. cities are rising for the first time in eight months, boosted by an annual wave of spring buying. Analysts cautioned that the increases may be temporary and don't signal a rebound for the depressed home market. Prices rose in 13 of the 20 cities tracked by the Standard & Poor's/Case-Shiller home-price index, according to the April report released Tuesday. The sharpest increases were in Washington, D.C. The next-largest were in San Francisco, Atlanta and Seattle. The index covers metro areas that together make up about 50 percent of U.S. households. It measures sale prices of select homes in those cities compared with prices in January 2000. It then provides a three-month average. The April data is the latest available. Last year, a tax credit for first-time buyers helped boost prices. They rose nearly 4 percent from April through July before falling more than 7 percent this winter to record lows. Prices in big metro areas sank in March to their lowest level since 2002.

Home Prices Rise, But Seasonal Factors Played Big Role - Home prices have risen in major U.S. cities for the first time in more than half a year, according to the widely watched S&P/Case-Shiller Home Price Indices. But it's too soon to say that the ailing housing sector is on the mend. The new report, which tracks prices through April, shows "a monthly increase in prices ... for the first time in eight months" across indexes in key cities 'In a welcome shift from recent months, this month is better than last — April's numbers beat March,' David M. Blitzer, chairman of the Index Committee at S&P Indices, says in a statement issued with the report. 'However,' he adds, 'the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.' Indeed, while the indices' 10-city composite index rose 0.8 percent before being seasonally adjusted, it was unchanged when adjusted to account for normal seasonal effects. And the 20-city composite index, which was up 0.7 percent before adjustment, was down 0.1 percent afterward."

Case Shiller Says Home Prices Dropped Less Than Expected Three Months Ago - There was some good news for the home sector after Case Shiller the first sequential increase in home prices in almost a year, with the Composite 10 increasing 0.8% in April, and a 0.7% increase in the Composite 20 on a non-seasonally adjusted basis. On a SA basis prices fell again, this time by 0.1%, slightly better than consensus which was looking for a 0.2% drop (and lest anyone believes revisionism is contained to the BLS, the February/March decline was revised even more from -0.23% to -0.26%) and in line with Goldman's expectation noted earlier. But before Toll and Lennar go ahead and prebuild another 10,000 empty units, there were some caveats: 'In a welcome shift from recent months, this month is better than last - April’s numbers beat March,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather...“Other housing statistics show the same trends. Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low. Existing home sales rose in May, but are still about 15% below last year’s pace and about 35% below their 2005 pace."

Home Prices in 20 U.S. Cities Fell 4% in April from a Year Earlier - Home prices decreased in the year ended April by the most in 17 months, showing the housing market remains an obstacle for the U.S. recovery.  The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest drop since November 2009, the group said today in New York. From March to April, prices fell 0.1 percent on a seasonally adjusted basis, the smallest decline since July 2010. A backlog of foreclosures and falling sales raise the risk that prices will decline further, discouraging builders from taking on new projects. The drop in property values and a jobless rate hovering around 9 percent are holding back consumer sentiment and spending, which accounts for 70 percent of the economy. “There’s no sign of any real recovery in housing yet,” . “There won’t be a significant turn until the labor market shows sustained improvement. The level of foreclosures is still high and a lot of people are delinquent on their mortgages.”

Home prices rise, snapping 8-month drop streak‎ -- The downward cycle in home prices broke in April after eight consecutive months of decline, according to a survey released Tuesday. According to the S&P/Case Shiller 20-city index, prices rose 0.7% compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year. "In a welcome shift from recent months, this month is better than last -- April's numbers beat March," said David Blitzer, S&P's spokesman, in a statement. "However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season." "It is much too early to tell if this is a turning point or simply due to some warmer weather," Blitzer added. Any hint of good news in the troubled housing market will likely bring cheer to the industry, and there are some signs that market conditions are not quite as dire as some of the other statistics may indicate. Foreclosures, for example have been falling.

Homes, sweet homes? - New Case-Shiller home price figures are out today, and they show the first monthly gain since last June. Seasonal factors pushed the Case-Shiller 10- and 20-city indexes up 0.8% and 0.7%, respectively, in April. But the seasonally adjusted 10-city index also showed an uptick for the month, and the decline in the 20-city series has virtually come to a stop. Year-on-year prices are still down for the broader indexes and for every tracked market except Washington. But 9 of the 20 markets followed by Case-Shiller saw monthly increases in April. It would be premature to declare the latest housing market swoon over. Case-Shiller data are a three-month moving average of closed and reported sales, and so positive April numbers capture a trend toward improvement from late last year to April. The economic hiccup America encountered early this year may soon work its way into the numbers, stalling or briefly reversing April's progress. But the Case-Shiller index is far from the only source showing better conditions in housing markets. The CoreLogic and FHFA home price indexes also showed monthly increases in April for the first time in nearly a year.

A Look at Case-Shiller, by Metro Area - S&P/Case-Shiller home-price data showed a gain for most cities in April amid a boost from the start of the spring selling season began, but prices still remain below year-earlier levels. The composite 20-city home price index, a broad gauge of U.S. home prices, posted a 0.7% increase in April from a month earlier but fell 0.9% from a year earlier. Nineteen of 20 cities in the index posted annual declines in April — just Washington notched an increase. The monthly rises were more widespread with 13 cities climbing. On a seasonally adjusted basis, which aims to take into account the stronger spring-summer selling season, eight cities — Atlanta, Los Angeles, Minneapolis, New York, Phoenix, San Francisco, Seattle and Washington, D.C. — posted monthly increases. Miami prices were flat on a seasonally adjusted basis. Despite some monthly improvement elsewhere, six markets hit their lowest points since home values started dropping more than four years ago. See a sortable table of home prices in the 20 cities in the Case-Shiller index...Read the full story...Read the full S&P/Case-Shiller release.

Is Case-Shiller Improvement Any More Than a Seasonal Bounce? - With the release of Case-Shiller data, Econintersect summarizes all home price indices for its readers. Case-Shiller is showing a normal seasonal improvement between March and April 2011: Data through April 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show a monthly increase in prices for the 10- and 20-City Composites for the first time in eight months. The 10- and 20-City Composites were up 0.8% and 0.7%, respectively, in April versus March. Both indices are lower than a year ago; the 10-City Composite fell 3.1% and the 20-City Composite is down 4.0% from April 2010 levels. Six of the 20 MSAs showed new index lows in April – Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa.Thirteen of the cities and both composites posted positive monthly changes. With index levels of 152.51 and 138.84, respectively, both the 10- and 20-City Composites are above their March 2011 levels, which had been a new crisis low for the 20-City Composite."

Home Prices in 20 U.S. Cities Fall by Most in 17 Months, Case-Shiller Says - Home prices decreased in the year ended April by the most in 17 months, showing the housing market remains an obstacle for the U.S. recovery. The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest drop since November 2009, the group said today in New York. From March to April, prices fell 0.1 percent on a seasonally adjusted basis, the smallest decline since July 2010. A backlog of foreclosures and falling sales raise the risk that prices will decline further, discouraging builders from taking on new projects. The drop in property values and a jobless rate hovering around 9 percent are holding back consumer sentiment and spending, which accounts for 70 percent of the economy. “Home prices are still easing but the declines are not dramatic any more,” said Harm Bandholz, chief U.S. economist at Unicredit Group in New York, who correctly predicted the year- over-year drop. While month to month changes show “prices have basically bottomed and are moving sideways,” he said “we’re a long way away from significant increases in house prices.” Consumer confidence unexpectedly fell in June to a seven- month low, indicating that slowing employment gains are weighing on Americans’ outlooks, another report today showed. The Conference Board’s index decreased to 58.5 from a revised 61.7 reading in May that was higher than previously estimated. The percent of respondents expecting an increase in job availability fell to the lowest in 11 months."

CASE SHILLER: House Prices Fall 3.96%, Just Worse Than Expected - The number is out: House prices fell 3.96% form last year, a hair worse than the 3.95% expected and worse than the revised 3.77% decline last month. Sequentially, house prices fell 0.09%, though on non-seasonally adjusted basis there was a slight increase. Here's the commentary: Data through April 2011, released today by S&P Indices for its S&P/Case- Shiller1 Home Price Indices, the leading measure of U.S. home prices, show a monthly increase in prices for the 10- and 20-City Composites for the first time in eight months. The 10- and 20-City Composites were up 0.8% and 0.7%, respectively, in April versus March. Both indices are lower than a year ago; the 10-City Composite fell 3.1% and the 20-City Composite is down 4.0% from April 2010 levels. Six of the 20 MSAs showed new index lows in April – Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa. Thirteen of the cities and both composites posted positive monthly changes. With index levels of 152.51 and 138.84, respectively, both the 10- and 20-City Composites are above their March 2011 levels, which had been a new crisis low for the 20-City Composite. You can download the full report here. And for a graph of the accelerating double dip, see here.

Update: Real House Prices and Price-to-Rent - Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here). Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 1999/2000 levels. The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2011), and the monthly Case-Shiller Composite 20 SA (through April) and CoreLogic House Price Indexes (through April) in nominal terms (as reported). In nominal terms, the Case-Shiller National index is back to Q3 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is 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 Q4 1999 levels, the Composite 20 index is back to September 2000, and the CoreLogic index back to January 2000.  This graph shows the price to rent ratio (January 1998 = 1.0). Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices.

CoreLogic: May Home Price Index increased 0.8% - Case-Shiller is the most followed house price index, but CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average of March, April and May (May weighted the most) and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic® Home Price Index Shows Second Consecutive Month-Over-Month Increase. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.The index was up 0.8% in May, and is down 7.4% over the last year, and off 32.7% from the peak. This is the tenth straight month of year-over-year declines, and the index is still 2.4% below the March 2009 low (the previous post-bubble low). Some of this increase is seasonal (the CoreLogic index is NSA) and the index is still off 7.4% from last May (the largest year-over-year decline since Sept 2009).

The desert heat melts Arizona home prices – Phoenix home prices now back to late 1990s levels while state tax collection drop to 1998 levels. The second lost decade in the desert. The real estate crash is much deeper than the media is making it out to be.  Entire life savings are being wiped out in markets that are tanking like the Titanic.  What is troubling is that some markets are having depression like symptoms with home prices falling 50, 60, and even 70 percent in a few short years.  Many Americans who are already struggling with the decade long stagnation in incomes are now seeing their largest asset plummeting.  Each market has a unique story resembling a Greek Tragedy and the desert is seeing its fair share of problems.  The market in Phoenix Arizona is experiencing price declines that have never been witnessed.  Home prices in Phoenix are now back to levels last seen in the 1990s.  Phoenix is unique in the sense that it had its own internal bubble with local speculators buying homes but also rampant money flowing from the California housing bubble.  It is no coincidence that these markets that experienced the biggest benefits from the housing boom are now suffering in its collapse.

Decline in home prices ebbs, consumers gloomy - (Reuters) - The plunge in U.S. home prices showed signs of leveling off in April, but worries about unemployment pushed consumer confidence to a seven-month low in June. House prices were helped by the start of the spring selling season, data showed on Tuesday. Nonetheless, economists warned prices will likely crawl along at low levels as a large number of homes, many of them at bargain prices, come up for sale. "The degree of hemorrhaging seems to be slowing," said Anthony Chan, chief economist at JPMorgan Private Wealth Management in New York. "The patient is still bleeding and will be bleeding until we get all that distressed and shadow housing market inventory down to smaller levels." Housing accounts for a fraction of the U.S. gross domestic product, and a three-year slump in prices wiped out trillions of dollars in homeowner equity. But a recovery in prices remains key to restoring confidence among consumers.

Complex system leaves thousands of foreclosure properties to become eyesores - The 1,300-square-foot home has sat largely vacant since falling into foreclosure more than two years ago, racking up $55,372 in code violations while the case lingers in court. A tattered sign out front informs visitors that BAC Field Services, a subsidiary of the megabank, “intends to protect this property from deterioration.” “They’re doing a great job,” Minkel said sarcastically.  This slice of central Florida has been battered particularly hard by the fallout of the foreclosure crisis. But thousands of abandoned and vacant properties, many stuck in an ongoing legal limbo, are plaguing neighborhoods across the country. The result has weighed down already falling home values, attracted crime and vagrancy and forced cash-strapped municipalities to tap dwindling budgets to care for decaying houses. With more foreclosures looming, some state and local officials are pushing the financial industry to do more to repair the damage on Main Street, which is still reeling from high unemployment and a housing crisis that has hampered a national economic recovery.

Rental prices rise 6.7% as Americans sour on homeownership - Prices on rental properties grew 6.7% in June as more Americans chose low-risk rentals over homeownership, a new report from housing search engine HotPads said Thursday. The agency, which compared June prices to last year, attributes the rental-price surge to pent-up demand among first-time renters and larger families who can no longer afford homeownership or who lack faith in the stability of home prices. San Francisco-based reached this conclusion by studying the median listing price of 500,000 rentals located in major metropolitan areas. Price hikes in the studio and five-bedroom rental segment grew the most, rising 14.3% and 12.1%, respectively. HotPads' study is in line with analyst projections that show pent-up demand for rental housing in the wake of the credit crunch. Americans who rented out properties gained $3.3 billion in total income from that endeavor during the month of May, up from $2.9 billion in April, according to the U.S. Bureau of Economic Analysis.

Despite Fears, Owning Home Retains Allure - Owning a house remains central to Americans’ sense of well-being, even as many doubt their home is a good investment after a punishing recession1.  Nearly nine in 10 Americans say homeownership is an important part of the American dream, according to the latest New York Times/CBS News poll. And they are keen on making sure it stays that way, for themselves and everyone else.  Support for helping people in financial distress over housing is higher than support for helping those without a job for many months.  Forty-five percent of the respondents say the government should be doing more to improve the housing market, while 16 percent say it should be doing less. On the politically contentious issue of direct financial assistance to those having trouble paying their mortgages, slightly more than half of those polled, 53 percent, say the government should help. And almost no one favors discontinuing the mortgage tax deduction, a prized middle-class benefit that has been featured on some budget-cutting proposals.

Pending Home Sales Turn Around in May - Pending home sales rose strongly in May with all regions experiencing gains from a year ago, pointing to higher housing activity in the second half of the year, according to the National Association of Realtors®. The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 8.2 percent to 88.8 in May from an upwardly revised 82.1 in April and is 13.4 percent higher than the 78.3 reading in May 2010. The data reflects contracts but not closings, which normally occur with a lag time of one or two months. This is the first time since April 2010 that contract activity was above year-ago levels, and the monthly gain was the strongest increase since last November when the index rose 10.6 percent. Lawrence Yun, NAR chief economist, said the improvement bodes well for home prices. “Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace,”

Construction Spending declined in May -This morning from the Census Bureau reported that overall construction spending decreased in May:  [C]onstruction spending during May 2011 was estimated at a seasonally adjusted annual rate of $753.5 billion, 0.6 percent (±1.6%)* below the revised April estimate of $757.9 billion. The May figure is 7.1 percent (±1.8%) below the May 2010 estimate of $811.2 billion. Private construction spending also decreased in May: Spending on private construction was at a seasonally adjusted annual rate of $477.2 billion, 0.4 percent (±1.4%)* below the revised April estimate of $479.3 billion. Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May. 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, and non-residential spending is 40% below the peak in January 2008.

Consumer Spending in U.S. Stagnated in May - Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back. Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median of economists surveyed by Bloomberg News called for a 0.1 percent gain. Prices excluding food and energy rose more than forecast. The report showed incomes increased 0.3 percent for a second month. The gain was also less than forecast. Today’s report also showed that spending adjusted for inflation figures, which are used to calculate gross domestic product, dropped 0.1 percent for a second month. It was the first back-to-back decline in two years. In May, cars and light trucks sold at an 11.8 million annual rate, the slowest since September and down from a 13.1 million pace a month earlier, according to researcher Autodata Corp. Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami in March disrupted supplies. With inventories running low, companies offered smaller discounts, deterring buyers

Personal Income increased 0.4% in May, Outlays increased less than 0.1% - The BEA released the Personal Income and Outlays report for May: The following graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars). PCE increased less than 0.1% in May, but real PCE decreased 0.1% as the price index for PCE increased 0.2 percent in May. The graph shows that real PCE declined in the first two month of Q2.  Note: The PCE price index, excluding food and energy, increased 0.3 percent. The personal saving rate was at 5.0% in May. Personal saving -- DPI less personal outlays -- was $591.1 billion in May, compared with $568.0 billion in April. Personal saving as a percentage of disposable personal income was 5.0 percent in May, compared with 4.9 percent in April.  This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the May Personal Income report.

Consumer Spending Flat In May As Income Rises Modestly - Is the sluggish economy finally inspiring consumers to implement a self-imposed round of personal austerity? It looks that way after reading today’s update of personal spending and income for May. Disposable personal income rose modestly by 0.2% last month, matching April’s gain and posting the eighth straight monthly increase. But personal consumption expenditures were virtually unchanged in May, rising by the smallest of margins and thereby delivering the weakest month for consumer spending since the slight decline in June 2010. As usual, one month doesn’t tell us much about the trend and so we need to look at the annual pace for a clearer view of the big picture. But here too there’s reason for caution. As the chart below shows, the divergence between expenditures and income has been growing in recent months, with purchases continuing to move higher without a comparable rise in income. Something was bound to give way eventually. Either income would bounce back or consumption would fall. It appears that the rebalancing is unfolding via lower levels of consumer purchases

Personal Income And Spending Both Lower Than Expected, PCE Deflator Surges, Savings Rate Higher - Not surprisingly, the personal household weakness continues into May, when both personal income and spending came lower than expected, the first printing at 0.3% on expectations of 0.4%, in line with a revised 0.3% in April, while spending printing coming unchanged in May on expectations of a 0.1% rise, down from a revised 0.3% in April. Most important was that the PCE deflator increased by the most since late 2009, surging from 2.2% to 2.5%, just as expected. Squatters rent component of income once again increased: "Rental income of persons increased $3.3 billion in May, compared with an increase of $2.9 billion in April." More importantly, "Private wage and salary disbursements increased $14.1 billion in May, compared with an increase of $26.4 billion in April." This in line with observed decline in tax withholdings by the government over the past several months. Net result, in May the savings rate increased modestly from 4.9% to 5.0%, much to the chagrin of spending advocates everywhere, as in addition to deleveraging, US consumers also saved more.

Consumer Income Kept Afloat by Government Payments - U.S. households are worried, worried, worried about their future paychecks, consumer surveys show. Shrinking incomes will be a problem for the economic outlook, creating a headwind that could become more dire if fiscal conservatives have their way and pull the rug out from under the unemployed.  Wage and salary disbursements peaked in March 2008 — three months after the recession started — and cratered until early 2009. Even by May 2011, paychecks are still shy of where they were at the 2008 peak, Blitz says. The paycheck gap is the result of job losses, loss of overtime and wage cuts put in place during the recession. So, what allowed consumer spending to surpass its 2008 peak more than a year ago? In large part, cash paid by the government, especially the money that kicks in when economic troubles hit. Blitz added government transfer payments — excluding Social Security, Medicare and Medicaid — to wages and salaries. This combination of incomes returned to its March 2008 level in January 2010, right before consumer spending recovered. Since then, it has grown $332 billion, providing money to keep consumer spending rising, if only weakly, so far this year.

Americans spend at weakest pace in 20 months - Americans spent at the weakest pace in 20 months, a sign that high gas prices are taking a toll on the economy. Consumer spending was unchanged in May, the Commerce Department said Monday. That was the worst result since September 2009. And when adjusted for inflation, spending actually dropped 0.1 percent. April's consumer spending figures were revised to show a similar decline when adjusting for inflation. It marked the first decline in inflation-adjusted spending since January 2010. Economists are optimistic for the second half of the year, saying growth should pick up to a 3.2 percent pace. They note that two of the biggest factors slowing the economy are abating. Gas prices are falling. And U.S. factories are expected to begin producing more once Japan's factories resume more normal operations. The March 11 earthquake and tsunami in that country has led to a parts shortage, particularly for auto and electronics manufacturers.

Consumer sentiment worsens in June as outlook sours (Reuters) - Consumer sentiment worsened in June on jitters about the economic outlook and spending is likely to remain lackluster in the long-term, a survey released on Friday showed. Falling gasoline prices stabilized consumers' view of their current economic conditions, but expectations remained gloomy, the Thomson Reuters/University of Michigan survey showed. The final reading for the consumer sentiment index came in at 71.5, down from 74.3 the month before. It was a hair below the preliminary June figure of 71.8 and shy of the median forecast for 71.9 among economists polled by Reuters. While small spending gains can be expected in the second half of the year, the trend is more likely to vary between lackluster and zero than lackluster and robust over the next several years, the survey said. "Resurgent spending is not on the horizon, nor is widespread retrenchment,"

Consumer Confidence Tanks In June - There were two negative consumer confidence reports today. The Conference Board’s June report shows that their Index dropped almost 3 points this month, and since April, almost 7 points. People can watch and hear the news, monitor their own situation and their neighbors’ and friend’s, and conclude that things aren’t getting better. Who knows, they may even read The Daily Capitalist. This is their lowest reading since November, 2010. Gallup came up with the same sentiment: Gallup explains it as follows:The worsening of Gallup’s economic confidence measure during June may be due in part to the dissipation of the “halo effect” surrounding the death of bin Laden. Confidence has now moved back near the April 2011 low. This suggests that the consumer benefits associated with steadily declining gas prices at the pump — down 14 cents per gallon in the past two weeks — are being offset by other factors. One such factor might just be that gas prices remain 82 cents per gallon higher than they were a year ago. Another could be the continuing dismal jobs situation.

Number of the Week: Pursuit of Happiness Gets More Difficult - 29%: Share of Americans who say they’re “very happy”. The Declaration of Independence enshrined the pursuit of happiness as an inalienable right. Lately, that pursuit appears to have gotten more difficult. The General Social Survey, out of the University of Chicago, polls U.S. residents on everything from how often they attend church to how much they trust one another. In the latest poll, the number of people who said they were “very happy” fell to 29% last year. That is down from 32% in 2006, the year before the recession started, and the lowest level the survey has registered in its 39-year history. Before the recession, the survey’s measure of happiness saw little reaction to the ups and downs of the U.S. economy. The record low speaks to the downturn’s severity. But that it took such a deep recession to move the happiness needle also points to the difficulty of measuring well-being with surveys.

Poll: 40% Of Americans Believe Economy Is In Permanent Decline -- Another sign of economic pessimism from the latest CBS/New York Times Poll: Nearly 4 in 10 Americans say they think the economy is in permanent decline, a new polls shows as deep pessimism about the economy becomes more widespread. Thirty-nine percent of those surveyed for a New York Times/CBS News poll released late Wednesday say they see the economy headed on a downward path – significantly worse than when the question was last asked in October and 28 percent of Americans said the economy was in permanent decline. At the same time, fewer Americans see the economy as having the potential to eventually recover, with 57 percent of those surveyed saying they think things will, in time, be better. That’s down from 68 percent in October. As I’ve said before,  polls like this have a tendency to become predictive because people who think the economy will continue to be bad will act accordingly, thus creating a self-fulfilling prophecy. I can’t say that the 40% of respondents are necessarily wrong, though, the evidence in favor of returning to anything resembling the economy of the 1990′s or mid-2000′s anytime soon is decidedly lacking.

Consumer Sentiment declines in June - chart - The final June Reuters / University of Michigan consumer sentiment index decreased to 71.5 from the preliminary reading of 71.8. This is down from 74.3 in May.  In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with gasoline prices falling, consumer sentiment is mostly moving sideways at a low level. This was below the consensus forecast of 72.0.

Consumers Weighed Down by Concerns About Jobs, Income - The Conference Board said Tuesday its confidence index fell to 58.5 in June, the lowest reading since November 2010. Assessments of both present economy and the future fell. The The report showed a deteriorating view of the labor markets both now and six months down the road. And the percentage of consumers who think their income will decrease six months from now rose to 16.5%, the highest rate since August 2010. These doubts about the future are likely to translate into weaker spending if better data don’t change consumer attitudes. “Given the combination of uneasiness about the economic outlook and future earnings, consumers are likely to continue weighing their spending decisions quite carefully,” Bear in mind that real consumer spending in the second quarter is on track to increase by the slowest rate since possibly the fourth quarter of 2009. Continued shopping caution will be a problem for second-half growth.

Big Auto Effect on Consumer Spending - Consumer spending came in flat for May, and adjusted for inflation actually declined a bit, but a large portion of the drop came from decreased demand for autos. The decline in auto sales was driven in large part by supply disruptions from the earthquake in Japan, and offers hope that the downtrend could reverse next month. “The good news is that June vehicle sales appear to be stronger than in May,” said Ray Stone of Stone & McCarthy Research & Associates in a research note. Though most of the decline came from autos, the latest report also include a drop in nondurable goods even as gas prices began to decline last month. “The decline in nondurable goods spending appears to be driven by slower demand and not price effects as gas prices came off later in the month,” wrote David Resler of Nomura Associates. But Resler notes that spending on services, which is a bigger chunk of expenditures, rose last month.

U.S. Light Vehicle Sales 11.45 million Annual Rate in June - Based on an estimate from Autodata Corp, light vehicle sales were at a 11.45 million SAAR in June. That is up 2.8% from June 2010, and down 2.6% from the sales rate last month (May 2011). This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 11.45 million SAAR from Autodata Corp).  The second graph shows light vehicle sales since the BEA started keeping data in 1967.From TrueCar.comThe upside to a lack of inventory on some vehicles is that incentives decreased and transaction prices soared to the highest levels ever recorded  A few comments:
          • Obviously the Japanese supply chain disruption impacted auto sales significantly in May and June. This has also negatively impacted manufacturing overall.

  • The good news is the supply issues are being resolved ahead of schedule and the automakers expect sales to be back up over 13 million Seasonally Adjusted Annual Rate (SAAR) by August.
  • • The automakers lowered their incentives again in June, and this also impacted sales.

Detroit: Beyond The Motor City [VIDEO] Detroit is the crucible in which the nation’s ability to move toward a modern 21st century transportation infrastructure is put to the test. The documentary shows how investments in the past — beginning with the construction of canals in the 18th century — profoundly shaped Detroit’s physical layout, population growth and economic development. Before being dubbed the Motor City, Detroit was once home to the nation’s most extensive streetcar system. In fact, it was that vast network of streetcars that carried workers to the area’s many car factories. And it was the cars made in those factories that would soon displace the streetcars in Detroit — and in every major American city. But over the last 30 years, much of the world has moved on, choosing faster, cleaner, more modern transportation and leaving America — and Detroit — behind. Viewers are taken on a journey beyond Detroit’s blighted urban landscape to Spain, home to one of the world’s most modern and extensive transit systems; to California, where voters recently said yes to America’s first high speed rail system; and to Washington, where Congress will soon decide whether to finally push America’s transportation into the 21st century.

Chicago PMI jumps unexpectedly in June – Manufacturing activity in the Chicago area rose unexpectedly in June, posting 21 consecutive months of growth, industry data showed on Thursday. In a report, market research group Kingsbury International said its Chicago purchasing managers’ index rose to a seasonally adjusted 61.1 in June from 56.6 in May. Analysts had expected the index to decline to 54.0 in June. On the index, a reading above 50.0 indicates expansion, below indicates contraction. According to the data, the New Orders Index and Production Index accelerated to mark nearly two years of expansion while their three-month averages declined.

ISM Manufacturing index increases in June - PMI was at 55.3% in June, up from 53.5% in May. The employment index was at 59.9%, up from 58.2% and new orders increased to 51.6%, up from 51.0%. All better than in May. From the Institute for Supply Management: June 2011 Manufacturing ISM Report On Business®  Here is a long term graph of the ISM manufacturing index. This was above expectations of 51.7%. Earlier in the month it looked like the ISM was going to be weak, but recent regional reports indicated improvement towards the end of June.

Kansas City Fed's Hoenig Wants Aid For Manufacturers Over Banks - If the U.S. federal government is going to be in the business of giving certain sectors a subsidy, the perk should go to manufacturing, not the financial sector, Federal Reserve Bank of Kansas City President Thomas Hoenig said Tuesday. Hoenig said he's not sure subsidies are needed but if they are going to exist, "I would rather subsidize the manufacturing sector," he said at a conference in Washington. "To see manufacturing leave our part of the country has been particularly troubling,". Panelists also agreed that financial policies have enabled certain banks to grow into behemoths that put the economy at risk. In response to a question, Hoenig criticized banks' argument against new capital requirements. It's "nonsense" that banks are lobbying against new capital rules, he said. Hoenig argued that the Dodd-Frank financial overhaul doesn't do enough to prevent a future financial crisis because there is still a safety net for the nation's largest financial firms that will encourage risky behavior in the banking industry.

Stimulating small business activity: Still a struggle - Atlanta Fed's macroblog - In testimony before Congress on June 22, U.S. Treasury Secretary Timothy Geithner laid out the disproportionate effect the financial crisis has had on small businesses and particularly their ability to raise funds:"The banking and credit component of the economic crisis was especially damaging for small businesses, which are more dependent on bank loans for financing than are larger firms. Alternative forms of financing, through household credit via mortgages and credit cards, were also deeply compromised by the financial crisis.  Total lending to non-financial businesses shrank for nine straight quarters starting in the fourth quarter of 2008, before turning slightly positive in the first quarter of 2011; on net, lending has declined by a cumulative $4.2 trillion since Fall 2008. Evidence from the Atlanta Fed's latest small business finance poll of approximately 182 firms in the Southeast confirms that many firms are still struggling with financing. Total financing received among repeat poll participants edged up only slightly in the first quarter of 2011 from the previous quarter. Further, 43 percent of participants overall reported that tighter lending practices are hindering access to credit. In addition, when offers of credit do occur, they often do not materialize into loans as a result of the unfavorable credit terms being offered.

Bridge Comes to San Francisco With a Made-in-China Label — Talk about outsourcing. Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.  The project is part of China’s continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world’s civil engineer. The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China. “They’ve produced a pretty impressive bridge for us,”

Revamping the Postal Service - GOP Presidential candidate Tim Pawlenty has raised the idea of privatizing the Postal Service.. While his critics have countered that the agency receives no direct funding from the government, the postal service has been in the news for the ways in which its inefficiency and waste threaten taxpayers. For instance, the WSJ discusses the possibility of a looming postal bailout: The odds of a multibillion-dollar rescue package went way up this week when Postal Service management reported a $2.2 billion loss for the first quarter, more than 25% higher than last year despite the economic recovery. It now appears that the $15 billion line of credit the feds have offered USPS will be used up by the end of this year, with low odds on ever being paid back. The Postal Service has increasingly faced financial problems due to structural drops in mail volume, as well as the rise in competition from delivery firms like UPS and FedEx. However, even shutting down the Post Service today would not insulate taxpayers from further payouts, given the nature of postal pensions, which are funded on a defined-contribution basis.

The Road To Nowhere? - Today’s update on weekly jobless claims doesn’t tell us much. New filings for unemployment benefits inched lower last week by 1,000 to a seasonally adjusted 428,000, but that’s effectively no change. As a result, there’s still plenty of mystery about what the crucial July 8 employment report for June will reveal. There was some hope that today’s jobless number would offer some perspective, but the veil of uncertainty remains tightly drawn. For roughly a month now, jobless claims have been treading water. That’s not good, since we’re riding well north of the 400k level. As such, today's report is a disappointment. At best, the current pace of new claims is a sign that the labor market remains in some distress. On the positive side, claims have pulled back from the April surge, but without further declines it’s starting to look like we’re stuck in an elevated range

The Wageless, Profitable Recovery - Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers. In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation. The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

Obama Needs to Fight for Jobs - Some very quick thoughts:

1. You have to make the Republicans pay in terms of eroded public support before they will agree to cooperate at all. The president in particular has not played a long-run strategy, the Republicans have, and the results reflect this.
2. "Let’s agree that what matters isn't how many jobs you 'get caught trying' to create." Why should I agree to take as given the point being debated here? When we need jobs as bad as we do right now, making it clear the other side is standing in the way of that goal, and fighting for the policies you'd like to enact has more value than it did in the past.
3. To me, this is about leaders and followers, and the administration is not the one leading policy right now.
4. The other side is not shy about going public, and that was also true when they controlled the White House. If this advice is correct, why didn't it hurt Republicans when they were in power?
5. Yes, jobs at election time would be best. But if the other side is pushing policies that work against that goal so that it is unlikely to be attained...making that clear to the public would hurt. [slightly edited; emphases mine]

Obama needs to create jobs, not fight for them, - Ron Klain, former chief of staff to both Al Gore and Joe Biden, thinks President Obama needs to make more of a show of fighting for job-creating policies. “The greatest risk to the president will be if the American people believe the administration isn’t trying hard enough to tackle the jobs problem,” he writes. “That is why it is imperative for the administration to do more — proposing new ideas, initiatives and job-creation programs — and without delay. It may not succeed, but it must get ‘caught trying’ to do more to spur job creation.” This advice appeals to me. It’s what I’d like to see happen. But I also think it’s wrong, and if I were advising President Obama, I’d advise him not to take it.Let’s agree that what matters isn’t how many jobs you “get caught trying” to create, but how many jobs you actually create. There’s virtually no evidence that if Obama makes more speeches on jobs, his poll numbers will go up or the labor market will improve. There’s lots of evidence that if he passes policies that create more jobs, his poll numbers will go up and the labor market will improve. The question, then, isn’t how Obama can get “caught trying.” It’s how — or whether — he can succeed.

Obama Needs to Get ’Caught Trying’ on Job Creation - For two years, polls have shown that the American people have two strongly held beliefs. First, they think the president should do more to create jobs. Second, they believe federal spending should be cut, and the government should shrink. To the progressive economists who form the cadre of President Barack Obama’s advisers -- and indeed, to most mainstream economists -- these two views are mutually contradictory. In the classical Keynesian playbook, the way the federal government can create more jobs is by spending more: investing in public works projects, providing fiscal aid to state and local governments, sending stimulus checks to taxpayers, and even just hiring people directly. Demands that the government spur job creation while also reducing spending are, in this view, as unrealistic as the Pharaoh’s punitive directive to his slaves to “make bricks without straw.” How and why the public soured on Keynesian economics is a topic that we’ll be debating for a generation. What is beyond debate, however, is that for the past two years (including the final year of Democratic control of the U.S. House), traditional stimulative policies to create jobs have lacked support among the public and the majority in Congress. Indeed, in Washington today, the debate isn’t about how much more the government should be spending to create jobs, but rather how deeply federal spending should be cut to reduce the deficit."

The Great Bamboozle -  In his latest missive Pimco's Bill Gross gets at the heart of what I call the Great Bamboozle. Over the past 10 years under both Democratic and Republican administrations, only 1.8 million jobs have been created while the available labor force has grown by over 15 million. It is clear, however, that neither party has an awareness of the why or the wherefores of how to put America back to work again... Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further.

Fed Watch: The Lost Jobs Opportunity - This kind of chart has always bothered me:It is not the content or format that worries me. And, to be sure, the magnitude of the labor market damage wrought by the recession weighs heavily on my mind. Moreover, the length of time to recovery seems immense. And, on top of both of these, we effectively reduce our expectations of "recovery" with this chart - recovery should be about capturing the previous trend, not the previous peak.  Despite all this, it has always seemed to me that I was missing some even darker point. I think I finally identified that issue. Consider that the US economy remains about 7 million jobs shy of the previous peak of nonfarm payrolls. At 200k jobs a month - a seemingly optimistic forecast at this point - we regain the peak in about 35 months. We are already (believe it or not) 23 months into the expansion, which means that we recover the jobs lost in this cycle after a 57 month expansion. Now consider this: The average post-WWII expansion is only 59 months. If this expansion is typical, then we can expect just 2 months of job growth beyond the previous peak before the next recession hits.

The Social Cost of the Loss of Job Stability and Careers - Yves Smith  - McKinsey had Yankelovich survey the attitudes of young people a decade ago, and even then, the results were pretty disturbing. Yankelovich projected that college graduates would average 11 jobs by the time they were 38 (!), yet found they were demanding of their employers, wanting frequent feedback (as in lots of attention) and quick advancement. But if you are not likely to be around for very long, no one is likely to want to invest in you all that much. But these rapid moves from job to job, and now a much weaker job market, are producing behaviors that old farts like me find troubling. One is rampant careerism. I’ve run into too many polished people under the age of 35 where the veneer is very thin. It isn’t hard to see the opportunism, the shameless currying of favor, and ruthless calculations of whom to help and whom to kick, including throwing former patrons under the bus when they are no longer useful. The economic effects are also not pretty. A 30 year mortgage made sense when people would spend a decade or more with a single employer. And more frequent job changes means not only more total time unemployed over one’s working years, but also the very high odds of falling out of a highly or even moderately paid career path to a much lower one as the work place continues to be restructured. A New York Times piece tonight describes the latest stage of this sorry devolution: “job jugglers” who hold down multiple part time jobs to make a living.

Chart of the Day: Depth and duration of jobs crisis - Earlier in the week I showed you one way to look at the jobs crisis in graphical form. Here’s another from Calculated Risk.The very real possibility that we will slip into recession prior to regaining the previous jobs peak casts the current situation in an even darker light than that of Federal Reserve Governor Sarah Raskin. Not only is the depth and duration of the unemployment crisis immense, but so too are the long-term consequences. The failure to design a coordinated package of monetary and fiscal policy to engineer a V-shaped employment recovery looks increasingly like a massive lost opportunity. And with that opportunity now lost, a return to even something sort of like the pre-recession jobs trend seems essentially impossible.-Tim Duy, The Lost Jobs Opportunity I think that’s about right. As I have said previously, “unemployment will be higher and stocks will go lower than in 2009. I am convinced that it is politically unacceptable to have the government propping up the economy as Koo suggests it should. The question now is one of timing: when will the government stop propping up the economy?

How to make short work of unemployment - The model here is Germany. It has used a "short work" policy to keep the unemployment rate down – at very low cost to the government. Its unemployment rate today is 0.5 percentage points lower than it was at the start of the downturn, even though the German economy actually has grown less than the US economy over this period.  There are many different packages that fit the short work scheme, but the basic story would be that rather than having a firm lay off 20% its workers, the government encourages the firm to cut their work time by 20%. The government directly replaces 60% of the lost wages (12% of the total wages); it has the company replace 20% (4% of total wages); and leaves the worker taking home 4% less and working 20% fewer hours.  The cost should be about the same as the unemployment insurance benefit that workers would have received if they were laid off, but the short work policy keeps them employed. This has two major benefits. From the standpoint of employers, they have workers available whose hours can be quickly increased if demand picks up. This saves them the need to find and train new workers

All Work and No Pay: The Great Speedup --Webster's defines speedup as "an employer's demand for accelerated output without increased pay," and it used to be a household word. Bosses would speed up the line to fill a big order, to goose profits, or to punish a restive workforce. Workers recognized it, unions (remember those?) watched for and negotiated over it—and, if necessary, walked out over it. But now we no longer even acknowledge it—not in blue-collar work, not in white-collar or pink-collar work, not in economics texts, and certainly not in the media (except when journalists gripe about the staff-compacted-job-expanded newsroom). Now the word we use is "productivity," a term insidious in both its usage and creep. The not-so-subtle implication is always: Don't you want to be a productive member of society? Pundits across the political spectrum revel in the fact that US productivity (a.k.a. economic output per hour worked) consistently leads the world. Yes, year after year, Americans wring even more value out of each minute on the job than we did the year before. U-S-A! U-S-A!  Except what's good for American business isn't necessarily good for Americans.

Pay Workers Fairly and Save Money -  DESPITE persistent unemployment and stagnant wages, few believe that our cash-strapped government is likely to simply create better-paying jobs. But there is a way for this country to get more from the millions of jobs we already finance with federal dollars, while reducing the cost of entitlement programs. Our government shops for half a trillion dollars in goods and services each year. Nearly one of every four workers is employed by a company that receives federal contracts. But many government contractors routinely violate minimum-wage and maximum-hour laws. A 2010 study of the 50 largest wage penalties by the Government Accountability Office found that half were against companies that received federal contracts in the 2009 fiscal year. This meant not only that workers received less than their due, but also caused a drain on tax dollars, as they turned to Medicaid and food stamps to make ends meet.

Making a Living With Multiple Part-Time Jobs - Some portions of the population — especially young, creative types like actors, artists and musicians — have always held multiple jobs to pay the bills. But people from all kinds of fields are now drawing income from several streams. Some of these workers are patching together jobs out of choice. They may find full-time office work unfulfilling and are testing to see whether they can be their own boss. Certainly, the Internet has made working from home and trying out new businesses easier than ever. But in many cases, necessity is driving the trend. “Young college graduates working multiple jobs is a natural consequence of a bad labor market and having, on average, $20,000 worth of student loans to pay off,” “There are two types of people in this position: the graduate who can’t get a full-time job, and the person whose income isn’t sufficient to meet their expenses,” he said. “The only cure for young people in this position is an economic recovery of robust proportions.”

Summertime Blues for Teenagers - Many teenagers cannot find work this summer, victims of a weak economy and a situation made worse by minimum-wage laws. Budget cuts for government youth-employment programs are a much less important factor. Employment rates among teenagers are much lower now than they were before the recession began. While some people blame cuts to summer youth-hiring programs by state, local and federal governments, even in the best of times these provide only a small fraction of summer jobs for teenagers. I used the Census Bureau’s monthly household surveys from January 2000 to December 2009 to calculate the amount that each industry’s employment of teenagers (measured as the sum of hours worked by all persons 16 to 19) during June, July, and August exceeded its average value in the months of April, May, September and October. For the economy as a whole, the average teenager worked 11 hours a week during the summer, compared with an average of eight hours a week during the academic year.

Blame Minimum Wage for Youth Joblessness -  Margins matter. That’s what New Hampshire lawmakers were really saying to their governor, John Lynch, last week when they overrode his veto of legislation that limited increases in the minimum wage. The law ties the New Hampshire minimum wage to the federal wage of $7.25 an hour. The effect is to guarantee New Hampshire employers an advantage of somewhere between $0.15 and $1.00 an hour over employers in other New England states, where minimum wages range from $7.40 an hour in Rhode Island to $8.25 an hour in Connecticut. New Hampshire officials may be thinking of young job-seekers. Unemployment in the state for 16-19 year-olds averaged 18 percent in 2010. (Horrible enough, though well below national average of 25.9 percent, according to the Bureau of Labor Statistics.) And the minimum wage affects youths disproportionately: about half of those paid the federal minimum or less are under age 25.

Would Killing the Minimum Wage Help? - Campaign trail positioning aside, would repealing the minimum wage really make a dent in the U.S. jobless rate, which was 9.1 percent in May? While economists don’t all agree, the bulk of research points to only small potential job gains—if any—from a suspension of the minimum wage. In a 2000 survey of 308 academic economists, just under half agreed fully that the minimum wage increases unemployment among “young and unskilled workers.” The rest agreed with that statement with provisos or not at all.For people earning well above the minimum wage, the law matters little. According to the Bureau of Labor Statistics, of 72.9 million hourly wage earners in 2010, only 6 percent worked at or below the minimum wage. (Some hourly workers, such as casual babysitters, workers on small farms, and fishermen, are not covered by the minimum wage.)

Uneven Aging and "Younging" of America - America is beginning to show its age as the baby boom generation advances toward full-fledged senior-hood. But the pace of this aging will vary widely across the national landscape due to noticeable geographic shifts in the younger population, with implications for health care, transportation, and housing, and possible impacts upon our ability to forge societal consensus. An analysis of data from the 1990, 2000, and 2010 decennial censuses reveals that: Due to baby boomers “aging in place,” the population age 45 and over grew 18 times as fast as the population under age 45 between 2000 and 2010. Although all parts of the nation are aging, there is a growing divide between areas that are experiencing gains or losses in their younger populations. Suburbs are aging more rapidly than cities with higher growth rates for their age-45-and-above populations and larger shares of seniors. People age 45 and older represent 40 percent of suburban residents, compared to 35 percent of city residents.

We need to cease blaming immigrants - Whether it’s Sen. John McCain, R-Ariz., blaming the wildfires in the Southwest on immigrants coming across the border or whether it’s the state of Alabama passing the harshest anti-immigrant law in the country, it’s clear that brown-skinned immigrants have become the targets of the day.We’ve moved from the era of Jim Crow – with legalized, racial segregation against blacks – to the era of what I call Juan Crow, with legalized, racial discrimination against Latinos.McCain said there was “substantial evidence that some of these fires have been caused by people who have crossed our border illegally.” But he didn’t provide that evidence, and police have not arrested anyone yet, so his comment was reckless and irresponsible.McCain’s remark is in keeping with the xenophobic legislation that has become law in such states as Arizona, Georgia, Indiana and Utah. And now Alabama has topped them all after Gov. Robert Bentley signed HB 56 into law on June 9.

Domestic Workers Need Rights — But Can Working Families Afford What They’ll Cost? - Deborah just gave birth to their first child, a baby girl. Her position at a nonprofit grants her three months of unpaid maternity leave; his job as a digital compositor offers him three weeks. Once they’ve used up all of their parental leave, they’ll face a dilemma more than 70 percent of American parents struggle with: the difficulty of finding affordable childcare. “We’re just going to have to watch our budget and live the same way we’ll live during my maternity leave, which is on one salary,” says Deborah. “Because the way I’m looking at it, my salary goes to daycare.”She worries that leaving her job or reducing her schedule will hurt her career. Her neighborhood doesn’t have many daycare options, and the available ones cost as much as paying a domestic worker. So although she and her husband aren’t sure how they will afford it—or even whether their daughter needs one-on-one care—they are considering hiring a nanny. Choosing between different kinds of care is tough for many families, not just Deborah’s. Only 16 percent of the population lives in multigenerational households in which grandparents might be around to help with childcare (nationwide, 48 percent of children are cared for by a relative). On top of that, more and more grandparents are working later into life. Nearly a third of children are in childcare centers or preschools, but while some help children learn and grow, one study found that most centers have poor to mediocre care.

Business group: Public companies shouldn’t have to compare CEO and worker pay - Here’s one financial figure some big U.S. companies would rather keep secret: how much more their chief executive makes than the typical worker. Now a group backed by 81 major companies — including McDonald’s, Lowe’s, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of that comparison. The lobbying effort began more than a year ago. It involved some of the biggest names in corporate America and meetings with members of both parties on the House Financial Services Committee and Senate banking committee. The companies and their Republican allies in Congress call comparisons between the chief and everyone else in the company “useless.” But some Democrats and investors say the information should be issued to highlight the growing income disparity in the United States. They add that opponents of disclosure merely want to hide the outrageous scale of executive pay packages.

Are the American people obsolete? - Have the American people outlived their usefulness to the rich minority in the United States? A number of trends suggest that the answer may be yes. In every industrial democracy since the end of World War II, there has been a social contract between the few and the many. In return for receiving a disproportionate amount of the gains from economic growth in a capitalist economy, the rich paid a disproportionate percentage of the taxes needed for public goods and a safety net for the majority. In North America and Europe, the economic elite agreed to this bargain because they needed ordinary people as consumers and soldiers. Without mass consumption, the factories in which the rich invested would grind to a halt. Without universal conscription in the world wars, and selective conscription during the Cold War, the U.S. and its allies might have failed to defeat totalitarian empires that would have created a world order hostile to a market economy. Globalization has eliminated the first reason for the rich to continue supporting this bargain at the nation-state level, while the privatization of the military threatens the other rationale.

U.S. Food Stamp Use on the Rise - Growth in the food stamp program continued in the U.S. — with 27 states providing benefits to at least 1 in 7 people. The number of food stamp recipients increased 0.1% in April, the most recent month available, compared to March, with 44.5 million people receiving benefits, according a new report from the U.S. Department of Agriculture. Food stamp numbers aren’t seasonally adjusted though, meaning a variety of factors could influence the monthly tallies. The food stamp program ballooned during the recession as workers lost their jobs or saw their hours and income reduced. The rate of increase has slowed a bit, but enrollment in the program is still high with 10.4% more people tapping benefits in April than the same month a year earlier. Mississippi, New Mexico and Oregon were among the states with the largest share of the population utilizing food stamps in April: At least one in five residents in each state were receiving benefits. Click to see an interactive map of food stamp use and unemployment.

Record 44.7 Million People Celebrate Geithner's Departure And The End Of QE2 Through Foodstamps - The one and only clearest indication of just how effective the recovery and QE2 in general has been, comes courtesy of the USDA, whose just released update of April participation in Supplemental Nutrition Assistance Program (SNAP), better known as 'foodstamps', shows yet another record, this time 44.647 million people, an increase from May's 44.587 million. And after rising modestly in the last month, the average monthly benefit per household dropped again to a post April 2009 revision low of $282.38/month."

How Extensive Are Private Prisoners in Our Country? plus a Report on Private Prison Lobbying - If you look at the 10 states in the US that rely the most on private prisons, they incarcerate a percentage of their population in privately-owned facilities roughly equivalent to what Europe does in all their facilities. Let’s back up because we are going to need a couple of graphs to get there.  For those that don’t know, the United States incarcerates a lot of people, a recent phenomenon that places us well above any other nation. Let’s reproduce a plot of the United States against other countries, along with their economic freedom index, and show the change over time:

Is There a Movement Conservative Push to Privatize Parole? - To continue the discussion we started, I want to bring up another point from the Justice Policy Institute’s new report, Gaming the System: How the Political Strategies of Private Prison Companies Promote Ineffective Incarceration Policies (summary). While discussing the role right-wing think tanks and institutions play in organizing political agents and setting the goals for the movement, they mention the American Legislative Exchange Council (ALEC, founded by Paul Weyrich of Heritage), a movement conservative think tank associated with free markets, limited government and individual liberty.  They go through how they spent the 1980s and 1990s aggressive pushing three-strike and truth-in-sentencing laws at the state level. ALEC has since moved to the private prison game.  In line with the idea that we can’t do good public policy that helps people without bribing the rich and powerful, the JPI report mentions this: “a 2007 brief by ALEC recommended releasing people early from prison with conditional release bonds, similar to bail bonds, effectively setting up bonding companies as private parole agencies.” Trying to privatize parole?  Going to ALEC’s document in question, The State Factor, they state it even more boldly:

Union-Busting Tactics More Pervasive Than Previously Thought: Study - In the last half-century of American organized labor, the deck has rarely been so stacked against workers, say labor historians.When it comes to union-busting, employers' tactics are more pervasive than previously thought, according to a new working study produced by the Institute for Social and Economic Research and Policy. The study found that nearly 50 percent of all serious allegations of union busting tactics -- both legal and illegal -- by employers happens after workers express initial interest in a union, but before an official petition has even been filed requesting a vote on union representation.  The length of time -- and the pressure from employers -- between initial interest in a union and the election to determine whether employees wish to organize, the study argued, can significantly influence whether or not workers will get union representation. "The cumulative effect of the steady, pervasive, and intense employer opposition undermines workers' attempts to exercise their rights to choose union representation free of coercion and intimidation," the study argued, concluding that the period between the petition and the election should be reduced to the shortest number of days possible.

Hey, the NLRB Proposed a Good, Progressive Idea! - Something kind of progressive just happened that you might have missed: The National Labor Relations Board proposed a new idea to help level the playing field for workers who want to organize a union. A little background: under current law, once 50% of employees petition for union representation, the employer can voluntarily choose to waive a secret ballot election and recognize the union.  However, employers typically take advantage of their right to call for a secret ballot election. That’s where the problems can start. For example, employers can require attendance at anti-union meetings, one-on-one sessions between workers and their immediate supervisors who stress anti-union messages, subtle offers of promotion and demotion (e.g., a move to a less desirable shift), and intensive, explicit surveillance to see if workers are talking to union organizers. But the NLRB, the overseer of union elections, proposed a variety of ways to shorten the time between the initial petition and the election–the average now is about 60 days–mainly by streamlining procedures and preventing litigation from grinding things to a halt.

Union Deal Shot Down; Malloy Pledges To Cut Close To 7,500 State Workers - Gov. Dannel P. Malloy said Friday that he was moving "full steam ahead'' with plans to lay off 7,500 state employees, as leaders of the AFSCME union announced that their members had officially rejected a savings and concession deal that would have given them layoff protection for four years. The administration has ruled out a renegotiation with the unions because the multi-faceted agreement took months of intense negotiations and compromises to complete. Malloy said he and his budget team intend to release layoff notices "as soon as possible" to balance the budget.  "Listen, I don't want to be laying off 7,500 people or more. I think it's bad for the economy. I think it's bad public policy," Malloy told reporters Friday.

Connecticut gov proposes layoffs to shut deficit (Reuters) - More than 5,000 Connecticut public employees would be laid off and another 1,000 positions left vacant under a deficit-closing plan unveiled by Governor Dannel Malloy on Tuesday. The Democratic governor proposed laying off 5,466 state workers to help close a $1.6 billion budget gap. The proposal comes after state labor unions rejected a labor deal that would have averted layoffs. Malloy has recalled the legislature for Thursday.The move came the same day that Moody's Investors Service cut Connecticut's outlook to negative from stable because the state has burned through reserves and has some of the country's most underfunded pension systems. With tax collections for many states lingering below pre-recession levels, governors around the nation increasingly are weighing once-unthinkable remedies, from laying off public workers to reducing pension and retirement benefits.

Florida to lay off 1600 state workers by Friday - Pink slips are going out to more than 1,600 state workers by Friday, the human toll of the austere spending plan approved by lawmakers and Gov. Rick Scott this spring. Facing a nearly $4 billion budget deficit, the legislature cut thousands of jobs, froze hiring and forced state workers to contribute 3 percent of their salaries to their pension plans in the 2011-2012 budget year that begins Friday. Meanwhile, Scott continues to look for ways to shrink government spending. The Department of Children and Families and the Department of Juvenile Justice will suffer most of the staff cuts. DCF is laying off 679 employees and DJJ is trimming 706. Most of the cuts were the result of shutting down facilities, including two state hospitals in North Florida, where business and civic leaders on Tuesday unveiled a Web-based clearinghouse to help jobless government employees find work, pay the bills and deal with the emotional trauma of being laid off.

Florida's government prepares for thousands of layoffs — Florida's capital city is bracing for thousands of public employee layoffs due to spending cuts in the new state budget. The city joined with other governmental and private interests in the Tallahassee area Tuesday to launch a re-employment effort. It features a website that includes job, networking and unemployment compensation information along with retraining opportunities. The site — — also has contacts for financial resources and social services including crisis counseling and food assistance. Tallahassee Community College President Jim Murdaugh said the effort is aimed at private as well as public sector employees who lose their jobs as the spending cuts reverberate through the region. Murdaugh said the cuts are expected to have a negative financial effect of up to $70 million in an eight county area.

Most Cities Post Annual Drop in Unemployment The job market is hardly healthy. But in most places in the U.S., it’s far better than a year ago. Click for full interactive map. Unemployment rates were lower in May from a year earlier in 274 of 372 metropolitan areas in the U.S., the Labor Department said Wednesday, with the biggest declines occurring in manufacturing areas scattered around the Midwest.The Rockford, Ill metropolitan area saw the biggest percentage point drop, with the unemployment rate dropping to 10.7% from 14.2%. Close behind: Flint, Mich., with a drop from 14.3% to 10.9%; Elkhart-Goshen, Ind., with a drop from 14.4% to 10.1%; and Muskegon-Norton Shores Mich. with a drop from 13.5 to 10.4. The lowest unemployment rate in the country? Bismark, N.D. For those considering moving to America’s jobs Mecca, consider that the low temperature reached this winter in Bismark was minus 32. Yuma, Ariz. had the highest unemployment rate in the country — 27.9%. El Centro, Calif. was next (27.7%) followed by a bevy of areas in California’s Central Valley.

CHART: States That Cut The Most Spending Have Lost The Most Jobs - There’s a new cult of economic thought sweeping the nation — or at least many Republican (and even some Democratic) political circles. Its adherents cling to the erroneous belief that sharp government spending cuts will revitalize economic growth and create much needed new jobs. . For instance, Gov. John Kasich (R-OH) declared, “We’re going to have to reduce spending…to create a platform for economic growth.” When Gov. Chris Christie (R-NJ) delivered his budget to the state Legislature he argued, “We must continue to cut government spending” to create jobs and prosperity for New Jersey families. Gov. Scott Walker (R-WI) vowed his budget “lays [the] foundation to create jobs.” Now these Republicans want the American public to drink a giant glass of their Cut-Grow Kool-Aid. But the data actually show the opposite of their claims to be true: steep spending cuts are hampering economic recovery in some states, while other states that resisted cuts or increased spending are now seeing declining unemployment rates, faster private-sector job creation, and stronger economic growth.

I want spending, I want spending, I WANT SPENDING! - There is some new information from Adam Hersh of Center for American Progress showing what has happened in the states that have followed the conservative economic approach (yes, talking to you Obama, DLC, Clintonites).  Keep cutting at your own risk. Here's the thing.  Like the Wile E Coyote, we seem to have run off the cliff.  Our feet are still moving like we are running because we have not noticed we are off the cliff.   Or I should say those in the lofty parts of our power house and economy have not noticed.   Now, in cartoons, sometimes the charater makes the realization and can scramble back to safety at the edge of the cliff.  However,  Wile E never did get it and always fell. I'm not interested in being taken down by Senator, Represenative, President, Chairman Wile E Coyote.  No thank you.  I know we're off the cliff as do the vast majority of not only the USA but it seems the rest of the 1st world nations.  So listen up Wile E.  We're not following you any more ( I hear you Greek patrons).  Not going to try to catch that road runner your way anymore.   And here is why:

Moody's warns may downgrade US muni debt ratings - Moody's on Wednesday warned it may downgrade some Aaa-rated U.S. states and municipalities if the country loses its top-notch rating or if federal funding falls significantly as part of a plan to reduce the nation's deficit. Most states and some municipalities rely on federal funding for operational purposes. The most susceptible to federal budget cuts would be those with greater economic volatility and that rely more heavily on capital markets to refinance their debt, Moody's senior analyst Anne Van Praagh told Reuters in an interview. "To the extent that Treasuries markets are volatile (in the case of a U.S. default and downgrade), then that could pass through in the form of additional interest costs for states or local governments," she said. Moody's said earlier this month it may cut U.S. ratings in August if the government misses debt payments because of a failure by Congress to raise the nation's debt ceiling.

California Fiscal Year Looms Without Plan as Brown Tax Falters -- California lumbers toward a new fiscal year this week without a budget, tripped up by Governor Jerry Brown's failure so far to win over enough Republicans to extend expiring taxes. At issue is how to erase a $10 billion deficit for the year beginning July 1, the remnant of a $26 billion budget gap the state faced in January. Spending cuts passed in March and better-than-projected revenue narrowed the shortfall. Without a budget, the biggest issuer of municipal debt in the U.S. is unable to borrow on Wall Street to pay bills. Brown, a 73-year-old Democrat, took office in January on a promise to use his decades of political experience and legislative acumen to correct the state's fiscal ills. Just four Republican legislators are keeping Brown and Democrats from the two-thirds majority vote needed to decide tax measures.

Calif. lawmakers to vote on budget that would close $9.6 billion deficit with cuts, fee hikes - Democrats did not want to close the remaining $9.6 billion deficit solely through cuts. Because Brown could not persuade Republicans to call a special election on tax extensions, a compromise with his fellow Democrats was his only real option. The governor proposed a nearly $89 billion spending plan in May, but Democrats were expected to vote Tuesday on an $86 billion package. The drop reflects lower state spending obligations after making local governments responsible for more services. It also reflects Brown’s inability to get tax extensions. California Teachers Association President Dean Vogel praised the plan in a statement Tuesday as the best Democrats could do without Republican support. However, the University of California system criticized the pending $650 million in cuts to the UC system, saying it will drive up tuition.The state attorney general’s office stands to lose $71 million plus an additional $40 million in federal matching funds for California’s 55 gang task forces; that could mean the loss of 600 state law enforcement officers, including those who have focused on mortgage fraud, drug smuggling and criminal gangs.

California Budget Hinges on $4B New Revenue - California lawmakers are to begin voting today on a budget that relies on $4 billion in newly projected revenue, needs only Democratic votes to pass and would set up a 2012 referendum on tax increases. Governor Jerry Brown said he’ll allow more than $9 billion in higher taxes and fees, the linchpin of his budget math since January, to expire June 30. He’ll balance the budget of the most-populous state with the revenue forecast and additional cuts to universities and the courts. The spending plan for the year starting July 1 bypasses Republicans who stymied the governor’s plans for a statewide vote on extending the taxes. It also steers away from a Democratic blueprint that Brown vetoed for what he said were legally questionable accounting maneuvers. “We’ve had some tough discussions, but I can tell you that the Democrats in both the Senate and the Assembly have now joined with the administration and myself and we have a very good plan going forward with the budget,” Brown said

California budget proposal hinges on $4-billion in revenue - The California Legislature is set to vote on a budget this afternoon, which Governor Brown says he’ll sign. The deal sidesteps Republican support and relies on $4-billion in newly projected revenue. Brown said he’ll allow more than $9-billion in taxes and fees to expire Thursday, because he couldn’t muster enough Republican support. But if the revenue the state is counting on doesn’t materialize – the budget will trigger deep cuts to education and public safety later in the year. Lawmakers on both sides of the aisle are still fighting over the details. Democratic Senate Leader Darrell Steinberg says it’s not the budget his party wanted, but Republicans’ unwillingness to govern gave them little choice. Senate Minority Leader Bob Dutton (R-Rancho Cucamonga) said in a statement “This latest budget is based on the hope that $4 billion in new revenues will miraculously materialize but does absolutely nothing to change government as usual.” Assembly Minority Leader Connie Conway says she doesn’t mind the potential “triggering” of cuts. But says it’s “disrespectful” to taxpayers that Dems aren’t looking at any other way to balance the budget.

California set to pass budget, close $9.6B deficit - California lawmakers and Gov. Jerry Brown are set to achieve something rarely accomplished in California -- getting a budget signed into law by the July 1 start of the fiscal year. Both houses of the Legislature have scheduled late afternoon sessions Tuesday to vote on a Democratic budget that can be passed with a simple majority vote. That means no Republican support is needed. Democratic lawmakers and the governor crafted the plan after Brown vetoed a budget approved on the Legislature's constitutional deadline, June 15. The state controller determined that plan was not balanced and used the provisions of a recent ballot initiative to halt lawmakers' pay. This plan relies on spending cuts, a projected $4 billion rise in tax revenue and fee increases to close a $9.6 billion deficit.

California tells online retailers to start collecting sales taxes from customers - Beginning Friday, Inc.1 and other large out-of-state retailers will be required to collect sales taxes on purchases that their California customers make on the Internet. The new tax collection requirement — part of budget-related legislation that was signed into law by Gov. Jerry Brown2 Wednesday — is expected to raise an estimated $317 million a year in new state and local government revenue. Getting the taxes, which are legally due, is "a common-sense idea," Brown said. The bite from buyers' pocketbooks will be eased only a bit because California's basic sales tax rate also will drop 1 percentage point to 7.75% on Friday when a 2-year-old temporary increase expires. The basic rate in the city of Los Angeles drops to 8.75%. Brown's signature on the budget bills is aimed at closing a loophole that freed online retailers, such as Seattle-based Amazon, from collecting sales taxes and sending them to the state when they had no brick-and-mortar stores, warehouses or offices in California. .

In California's Rich Farm Country, How the Poor May Get Poorer - This week, Linda Garibay's monthly welfare check will drop by $43. The unemployed mother of two will struggle to afford clothes, soap and shampoo.  Garibay is not the exception in Tulare, the Central Valley county where Visalia is located. Much of that population could sink even deeper into poverty when $11 billion in budget cuts passed by Governor Jerry Brown and the state legislature begin to take effect Friday. Those cuts will reduce monthly welfare checks by 8% across the board and lower the total number of months people can receive assistance. "They get hit twice," says John Davis, director of the county's health and human services agency. This comes after budget cuts in previous years have already gutted a Tulare program for the elderly, closed mental health clinics, shrunk a child welfare program and eliminated 400 jobs in Davis' agency. "We're putting this on the backs of the poor and the elderly," Davis says. "None of these populations have a constituency large enough or vocal enough to make noise."

Minn. budget talks end abruptly as shutdown looms - Budget talks in Minnesota between Democratic Gov. Mark Dayton and Republican legislative leaders broke up abruptly Sunday with less than five days left to prevent a state government shutdown. State leaders avoided reporters as they slipped out of a meeting room near the Capitol. Their staffers had no word on when or whether negotiations would resume. The two sides have said little in recent days about the content of their discussions, but the latest turn took the information blackout to a new level. House Speaker Kurt Zellers refused to comment on what happened in the meeting, but said he is still committed to avoiding a shutdown.

Minn. budget talks end abruptly as shutdown looms - Budget talks between Democratic Gov. Mark Dayton and Republican legislative leaders broke up abruptly Sunday with less than five days left to prevent a state government shutdown. State leaders avoided reporters as they slipped out of a meeting room near the Capitol. Their staffers had no word on when or whether negotiations would resume. The two sides have said little in recent days about the content of their discussions, but the latest turn took the information blackout to a new level. House Speaker Kurt Zellers refused to comment on what happened in the meeting, but said he is still committed to avoiding a shutdown. "I'm just waiting," said Zellers. "Waiting to get a budget, waiting to get a deal done, make sure we get out of here on time without government shutting down."

Judge orders most services to go dark - Minnesota would face a massive government shutdown under a court ruling released Wednesday, with all but critical services stopping by Friday. Schools and many health care services would continue under Ramsey County District Chief Judge Kathleen Gearin's order, because closing them would violate basic constitutional rights or jeopardize lives. Prison guards also would remain on the job, as would state troopers. But services to the deaf, child care assistance to low-income parents, help lines for seniors, state parks at the height of summer, the Minnesota Zoo and a multitude of projects on state roads and highways would all grind to a halt, along with a host of other services. And tens of thousands of state employees would join the ranks of the unemployed as of Friday. The prospect of so much of the state government going dark wasn't sufficient to provoke a budget agreement Wednesday between Gov. Mark Dayton and Republican legislative leaders. At 9:30 p.m. another round of talks concluded with the two sides going their separate ways and no schedule set for further talks.

Minnesota government shuts down - Minnesota's state government began a broad shut down on Friday going into the July 4 holiday after Democratic Governor Mark Dayton and Republican legislative leaders failed to reach a budget deal. Parts of the government had already begun to shut down on Thursday ahead of the midnight budget deadline, including some websites and dozens of highway rest stops on one of the biggest travel days of the year. The budget impasse means that some 23,000 of the roughly 36,000 Minnesota state employees will be furloughed and state parks and campgrounds closed ahead of what is usually their busiest stretch of the year for the July 4 holiday. Neither Dayton nor the Republican leaders gave any indication when they would meet next to discuss the budget.

Minn. government shuts down as budget talks fail - Minnesota stumbled into its second government shutdown in six years on Thursday, with a partisan divide over taxes and spending to close a $5 billion deficit becoming only more bitter as a midnight deadline came and went without agreement.Any hope of a last-minute budget deal between Democratic Gov. Mark Dayton and Republican legislative leaders evaporated around 10 p.m., when Dayton appeared to say he and Republicans were still fundamentally divided over how much the state should spend the next two years and that he saw no chance of avoiding a shutdown. "It's significant that this shutdown will begin on the Fourth of July weekend," Dayton said. "On that date we celebrate our independence. It also reminds us there are causes and struggles worth fighting for."

Minnesota Shuts Down - Minnesota's state government began a broad shutdown on Friday going into the July 4th holiday, after Democratic Governor Mark Dayton and Republican legislative leaders failed to reach a budget deal.  Parts of the government had already begun to shut down on Thursday ahead of the midnight budget deadline, including some websites and dozens of highway rest stops on one of the biggest travel days of the year. The budget impasse means that some 23,000 of the roughly 36,000 Minnesota state employees will be furloughed, and state parks and campgrounds will be closed ahead of what is usually their busiest stretch of the year for the Independence Day holiday.  All but the most critical state functions will be suspended while the spending impasse continues into the new fiscal two-year period that starts on Friday, which would make the 2011 shutdown much broader in scope than one in 2005

Minnesota State Government Shutdown: Day 1 - Well, it happened, and the blame is flying thick and fast. The inability of Democratic Gov. Mark Dayton and the Republican-led state legislature to come to a budget agreement has shut down large parts of the Minnesota state goverment: In Minnesota Friday, highway construction came to a halt, rest stops and state parks closed. And 22,000 state workers have been laid off. The reason: a protracted budget dispute between the state's Democratic governor and Republicans who control the legislature. .. Minnesota is the only state to have its government shut down this year, even though nearly all states have severe budget problems and some have divided governments. Dayton was determined to raise taxes on the top earners to help erase a $5 billion deficit, while the Republican Legislature refused to go along with that — or any new spending above the amount the state is projected to collect.

State of Illinois $800000 in arrears to Knox County - The state has finished the fiscal year owing Knox County around $795,000 as Springfield’s financial woes continue to pressure local governments. The new state budget year begins July 1 but the state is still four months behind in its distribution of income taxes to the county for the current fiscal year, leaving a $255,000 hole in the county’s general fund. Also in arrears are salary reimbursements for the state’s attorney, supervisor of assessments and public defender. The state is six months or more behind in payments for each of those salaries, with the total amount outstanding close to $140,000. “I guess at this point I don’t have anything to believe but that we are going to continue to be delayed,” Knox County Treasurer Robin Davis said. “If we could stay no more than three months out that would be nice, but that isn’t happening.” The county has had to use creative methods to compensate for the delays in state funding, including shifting money from the county’s landfill account to its general fund to make up for the loss. Some county employees took lower raises than were agreed in their union contracts.

Illinois "Borrows" Charitable Contributions Made Through Tax Return Checkoffs - This year residents of Illinois made charitable contributions to the state totaling $1.176 million, which the state is now using instead to help reduce its cash-flow problems.  Although this revenue came from funds designated for charities through tax return check-offs, Illinois law permits the government to borrow this money as long as it's repaid with interest within 18 months: "My concern is that the taxpayers don't know that they're donating to charities that don't even get their money. It just seems really inappropriate to use charities to pull money in, and then pull that money out to pay for bills," said Stephanie Record, executive director of the Crisis Nursery of Champaign County. "This is crazy."[...] But the borrowing has held up several grants, including four slated for researchers investigating Alzheimer's disease.

Illinois governor signs budget but state's problems mount - Just hours before a new fiscal year was to begin, Illinois Governor Pat Quinn on Thursday signed a new state budget after vetoing $376 million in spending approved by the General Assembly. The General Assembly last month passed a $59.1 billion all-funds budget for the fiscal year beginning Friday that included a $33.4 billion general fund -- about $2 billion less in general fund spending than Quinn proposed in February. The state will end the old fiscal year with $8.3 billion in unpaid bills and other obligations, including $850 million owed in corporate tax refunds, $750 million needed to repay interfund borrowing, and $1.2 billion for state employee health insurance, according to estimates by the Illinois Comptroller's Office on Thursday. The state also owes primary and secondary school districts $1.13 billion and universities $584 million, according to the comptroller's office.

N.C. sales tax is cut, but so is service - On Friday, a visit to the state zoo will cost an extra 2 bucks. And if you're visiting a state park any day this summer, you might want to pack some extra tissue.  The state budget that goes into effect Friday brings massive changes. Thousands of state workers will lose their jobs. A one-cent sales tax will no longer be charged on most goods. But many residents will see the effects of the trimmed budget in smaller, more subtle ways. Some tourist attractions will cost more to visit. Other sites will be open fewer days. And still others may have fewer amenities. One of the visible signs of the new austerity is a sign right inside the Capitol, notifying visitors that the 1840 structure is closed on Sundays because of budget cuts.

Wisconsin municipalities start dealing with less under new state budget - After months of limbo, local governments have a better idea how the state's Republican-led agenda will affect their bottom lines in 2012. The final piece comes today when Gov. Scott Walker signs the 2011-13 budget at Fox Valley Metal-Tech in Ashwaubenon. The spending plan includes a $76 million cut in aid to counties, cities, villages and towns as part of an effort to reduce the state's $3 billion deficit largely without raising taxes. Outcomes from the tumultuous spring legislative session are a mixed bag for most communities, which likely will have to eliminate or reduce services to make up for the funding drain. "The consequences are going to be painful for people, but (Walker) has been saying that government has to get smaller," said Dan Thompson, executive director of the League of Wisconsin Municipalities, an organization that advocates for most cities and villages in the state.

Alienating the Amish: Another Tale of New York Tax Administration - The New York Department of Taxation recently mandated that all state sales tax returns be filed electronically. Reasonable, right? Not for the Amish communities of the Upstate. The conservative sect rejects modern conveniences such as electricity, motorized transportation, and photo identification, and their beliefs are largely respected by government programs. The group is exempted from the Social Security and Medicaid systems, for example. Leave it to state tax administrators to upset their delicate coexistence.Under the new regulation, those without internet access can call to request special permission to continue to file on paper, but many Amish never learned of the new requirements. The state made no special effort to inform the group or facilitate exemptions. Many Amish businessmen have now started to receive letters stating that they will be charged $50 for each paper return. According to a tax department spokesperson, the "expectation was that businesses with concerns about complying would call the Taxpayer Contact Center." But beyond never learning of the regulation, most Amish will not touch a phone.

Monday Map: Mortgage Interest Deduction by State - This week's Monday Map launches a series looking at the distribution of common tax expenditures by state. We start with the mortgage interest deduction.

The Day the Law Left Town - People here are bracing for a spike in crime after the city put its police force on furlough. City Council members sent the police home when they decided they couldn't afford them. On June 15, the police chief and his four officers secured the evidence room, changed the passwords on their computers and locked the department's doors for six months—longer if local finances don't improve by then. For now, the Cherokee County sheriff's office, based 12 miles north in Rusk, is policing Alto, a city of about 1,200. Sheriff James Campbell said the extra load would strain his 25 deputies and reservists, who oversee a 1,000-square-mile territory. The sheriff is already responsible for the nearby city of Wells, which has a population of about 800 and earlier this year shed its only police officer. Crime went up initially, he said, but has stabilized.

The Corrupt Corporate Incarceration Complex - Hillary was an honor student who'd never had any trouble with the law before. And her MySpace page stated clearly that the page was a joke. But despite all that, Hilary found herself charged with harassment. She stood before a judge and heard him sentence her to three months in a juvenile detention facility.What she expected was perhaps a stern lecture. What she got was a perp walk - being led away in handcuffs as her stunned parents stood by helplessly. Hillary told The New York Times, "I felt like I had been thrown into some surreal sort of nightmare. All I wanted to know was how this could be fair and why the judge would do such a thing." It wasn't until two years later that she found out why. In Scranton, Pennsylvania, two judges pleaded guilty to operating a kickback scheme involving juvenile offenders. The judges, Mark Ciavarella Jr. and Michael Conahan, took more than $2.6 million in kickbacks from a private prison company to send teenagers to two privately run youth detention centers. Since 2003, Ciaverella had sentenced an estimated 5,000 juveniles. Conahan was accused of setting up the contracts. Many of the youngsters shipped off to the detention centers were first-time offenders.

Paving the Road to a Hungrier, Unhealthier, and Less-Educated Nation -  The number of poor children had already grown by 2.1 million in 2009 over pre-recession levels, with continuing high joblessness among parents raising concerns that poverty will continue to worsen for some time. Since kids who spend more than half their childhood in poverty earn on average 39 percent less than median income as adults, we can expect lasting costs that will hurt the nation's future economic growth. And yet, a majority of House lawmakers want to narrow the deficit by making things worse for today's kids.   If Paul Ryan's proposal takes effect, or the even more extreme House Republican Study Committee's budget plan prevails, the nation's economic future will inevitably get bleaker. Those proposals would reduce the food assistance, medical care, and education available to poor children. When children don't get adequate nutrition, research shows that they are more likely to suffer illnesses and hospitalizations. Poor health can trigger developmental problems that take a toll on school performance.

Is education a public good? - Schools are public goods because of their function as jails. Young boys who are not closely supervised by their parents will tend to form violent gangs; the violence perpetrated by these gangs imposes costs that spill over into every segment of society and the economy (go watch the movie City of God for a demonstration of how this works). By forcing boys into a structured environment for most of the day, public schools keep them off the street, creating huge spillover benefits for third parties. Schools are therefore a public good. Incidentally, this is why your junior high probably felt like a state prison - it was one.  BUT, the public good-ness of schools is not why we spend a lot of government money on them. We spend government money on schools because of an incomplete markets problem.

Why Is It Relevant That EPI Gets Money from Teacher Unions, But It’s Not Relevant That Erskine Bowles Gets $350,000 a Year from Morgan Stanley? -The NYT has a piece this morning on the teacher evaluation policy used in the Washington, DC schools. The end of the piece includes a quote from Mark Simon who works on education issues with the Economic Policy Institute (my former employer). In identifying the Economic Policy Institute (EPI), the NYT added the comment: "which receives teachers’ union financing."While it is arguably relevant that EPI gets teacher union funding in this context, it is unusual for the NYT to present the sources of financing for individuals or organizations who get large amounts of money from the corporate sector. The most obvious example of this difference in policies is Erskine Bowles, one of the co-chairs of President Obama's deficit commission. Mr. Bowles receives $350,000 a year as a director of Morgan Stanley. It is worth noting that the Bowles-Simpson report did not include a financial speculation tax or any other tax on the financial sector, making Wall Street one of the few industries to escape unscathed.  In the same vein, the NYT printed a blogpost by Laura Tyson, another Morgan Stanley director, arguing against taking any steps to lower the value of the dollar against the Chinese yuan. Morgan Stanley has substantial interests in China. The NYT did not identify Ms. Tyson's ties to Morgan Stanley in this piece.

Senate passes $4 billion school cuts, TWIA bills - The Texas Legislature on Tuesday approved a budget bill that cuts $4 billion from public schools and legislation to reform the state's hurricane insurance association. After the votes, the Senate called it quits on the 30-day special session a day before Wednesday's deadline. House lawmakers planned to meet Wednesday morning for a last-ditch attempt to pass a bill criminalizing invasive body searches by airport security officers. The education cuts bill was deemed necessary to balance the state budget. Democrats, however, warned the cuts go too deep and could lead local districts to fire or furlough thousands of teachers and school staff and raise property taxes to make up the difference.Lawmakers also passed cost-savings bills that would allow school districts to furlough teachers, change how school materials are purchased and expand Medicaid managed care to the Rio Grande Valley.

Thornton reveals 519 layoffs, including 354 teachers - On the heels of announcing 519 layoffs, Milwaukee Public Schools Superintendent Gregory Thornton called on the teachers union to reconsider pension concessions that could save 200 jobs. Thornton announced Wednesday that 519 district employees, including 354 teachers, will receive layoff notices this week because of deep budget cuts in the new fiscal year that begins Friday. Most of the teacher cuts are at the elementary school level - kindergarten through eighth grade. The layoffs were largely determined by seniority, in accordance with the union contract. Some less-experienced teachers with specialized training were exempt. MPS last fall recalled about 200 of the 482 teachers who received June layoff notices. That's not likely to happen this year, Thornton said. Last year's recall of laid-off teachers was funded by federal money that's no longer available. The district has about 125 elementary schools. Those most affected by layoffs participate in a program partially funded by the state to reduce class sizes. Twenty-seven of the 75 schools in that program will lose class size reduction money and teachers.

Education tops cuts in new PA budget‎ -- Pennsylvania's next state budget awaits Governor Tom Corbett's signature after passing the house and senate passed without a single Democratic lawmaker's vote. The $27 billion proposal balances the budget without raising taxes. Republicans set out to reign in spending, and the budget does reduce spending by three percent and is coming in just before the July 1st deadline. It's been nine years since a Pennsylvania budget arrived on time.  "We have a no-tax, no increase spending budget at this difficult economic time and the budget was completed on time," said 8th District Representative, Republican Dick Stevenson.The spending plan was also completed without a single Democrat vote. Democrats oppose the $1.1 billion cut to public education.

Marion County scales back to four-day school week -- Students in Marion County will be going to class just four days a week. Marion County School Board members voted Tuesday night to switch to a four-day school week for the 2012-2013 school year. Board members initially debated doing it this coming school year, but backed off the idea because the district found savings elsewhere. Marion County School Superintendent Jim Yancey said the switch to a four-day school week would save the district around $4.5 million. School Board members said unless the economy improves, it's a change that has to be made. Students would go to school either Monday through Thursday or Tuesday to Friday for an additional 75 minutes a day. Marion County would be the first school district in all of Florida to make the change.

Harrisburg School Budget Passes With More Than 200 Layoffs -- The Harrisburg School Board passed a $124 million budget Monday that will close four schools and cut more than 200 workers.  The board approved laying off 153 teachers, 22 administrators and 39 support staff members.  "We did everything that we could do to really keep as many people that had direct contact with our students in place," board member Roy E. Christ said. "It was not a pleasant experience. It broke a lot of people’s hearts to make tough decisions because we know the people. When we made decisions that cost people jobs, we knew the people and we know that we care about out students." District officials are closing the Hamilton, Lincoln and Shimmel buildings as well as the Career Technical Academy at William Penn High School.  Also, sports programs will be cut for middle school students, and kindergarten will be reduced to half days.

Universities, redevelopment agencies ponder the budget ax - Local governments and California's public colleges and universities may have been resigned to the impending cuts after the state Legislature late Tuesday approved an $86 billion budget. By Wednesday morning, however, the reductions seemed increasingly hard to swallow. UC and CSU officials warned of possible tuition hikes, layoffs and fewer admissions. They also said they must now prepare for more slashing halfway through the academic year. The additional cuts would be "triggered" if revenues don't meet optimistic projections -- a possibility that left educators feeling anxious. Likewise, supporters of the state's nearly 400 active redevelopment agencies -- who for months had fought to mend rather than end the 66-year-old urban revitalization program -- said their likely elimination will harm the state's economy. Advocates for the agencies again vowed to take their case to the state Supreme Court, arguing that the Legislature's decision to grab $1.7 billion of the agencies' funds is unconstitutional because voters in November passed Proposition 22, which was designed to prevent Sacramento's raid of local tax revenue.

College Degrees Are Valuable Even for Careers That Don’t Require Them - ALMOST a century ago, the United States decided to make high school nearly universal. Around the same time, much of Europe decided that universal high school was a waste. Not everybody, European intellectuals argued, should go to high school. Today, we are having an updated version of the same debate. Television, newspapers and blogs are filled with the case against college for the masses: It saddles students with debt; it does not guarantee a good job; it isn’t necessary for many jobs. Not everybody, the skeptics say, should go to college. The argument has the lure of counterintuition and does have grains of truth. Too many teenagers aren’t ready to do college-level work. Ultimately, though, the case against mass education is no better than it was a century ago. The evidence is overwhelming that college is a better investment for most graduates than in the past. A new study even shows that a bachelor’s degree pays off for jobs that don’t require one: secretaries, plumbers and cashiers. And, beyond money, education seems to make people happier and healthier.

20,000 Leagues Under the State - The G.I. Bill’s transformative effects on the lives of men like Marchesi have become legendary, but just as striking in hindsight is the clearly visible role that government played as the source of those opportunities. In more recent decades the federal government has expanded its efforts to provide college aid to all Americans. But instead of delivering a straight benefit, like the original G.I. Bill, most of that aid has come through roundabout means, like payments to banks to provide students with loans, or loopholes in the tax code to subsidize families to save for or pay for college. Generations of Americans have now graduated with the help of these costly-though-indirect programs. Yet over the years, in conversations with my own students, I’ve noticed that, unlike Marchesi, few of them recognize that they’ve received benefits from government. In 2008, I conducted a survey to gauge the degree to which Americans who had received various government social benefits recognized them as such. Not surprisingly, most beneficiaries of the G.I. Bill who took part in the survey acknowledged that they had been given a leg up by the government. But of the respondents who made use of tax-advantaged Coverdell or 529 education savings accounts, 64 percent said they had “not used a government social program,” as did 59.6 percent of those who used HOPE and Lifelong Learning Tax Credits.

RI panel to begin brainstorming fixes for $7.3-billion unfunded pension liability - Rhode Island’s state-run, government-employee pension systems are in a $7.3-billion hole, and the panel that has been charged with trying to find the way out will hold its first meeting Monday morning. State General Treasurer Gina M. Raimondo, who, along with Governor Chafee, formed the Pension Advisory Group, has stated a simple goal for the panel: figure out how much fair pensions should be for government workers and figure out how taxpayers can afford to pay for them.  But the task will be far from simple. Taxpayers are already being called on to contribute hundreds of millions of dollars a year to the system, a figure that threatens to grow by hundreds of millions. And government workers, many of whom collect pensions of less than $30,000 a year, have shown little willingness to give up benefits the government has promised them, benefits for which workers contributed as much of their salary as was asked of them.

New Jersey shifts more costs to government workers - New Jersey Gov. Chris Christie signed legislation Tuesday that would require government workers to pay more for healthcare and pensions, making the state among the largest in the nation to roll back employee benefits to offset fiscal woes. 'New Jersey has once again become a model for America,' said Christie, a Republican, who won support from two key Democrats to overcome labor union opposition. The measure was the latest setback for unions, which lost battles to prevent Republican-run state governments in Ohio and Wisconsin from enacting legislation that limited public employees' collective bargaining rights.But unlike Wisconsin, where the union-opposed legislation led 14 Democratic senators to flee the state in an unsuccessful effort to block its passage, New Jersey's top Democratic legislative leaders — including one with ties to labor — joined Christie in supporting benefit changes for government workers and retirees. A majority of Democrats in the Legislature, however, opposed the measure.

Two Rulings Find Cuts in Public Pensions Permissible - Judges in Colorado and Minnesota have dismissed court challenges by retired public workers whose pensions had been cut — developments that may embolden other states and cities to use pension reductions as a tool to help balance their budgets. The two lawsuits sought to reverse reductions in the cost-of-living adjustments that Colorado and Minnesota had previously promised to retired public workers. Generally speaking, once lawmakers have agreed to provide certain pension benefits to public workers, it is difficult, if not impossible, to roll them back because of protective language in state laws and constitutions and years of court interpretations.  The two court decisions, issued Wednesday, suggest that the legal tide may be changing for public pensioners. The political tide has already turned in some places — in addition to Colorado1 and Minnesota2, South Dakota and New Jersey have also cut cost-of-living benefits for current retirees, and other states have been awaiting legal guidance before doing the same.

Why Means Testing Social Security Benefits Is More Trouble Than It's Worth - One of the many fixes now being considered as a remedy for Social Security and Medicare's projected shortfalls is means testing benefits. The rationale is that rich people shouldn't get SS because "they don't need it." Many people who ought to know better believe this would save a great deal of money and help fix the 2037 benefit gap. Sorry, people. This idea isn't worth the paper it's rotten on. The short and long of it is that it costs more to means test benefits than to pay SS benefits without regard to the beneficiary's income and assets.  The Social Security Administration (SSA) administers two programs: the basic SS program and Supplemental Security Income (SSI), a means-tested federal public assistance program for poor aged, blind and disabled people. You have to have worked 40 quarters to receive SS, but no work is required for SSI. It is a "welfare" program, not a social insurance program. SSI began on Jan. 1, 1974. In the intervening years, SSA has had plenty of experience trying to run this complex and challenging program. It has learned that SSI costs at least 7 times more dollar for dollar to administer than its regular SS program.   There are many reasons. The federal government establishes overall SSI eligibility and payment levels, but each state can pay optional amounts over and above those required by federal law. In effect, there are 50 different SSI programs across the country.

Supporting Social Security Benefit Cuts: What’s In It For AARP? - AARP is spending massive amounts of money to protect their brand in the wake of the June 17 Wall Street Journal article in which John Rother of AARP confirmed the organization would support Social Security benefit cuts.  So why don’t they just come out and say that they won’t support any benefit cuts?  Why do they keep dancing around with weasel-words?

  • June 17 statement: AARP walks back the WSJ article:  “Contrary to the misleading characterization in a recent media story, AARP has not changed its position on Social Security.”  That’s right, they haven’t. As Jon Walker reported, AARP has supported Social Security benefit cuts for 7 years.
  • June 17, the Hill: “AARP insisted Friday it has not changed its position on Social Security, but acknowledged it could back some benefits cuts for future seniors to preserve the program.”
  • June 24 letter to AARP members:  “Any changes should be phased in slowly, over time, and should not affect any current or near-term retirees.”
  • Latest AARP petiton:  “No harmful cuts to Medicare and Social Security” No “harmful cuts.”  As opposed to the “non-harmful” ones I suppose.  But how did this article make its way into the Wall Street Journal right now?  And why did Third Way have a statement of support written up and ready to go as soon as the article appeared?

Wisconsin cuts Planned Parenthood, denying 12,000 women needed care - Wisconsin Governor Scott Walker (R) signed a $66 billion budget yesterday that reduced funding for education and health care, cutting off all state and federal funding for nine Planned Parenthood clinics state-wide. Loss of the clinics, which provide preventative health screenings, reproductive education and abortion services, will leave over 12,000 uninsured women to search the private health market for future care, the non-profit said. Planned Parenthood said it has 27 clinics in Wisconsin, which serve about 73,000 patients every year. In 2009, according to PPFA's national figures, 96 percent of its activities were dedicated to cancer screenings, STD or STI testing, counseling, education or pregnancy testing and prevention. Wisconsin is the fourth state to ban funding for Planned Parenthood, behind North Carolina, Tennessee and Indiana. Texas is expected to follow suit in the coming days.

Analysis: Stimulus ends, state healthcare on life support (Reuters) - As healthcare costs for the poor soar across the United States, perhaps no state will feel the loss of federal stimulus money more than Florida. America's fourth-most-populous state, Florida is second only to Texas in the percentage of residents without health insurance and its struggles are emblematic of problems afflicting many states. Florida's economy has been hit hard in recent years and was one of the states hurt the most by the housing bust. For 25 straight months, the state's unemployment rate has been above 10 percent, creating an ever larger pool of people turning to Medicaid. But now the $100 billion of stimulus money that boosted funding for the Medicaid health insurance program nationwide will run out at the end of June. The Medicaid boost was one of several tax and spending measures in the $830 billion stimulus package passed in 2009 that helped state and local governments make it through the recent recession. The federal program partially reimburses states for healthcare provided for the poor and others who cannot pay their bills.

Proposed GOP Budget Cuts To Medicaid Could Kill Jobs And Short-Change Seniors - While the debate over entitlements is focusing on cuts to Social Security and Medicare, Senate Democrats worry that the closed-door debt-ceiling talks could instead lead to major cuts to Medicaid at a time when the joint federal-state program is under assault from cash-strapped states hoping to close budget gaps. Sen. Jay Rockefeller (D-W.Va.) has organized more than 40 Democrats into a bloc committed to opposing cuts to Medicaid. "I can see just a feast of people who have no idea what Medicaid does and who don't care, because Medicaid people don't vote, they don't give money, they don't have lobbyists," he told HuffPost. "But it serves 68 million Americans, including all of the disabled, certain women and children, and all kinds of other things, and obviously the poor. But there's a lot of people around here who don't have any interest in the poor." Rockefeller lobbied the White House on Wednesday not to cut Medicaid. House Republicans are pushing for dramatic cuts. The House Republican budget proposal, sponsored by Rep. Paul Ryan (R-Wisc.), calls for a 5 percent cut in federal funding to state Medicaid programs in 2013, 15 percent in 2014, and 35 percent by 2021. The cuts would add up to about $750 billion over ten years, 64 percent of which would go to senior nursing home residents who depend on Medicaid to pay for their housing and assistance. Another 22 percent of the Medicaid budget is allocated to 34 million very poor children.

RomneyCare vs. ObamaCare - The health reforms enacted by then-governor Mitt Romney in 2006 and President Obama in 2010 have much in common, although both would deny it. Their main strength is that more people get insured. In Massachusetts, the percentage is up to 98 percent, the highest in the nation. Obama projects that about 95 percent of people will be insured nationally in a decade. But both Romney and Obama punted on crucial issues of cost and deeper systemic reform. At their core, both plans depended on a deal with special interest groups. In Massachusetts, Romney needed and got buy-in from the powerful hospital, insurance, and corporate lobbies. To win that support, he could not fundamentally change the way they did business. Instead, private insurance companies got more customers thanks to the individual mandate, hospitals kept their beds full, and corporations that failed to insure employees paid only a token penalty of $295 per worker. Because free-riding corporations were not effectively taxed, Massachusetts had to divert money from the free-care pool that finances safety-net hospitals. And because serious cost containment was not part of the original package, premium costs in the Commonwealth have risen far faster than nationally

A summary of the Massachusetts health reform experience -Via NBER, Jon Gruber has published a paper today that summarizes the Massachusetts experience under health reform and includes projections for the ACA. Let’s start with the former. I may come back to the ACA projections later.Gruber describes eleven results from the Massachusetts health reform law, all supported with citations and evidence. His conclusions:

  1. There has been a dramatic expansion of health insurance, reducing the uninsurance rate by 60-70%.
  2. No change in wait times for general and internal medicine practitioners have been observed.
  3. The share of the population with a usual source of care, receiving preventative care, and receiving dental care all rose.
  4. The rate of utilization of emergency care fell modestly.
  5. There has been a 40% decline in uncompensated care.
  6. The proportion of the population with employer-sponsored health insurance increased by 0.6%.
  7. The rate of employer offers of coverage grew from 70% to 76%.
  8. Mandate compliance has been very high: 98% compliance in reporting via tax filings of obtaining coverage or paying penalties.
  9. The administrative costs of health reform have been low. Overall implementation costs have been close to expectations.
  10. Premiums have fallen dramatically in the non-group market.
  11. Though group premiums have risen, they have not increased faster than one would expect from increases in other states in the region.

The return of rationing - POLICYMAKERS must juggle three priorities when offering a public service: coverage, cost and choice. They almost always have to sacrifice at least one of the three. As austerity bites, this equation is going to lead to very tricky decisions.  Health is an area where the trilemma clearly applies. Britain’s National Health Service offers universal coverage but as a result has to limit patient choice in order to control the costs. The American health system historically gave a high priority to patient choice at the price of ballooning costs and the exclusion of the uninsured from the system. Having increased coverage, the Obama reforms will have to restrict choice if they are to control costs.Over the past 40 years cost has been less of a constraint in all areas of public policy than it might have been. At times of crisis governments without exchange-rate targets have been able to let their currency, rather than the real economy, take the strain. Steady growth has allowed governments to expand the services they offer. Once granted, a service or benefit is hard to remove because recipients campaign for its retention.

Sixth Circuit Breaks Partisan Streak On ACA Rulings - Decisions on the constitutionality of the Affordable Care Act's individual mandate have fallen along partisan lines, with Republican appointees voting to overturn it and Democratic appointees upholding it.  Until today. A three judge panel made up of two Republican nominees, Judges James L. Graham and Jeffery Sutton--one appointed by Ronald Reagan and the other by George W. Bush--upheld the individual mandate. The opinion was written by Judge Boyce Martin, who was appointed by Jimmy Carter. Martin and Sutton agreed on the constitutionality of the mandate under the Commerce Clause. While Graham said the mandate was unconstitutional, he, along with the other judges, rejected the "activity/inactivity" distinction en vogue in conservative and libertarian circles.

Nonprofit Insurers: Reaping Profits at the Expense of the Consumer - Nowhere are health insurers working harder to thwart reforms that could save consumers billions of dollars than in California. One measure they are especially determined to kill is a bill that would give state regulators the authority to reject rate increases that were excessive or discriminatory. The California Assembly passed a bill to do just that earlier this month over the intense opposition of insurers, including the state's biggest supposedly nonprofit health plans: Blue Shield of California and Kaiser Permanente. Kaiser alone has spent $700,000 so far this year lobbying lawmakers in Sacramento.. And if any health plan can pull it off, it's Kaiser, which has the biggest market share in the state and is also one of the country's most profitable insurance companies.According to public filings, Kaiser has made a whopping $5 billion in profits since 2009. That's more than all but a small handful of the country's for-profit insurance corporations have made. During the first three months of this year, Kaiser made more than $920 million in profits. Yet because it has been able to maintain its legal structure as a nonprofit, it doesn't pay taxes on that money like the for-profits do.

Born to Lose: Health Inequality at Birth - In an imaginary world of equal opportunity we would all be free to choose our own economic future. In reality, many children in the United States are born to lose, suffering health disadvantages at birth that reduce their likelihood of economic success. Epidemiologists and economists have long agreed that low birth weight is an important, albeit approximate, predictor of future health problems. A wealth of new economic research tracing individuals over time shows that it is also an approximate predictor of future earnings problems, with statistical effects almost as strong as children’s test scores. Among other things, low birth weight increases the probability of suffering from attention deficit hyperactivity disorder and lowers the probability of graduating from high school. Many of the mechanisms that underlie this inequality are linked to characteristics of the physical environment, such as exposure to environmental toxins. For instance, carbon monoxide related to automobile emissions harms fetal health. Detailed statistical analysis of families in New Jersey shows that moving from an area with high levels of carbon monoxide to one with lower levels has an effect on birth weight larger than persuading a woman who was smoking 10 cigarettes a day during pregnancy to quit.

The coming explosion in health inequality -   I’m here for the Hamilton Project’s conference on innovation. The first panel featured Francis Collins, making the case that sequencing the genome hasn’t been a disappointment: It has “utterly transformed how we study human biology,” he argued, and that means huge advances in medical treatments are coming. The fact that it didn’t revolutionize how we treat disease in its first decade doesn’t mean it won’t revolutionize how we treat disease in its first five decades.. As Collins sees it, what’ll be revolutionary about genome-based medicine is that we’ll be able to use the information contained in an individual’s DNA sequence to target their therapies much more precisely. If that comes true, the treatments of the future will differ from the treatments of the present in two big ways: First, they’ll work a lot better. A lot of what we’re doing right now simply doesn’t work very well. Second, there’ll be a lot more individual variation. If that’s the path that medical advances ultimately take, one byproduct will be an immense explosion in health inequality. Right now, health inequality, though significant, is moderated by the fact that the marginal treatments that someone with unlimited resources can access simply don’t work that much better than the treatments someone with more modest means can access. In some cases, they’re significantly worse. In most cases, they’re pretty similar, and often literally the same.

The coming explosion in heath inequality, cont'd - A reader writes "Just read your post on genomics and health inequalities. As a concrete and very worrying example of how genomics has the potential to increase health disparities, I’ve attached a paper that was published at the beginning of the year that shows that we can now detect and sequence fetal DNA directly from maternal blood samples. The paper is focused on trisomy 21 (Down’s Syndrome) and is a pretty huge deal, since it means that we’ll be able to non-invasively test for it rather than conducting an amniocentesis (which is painful for the mother and risky for the fetus). The Chiu paper just looks at trisomy 21 but the technique should allow for testing of every genetic disease. Currently, amniocentesis or chorionic villi sampling is done on about 2% of pregnancies, whereas once this starts being rolled out, usage may reach as high as 70 or 80% of pregnancies. Here’s the kicker though: insurance companies are probably going to be very happy to cover this, since reducing the numbers of neonates with severe chronic disease will save them a lot of money. However, about 50% of pregnancies in the US are covered by Medicaid, not private insurance, and since the implication of a positive test for a severe genetic disease is termination of the pregnancy, the anti-abortion lobby and the GOP pro-lifers are almost certainly going to pitch a fit if CMS considers covering the test, with the end result being possibly eradicating these diseases among the affluent and concentrating them among the poorest of society.

In Medicine, New Isn’t Always Improved - IT is an American impulse to covet the new and improved — whether it’s a faster computer, a smarter cellphone or a more fuel-efficient car. And in medicine, too, new drugs, devices and procedures have advanced patient care. But the promise of innovation can also prove a trap, a situation now playing out with dire consequences for possibly tens of thousands of people who received artificial hips intended to let them remain active.  The implants, known as metal-on-metal hips, were regarded by device makers and surgeons as a major advance over previous designs that used both metal and plastic. Now federal regulators and medical researchers are scrambling to determine how many implant recipients have been injured by the devices, which can shed dangerous metallic debris through wear.  In a highly unusual move, the Food and Drug Administration1 last month ordered manufacturers of all metal hips to undertake emergency studies2 of patients. And lawmakers and others are now calling for a tightening of how the F.D.A. scrutinizes new implants — both before and after they are sold.

Local Laws Fighting Fat Under Siege - Several state legislatures are passing laws that prohibit municipalities and other local governments from adopting regulations aimed at curbing rising obesity1 and improving public health, such as requiring restaurants to provide nutritional information on menus or to eliminate trans fats2 from the foods they serve.  In some cases, lawmakers are responding to complaints from business owners who are weary of playing whack-a-mole3 with varying regulations from one city to the next. Legislators have decided to sponsor state laws to designate authority for the rules that individual restaurants have to live by.  Florida and Alabama recently adopted such limits, while Georgia, Tennessee and Utah have older statutes on their books. Earlier this year, Arizona prohibited local governments from forbidding the marketing of fast food using “consumer incentives” like toys.  And this week, Ohio Gov. John Kasich signed the state budget, which contains sweeping limitations on local government control over restaurants.

Don’t apply positive discount rates to human lives - Ben Trachtenberg writes: This Article presents two new arguments against “discounting” future human lives during cost-benefit analysis, arguing that even absent ethical objections to the disparate treatment of present and future humanity, the economic calculations of cost-benefit analysis itself – if properly calculated – counsel against discounting lives at anything close to current rates. In other words, even if society sets aside all concerns with the discounting of future generations in principle, current discounting of future human lives cannot be justified even on the discounters’ own terms. First, because cost-benefit analysis has thus far ignored evidence of rising health care expenditures, it underestimates the “willingness to pay” for health and safety that future citizens will likely exhibit, thereby undervaluing their lives. Second, cost-benefit analysis ignores the trend of improved material conditions in developed countries. As time advances, residents of rich countries tend to live better and spend more, meaning that a strict economic monetization of future persons values the lives of our expected descendents above those of present citizens. These two factors justify “inflation” of future lives that would offset, perhaps completely, the discount rate used for human life.

Martori Farms: Abusive Conditions at a Key Wal-Mart Supplier - Fifty-five years after Rush was killed in solitary confinement, Marcia Powell, a mentally ill 48-year-old woman incarcerated at the Perryville Unit in Arizona, died. The Arizona Department of Corrections (ADC) has more than 600 of these outdoor cages where prisoners are placed to confine or restrict their movement or to hold them while awaiting medical appointments, work, education, or treatment programs. On May 20, 2009, the temperature was 107 degrees. Powell was placed in an unshaded cage in the prison yard. Although prison policy states that "water shall be continuously available" to caged prisoners and that they should be in the cage for "no more than two consecutive hours," guards continually denied her water and kept her in the cage for four hours. Powell collapsed of heat stroke, was sent to West Valley Hospital where ADC Director Charles Ryan took her off life support hours later. Abuses at Perryville have continued. The ADC has sent its prisoners to work for private agricultural businesses for almost 20 years.(2) The farm pays its imprisoned laborers two dollars per hour, not including the travel time to and from the farm. Women on the Perryville Unit are assigned to Martori Farms, an Arizona farm corporation that supplies fresh fruits and vegetables to vendors across the United States (Martori is the exclusive supplier to Wal-Mart's 2,470 Supercenter and Neighborhood Market stores).(3) According to one woman who worked on the farm crews:

Roundup: Birth Defects Caused By World’s Top-Selling Weedkiller, Scientists Say -- The chemical at the heart of the planet’s most widely used herbicide -- Roundup weedkiller, used in farms and gardens across the U.S. -- is coming under more intense scrutiny following the release of a new report calling for a heightened regulatory response around its use. Critics have argued for decades that glyphosate, the active ingredient in Roundup and other herbicides used around the globe, poses a serious threat to public health. Industry regulators, however, appear to have consistently overlooked their concerns A comprehensive review of existing data released this month by Earth Open Source, an organization that uses open-source collaboration to advance sustainable food production, suggests that industry regulators in Europe have known for years that glyphosate, originally introduced by American agricultural biotechnology giant Monsanto in 1976, causes birth defects in the embryos of laboratory animals. Partnering with half a dozen international scientists and researchers, the group drew its conclusions in part from studies conducted in a number of locations, including Argentina, Brazil, France and the United States.

World's Top-Selling Weedkiller Causes Birth Defects, Scientists Say - Quick -- name a brand of weedkiller. What popped into your head? Was it, by any chance, Roundup? The most popular and most widely-used herbicide in the world? Why? Because a new, comprehensive review of existing data again reveals, once again, that scientific evidence shows that it may cause birth defects.  Lucia Graves reports: -- The chemical at the heart of the planet's most widely used herbicide -- Roundup weedkiller, used in farms and gardens across the U.S. -- is coming under more intense scrutiny following the release of a new report calling for a heightened regulatory response around its use. Critics have argued for decades that glyphosate, the active ingredient in Roundup and other herbicides used around the globe, poses a serious threat to public health. Industry regulators, however, appear to have consistently overlooked their concerns.  A comprehensive review of existing data released this month by Earth Open Source, an organization that uses open-source collaboration to advance sustainable food production, suggests that industry regulators in Europe have known for years that glyphosate, originally introduced by American agricultural biotechnology giant Monsanto in 1976, causes birth defects in the embryos of laboratory animals.

Monsanto under SEC probe for incentives - Monsanto, the world’s biggest seedmaker by revenue, is being investigated by the Securities and Exchange Commission over its use of cash to persuade distributors to use its herbicides. The US company provides cash incentives to distributors to buy Roundup glyphosate, the world’s leading herbicide, and Roundup Ready seeds. Its most recent programme, introduced last year, offered up to $20 per acre. Monsanto’s herbicide division was once a cash cow, but it has collapsed in the face of low-cost competition from China.  The company has been fighting to stabilise Round­up revenues, and cash incentives have played a big role in re-establishing the brand among farmers. Monsanto said the watchdog had launched an investigation into its glyphosate incentive programmes for its 2009 and 2010 fiscal years. It said it had received a subpoena for documents from SEC staff and was co-operating with the investigation.

Volatile Commodity Prices - Lots of reports today about a plunge in corn and other food commodity prices following good news from the USDA on plantings and progress of this year's corn crop. In just the last couple weeks corn prices have fallen from nearly $8/bushel to about $6.15.  All of that is due to a rather small amount of information about the progress of this year's crop.  Yes, there were reports of flooding and late plantings, but that kind of thing rarely has much effect on the overall crop production.  The late plantings just set up even more volatility going forward, since the plants will be  susceptible to extreme heat in July and August.  This volatility is exactly what economic models predict when inventories are low and cannot buffer weather shocks.  I expect to see even larger swings in late July and August, because it's weather in these months, and particularly the amount of extreme heat in the Midwest, that will determine the size of the corn and soybean crops.

Corn Plunges to Lowest Since December After U.S. Reports Acreage Increased -  Corn fell for a third day in Chicago, extending the biggest monthly drop since October 2008, after the U.S. reported acreage and inventories that topped analyst’s estimates. Wheat reached an 11-month low.  U.S. farmers planted 92.282 million acres of corn this year, 1.8 percent more than projected by analysts in a Bloomberg News survey and the second-highest since 1944, the Department of Agriculture said yesterday. Stockpiles as of June 1 were 3.67 billion bushels, 12 percent higher than forecast.  Increased grain supplies may ease global food-inflation concerns after prices measured by the United Nations climbed to a record in February.“In recent seasons, the USDA has surprised the market on a number of occasions with its data releases and today’s revisions to its planted area and quarterly grain stocks estimates in the grains markets were no exception,”

Farm Subsidies Go To Farmers Right? Think Again - “The fundamental problem with America’s farm programs: They mostly reward those who own the land, not those who farm it, or are most in need, or grow the healthiest food, or do the best job of protecting soil, water and wildlife habitat.” No matter how many movies we see on the problems with our industrial farming system, most of us will always conjure the iconic image of a wholesome family farming the land when we think of agriculture. But your tax dollars may not be going to who you think. A report by the Environmental Working Group, a non-profit that monitors federal programs, concludes that the U.S. government is sending hundreds of millions of dollars to people in urban areas of the country, some of whom have no direct connection to agriculture. According to EWG’s updated 2011 Farm Subsidy Database, $394 million last year went to residents of almost 350 cities with at least 100,000 people each.

Meet The Millionaires And Billionaires Suddenly Buying Tons Of Land In Africa - Oakland Institute just completed the most thorough investigative report on who's buying land in Africa we've seen yet: "Hedge Funds Grabbing Land in Africa," as BBC called it.  As commodities prices rise and inflation picks up, the OI made the report public, they say, because the number of investors buying up land in Africa concerns them. For obvious reasons, there isn't much out there about who's buying what and how much in Africa. But what OI has discovered is a small number of investors paying sometimes nothing for large plots of land in some African countries. The lease deals are arranged between seemingly corrupt African leaders, reportedly without disclosing the details to the members of the communities that will be displaced because of the land development, and investors such as hedge fund managers. The end result -- beating villagers, digging up their cemeteries, and taking over land that villagers have lived on for centuries -- looks a lot like a less cruel version of what history tells us colonizing Americans did when they ousted the Indians, according to this one report anyway.

Global Agriculture Supply Keeps Worsening - The global agriculture supply situation has worsened and a failure to boost food production fast enough to meet demand may lead to shortages, “We’ve got to do something or we’re going to have no food at any price at times in the next few years,” Rogers said “I still own agriculture. If I found something to buy, I would buy it.” Rogers joins former United Nations Secretary General Kofi Annan, the UN Food & Agriculture Organization and the World Bank, in highlighting the need to boost global food production and address issues pushing prices higher. Group of 20 farm ministers agreed last week to increase agriculture output, set up a crop database and limit export bans to tackle what French President Nicolas Sarkozy calls the “plague” of rising food prices. Monthly food prices tracked by the FAO have surged nine times in the past 11 months and last month stayed near a record reached in February, as global demand for corn and wheat outstripped production and drought and flooding ravaged harvests. The World Bank estimates higher food prices have pushed 44 million more people into poverty.

Diesel Prices and Farming. What is the Plan? - Today's nationwide average diesel price is $3.95 per gallon.Some analysts listed the price of diesel as one of the reasons the IEA announced plans to release oil from the emergency reserves last week. Earlier this year, I reported that a rice farmer in California farms 2,000 acres and uses 80,000 gallons of diesel per year. His diesel expense is up approximately $80,000 over last year's.Most people seem to agree that energy-related prices are headed upwards. At some point the issue will shift from price to availability. No-till helps, but where do we go from here? Do policy makers have a plan? Do farmers have a plan as fossil fuel related expenses continue to rise? Will governments always pick up rising fuel costs for producers? At minimum, won't marginal lands return to low input crops or animal production? And won't the farmers operating on small profit margins have to find alternative products requiring less fuel? Will farm policy change? What will the biofuels fall-out be? How will rising energy costs impact production in agricultural commodity exporting nations?

The Spam Factory's Dirty Secret - On the cut-and-kill floor of Quality Pork Processors Inc. in Austin, Minnesota, the wind always blows. From the open doors at the docks where drivers unload massive trailers of screeching pigs, through to the "warm room" where the hogs are butchered, to the plastic-draped breezeway where the parts are handed over to Hormel for packaging, the air gusts and swirls, whistling through the plant like the current in a canyon. In the first week of December 2006, Matthew Garcia felt feverish and chilled on the blustery production floor. He fought stabbing back pains and nausea, but he figured it was just the flu—and he was determined to tough it out.

Our Dwindling Food Variety - As we've come to depend on a handful of commercial varieties of fruits and vegetables, thousands of heirloom varieties have disappeared. It's hard to know exactly how many have been lost over the past century, but a study conducted in 1983 by the Rural Advancement Foundation International gave a clue to the scope of the problem. It compared USDA listings of seed varieties sold by commercial U.S. seed houses in 1903 with those in the U.S. National Seed Storage Laboratory in 1983. The survey, which included 66 crops, found that about 93 percent of the varieties had gone extinct. More up-to-date studies are needed.

Why Are Food Prices Rising So Fast?  - If you do much grocery shopping, you have probably noticed that the cost of food has been rising at a very brisk pace over the past year.  So why are food prices rising so fast?  According to Federal Reserve Chairman Ben Bernanke, inflation is still very low and the economy is improving.  So what is going on here?  When I go to the grocery store these days, there are very few things that I will buy unless they are on sale.  In fact, I have noticed that many of the new "sale prices" are the old regular prices.  Other items have had their packages reduced in size in order to hide the price increases.  But with millions of American families just barely scraping by as it is, what is going to happen if food prices keep rising this rapidly? Some recent statistics compiled by the Bureau of Labor Statistics are absolutely staggering.  According to a recent CNBC article, over the past year many of the most popular foods in America have absolutely soared in price....

Can Food Prices Be Stabilized? -  The G-20’s efforts will culminate in the Cannes Summit in November. But, when it comes to specific policies, caution will be very much in order, for there is a long history of measures aimed at reducing commodity-price volatility that have ended up doing more harm than good. For example, some inflation-targeting central banks have reacted to increases in prices of imported commodities by tightening monetary policy and thereby increasing the value of the currency. But adverse movements in the terms of trade must be accommodated; they cannot be fought with monetary policy. Producing countries have also tried to contain price volatility by forming international cartels. But these have seldom worked. In theory, government stockpiles might be able to smooth price fluctuations. But this depends on how stockpiles are administered. The historical record is not encouraging. In rich countries, where the primary producing sector usually has political power, stockpiles of food products are used as a means of keeping prices high rather than low. The European Union’s Common Agricultural Policy is a classic example – and is disastrous for EU budgets, economic efficiency, and consumer pocketbooks. In many developing countries, on the other hand, farmers lack political power.

Taking the EPA’s Authority Away - A House committee approved a bill that would gut much of the EPA’s power to enforce clean water standards. The Clean Water Cooperative Federalism Act, approved by the Transportation and Infrastructure Committee, would transfer regulatory power over water, wetlands and mountaintop mining to the states, Greenwire reports. The House leadership plans to hold a floor vote this summer. In response, the EPA said the bill would undermine its role under the Clean Water Act, would make environmental protection more litigious, and could result in upstream states adopting standards that impair waters for those downstream, according to the agency’s legal analysis obtained by Greenwire.

Let's Abolish the Most Effective Agency in the Country! - The Environmental Protection Agency is the prime target of a lot of right-wing conspiracy theories. But as a new report from the White House Office of Management and Budget shows, the EPA actually has the best track record among the agencies when it comes to setting rules whose pluses outnumber the minuses. It should be clear that the rules with the highest benefits and the highest costs, by far, come from the Environmental Protection Agency and in particular its Office of Air. More specifically, EPA rules account for 62 to 84 percent of the monetized benefits and 46 to 53 percent of the monetized costs. The rules that aim to improve air quality account for 95 to 97 percent of the benefits of EPA rules. Of the 20 air rules that have come from the office in the last 10 years, the Clean Air Fine Particle Implementation Rule stands out as the most beneficial—it saves $19 billion to $167 billion every year because the public isn't being exposed to harmful air pollution. This came at a cost of just $7.3 billion per year. Overall, the report documented 32 major federal rules from the EPA in the past decade, which saved the economy up to $550.7 billion, at a cost of somewhere between $23.3 billion and $28.5 billion.

Atop TV Sets, a Power Drain Runs Nonstop - Those little boxes that usher cable signals and digital recording capacity into televisions have become the single largest electricity drain in many American homes, with some typical home entertainment configurations eating more power than a new refrigerator and even some central air-conditioning systems. There are 160 million so-called set-top boxes in the United States, one for every two people, and that number is rising. Many homes now have one or more basic cable boxes as well as add-on DVRs, or digital video recorders, which use 40 percent more power than the set-top box.  One high-definition DVR and one high-definition cable box use an average of 446 kilowatt hours a year, about 10 percent more than a 21-cubic-foot energy-efficient refrigerator, a recent study found.  The recent study, by the Natural Resources Defense Council1, concluded that the boxes consumed $3 billion in electricity per year in the United States — and that 66 percent of that power is wasted when no one is watching and shows are not being recorded. That is more power than the state of Maryland uses over 12 months

Worst Drought in 60 Years Hits 10 Million in East Africa - Ten million people in the Horn of Africa have been hit by the worst drought in 60 years, with some areas on the verge of famine and thousands on the march in search of food and water, the UN said on Tuesday. A poor rainy season coupled with rising food prices have led to severe food shortages in countries including Djibouti, Ethiopia, Kenya, Somalia and Uganda. Cattle and sheep are dying at higher rates than usual, reaching up to 60 percent of mortality in some areas. "Over 10 million people are affected by the drought in one way or other," said Elisabeth Byrs, spokeswoman for the UN Office for the Coordination of Humanitarian Affairs. "We believe that the drought situation in certain regions is the worst in 60 years," she said. "In some areas the situation is close to that of famine. We are at the emergency stage which precedes that of famine. But the situation can still evolve," she added. Food prices are soaring with grain prices in some parts of Kenya up to 80 percent higher than the five year average, while in Ethiopia, the consumer price index jumped about 41 percent. As a result, malnutrition rates are also rising, the UN agency said.

Worst drought in 60 years hitting Horn of Africa-UN (Reuters) - The worst drought in 60 years in the Horn of Africa has sparked a severe food crisis and high malnutrition rates, with parts of Kenya and Somalia experiencing pre-famine conditions, the United Nations said on Tuesday. More than 10 million people are now affected in drought-stricken areas of Djibouti, Ethiopia, Kenya, Somalia and Uganda and the situation is deteriorating, it said.  "Two consecutive poor rainy seasons have resulted in one of the driest years since 1950/51 in many pastoral zones," Elisabeth Byrs, spokeswoman of the U.N. Office for the Coordination of Humanitarian Affairs, told a media briefing. "There is no likelihood of improvement (in the situation)until 2012," she said. Food prices have risen substantially in the region, pushing many moderately poor households over the edge, she said.

Horn of Africa sees 'worst drought in 60 years' - Some parts of the Horn of Africa have been hit by the worst drought in 60 years, the UN says. More than 10 million people are thought to be affected across the region. The UN now classifies large areas of Somalia, Ethiopia, Djibouti and Kenya as a crisis or an emergency. Charity Save the Children says drought and war in Somalia has led to unprecedented numbers fleeing across the border into Kenya, with about 1,300 people arriving every day. Three camps at Dadaab, just inside Kenya, are home to well over 350,000 people, but they were built to hold just 90,000 and are severely overcrowded. A prolonged failure of rains, which began in late 2010, is now taking its toll. The UN's Office for the Co-Ordination of Humanitarian Affairs (Ocha) warns that the situation is continuing to deteriorate, and the number of people in need will continue to increase.

How Bad is the Texas Drought? “In Austin, They are Praying for a Hurricane” - This is “the worst Texas drought since record-keeping began 116 years ago.”  Drought and wildfires have led the US Department of Agriculture “to declare the entire state of Texas a natural disaster.”  Over 70% of the state was in “exceptional” drought last week, with another 20% in “extreme” drought, and “213 counties in Texas have lost at least 30 percent of their crops or pasture.” You know a drought is devastating when people are so desperate for relief they start rooting for a catastrophic deluge.  But that’s what NPR reported today: The word drought doesn’t really capture what’s happening in Texas. The last nine months have been the driest in state history. Instead of rain, spring brought nearly half a million acres of wildfires. And in central Texas, around Austin one of the area’s largest lakes is drying up.  In Austin, they’re praying for a hurricane, a nice slow moving category one or two, or a tropical storm, that makes its way up to Austin and then stalls out over the Texas hill country.

As Oklahoma Swelters Under Record Heat and Drought, Inhofe Bails on Heartland Denier Conference: ‘I am Under the Weather’ - You may recall last year that Senator Inhofe’s grandchildren built an igloo to mock a killer snow storm, calling it ‘Al Gore’s New Home’.  Of course, extreme precipitation is precisely what we expect from human-caused global warming, but the story still got a lot of play in the media. What’s more ironic is that the Senate’s leading climate denier bailed on the annual Heartland climate science denial conference this morning — saying “I am under the weather” (!) — just as his home state is being slammed by a record-smashing heatwave and a drought more severe than the Dust Bowl of the 1930s. Yes, I know, it’s just coincidence, not a karmic backlash.  But then again climate science projects a permanent dust bowl for the Southwest if we keep listening to Inhofe.  It also projects that by century’s end, the state will be above 90°F for 135 days a year!

Wildfire threatens Los Alamos National Lab   -- The Los Alamos National Laboratory in New Mexico will be closed Monday as fire crews battle a wildfire raging nearby, a statement on the facility's website said. "All laboratory facilities will be closed for all activities and nonessential employees are directed to remain off site," the statement said. "Employees are considered nonessential and should not report to work unless specifically directed by their line managers." A spokesman for the New Mexico State Forestry Division, however, told CNN the order to evacuate Los Alamos was voluntary, and stressed that there is no immediate threat to the facility.  The Los Conchas fire, which flared up Sunday afternoon, was reported to be less than a mile from the lab's southwestern boundaries late Sunday, another statement from the facility said. The fire has spread across nearly 44,000 acres, according to state officials. Approximately 100 local residents have been evacuated, and nearby Bandelier National Monument has been closed for at least three days, they said. Special crews have been dispatched to Water Canyon near the lab to protect the facility, according to the statement. "All radioactive and hazardous material is appropriately accounted for and protected," the lab said.

Los Alamos evacuation ordered because of wildfire - Authorities ordered Los Alamos evacuated Monday as a fast-growing and unpredictable wildfire bore down on the northern New Mexico town and its sprawling nuclear laboratory. The blaze that began Sunday already had destroyed an unspecified number of houses south of the town, which is home to some 12,000 residents. It also forced the closure of the nation's pre-eminent nuclear lab while stirring memories of a devastating blaze more than a decade ago that destroyed hundreds of homes and buildings in the area. Tucker said the blaze that grew to more than 68 square miles overnight was the most active fire he had seen in his career. Traffic on Trinity Drive, one of the main roads out of Los Alamos, was bumper-to-bumper Monday afternoon as residents followed orders to leave. Authorities said about 2,500 of the town's residents left under earlier an earlier voluntary evacuation.

Thousands flee as fire nears town, nuke lab - Hundreds of cars clogged roads leading out of this town on Monday afternoon as a raging wildfire spread to within one mile of the nation's preeminent nuclear weapons facility and destroyed 30 structures, including some homes.  The blaze began Sunday and within a day had burned through 44,000 acres, or 68 square miles. It also forced the closure of Los Alamos National Laboratory and stirred memories of a devastating blaze more than a decade ago that destroyed hundreds of homes and buildings in the area.  "The hair on the back of your neck goes up," Los Alamos County fire chief Doug Tucker said of first seeing the fire in the Santa Fe National Forest on Sunday. "I saw that plume and I thought, 'Oh my god here we go again.'"  Tucker said the blaze was the most active fire he had seen in his career, forcing residents near Cochiti Mesa and Las Conchas to flee with "nothing but the shirts on their back." 

Terribly Destructive Fire at Los Alamos Is Awfully Beautiful - Early Tuesday morning, firefighters battled the growing blaze along the edge of the Los Alamos National Laboratory in an effort keep the flames from overtaking the nuclear facility. Accordingly, officials ordered a mandatory evacuation of the 12,000 or so residents of neighboring Los Alamos, New Mexico as the lab's director assured the public that any hazardous materials at the lab, which was shut down when the fires broke out Sunday, were well out of the fire's reach. The anti-nuclear watchdog group Concerned Citizens for Nuclear Safety warned that as many as 30,000 drums of nuclear waste was just 3.5 miles from the flames, a claim the lab declined to confirm. "Unfortunately, I cannot answer that question other than to say that the material is well protected,". "And the lab--knowing that it works with hazardous and nuclear materials--takes great pains to make sure it is protected and locked in concrete steel vaults. And the fire poses very little threat to them."

Fire Threatens Plutonium and Uranium Release at Los Alamos National Laboratory - A raging wildfire is threatening to engulf the Los Alamos National Laboratory. Los Alamos likely contains more nuclear weapons than any other facility in the world. As if that weren't bad enough, AP notes: The anti-nuclear watchdog group Concerned Citizens for Nuclear Safety, however, said the fire appeared to be about 3 1/2 miles from a dumpsite where as many as 30,000 55-gallon drums of plutonium-contaminated waste were stored in fabric tents above ground. The group said the drums were awaiting transport to a low-level radiation dump site in southern New Mexico. Lab spokesman Steve Sandoval declined to confirm that there were any such drums currently on the property.Later, Los Alamos confirmed the allegation:  Lab spokeswoman Lisa Rosendorf said such drums are stored in a section of the complex known as Area G. She said the drums contain cleanup from Cold War-era waste that the lab sends away in weekly shipments to the Waste Isolation Pilot Plant. She said the drums were on a paved area with few trees nearby and would be safe even if a fire reached the storage area. Officials have said it is miles from the flames. The lab has called in a special team to test plutonium and uranium levels in the air as a "precaution".

Towns near NM fire, nuclear lab wary of smoke - As crews fight to keep a New Mexico wildfire from reaching the nation's premier nuclear-weapons laboratory and the surrounding community, scientists are busy sampling the air for chemicals and radiological materials. Their effort includes dozens of fixed-air monitors on the ground, as well as a "flying laboratory" dispatched by the U.S. Environmental Protection Agency. The special twin-engine plane is outfitted with sensors that can collect detailed samples. Sen. Tom Udall of New Mexico requested the agency's help early on in the monitoring effort near the Los Alamos National Laboratory. EPA officials said the flying lab was set to make its initial data-collection fight Wednesday, and state and federal officials have vowed to make findings from all the monitoring efforts public. "I know people are concerned about what's in the smoke," Udall said. He noted that the state, the Los Alamos lab and the EPA were all looking closely at air quality "so we can assure the public" there will be multiple layers of oversight.

Los Alamos fire inches closer to nuclear waste - A wildfire burning near the desert birthplace of the atomic bomb advanced on the Los Alamos laboratory and thousands of outdoor drums of plutonium-contaminated waste Tuesday as authorities stepped up efforts to protect the site and monitor the air for radiation. Officials at the nation's premier nuclear weapons lab gave assurances that dangerous materials were safely stored and capable of withstanding flames from the 93-square-mile fire, which as of midday was as close as 50 feet from the grounds. A small patch of land at the laboratory caught fire Monday before firefighters quickly put it out. Teams were on high alert to pounce on any new blazes and spent the day removing brush and low-hanging tree limbs from the lab's perimeter. "The concern is that these drums will get so hot that they'll burst. That would put this toxic material into the plume. It's a concern for everybody," said Joni Arends, executive director of the Concerned Citizens for Nuclear Safety, an anti-nuclear group. Arends' organization also worried that the fire could stir up nuclear-contaminated soil on lab property where experiments were conducted years ago. Burrowing animals have brought that contamination to the surface, she said.

Los Alamos Fire: EPA Testing for Radiation - The wildfire that surrounds the nuclear lab in Los Alamos, N.M., has grown to at least 61,000 acres amid mounting concerns about what might be in the smoke that's visible from space.  Such fear has prompted the Environmental Protection Agency to bring in air monitors, along with a special airplane that checks for radiation levels. So far, officials have not been able to find anything.  "Our facilities and nuclear material are protected and safe," Laboratory Director Dr. Charles McMillan told ABC News.  PHOTOS: Los Alamos Wildfires Continue to Light Up Sky  "It contains approximately 20,000 barrels of nuclear waste," former top security official Glen Walp said. "It's not contained within a concrete, brick-and-mortar-type building, but rather in a sort of fabric-type building that a fire could easily consume.  Firefighters have made progress in the past few days, and have said that the risk of the flames reaching radioactive material is slim. Still, they cautioned that winds Wednesday could change, as could their level of confidence.

Fire Stirs Old-Waste Concern For Los Alamos Lab - -- Fire officials said it's looking increasingly likely that the Las Conchas fire will not reach the Los Alamos laboratory, but there are still concerns about the areas around the facility which authorities said could be filled with decades-old waste.  Los Alamos National Laboratory Director Charles McMillan said they really don't know what's in the ground around the nuclear facility, admitting that old contamination could be a big question mark when it comes to the long-term effects of the fire.  "We do know some things about what are there. (But) is our knowledge perfect? No. Is it zero? No," McMillan said.  McMillan said there are areas off the lab property where waste was deposited decades ago, when safety standards were far lower.  McMillan said the laboratory continues to monitor air samples, and so far, there aren't any signs of radiological release.

Los Alamos Radiation Threat 'Limited' in N.M. Fire --- Firefighters battled a 145 square-mile fire burning in a canyon leading to parts of the Los Alamos nuclear lab and an evacuated town, even as confidence rose that both would be spared from the flames.  Los Alamos Canyon runs past runs past the old Manhattan Project site in town and a 1940s era dump site where workers are near the end of a clean-up project of low-level radioactive waste. The World War II Manhattan Project developed the first atomic bomb, and workers from the era dumped hazardous and radioactive waste in trenches along six acres atop the mesa where the town sits. The threat is pretty limited," said Kevin Smith, the Department of Energy's National Nuclear Security Administration site manager for Los Alamos, which over sees the lab. "Most of the materials have been dug up." os Alamos Canyon also runs through town and a portion of the northern end of the lab, where a weapons research nuclear reactor was located until it was demolished in 2003.

NBC: Photo of barrels with plutonium-contaminated waste inside plastic tent at Los Alamos ‘Area G’ — “When they assure you there’s nothing to worry about I think I’d be somewhat worried” says former DOE official (VIDEO)

Los Alamos fire set to become state's biggest ever - The fire threatening the Los Alamos nuclear weapons laboratory spread overnight to nearly 104,000 acres, or 162 square miles, making it the largest in state history.  The Los Alamos National Laboratory is closed because of the fire, and the nearby community of Los Alamos is evacuated. But crews remain confident they can keep the blaze from spreading to the lab and the town.  Some of the more than 1,200 firefighters assigned to the fire are working to bolster lines along the lab's southern edge and the community's western side.  Those lines continued to hold on Friday as winds fanned the blaze farther to the north and west, away from the laboratory and adjacent town of Los Alamos, home to some 10,000 residents who remain under evacuation orders.  "We're seeing fire behavior we've never seen down here, and it's really aggressive,"

Megafires May Change the Southwest Forever - The plants and animals of the southwestern United States are adapted to fire, but not to the sort of super-sized, super-intense fires now raging in Arizona. The product of drought and human mismanagement, these so-called megafires may change the southwest’s ecology. Mountainside Ponderosa forests could be erased, possibly forever. Fire may become the latest way in which people are profoundly altering modern landscapes. Fire itself is not rare in the southwest. It’s a constant feature, not at all distressing, a fact obscured by the tendency of local news stations to seize upon dramatic footage of every flame-encroached house. But fires like the ongoing Wallow fire, already the largest in Arizona’s recorded history, and the record fires seen in Texas in April, are fairly unusual. They used to happen every few centuries, but now seem to happen every few years.

The Self-Sustaining, Solar-Powered Emergency Shelter: We’re Going to Need It - It’s a temporary structure, much like a FEMA trailer, that’s meant to house emergency workers as they deal with hurricanes, fires, tsunamis, earthquakes, and their aftermath. But the EDV-01 promises to do so much more than a regular trailer. The prototype’s hydraulic legs adjust automatically to uneven terrain, leveling out the structure. It draws its power from solar panels and also collects and condenses water to provide basic utilities to the structure. There’s a bathroom, a kitchen, and storage space. The second floor, which comes collapsed around the main structure for easier transport, has two bunks and a desk. The shelter is designed to be trucked into disaster areas, but once it’s set up, it can function for a month with no additional inputs. It looks like the type of emergency structure that, dirty and dented, ends up as the home base of one of the last remaining members of the humanity in a post-apocalyptic movie.

Ocean currents speed melting of Antarctic ice - Stronger ocean currents beneath West Antarctica's Pine Island Glacier Ice Shelf are eroding the ice from below, speeding the melting of the glacier as a whole, according to a new study in Nature Geoscience. A growing cavity beneath the ice shelf has allowed more warm water to melt the ice, the researchers say—a process that feeds back into the ongoing rise in global sea levels. The glacier is currently sliding into the sea at a clip of four kilometers (2.5 miles) a year, while its ice shelf is melting at about 80 cubic kilometers a year - 50 percent faster than it was in the early 1990s - the paper estimates.  "More warm water from the deep ocean is entering the cavity beneath the ice shelf, and it is warmest where the ice is thickest," said study's lead author, Stan Jacobs, an oceanographer at Columbia University's Lamont-Doherty Earth Observatory.

Ocean Currents Speed Melting of Antarctic Ice, as “Seawater Appear[s] to Boil on the Surface Like a Kettle on the Stove” -The news release by Columbia University’s Earth Institute explains: Stronger ocean currents beneath West Antarctica’s Pine Island Glacier Ice Shelf are eroding the ice from below, speeding the melting of the glacier as a whole, according to a new study in Nature Geoscience. A growing cavity beneath the ice shelf has allowed more warm water to melt the ice, the researchers say—a process that feeds back into the ongoing rise in global sea levels. The glacier is currently sliding into the sea at a clip of four kilometers (2.5 miles) a year, while its ice shelf is melting at about 80 cubic kilometers a year – 50 percent faster than it was in the early 1990s – the paper estimates.We knew that Pine Island Glacier (PIG) is disintegrating much faster than almost anybody imagined — see “Nothing in the natural world is lost at an accelerating exponential rate like this glacier” (8/09).  And we knew deep ocean heat is rapidly melting Antarctic ice (12/10), which noted: “Global warming is sneaky. For more than a century it has been hiding large amounts of excess heat in the world’s deep seas. Now that heat is coming to the surface again in one of the worst possible places: Antarctica.”

25 years since global temps were below average -  It's been more than 300 months since the average global average temperature was below average, scientists and the U.S. government said in the annual State of the Climate report released Tuesday. The experts tracked 41 climate indicators, four more than in the previous year, and "they all show a continued tendency," said Tom Karl, director of the National Climatic Data Center. "The indicators show unequivocally that the world continues to warm." "There is a clear and unmistakable signal from the top of the atmosphere to the depths of the oceans," added Peter Thorne of the Cooperative Institute for Climate and Satellites at North Carolina State University. Carbon dioxide increased by 2.60 parts per million in the atmosphere in 2010, which is more than the average annual increase seen from 1980-2010, Karl said. Carbon dioxide is the major greenhouse gas accumulating in the air that atmospheric scientists blame for warming the climate. The warmer conditions are consistent with events such as heat waves and extreme rainfall, Karl said at a teleconference. However, it is more difficult to make a direct connection with things like tornado outbreaks, he said.

Experts warn epic weather ravaging US could worsen - Epic floods, massive wildfires, drought and the deadliest tornado season in 60 years are ravaging the United States, with scientists warning that climate change will bring even more extreme weather. The human and economic toll over just the past few months has been staggering: hundreds of people have died, and thousands of homes and millions of acres have been lost at a cost estimated at more than $20 billion.  "This spring was one of the most extreme springs that we've seen in the last century since we've had good records," said Deke Arndt, chief of climate monitoring for the National Oceanic and Atmospheric Administration (NOAA). While it's not possible to tie a specific weather event or pattern to climate change, Arndt said this spring's extreme weather is in line with what is forecast for the future. "In general, but not everywhere, it is expected that the wetter places will get wetter and the drier places will tend to see more prolonged dry periods," "We are seeing an increase in the amount (of rain and snow) that comes at once, and the ramifications are that it's a lot more water to deal with at a time, so you see things like flooding."

Storm Warnings: Extreme Weather Is a Product of Climate Change - In this year alone massive blizzards have struck the U.S. Northeast, tornadoes have ripped through the nation, mighty rivers like the Mississippi and Missouri have flowed over their banks, and floodwaters have covered huge swaths of Australia as well as displaced more than five million people in China  and devastated Colombia. And this year's natural disasters follow on the heels of a staggering litany of extreme weather in 2010, from record floods in Nashville, Tenn., and Pakistan, to Russia's crippling heat wave. These patterns have caught the attention of scientists at the National Climatic Data Center in Asheville, N.C., part of the National Oceanic and Atmospheric Administration (NOAA). They've been following the recent deluges' stunning radar pictures and growing rainfall totals with concern and intense interest. Normally, floods of the magnitude now being seen in North Dakota and elsewhere around the world are expected to happen only once in 100 years. But one of the predictions of climate change models is that extreme weather—floods, heat waves, droughts, even blizzards—will become far more common. "Big rain events and higher overnight lows are two things we would expect with [a] warming world," says Deke Arndt, chief of the center's Climate Monitoring Branch. Arndt's group had already documented a stunning rise in overnight low temperatures across the U.S. So are the floods and spate of other recent extreme events also examples of predictions turned into cold, hard reality?

Extreme weather link 'can no longer be ignored' - Scientists are to end their 20-year reluctance to link climate change with extreme weather – the heavy storms, floods and droughts which often fill news bulletins – as part of a radical departure from a previous equivocal position that many now see as increasingly untenable.  Climate researchers from Britain, the United States and other parts of the world have formed a new international alliance that aims to investigate exceptional weather events to see whether they can be attributable to global warming caused by greenhouse gas emissions.  They believe that it is no longer plausible merely to claim that extreme weather is “consistent” with climate change. Instead, they intend to assess each unusual event in terms of the probability that it has been exacerbated or even caused by the global temperature increase seen over the past century.  The move is likely to be highly controversial because the science of “climate attribution” is still in the early stages of development and so is likely to be pounced on by climate “sceptics” who question any link between industrial emissions of carbon dioxide and rises in global average temperatures.

Extreme Weather and Climate Change: The Complete Series - SciAm - The evidence is in: global warming has caused severe floods, droughts and storms. We present a three-part series by John Carey, who was funded by the Pew Center on Global Climate Change, and other selections from the editors.

Human activities emit roughly 135 times as much climate-warming carbon dioxide as volcanoes each year = Colossal, mind-bogglingly hot and capable of spewing billowing clouds of flight-grounding smoke and searing, molten lava, volcanoes are spectacular displays of the massive forces at work inside our planet. Yet they are dwarfed by humans in at least one respect: their carbon dioxide emissions. Despite statements made by climate change deniers, volcanoes release a tiny fraction of the amount of carbon dioxide emitted by human activities every year. In fact, humans release roughly 135 times more carbon dioxide annually than volcanoes do, on average, according a new analysis. Put another way, humans emit in under three days the amount that volcanoes typically release in a year, according to the best estimates of volcanic emissions.

Greenland ice melts most in half-century: U.S. - Greenland's ice sheet melted the most it has in over a half century last year, US government scientists said Tuesday in one of a series of "unmistakable" signs of climate change. "The world continues to warm," the National Oceanic and Atmospheric Administration said in a briefing paper for reporters."Multiple indicators, same bottom-line conclusion: consistent and unmistakable signal from the top of the atmosphere to the bottom of the oceans." An annual climate survey, which includes work by scientists from 45 countries, said that ice sheet in Greenland melted at its highest rate since at least 1958, when similar data first became available. Arctic sea ice shrank to its third smallest area on record, while the world's alpine glaciers shrank for the 20th straight year, the study said. In line with previous studies, the survey said that 2010 was also one of the hottest years on record.

55 million years of climate change -  Professor Paul Valdes of the School of Earth Sciences, discusses four examples of abrupt climate change spanning the past 55 million years that have been reconstructed from palaeoclimate data.  In two of the cases, complex climate models used in the assessments of future climate change did not adequately simulate the conditions before the onset of change.  In the other two cases, the models needed an unrealistically strong push to produce a change similar to that observed in records of past climate. Professor Valdes concludes that state-of-the-art climate models may be systematically underestimating the potential for sudden climate change.

Future Of Federal Solar Programs In Doubt — The solar power industry is facing a double threat from a Congress that may turn off the flow of federal subsidies and take a pass on mandating renewable-energy standards that would increase demand. The Republican-led House, focused on cutting spending and philosophically opposed to subsidizing solar power and clean energy, has targeted federal grant and loan guarantee programs to reduce or eliminate. One is a U.S. Treasury1 grant program, set to expire at the end of this year, that solar companies say has kept them alive through the recession. The other is an Energy Department2 loan guarantee program, part of which would end Oct. 1, that has provided nearly $35 billion in loan guarantees for solar, wind, geothermal and other clean energy projects that have generated more than 68,000 U.S. jobs, according to the department.

Less economics, more leadership - The climate change proponents are clear on the matter. We need a “price” on carbon so the market can set about fixing the problem. Great. More derivatives. Exactly what we don’t need and yet another excuse to avoid the difficult job of governing. Consider what happened when there was a “price” on risk, perfected in the 1970s by Fischer Black and Myron Scholes.  Myron Scholes was a principal of Long Term Capital Management, which nearly destroyed the global financial system in 1998. No lessons were learned and we eventually ended up with the GFC, which is still not over. The analogy between the pricing of risk and the pricing of carbon is not a tight one. The pricing of risk cannot remove risk, it can only shift it to another place. Theoretically, carbon emissions could be greatly removed, or at least reduced, by making them expensive enough. But there is a critical similarity, which leads me to my pessimism. Both are working from within the system to change how the system behaves.  They are endogenous not exogenous, as it were. Which is why they will not work. Because what is needed is governance, something outside the system acting on  it to make it change in the right way.

Flooding: the worst is yet to come - Imagine roughly 55 million acres — the entire surface of Nebraska and southwest Iowa — covered in a foot of water. Now imagine trying to funnel all that water down a drainage canal surrounded by airports and homes, businesses and farms. You can begin to grasp the unprecedented, slow-developing danger facing folks from Montana to Missouri from the Great Flood of 2011. In more than a century of record-keeping, the nation's longest river has never coped with more water. Floodwaters are breaching levees, triggering evacuations, closing highways, swamping thousands of acres of farmland, destroying homes and lapping against hurriedly reinforced floodwalls protecting cities, airports and power plants, including two in Nebraska that produce nuclear power. The damage bill will tally in the hundreds of millions. As bad as it's been, the hardest parts are still ahead, according to the U.S. Army Corps of Engineers, the river system's managers.

Rain, surge on Missouri raise risk of area flood - Recent heavy rain is boosting the Missouri River another 6 to 8 feet — not enough for major trouble but a lesson in this summer's higher risk of flooding. Saturday through Monday, thunderstorms dumped rain across central and eastern Missouri. Hardest hit was the St. Louis area, with 5 to 6 inches. Jefferson City and Columbia each had 2 inches. The Missouri River already was at or near flood stage across the state because of record discharges from swollen flood control reservoirs in the upper Great Plains. The recent rain is pushing up the river from Jefferson City to St. Charles, where a crest 5 feet over flood stage is expected Saturday. Wes Browning, chief of the National Weather Service office in Weldon Spring, said the Missouri's rise underscores the warning of a greater chance of major flooding on the river this summer. The Army Corps of Engineers, which manages the reservoirs upriver, has said it must discharge water at a record rate through August because of heavy snowmelt and record springtime rain in Montana and the Dakotas. "When we get concentrated bursts of rain like this, the river will quickly go up."

NRC head says plants safe despite flooding - The nation’s top nuclear power regulator said yesterday that both of Nebraska’s nuclear power plants have remained safe despite Missouri River flooding. Nuclear Regulatory Commission chairman Gregory Jaczko visited the Fort Calhoun and Cooper nuclear power plants in eastern Nebraska to see how the utilities that run them are coping with the flooding. Both plants are on the river’s edge. The Omaha Public Power District’s Fort Calhoun is the subject of more public concern because the floodwaters are closer to that plant. Nebraska Public Power District’s Cooper plant is more elevated. Jaczko’s visit to Fort Calhoun yesterday came one day after an 8-foot-tall, water-filled temporary berm protecting the plant collapsed early Sunday. Workers were at the plant to determine whether the 2,000-foot berm can be repaired. “We don’t believe the plant is posing an immediate threat to the health and safety of the public,’’ Jaczko said.

Regulator signs off on threatened nuclear plant: (Reuters) — A top regulator said on Sunday that a nuclear power plant threatened by flooding from the swollen Missouri River was operating safely and according to standards. "I got to see a lot of efforts they're taking to deal with flooding and the challenges that presents," Gregory Jaczko, the chairman of the federal Nuclear Regulatory Commission, said after touring the Cooper Nuclear Station near the village of Brownville and meeting with plant officials and executives. "Right now, we think they're taking an appropriate approach. This is a plant that is operating safely and meeting our standards," he added. The plant is located about 80 miles south of Omaha, where snow melt and heavy rains have forced the waters of the Missouri River over its banks, although they have not flooded the plant and receded slightly on Sunday. Jaczko said he was not doing an official plant inspection. He was briefed by NRC resident inspectors -- the agency staff who work on-site every day -- plant officials and executives, said Mark Becker, a spokesman at the Nebraska Public Power District, the agency that runs the plant. The power plant sat about 4 feet above the river's level on Sunday. The river had surged over its banks near the plant and filled in low-lying land near the Cooper plant.

Floods spur wild rumors of nuclear plant perils in Nebraska - The sight of two Nebraska nuclear plants fighting off a severely swollen Missouri River this week has brewed a furious, Internet-fueled scare that warns of impending disasters of a scale similar to the tsunami-stricken Fukushima plant in Japan.Operators of the Fort Calhoun and Cooper plants and the federal agency that regulate them say the reactors are flood-proof, are in no danger of leaking, and extra precautions have been taken."The rumors have been as difficult to combat as the rising floodwaters," said Victor Dricks, spokesman for the U.S. Nuclear Regulatory Commission. Much of the information on blogs, YouTube and social media has been inaccurate, the NRC reported. A particularly inflammatory report originated on an English-language online newspaper based in Pakistan. The article claims that a Russian nuclear energy agency has obtained information about a June 7 accident at the Fort Calhoun plant near Blair, Neb., which it described as "one of the worst" in U.S. history. The report goes on to say President Barack Obama has ordered news organizations not to report the accident and imposed a "no-fly" zone over the plant because of radiation leaks from "a near catastrophic meltdown."

Flood berm collapsed at Nebraska nuclear plant - A berm holding back floodwater at the Fort Calhoun Nuclear Station has collapsed. The U.S. Nuclear Regulatory Commission says it's monitoring the Missouri River flooding at the plant, which has been shut down since early April for refueling. The 2,000-foot berm collapsed about 1:30 a.m. Sunday, allowing the swollen river to surround two buildings at the plant. The NRC says those buildings are designed to handle flooding up to 1014 feet above sea level. The river is at 1006.3 feet and isn't forecast to exceed 1008 feet. The NRC says its inspectors were at the plant when the berm failed and have confirmed that the flooding has had no impact on the reactor shutdown cooling or the spent fuel pool cooling. NRC Chairman Gregory Jaczko will visit the plant Monday.

Flood berm collapses at Nebraska nuclear plant — A berm holding the flooded Missouri River back from a Nebraska nuclear power station collapsed early Sunday, but federal regulators said they were monitoring the situation and there was no danger. The Omaha Public Power District has said the complex will not be reactivated until the flooding subsides. Its spokesman, Jeff Hanson, said the berm wasn't critical to protecting the plant but a crew will look at whether it can be patched. The berm's collapse didn't affect the reactor shutdown cooling or the spent fuel pool cooling, but the power supply was cut after water surrounded the main electrical transformers, the NRC said. Emergency generators powered the plant until an off-site power supply was connected Sunday afternoon, according to OPPD.

Flood wall fails at Fort Calhoun - The Fort Calhoun Nuclear Station turned to diesel-powered generators Sunday after disconnecting from the main grid because of rising floodwaters. That move came after water surrounded several buildings when a water-filled floodwall collapsed. The plant, about 19 miles north of Omaha, remains safe, Omaha Public Power District officials said Sunday afternoon. Sunday's event offers even more evidence that the relentlessly rising Missouri River is testing the flood worthiness of an American nuclear power plant like never before. The now-idle plant has become an island. And unlike other plants in the past, Fort Calhoun faces months of flooding. Floodwater surrounded the nuclear plant's main electrical transformers after the Aqua Dam, a water-filled tubular levee, collapsed, and power was transferred to emergency diesel generators. OPPD officials said the transfer was precautionary because of water leaking around the concrete berm surrounding the main transformers.

Floods Hit Nuke Plant: Waters Breach Berm at Fort Calhoun Nuclear Station in Nebraska - A berm at a nuclear power plant in Fort Calhoun, Neb., collapsed early this morning, allowing Missouri River flood waters to reach containment buildings and transformers and forcing the shutdown of electrical power. Tonight, backup generators are cooling the nuclear material at the Fort Calhoun Nuclear Station. The plant has not operated since April, and officials say there is no danger to the public. A spokesman for the Omaha Public Power District, Jeff Hanson, told The Associated Press that the breached berm wasn't critical to protecting the plant, though a crew will look at whether it can be patched. 'That was an additional layer of protection we put in,' Hanson said. Nevertheless, federal inspectors are on the scene, and the federal government is so concerned the head of the Nuclear Regulatory Commission is headed to the plant.

Waters Encircle Nuclear Plant - - A protective berm holding back floodwaters from a Nebraska nuclear power plant collapsed early Sunday after it was accidentally torn, surrounding containment buildings and key electrical equipment with Missouri River overflow. Nuclear Regulatory Commission inspectors verified that processes to cool the reactor and spent-fuel pool were unaffected, the agency said in a press release.  The water-filled berm—not required by NRC regulations— provided supplemental protection. It collapsed at about 1:25 a.m. after it was accidentally torn while work was being performed at the site, according to Victor Dricks, an NRC spokesman.The berm, essentially a huge inner tube, subsequently collapsed. Mr. Dricks said he didn't know the exact nature of the work that was underway.The NRC's Mr. Dricks said temperature monitors were working properly and temperatures of key parts of the nuclear power plant were normal. Water has not seeped into any of the containment structures, he said. Even when in shutdown mode, a nuclear plant requires electricity to keep key components cool in order to avoid any degradation or melting of the core that could result in the release of radiation.

Fort Calhoun Nuclear Plant: Flood Seeps Into Turbine Building At Nebraska Nuke Station - Missouri River floodwater seeped into the turbine building at a nuclear power plant near Omaha on Monday, but plant officials said the seepage was expected and posed no safety risk because the building contains no nuclear material. An 8-foot-tall, water-filled temporary berm protecting the plant collapsed early Sunday. Vendor workers were at the plant Monday to determine whether the 2,000 foot berm can be repaired.Omaha Public Power District spokesman Jeff Hanson said pumps were handling the problem at the Fort Calhoun Nuclear Station and that "everything is secure and safe." The plant, about 20 miles north of Omaha, has been closed for refueling since April. Hanson said the berm's collapse didn't affect the shutdown or the spent fuel pool cooling. Nuclear Regulatory Commission spokesman Victor Dricks described the situation as stable. NRC Chairman Gregory Jaczko plans to inspect the Fort Calhoun plant on Monday as part of a pre-arranged visit to Nebraska. Hanson said OPPD fired up generators and cut the power supply after water surrounded the main electrical transformers on Sunday. The generators powered the plant until an off-site power supply was connected later in the day.

Ft. Calhoun nuke plant now running on emergency generators as workers try to restore electricity — Power supply cut after water surrounded main electrical transformers

Fort Calhoun Nuclear Flood Emergency: Hours from core damage - The makeshift flood berm "holding floodwaters from" Ft. Calhoun Nuclear Plant collapsed at 1:30 this morning so the plant is now running on emergency generators as workers try to restore electricity after its power supply cut after water surrounded main electrical transformers. The auxiliary building at Ft. Calhoun was surrounded by water after the berm failure.  A Nuclear Rgeulatory Commission letter said if water enters the auxilary building, there could have been a station blackout with core damage in hours.A berm holding the flooded Missouri River back from Fort Calhoun, Nebraska nuclear power station that is 20 miles north of Omaha collapsed early Sunday, but federal regulators said they were monitoring the situation and there was no danger according to AP.

Nebraska Residents in No Danger After Floods Hit Nuke Plant: Waters Breach Berm at Fort Calhoun Nuclear Station - The head of the Nuclear Regulatory Commission has been dispatched to a nuclear power plant in Fort Calhoun, Neb., where a berm collapsed Sunday, but the public is in no danger, officials said. The breach allowed Missouri River flood waters to reach containment buildings and transformers and forcing the shutdown of electrical power. Backup generators are cooling the nuclear material at the Fort Calhoun Nuclear Station. The plant has not operated since April, and officials say there is no danger to the public. Jeff Hanson, a spokesman for the Omaha Public Power District, told The Associated Press that the breached berm wasn't critical to protecting the plant, although a crew will look at whether it can be patched. "That was an additional layer of protection we put in," Hanson said. Nevertheless, federal inspectors are on the scene.

Fort Calhoun Nuke Plant, Feet Away from Core Damage - The Nuclear Regulatory Commission chairman, Gregory Jaczko, said today that they are keeping a close eye on Fort Calhoun “to make sure that the Omaha Public Power District does the right thing.”  The nuclear power plant, located 19 miles north of Omaha, Nebraska, has been surrounded and partially covered in flood waters for days, precariously close to the point at which during 2009 the NRC said that Fort Calhoun faced “a 100% chance of core reactor damage caused by a flood rising above 1,010 feet.” (that is, feet above sea level). The NRC chairman said today that the swelling Missouri River is expected to go no higher than 1,008 feet above sea level, six feet lower than the point at which ”safety systems” would fail. There is an obvious discrepancy between the 2009 NRC statement and the current statement by the NRC chairman. A few feet of interpretation could make the difference between system failure leading to core damage, or no damage at all.

Nuclear Plant’s Vital Equipment Dry, Officials Say — When safety regulators arrive for a tour of a nuclear plant, the operators usually give the visitors a helmet, safety glasses and earplugs. When Gregory B. Jaczko, chairman of the Nuclear Regulatory Commission, got to the Fort Calhoun plant on Monday morning, the Omaha Public Power District2 offered him a life jacket.  Technically, what the plant is undergoing is not a flood but a “water event,” as the regulatory commission classifies it. But Fort Calhoun has clearly been outflanked by the Missouri River, first at its front door and now at its back door as well. The only access route to the plant is over a sinuous path of catwalks built over the submerged parking lot and walkways in recent weeks.  Vital equipment like generators, pumps and controls are dry, according to the power company and to Mr. Jaczko, who spent a couple of hours clambering over walls of sandbags and inspecting waterproof barriers, some of which were added in recent months at the commission’s insistence.

Arny Gundersen: Fort Calhoun Nuclear Plant switch yard and intake structure most vulnerable, emergency service water pumps need to stay dry or there will be damage to the fuel rods - video

Natural Disasters Affect Nuclear Plants In America, Too - After the Fukushima nuclear plant flooded in Japan, Americans quickly did what they do best and started worrying about themselves: what would happen to domestic nuclear plants if an earthquake struck? Even without an earthquake, we're getting a chance to find out. Mississippi Missouri River floodwaters have breached some of the protection around the Fort Calhoun nuclear plant in Nebraska, and now the water has reached containment buildings and transformers. Electricity has been cut and the boss of the Nuclear Regulatory Commission is on his way, though once the flood waters recede things should be OK. There isn't nearly as much water as there was after the tsunami in Japan. In the meantime—and this will sound familiar—backup generators are working to cool the nuclear materials.

Negligence and Cover-Ups at Fort Calhoun Reactor…X 2 …Pay attention…When I wrote last week about the Nebraska reactor surrounded by floodwaters I, like most, still considered it a highly remote possibility of cataclysm. Upon further investigation, it seems much more likely now. The New York Times has exposed some major criminal negligence and game playing with the safety of the nation by the plant’s operator. Peter Behr’s June 24th report examines what we’ve been told vs. what’s there on the ground at Fort Calhoun’s nuclear power station. This is truly frightening with water levels approaching the 1007 ft. above sea level mark. The “aqua berm” collapsed on Sunday, and nothing holds back the waters but random chance at this point. The Ft. Calhoun reactor was repeatedly reported to be in “cold” shutdown, with an endless supply of happy talk in the press about how safe the situation remains. Not one of these reports gives the actual temperature inside the reactor. “Cold” is a relative term when dealing wtih nuclear reactors. A June 22 Nuclear Regulatory Commission (NRC) press release inspires no confidence whatsoever:“If there is a complete loss of power on site temporary pumps that run on gas can circulate cooling water through the spent fuel pool and reactor core.”And reactor core? But I thought it was in “cold shutdown?” Why would that be necessary? The NRC release avoids the word “cold,” and merely restates the term “shutdown.”

Worker Burned in Gas Pump Fire Outside Fort Calhoun Nuclear Plant - A portable gasoline pump caught fire Thursday at a security building near the Fort Calhoun nuclear plant and seriously burned a worker. The Omaha Public Power District, which owns the plant, said the worker was airlifted to a hospital in Lincoln, Neb., with burns on his arms and face. He had been refilling a gas tank when the fire occurred. OPPD said the security building is not part of the nuclear plant grounds. Fort Calhoun, north of Omaha, and the power district's Cooper nuclear plant downstream both remain under unusual event notifications because of extreme flooding along the Missouri River."

Nuke query: What if dam breaks?, Federal regulators want to make certain Nebraska's flood-threatened nuclear reactors have adequate safety measures in place if a dam breaks upstream, so they have asked the U.S. Army Corps of Engineers for its latest analyses on the risks of dam failure.Six dams constituting one of the nation's largest reservoir systems sit above Fort Calhoun and Cooper Nuclear Stations. The corps is sending record runoff through the dams, and the consequences for Missouri River communities include broken levees, inundated homes and businesses, submerged highways and threatened power plants. The dams are being monitored around the clock and remain robust, corps officials say. In addition to standard inspections, teams of engineers from the Omaha district have been helping at the dams for more than a month.  High release rates have caused erosion in some areas downstream or around the spillways at each of the dams, Bertino said.  On Friday, the corps plans to interrupt spillway releases for several hours at Big Bend Dam so it can check there for possible erosion, he said.

Bombed levee, major flooding event above Cooper Nuclear Site (Video) -   Private citizens representing Vanman #30 levee detonated the privately owned levee, according to News 6 WOWT that reports that the bombing breached a half-mile stretch of the levee from river mile marker 637 to 637.5, around 10 a.m. Friday. As long as the bomber was properly licensed, it appears no laws were broken since the land is private. Before Friday, as reported by the Examiner, "officials' efforts failed to prevent flooding the farmlands in the area. Then the levee there broke. "These levees are saturated," said County Attorney Matt Wilbur on News 6 WOWT News, Friday evening. "We have the most water on them for the longest period of time we've ever had.  "This levee gets blown and we saw a several inch rise in the river shortly thereafter, so even a three or four inch pulse coming down the river when we're looking at every half inch as being significant, is a fairly big event." Because of decay heat at Cooper Nuclear Plant, Gundersen told CNN Thursday that it poses a bigger threat than Fort Calhoun Nuclear. Both nuclear energy facilities are on the banks of the now swollen and raging Missouri River. (See video on page left) Although believing Cooper Nuclear facility to be safe on Thursday, Gundersen also said on CNN that if a dam north of the facility broke, causing extra water to come downstream to Cooper, "all bets are off."

Local ABC News: 10 mile evacuation around Ft. Calhoun nuke plant (VIDEO)

Population around U.S. nuclear plants soars; evacuation plans go stale - As America's nuclear power plants have aged, the once-rural areas around them have become far more crowded and much more difficult to evacuate. Yet government and industry have paid little heed, even as plants are running at higher power and posing more danger in the event of an accident, an Associated Press investigation has found. Populations around the facilities have swelled as much as 4½ times since 1980, a computer-assisted population analysis shows. But some estimates of evacuation times have not been updated in decades, even as the population has increased more than ever imagined. Emergency plans would direct residents to flee on antiquated, two-lane roads that clog hopelessly at rush hour. And evacuation zones have remained frozen at a 10-mile radius from each plant since they were set in 1978 — despite all that has happened since, including the accidents at Three Mile Island, Chernobyl and Fukushima Dai-ichi in Japan.

NRC and industry rewrite nuke history - – When commercial nuclear power was getting its start in the 1960s and 1970s, industry and regulators stated unequivocally that reactors were designed only to operate for 40 years. Now they tell another story — insisting that the units were built with no inherent life span, and can run for up to a century, an Associated Press investigation shows. By rewriting history, plant owners are making it easier to extend the lives of dozens of reactors in a relicensing process that resembles nothing more than an elaborate rubber stamp. As part of a yearlong investigation of aging issues at the nation's nuclear power plants, the AP found that the relicensing process often lacks fully independent safety reviews. Records show that paperwork of the U.S. Nuclear Regulatory Commission sometimes matches word-for-word the language used in a plant operator's application. Also, the relicensing process relies heavily on such paperwork, with very little onsite inspection and verification. And under relicensing rules, tighter standards are not required to compensate for decades of wear and tear. So far, 66 of 104 reactors have been granted license renewals. Most of the 20-year extensions have been granted with scant public attention. And the NRC has yet to reject a single application to extend an original license.

Special report: Japan’s “throwaway” nuclear workers (Reuters) - A decade and a half before it blew apart in a hydrogen blast that punctuated the worst nuclear accident since Chernobyl, the No. 3 reactor at the Fukushima nuclear power plant was the scene of an earlier safety crisis. Then, as now, a small army of transient workers was put to work to try to stem the damage at the oldest nuclear reactor run by Japan's largest utility. At the time, workers were racing to finish an unprecedented repair to address a dangerous defect: cracks in the drum-like steel assembly known as the "shroud" surrounding the radioactive core of the reactor. But in 1997, the effort to save the 21-year-old reactor from being scrapped at a large loss to its operator, Tokyo Electric, also included a quiet effort to skirt Japan's safety rules: foreign workers were brought in for the most dangerous jobs/ The previously undisclosed hiring of welders from the United States and Southeast Asia underscores the way Tokyo Electric, a powerful monopoly with deep political connections in Japan, outsourced its riskiest work and developed a lax safety culture in the years leading to the Fukushima disaster, experts say.

Elders Offer Help at Japan’s Crippled Reactor - By any measure, the thousands of people toiling to cool the crippled nuclear reactors in Fukushima are engaged in jobs that the Japanese consider kitanai, kitsui and kiken, or dirty, difficult and dangerous.  Seemingly against logic, Yasuteru Yamada, 72, is eager for the chance to take part. After seeing hundreds of younger men on television struggle to control the damage at the Daiichi power plant, Mr. Yamada struck on an idea: Recruit other older engineers and other specialists to help tame the rogue reactors.  Not only do they have some of the skills needed, but because of their advanced age, they are at less risk of getting cancer and other diseases that develop slowly as a result of exposure to high levels of radiation. Their volunteering would spare younger Japanese from dangers that could leave them childless, or worse. “We have to contain this accident, and for that, someone should do the work,” . “It would benefit society if the older generation took the job because we will get less damage from working there.”

What Happened to Media Coverage of Fukushima? - While the U.S. media has been occupied with Anthony Weiner, coverage of Japan's Fukushima Daiichi nuclear power plant disaster has practially fallen off the map. Poor mainstream media coverage of Japan's now months-long struggle to gain control over the Fukushima disaster has deprived Americans of crucial information about the risks of nuclear power following natural disasters. After a few weeks of covering the early aftermath of Japan's earthquake and tsunami, the U.S. media moved on, leaving behind the crisis at Fukushima which continues to unfold. News outlets in other countries have been paying attention to Fukushima, though, and a relative few in this country have as well. A June 16, 2011 Al Jazeera English article titled, "Fukushima: It's much worse than you think," quotes a high-level former nuclear industry executive, Arnold Gunderson, who called Fukushima nohting less than "the biggest industrial catastrophe in the history of mankind." Twenty nuclear cores have been exposed at Fukushima, Gunderson points out, saying that, along with the site's many spent-fuel pools, gives Fukushima 20 times the release potential of Chernobyl.

Revealed: British government’s plan to play down Fukushima - British government officials approached nuclear companies to draw up a co-ordinated public relations strategy to play down the Fukushima nuclear accident just two days after the earthquake and tsunami in Japan and before the extent of the radiation leak was known. Internal emails seen by the Guardian show how the business and energy departments worked closely behind the scenes with the multinational companies EDF Energy, Areva and Westinghouse to try to ensure the accident did not derail their plans for a new generation of nuclear stations in the UK. "This has the potential to set the nuclear industry back globally," wrote one official at the Department for Business, Innovation and Skills (BIS), whose name has been redacted. "We need to ensure the anti-nuclear chaps and chapesses do not gain ground on this. We need to occupy the territory and hold it. We really need to show the safety of nuclear." Officials stressed the importance of preventing the incident from undermining public support for nuclear power.

TEPCO halts water circulation due to leaks - The operator of the Fukushima Daiichi nuclear power plant has suspended using decontaminated water as a coolant because of leaky pipes. Tokyo Electric Power Company began circulating recycled water through the No.1, 2 and 3 reactors at 4:20 PM on Monday. But it halted the operation one and a half hours later after discovering water leaking from the pipes. TEPCO has been attempting to run the decontamination system since June 14th. It has so far treated about 1,850 tons of the water. The operator hopes to reduce the levels of radioactive wastewater accumulated at the plant as a result of injecting fresh water into the damaged reactors. Circulating the decontaminated water around the reactors is considered an important step to stabilize them by mid-July as planned. It will also help prevent the volume of wastewater from increasing. TEPCO says it will repair the leaks and hopes to resume water circulation soon.

Radioactive water leaks from Japan's damaged plant (Reuters) - Tons of radioactive water were discovered on Tuesday to have leaked into the ground from Japan's Fukushima nuclear plant, the latest in a series of leaks at the plant damaged in a March earthquake and tsunami, the country's nuclear watchdog said. More than three months after the disaster, authorities are struggling to bring under control damaged reactors at the power plant, 240 km (150 miles) north of Tokyo. About 15 metric tons of water with a low level of radiation leaked from a storage tank at the plant on the Pacific coast, the Nuclear and Industrial Safety Agency said. Plant operator Tokyo Electric Power Co (Tepco) said it was investigating the cause of the leak which was later repaired. Vast amounts of water contaminated with varying levels of radiation have accumulated in storage tanks at the plant after being used to cool reactors damaged when their original cooling systems were knocked out by the March 11 disaster. Dealing with that radioactive water has been a major problem for Tepco, which is trying to use a decontamination system that cleans water so it can be recycled to cool the reactors. But the system has encountered technical glitches and officials have said the water could spill into the Pacific Ocean unless the system was operating properly.

Dilution of radioactive materials at sea is no solution to nuke-plant crisis - There isn't time now to leisurely debate mid- and long-term government policies, haggle over the dissolution of the chamber and become engrossed in election campaign strategies. The reason for the situation comes from politicians' delusion, grounded in their idea that the nuclear crisis is somehow being brought under control, and that the effects from radioactive material are minimal. But the fact is, the situation at the Fukushima No. 1 Nuclear Power Plant isn't returning to normal. And we still don't know just how much damage environmental pollution from the crisis will inflict on people and their DNA. There is no proof anywhere that this pollution will be harmless. Some of the reactors at the nuclear power plant have melted down, and the melted nuclear fuel is sinking toward water under the ground. An underground barrier is needed to stop water that becomes contaminated from flowing into the sea. Experts have pointed out the urgency of the situation and the government supports the idea, but Tokyo Electric Power Co. (TEPCO), the operator of the crisis-hit nuclear plant, is saying "wait."

1 Sievert Water Leaking From Fukushima As Full Body Radiation Checks Begin Across Prefecture - The story that the world forgot, and that everyone wishes could just be buried under a 10 foot lead plate, not only refuses to go away but is getting worse by the day. The latest news from Fukushima is that the highly radioactive water has started leaking from Reactor #2, into a trench which is located just 180 feet away from the sea, prompting more fears that the most radioactive water recorded to date would soon seep into the ocean. The Telegraph reports: "The water seeping into a trench outside the Number two reactor at Fukushima Daiichi nuclear plant in northeast Japan had a radiation level of more than 1,000 millisieverts per hour." To be expected, here's captain "all is fine" aka TEPCO, to remind us that this is perfectly normal and 1 sievert water is no cause for concern: "we do not believe it is leaking into the ocean. We are now working out where the cause of the leak is and finding ways to remove the water as soon as possible." Luckily, nobody believes the lies out of Japan anymore: "Speculation surrounding the extent to which the radiation may be leaking into the Pacific Ocean was also mounting after tests last weekend found nearby seawater contaminated 1,850 above legal limits." Too bad they still believe the lies out of the US government.

Japanese fear authorities hide ugly truth about nuclear risks - The Japanese government is starting radiation checkups for more than two million people living near the crippled Fukushima plant. But many citizens of the country fear those in charge prefer face-saving public ignorance to life-saving knowledge. Thousands of Japanese recently took to the streets of Tokyo to protest against nuclear energy. In a culture that is generally non-confrontational and obedient, it is a serious sign of discontent. “After this crisis, it is true that the people are more conscious and we need to take advantage of it. This is the first time since World War II that the Japanese people have no trust in the government,” independent journalist Hiroaki Idaka told RT.

Boric acid being added to No.3 reactor fuel pool - Tokyo Electric Power Company has begun adding boric acid to the spent fuel storage pool of the No.3 reactor at its Fukushima Daiichi nuclear plant to prevent fuel racks from being corroded by alkaline water. The company started the operation on Sunday morning. About 90 tons of water containing boric acid will be poured into the pool through Monday. Concrete debris from the March hydrogen explosion of the reactor building has been detected in the fuel pool. Last month, TEPCO found that the water in the pool had turned strongly alkaline, with its PH level reaching 11.2. The leaching of calcium hydrate from the debris is believed to be the cause. TEPCO says the condition may accelerate corrosion of aluminum racks holding spent fuel rods and may cause the rods to topple in the worst case, which could lead to re-criticality.

Fukushima Meltdown Mitigation Aims to Prevent Radioactive Flood - More than three months later, the Fukushima Daiichi nuclear power plant remains flooded with a salty mix of ocean and fresh water that is contaminated with the radioactive residue of three reactors and four spent fuel pools' worth of nuclear fuel. Every day an additional 500 metric tons of seawater is poured onto the still hot nuclear fuel in the stricken reactors and fuel pools. More than 100,000 metric tons of such water now sits in the basement and trenches of the reactors—or evaporates inside the hot reactor buildings, making for a radioactive onsen (hot bath).   In early June Tokyo Electric Power Co. (TEPCO) installed a series of devices—from nuclear equipment manufacturers Kurion and Areva Group—meant to filter radioactive material from the contaminated cooling water and enable it to be reused on the hot nuclear fuel rods. Without such filtration, radiation levels in the reactor buildings can climb too high to permit workers to advance their efforts to control and clean up the damaged power plant. But a trial run of the new filtration system was halted on June 18 in less than five hours when it captured as much radioactive cesium 137 in that span as was expected to be filtered in a month

Fukushima’s Cesium Spew – Deadly Catch-22s in Japan Disaster Relief - For those most focused on Fukushima's human toll, there are several main sources of concern: the continuing radiation menace in the region's fields, crops and seafood; and TEPCO's recent admission that its reactors won't be under control until 2012 at best. These offer critical reminders that radioactive cesium is now Japan's public enemy No. 1. Behind the confusing fog of rad, rem, becquerel and milliseivert statistics lurks the basic fact that the spread of cesium 137 was the deadliest legacy of Chernobyl and is now the gravest health threat facing eastern Japan. Moving through strong radiation fields like chest x-rays, US airport scanners or Fukushima reactor rubble is obviously hazardous, but time limited. Carrying the radiation source around inside you 24/7, however, poses an exponentially greater threat, especially when it's an aggressive ionizing radionuclide like cesium 137 with a half-life of 30 years. Despite its meager eight-day half-life, iodine 121 somehow became the rock star of radiation reporting and always gets top billing when things slip out of control. People in affected areas routinely dose themselves with potassium iodide to protect against I-121 exposure, but they hear little and do nothing about the cesium 137 they absorb. Cesium levels are usually reported second, if at all, even though they pose far greater risks for children, farm communities and the public at large.

Insiders Sound an Alarm Amid a Natural Gas Rush - Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States. But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents1 and an analysis of data from thousands of wells.  In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.  “Money is pouring in” from investors even though shale gas is “inherently unprofitable,”  “Reminds you of dot-coms.”

Insiders Warn “Shale Plays are Just Giant Ponzi Schemes” in Bombshell-Laden NY Times Piece on Natural Gas, Fracking - The lead story in the New York Times today is a detailed bubble bursting of the much vaunted boom in unconventional natural gas.Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States. But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells. The NYT has gained access to some amazing, must-read e-mails that “suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.”

The Shale Gas Scam Goes Public - It is always gratifying when the New York Times catches up to what some of us have been saying for years now. I was pleased to see their recent three-part series Insiders Sound an Alarm Amid a Natural Gas Rush (June 25), Behind Veneer, Doubt on Future of Natural Gas (June 26) and S.E.C. Shift Leads to Worries of Overestimation of Reserves (June 27). The shale gas scam has gone public. I will talk about the Times' articles next week, and the responses to them. I shall also describe in some detail how the scam works. This first post allows us all to get on the same page about the current state and future of shale gas production in the United States. Here's stuff I've posted about shale gas on DOTE.

Regulators say fracking not as dangerous to water quality as thought - Two US state-level regulators of water use and environmental issues on Tuesday suggested that concerns about the impact of hydraulic fracturing on water quality and supplies are overblown. Scott Perry, director of the Pennsylvania Department of Environmental Protection's Bureau of Oil and Gas Management, said after a "million experiments across the county," and doing his own research into the subject, "I've yet to see a single impact of fracking actually directly communicating with fresh groundwater resources," Perry told the Mid-Atlantic Conference of Regulatory Utilities Commissioners in Hershey, Pennsylvania. "Again and again and again, I never see a single incidence of fracking causing this direct communication that we keep hearing about."""The amount of water being consumed by the gas industry is really not that much" when compared to other areas of use,," said Jim Richenderfer, Susquehanna River Basin Commission's director of technical programs. The commission is a water management agency that coordinates the use of the Susquehanna River Watershed in three states.

Cuomo Will Seek to Lift Ban on Hydraulic Fracturing - The Cuomo administration is seeking to lift what has effectively been a moratorium in New York State on hydraulic fracturing, a controversial technique used to extract natural gas1 from shale, state environmental regulators said on Thursday.  The process would be allowed on private lands, opening New York to one of the fastest-growing — critics would say reckless — areas of the energy industry. It would be banned inside New York City’s sprawling upstate watershed, as well as inside a watershed used by Syracuse, and in underground water sources used by other cities and towns. It would also be banned on state lands, like parks and wildlife preserves.  It will most likely take months before the policy becomes official. On Friday, the State Department of Environmental Conservation will release a long-awaited study of the process, widely known as hydrofracking. The report will include recommendations about how to proceed, and then there will be a lengthy period for public comments before a final determination can be made.  The agency detailed its recommendations in a statement it released on Thursday afternoon2.

Economic benefits of shale-gas extraction unclear - TRAPPED gas could prove problematic for the energy industry. Despite the money being poured into efforts to extract natural gas from shale, the economic benefits are unclear. Studies into shale gas extraction are typically supported by industry bodies. Because their reports are not peer-reviewed, economist Thomas Kinnaman of Bucknell University in Lewisburg, Pennsylvania, decided to review six of them himself. Three were written by academics at major universities, while three were written by private consultants. All support extracting shale gas, arguing that it creates new jobs and revenue. Kinnaman found that they all contained flaws that exaggerated the benefits of shale gas extraction to local economies. Most rely on an economic model called IMPLAN, which supposes, say, that local services such as hotel rooms are going unused until the gas industry comes along to spend money on them. In fact, such spending may displace other consumers, creating no net benefit. Kinnaman also claims that none of the studies measured all the costs and benefits of extracting shale gas, so could not determine if it really offers a net gain (Ecological Economics, DOI: 10.1016/j.ecolecon.2011.02.005). This week The New York Times published hundreds of gas industry emails, many of which claim that the amount of gas being produced is exaggerated.

House Fast-Tracks Bill to Limit EPA Power Over Mountaintop Coal Removal - A vote is expected next week on bipartisan legislation that would restrict the power of EPA rules covering mountaintop mining, waterways and wetlands. Conservationists knew that new GOP anti-regulatory muscle in the 112th Congress would be intent on debilitating landmark legislation such as the Clean Air Act and the Clean Water Act. But they’re still taken aback by an attempt to incapacitate the latter in one fell swoop. Next week, the full House is expected to vote on a fast-moving bipartisan bill that would elbow the federal government aside and elevate the power of state-level rules covering mountaintop-removal mining, waterways and wetlands. Even if it passes, however, the bill isn’t expected to gain traction in the Senate.

Can Biomass Help Phase Out Coal? Dominion Plans to Switch Three Coal Plants to Biomass - Dominion, one of the largest utilities in the U.S., says it wants to convert three of its Virginia coal plants to run on waste biomass from timber operations. If approved by the state’s regulatory commission, it could bring about 150 MW of renewable capacity to the state and turn two “peaking” coal plants that operate only 25% of the time into round-the-clock generators that operate 90% of the time. Like other coal-to-biomass projects we’ve reported on in the past, this one will create about 250 direct and indirect local jobs and only cost the typical ratepayer about 14 cents per month. So it will be good for the local economy and will increase renewable generation – but is it a core climate solution? If biomass can help power plant owners ease away from coal faster, that is certainly a good thing. The Dominion announcement is particularly relevant given the number of planned plant retirements in the coal industry – there are currently 190 generators around the U.S. set to be shut down, and there’s a dwindling appetite to replace them with more coal.

If Brazil Has to Guard Its Rainforest, Why Does Canada/U.S. Get to Burn Its Tar Sands? - It was big news in Canada when, in 2008, the country slipped from the top-ten list of the world's most peaceful countries (all the way to eleventh). By this year, it was back in eighth, 74 places above the U.S. and, when liberals in the U.S. feel despairing, what dominates their fantasy life but 'moving to Canada?' And yet, today, you could make an argument that Canada has actually become one of the earth's more irresponsible nations -- namely, when it comes to the environment. Indeed, you could argue that the world would be better off if the government in Ottawa was replaced by, say, the one in Brasilia, which has made a far better show of attending to the planet's welfare. It's a tale of physics, chemistry, and most of all economics, and it all starts in the western province of Alberta. The Province's Tar Sands cover an area larger than the United Kingdom and contain most of the world's supply of bitumen, a particularly sticky form of petroleum that must be heated or diluted before it can be pumped. Because it's so unwieldy, it's only been in recent years that large-scale development of the tar sands have taken place. The steep rise in global oil prices has set off a boom in the region, with all that naturally follows (prostitutes have reported incomes as high as $15,000 a week). But this is a boom unlike others. It's the first huge oil play of the global-warming era, the first time we've dangerously stepped onto new turf, even though we understand the stakes."

Environmental Leaders Call for Civil Disobedience to Stop the Keystone XL Pipeline - This will be a slightly longer letter than common for the internet age—it’s serious stuff. The short version is we want you to consider doing something hard: coming to Washington in the hottest and stickiest weeks of the summer and engaging in civil disobedience that will likely get you arrested. The full version goes like this: As you know, the planet is steadily warming: 2010 was the warmest year on record, and we’ve seen the resulting chaos in almost every corner of the earth. And as you also know, our democracy is increasingly controlled by special interests interested only in their short-term profit. These two trends collide this summer in Washington, where the State Department and the White House have to decide whether to grant a  certificate of ‘national interest’ to some of the biggest fossil fuel players on earth. These corporations want to build the so-called ‘Keystone XL Pipeline’ from Canada’s tar sands to Texas refineries.

Franken Pipeline -  According to Jeremy Symons, senior vice-president of the National Wildlife Federation, referring to the proposed $7-billion Keystone XL pipeline, "Toxic and corrosive tar-sands sludge is not like regular oil. We need to update our safety regulations to deal with it. That process hasn't happened. This is the next Deepwater Horizon disaster in the making." Invoking the Deepwater Horizon is typical of the kind of junk science unloaded by opponents of Keystone XL, which TransCanada Corp. plans to take up to 800,000 barrels a day of oil sands oil to the Gulf coast. Environmental NGOs claim that the diluted bitumen, or DilBit, that the line will carry (along with other types of crude oil) presents a cancer-causing Franken-liquid that not merely threatens to eat through the pipeline but also to flood "sensitive ecosystems," in particular the giant Ogallala aquifer.

Drought may hamper Eagle Ford Shale production - One of the worst droughts in Texas history could dry up some of the economic promise of the Eagle Ford Shale. If water supplies continue to dwindle across parched South Texas, industry observers warn that energy firms will face stiff competition from municipalities and irrigators for the huge quantities of water needed to harvest one of the biggest oil and gas discoveries in decades.Oil and gas heavyweights, from Exxon Mobil Corp. to Chesapeake Energy Corp., use a water-intensive process known as hydraulic fracturing ­— or fracking — to open up the shale’s oil and gas deposits and are concentrating efforts on the Eagle Ford Shale. Fracking, which can require up to 13 million gallons of water per well, may be the only way to access fossil fuels across the formation, which encompasses 24 counties south of San Antonio. “There may be conflicts in the future, especially if these dry conditions continue,” said Robert Mace, deputy executive director of the Texas Water Development Board, the state agency charged with water planning. “It depends on where the industry is pumping and who else is using the water.”

Drowning Fish? - According to the scientists on NPR, every one of whom is in BP's pay, Mother Nature herself was cleaning up the oil from BP's blow-out, so don't worry about the fish. But Zach found out that BP's fish story was baloney. From local fisherman, Zach learned that fish were DROWNING.  Until I heard this from Zach, I didn't know a fish could drown.  They can, a biologist (a real one) explained to me. And they have, by the gazillions - but BP's rent-a-professor operation had drowned out the findings.  Yes, Mother Nature has created bacteria that can eat crude oil (good), and the bugs have had a party feasting on BP's gunk. Then these bacteria had bacterium babies (bad). These little buggers, like all creatures, breathe — and so they sucked all the oxygen out of the water. Result: fish drowned.

Energy Cos Face Big Tax Hit If Congress Ends Accounting Method - Oil and gas companies in the U.S. would take the biggest hit if Congress repeals an inventory accounting method that, for decades, has helped firms show slimmer profits and pay lower taxes. As contentious negotiations over how to raise the federal government's $14.29 trillion debt ceiling continue, Republicans lawmakers this week sharply criticized the White House for wanting to repeal the "last-in, first-out," or LIFO, accounting method in order to raise revenue. The Joint Committee on Taxation, a nonpartisan Congressional research office, has estimated that repealing the method would generate new revenue of nearly $70 billion over 10 years, but the GOP charged that such a move could cripple struggling manufacturers. Senate Minority Leader Mitch McConnell (R., Ky.) criticized the idea on the Senate floor Wednesday and opposition from other Republican lawmakers will likely pose a steep hurdle to repealing the accounting method as part of the deficit talks. "Let me get this straight--our economy is fragile, millions of Americans are out of work, and this White House is actually proposing an idea that would make things worse for our manufacturers,"

Oil Oozes Through Your Life - Since petroleum replaced whale oil as a main fuel source more than a century ago, chemical companies and refineries have found a startling range of uses for it, from asphalt to vanilla flavoring in ice cream to pills from the drugstore. It has oozed into everyday life, so reducing dependency is a more complicated proposition than some might think. “It just turns out to be a very abundant product that is easy to manipulate chemically, so you can turn it into many different products,” said Dr. Benny Freeman, past chairman of the American Chemical Society’s polymeric materials division. Take a typical barrel of oil1. About 46 percent of it is refined into gasoline, and another 40 percent or so is turned into jet and fuel oil. Only about 2 percent2 becomes petrochemicals like polyethylene and benzene for everyday products (with the rest going to other uses). Yet that 2 percent has a pervasive reach, as suggested by the accompanying chart. “Oil, no pun intended, seeps into just about everything in the economy,” said David Garfield, a managing director at the consultancy AlixPartners. And though petrochemicals usually aren’t burned for fuel, they share in the environmental impact of petroleum when extracted and refined using energy-intensive methods

The Shrinking Pie: The End of “Development”? - Throughout the past two centuries economic growth has translated to an increased capability to support more humans with Earth’s available resources. More energy, more raw materials, more jobs, more trade, better sanitation, and key medical advances have all contributed to higher infant survival rates and longer life expectancy in general. Human population growth can be seen as an indication of our success as a species.[1] But now, as economic growth ends, higher population levels pose an enormous vulnerability. Declining energy, declining minerals and fresh water, and reduced global trade will challenge our ability to maintain existing food and public health systems, perhaps even in currently wealthy countries. During the coming post-growth decades, the nations of the world will face somewhat differing challenges depending on their size of population, rates of population growth, median age, and degree of urbanization. Countries with large, youthful, and growing urban populations will be hardest hit. Young people will face lack of economic opportunity as trade contracts. Also, countries with young populations will see continuing population growth even if efforts are undertaken now to rein in fertility, simply because the bulk of the population will be in the child-bearing age range for the next two or three decades.

The Relationship Between Hunger And Petroleum Consumption - In part 1, I presented my hypothesis that countries with a high hunger index level will have a low per capita petroleum consumption rate, and, countries with a low hunger index level will have a high per capita petroleum consumption rate. The underlying idea is that below a certain critical level of oil consumption, the modern petroleum-driven food production system is unable to keep the population fed and this will manifest as a high hunger index. The expected consequent large-scale famine might be mitigated by foreign food aid, but that food aid may not be enough to mitigate hunger.  That is, an elevated hunger index is a soft indicator of potential famine. Here, in part 2, I delve deeper into the analysis of the data base of countries for which the International Food Policy Research Institute generated a Global Hunger Index, and, my estimates of those country's capita petroleum consumption rate. My analysis suggests that there is indeed a significant link between per capita petroleum consumption and the Global Hunger Index, and, that a drop in petroleum consumption below one barrel of oil per person per year (b/py) correlates with serious or higher hunger categories.

The Future Of Energy - Perhaps even more than exposing the instability of the worldwide economic ponzi system, so far 2011 has been most remarkable for fully demonstrating the fragility of the global energy complex, which in the aftermath of the Fukushima nuclear crisis (and the moratorium on nuclear energy in Germany now, and soon other places), and the MENA revolutions, have raised the question of what happens in a world in which crude is getting ever scarcer, while the one main legacy energy alternative, fission-based nuclear power, just took a giant step back. The topic of limitations in conventional and possibilites in alternative energy has gripped the general public's mind to such an extent that Popular Science magazine has dedicated its entire July edition to answering that very critical question. As PopSci says: "Oil’s amazing efficiency is one reason it remains in such high demand, especially for transportation, and it’s also why finding an alternative will be so difficult. But find one we must. We have already burned our way through most of the world’s easy oil. Now we’re drilling for the hard stuff: unconventional resources such as shale and heavy oil that will be more difficult and expensive to discover, extract, and refine. The environmental costs are also on the rise." So what is the existing line up of future alternatives to the current crude oil-dominated energy paradigm. Below we present the complete list.

The Energy Landscape of 2041 - Think of us today as embarking on a new Thirty Years’ War.  It may not result in as much bloodshed as that of the 1600s, though bloodshed there will be, but it will prove no less momentous for the future of the planet.  Over the coming decades, we will be embroiled at a global level in a succeed-or-perish contest among the major forms of energy, the corporations which supply them, and the countries that run on them.  The question will be: Which will dominate the world’s energy supply in the second half of the twenty-first century?  The winners will determine how -- and how badly -- we live, work, and play in those not-so-distant decades, and will profit enormously as a result.  The losers will be cast aside and dismembered. Why 30 years?  Because that’s how long it will take for experimental energy systems like hydrogen power, cellulosic ethanol, wave power, algae fuel, and advanced nuclear reactors to make it from the laboratory to full-scale industrial development.  Some of these systems (as well, undoubtedly, as others not yet on our radar screens) will survive the winnowing process.  Some will not.  And there is little way to predict how it will go at this stage in the game.  At the same time, the use of existing fuels like oil and coal, which spew carbon dioxide into the atmosphere, is likely to plummet, thanks both to diminished supplies and rising concerns over the growing dangers of carbon emissions.

IEA maps out barrel release - The West's energy watchdog said today Japan and South Korea will release oil in Asia -the former with around 4 million barrels of industry crude stocks and another 4 million of refined products and the latter with around 3.46 million of public crude stocks, according to a Reuters report. The IEA said the US will as expected release only crude oil from public stocks in the amount of 30 million barrels. In Europe, the IEA said it will release 19.2 million barrels of stocks of which 4.2 million will be crude and 15 million refined products. Europe's products release will include 3.4 million barrels of gasoline, 7.65 million of diesel, 1.2 million of fuel oil and 0.42 million of jet. Germany and the Netherlands will be the only country to substantially tap public reserves. Crude will be mainly released in Germany and the Netherlands, while the most active release of products will take place in France, Italy, UK, Germany, Spain and Turkey. France will release over 2 million of diesel, followed by Spain with 1.8 million and Germany with 1 million.  Italy will release around 1 million of fuel oil and more than a million of gasoline. Germany will also release around 1 million barrels of gasoline.

The Strategic Petroleum Reserve drawdown - The International Energy Agency announced on Thursday that its 28 member countries had agreed to release 60 million barrels from their combined strategic stockpiles. The U.S. plans to contribute thirty million barrels, about 10% of the U.S. strategic petroleum reserve of 293 million barrels of sweet crude oil, and about 4% of the entire 727 million barrels stockpiled in the U.S. SPR. The two million barrels per day released from the IEA program would represent 2.3% of the 87 million barrels per day currently being produced globally. If for illustration we assume a short-run price elasticity for oil demand of 0.1, the result would be a 23% decrease in the price for the month of July, after which the price would return to its previous value. That of course is not what's going to happen, because it would make no sense for anyone to sell oil for 23% less in July than you could get for it in August. If oil is cheaper in July than August, you'd want to buy more of that cheap oil in July, store it, and sell it back at a profit in August. If it were completely costless to store oil and if there were no urgency to sell it now rather than later at the same price, the outcome would be that the release from the public SPR would be matched by an equivalent increase in private inventories with no effect at all on the price..

Strategic petroleum reserves: The world's last 'swing producer' tries to save the economy - The question is: Why did global leaders wait until now? The Libyan conflict had already caused the loss of more than 1 million barrels of oil per day by the end of February. As a result, oil prices soared above $120 per barrel for Brent Crude. Yet, countries holding emergency stocks did nothing at the time. But now, with government budgets across Europe and in the United States moving toward austerity and with the U.S. Federal Reserve ending its second round of so-called quantitative easing. world leaders have one last card to play. They have a vast supply of petroleum that will now be used to bring oil prices down and thus allow consumers of oil products to pocket the savings and spend that savings on other things in the economy. Two questions come to mind: Will it work? Will it have any side effects? Let's take the first question. Undoubtedly, it will work. It already has worked at bringing down the price of crude. Price is a function of supply and demand. We have just increased the supply substantially. But, since the release is only scheduled to take place over the next month, the follow-on question is: What next? If the economy doesn't stabilize, will the powers-that-be try another release? Will the release have any side effects? What we actually need to be doing is discouraging wasteful energy use. Manipulating the price downward actually encourages consumption.

Why is the IEA tapping strategic reserves? - Just why did the United States and the International Energy Agency decide to release 60 million barrels of oil next month from their strategic petroleum reserves?  The IEA cites the loss of 1.5 million barrels of Libyan production but that’s been going on since February. So why has it taken until July for them to respond?  Some will see the IEA’s move as a much needed slap in the face to OPEC price hawks such as Iran and Venezuela, which stymied a recent agreement to raise production quotas. But when have production quotas ever stopped OPEC producers from pumping more oil when they were so inclined?  Perhaps it is a vote of non–confidence in Saudi Arabia’s ability to ramp up production to its new 10 million barrel per day target. But who in the IEA really believes Saudi Arabia could sustain that level anyway? Still others will point to the use of the strategic reserves as nothing less than a macroeconomic stimulus measure akin to a tax cut, conveniently timed for an upcoming U.S. presidential campaign.

We are filling a gap in oil supply, IEA head insists - The head of the International Energy Agency (IEA) yesterday defended the group's decision last week to release 60 million barrels of oil from strategic reserves. The announcement of the extra supplies, due to begin arriving on the market on Friday, sent the price of oil plummeting to January levels and drew criticism from some members of Opec. Yesterday Nobuo Tanaka, the executive director of the IEA, insisted the influx had been intended to make up for the shortfall from Libya, where civil war has erased most of its 1.6 million barrel capacity, until oil producers stepped in. "We are simply saying we will just fill the gap before Opec or Saudi is going to produce supplies for the market," Mr Tanaka said. "We are just filling the gap - we can't continue forever."

Releasing Oil from Reserves — The decision of the United States and other countries that have governmental oil reserves to release a total of 60 million barrels of oil (half of it from the Strategic Petroleum Reserve, which is what the U.S. government’s reserve supply of oil is called) could be a shrewd speculation on oil being overvalued. If it is overvalued, prices will fall, so by selling now the countries will receive more income than if they waited. The sale itself, by increasing supply, will reduce the price of oil; these countries are net importers of oil and so would benefit from lower oil prices. But this is implausible; there is no reason to think oil overvalued. The current high prices reflects the loss of about a million barrels a day of Libyan oil because of the civil war in that country. The reduction is small as a percentage of world output, but the low elasticity of supply enables a small reduction in supply to have a big impact on price. By the same token, the modest release from the reserve—two million barrels a day for 30 days—may have a dramatic though short-term effect on oil prices, an effect that would be extended if we and other countries continued to release reserves. Our Strategic Petroleum Reserve contains more than 700 million barrels, so we could release a million barrels a day for a year and still have almost half the current reserves.

Fluctuations in Oil Prices, Speculation, and Strategic Reserves-Becker - The International Energy Agency (IEA) recently coordinated the release onto the oil market of some of the strategic oil reserves of the United States, Japan, and ten other countries that hold reserves. The release was motivated by the rapid run up in oil prices from about $95 a barrel at the beginning of 2011 to over $120 a barrel in April of this year. I will discuss the fundamental determinants of the sharp fluctuations in oil prices, the role of “speculators”, and why it was unwise at this time to release oil from these reserves.

Opec calls for IEA oil release halt - Opec has slammed the decision by the International Energy Agency to flood the market with 60 million barrels of oil, saying it should be “stopped immediately”. The oil cartel warned that growth in the global economy is set to slow down later this year resulting in a dive in demand for oil.  Member countries of the IEA voted last week to release 60 million barrels of oil onto the market in an attempt to ease price pressure. Today the body said European countries would be releasing mostly refined products with the US tapping its crude reserves.  Opec Secretary-General, Abdullah al-Badri, today criticised the move and the amount of oil which was being released.

IEA Oil Dump A Disaster In The Making - So much tap dancing and snake oil selling, and all it took, was the pain of $4 a gallon gas to wipe everything away…Thats right, when the cost of driving to work, driving to shop, or driving for vacation doubles, the naïve notion that everything is perfectly normal goes right out the window. Americans complain a lot, but they rarely accept a bad situation as inexorable and take measures to fix it themselves. There is always the “chance” that things will get better tomorrow, or so we tell ourselves. We just ride the wave, and expect the pack of sharks at our back will never quite catch up to our boogie-board of blind optimism. However, when something takes a Great White sized bite out our very wallets, we take notice, and search the horizon for a bigger boat. In response, the IEA (International Energy Agency), an organization of 28 countries, has made a very sudden and startling announcement; each member nation will begin dumping their strategic crude oil reserves onto the global marketplace to flood the supply side of the equation, and, in theory, drive down overall oil prices.

Brace Yourselves For The Next Oil Price Shock - Looking at the oil supply & demand fundamentals, next year looks like an accident waiting to happen. If economic growth in emerging economies remains on track, and that is a big If, the next oil price shock will occur in 2012.Dave Rosenberg recently put the odds of America going into recession in 2012 at 99%, but I doubt he had oil in mind when he said that. On the current path, oil is set to hit $150/barrel next summer. Take an economy in recession, add in oil prices well in excess of $100/barrel, and what do you get?Let's briefly review the fundamentals. Here's the Energy Information Administration's current outlook (STEO, June 7 edition).EIA projects that total world oil consumption will grow by 1.7 million barrels per day (bbl/d) in 2011, which is about 0.3 million bbl/d higher than last month's Outlook, primarily because of higher forecasts of consumption for electricity generation in China, Japan, and the Middle East. Projected world consumption increases by 1.6 million bbl/d in 2012, unchanged from last month's Outlook.  These daunting numbers—1.7 million barrels-per-day in 2011, 1.6 million barrels-per-day in 2012—portend a demand shock just like the one the world experienced in 2006-2007. The key phrase is a drawdown of inventories. This is precisely what happened prior to the oil shock of 2008.

Seven Years Of Peak Oil - It was just about this time four years ago that I first noticed the phrase “peak oil”. I don’t recall exactly where, but it had to have been a Jerome a Paris diary. I followed him to The Oil Drum and there I learned just how much trouble we faced.   Everything I’ve done since then, first work on renewable ammonia, and then work on reforming our government, have been driven by the knowledge that American hasn’t even started preparing for what is coming.  I’ve pointedly not looked at TOD for the last couple of years because our government continues to languish in the grasp of oil funded special interests who can’t admit that they are dying.  I checked in tonight for the first time in a long while and I found a nice report that I’d like to summarize for you …  The report itself, Peak Oil – the clear and present danger is an easy enough read by TOD standards, but here are the high points.

Peak Oil – the clear and present danger - Global oil production (crude oil plus condensate) has been on a plateau / in decline for 7 years, resulting in high energy prices that are feeding inflation, eroding family budgets and crippling the World economy. It is time for the international political community to awaken to the risks posed by Peak Oil. A British Government report published last week under a Freedom of Information Act (FOIA) request makes clear that civil servants working at the UK department of Energy and Climate Change (DECC) seem very aware of the risks posed by peak oil, and yet the British Government seems happy to continue to ignore warnings. The post is co-authored by Oil Drum contributor Sam Foucher, who did most of the data mining and provided the adjusted JODI and IEA data. Oil Drum commenter KLR provided this spread sheet deducting natural gas liquids from the BP data.

Peak Oil is not Synchronous - This morning, I took the oil consumption page of the BP spreadsheet, and applied a mechanical test to each country: was 2010 the highest year of consumption over the range 1990-2010?  If this is true, let's call the country an "advancer", and if not, let's call it a "decliner".  Here are all the advancers: On this, and all the other graphs in this post, you can click to get a large version in a new window.  You can see that the bulk of advancers are rapidly growing Asian or Middle Eastern countries, with a few other emerging markets from around the world thrown in.  The only developed countries on this list are Norway and Australia - both big resource exporters.  These countries in the aggregate account for a little over a third of global consumption. To see the individual countries better, here's the same data as a line graph, instead of a stacked area graph:Notice how few had significant contraction due to the great recession.  Looking at it yet another way, here's the ten year average growth rate plotted against 2010 consumption:

Update on North Sea Oil Production - The North Sea has been the poster child for the idea that with modern oil extraction technology, an oil producing region can decline really rapidly after it has peaked (the core idea is that when you put horizontal wells into an oil reservoir, versus vertical ones, the flow level remains high until the water below the oil reaches the level of the horizontal well, when production drops very rapidly.  In contrast, with a vertical well, you get some degradation much sooner (as water starts coming into the bottom of the production zone), but the decline is more gradual as you slowly get more and more water and less and less oil coming from the rock into the well).   The graph above shows the total production of the three main countries involved: the UK, Norway, and a little from Denmark (data from BP).  As you can see, production peaked in 2000 and has tanked since.  If we look at the year-on-year growth rates, we get this: You can see the very high decline rates reached in the early 2000s.   However, 2010 was the worst year yet, with an 8.6% decline rate.   There seems small doubt that this region is played out and will decline to very little over the next decade or two.

Opec Meeting Reveals Further Degeneration of the MENA Region - Upon exiting the most recent Opec summit, the visibly frustrated Saudi Oil Minister, Mr. Ali Naimi, proclaimed it to be “one of the worst meetings we have ever had.” In the lead up to the meeting, oil traders had come to believe that Opec would increase production quotas to cover the shortfall of light, sweet Libyan crude going into Europe’s peak demand season.  Opec failed to revise production quotas, and upon learning of this decision, traders quickly bid the price back up. A couple days later, Saudi Arabia announced that they would break with Opec by lifting production above their allotted quota. Oil traders reacted by bidding the price back down, and in the end, prices had settled back to previous levels as if the summit had never happened. But the story isn’t over until all the holes in the plot have been filled, and all the nagging questions answered. Why, for instance, would Saudi Arabia announce that they planned to lift production above Opec’s stated quota? Why not just covertly lift production? By announcing their intentions to lift production the price slid $3 per barrel, and the Saudi daily income was reduced by roughly $19 million per day, a 3% decline (assuming exports at 6.25 mbd).

Latest Saudi Oil Stats - Above are the latest oil production statistics for Saudi Arabia, along with rig counts.  Production is on the left hand scale, and is not zero-scaled to better show the changes.  Meanwhile, the red curve by itself is the number of oil rigs in country according to Baker Hughes.  Before the beginning of 2005, the rig count was low and didn't change regardless of what happened with production.  My interpretation of this is that Saudi Arabia had spare capacity such that they could just turn a tap in order to increase production.  Notice, for example, the huge increase at the start of 2003, when, in a very short period of time they added 1.5mbd to production to buffer the world from the loss of Iraqi production due to the US invasion of that country. In late 2004, they reached a plateau of 9.5mbd (amidst rising oil prices and a rapidly growing world economy), but then production fell slightly right at the end of 2004, and it is at that moment that the rig count starts to increase.  My interpretation is that they were struggling to maintain production of 9.5mbd, due to depletion in some of the older oilfields combined with long underinvestment.  Indeed there was a further dip in 2006-2007, as oil prices went even higher and Saudi Arabia, the traditional swing producer, should have been increasing production to moderate them. 

The Saudi Arabian Protectorate of Bahrain -The small archipelago nation of Bahrain can't seem to stay out of the news lately, as the government continues its containment of civil protests that it perceives as a threat to its rule. The majority (60-70%) Shi'a population has observed the examples of regime-change elsewhere in the Middle East and were demonstrating publicly about their treatment under the Sunni monarchy. The Bahrain military has escalated its armed repression of these demonstrations, and Saudi Arabia eventually sent troops there. Iran expressed its sincere displeasure with that, recalling its ambassador to Saudi Arabia. The United States, which has a strategic military presence on Bahrain and a strategic petroleum interest in Saudi Arabia, has expressed its displeasure to everybody involved except the protesters. Why is it generating so much interest? Is there any oil left there? In this article, I will discuss some recent developments between Bahrain and its neighbors in the context of its long history.

Gas shortage: Saudi Arabia new dilemma - After decades of rapid economic growth based on oil, Saudi Arabia’s policymakers now face a dilemma. Most efforts to diversify the economy have focused on leveraging cheap gas, but that strategy has begun to founder in recent years under the pressures of higher development costs, supply shortages and domestic wastefulness. The kingdom is trying to map a new course, but decision makers are divided on how to proceed. The debate over modifying gas prices in Saudi Arabia has been ongoing for some time, but this year the conversation uncharacteristically spilled into the open, led by Saudi Aramco and backed by the oil ministry. The Electricity and Cogeneration Regulatory Authority, Saudi Arabia’s independent electricity oversight body, has publicly joined Aramco in pointing out that runaway domestic fuel consumption will severely limit the country’s export capabilities.

America, resource hog- MATT YGLESIAS muses about alternative development paths for the American economy: It’s interesting to think about what would have become of the country had we spent our first century or so pursuing the modern consensus view that trade should be more-or-less free but borders open to immigration would be politically unrealistic and unthinkable. The answer, presumably, is that at least initially the country would have been really really rich. The low tariffs would have substantially boosted real purchasing power. They also would have impeded the development of American industry. But that wouldn’t have mattered, since given a much lower rate of immigration the ratio of land to workers would have been extremely high. Something that looked a lot like Canada or Australia, in other words, rather than the industrial dynamo we became. It is interesting that during the era in which America rose to technological and economic dominance, its trade and immigration rules were very nearly reversed from their current position. How did America manage to prosper under those circumstances? As it happens, natural resource exploitation was a key part of the American success story. By the beginning of the 20th century, America was the world's top producer of natural gas, oil, copper, coal, zinc, iron ore, lead, silver, and a host of other critical industrial minerals.

Mexico's gasoline imports near record in May  -- Mexico's state-owned oil monopoly Petroleos Mexicanos , or Pemex, said Friday that gasoline imports were near a record high in May, and diesel-fuel imports reached their peak as the country continues to offset revenue from crude exports by buying fuel abroad.  Pemex said in its monthly activity report that gasoline imports averaged 446,000 barrels a day in May compared with 363,000 barrels in the year-earlier month. The top month for gasoline imports came in December of last year when they reached 513,000 barrels a day.  Diesel imports in May were 163,000 barrels a day versus 120,000 barrels a day a year earlier. The previous high for diesel imports came in November of last year at 159,000 barrels a day.  Pemex officials have said that importing motor fuels--mostly from the U.S.--and selling them at subsidized prices set by the government is a drag on the company's ability to invest in more exploration and development of oil deposits at a time when overall crude-oil output has declined steadily. Pemex also gives most of its revenue to the government in the form of taxes and royalties.

Russia to halt electricity deliveries to Belarus - Russia will cut off electricity deliveries to Belarus at 00:00 a.m. on June 29 for its failure to pay a $43-million debt, said a spokesperson for the Inter RAO electricity exporter on Tuesday morning, BelaPAN said.“The due payment for electricity had not been made before 8:30 a.m. on June 28,” the spokesperson told Russia’s news agency RIA Novosti. “In this respect… we will fully halt electricity deliveries to Belarus at 00:00 a.m. (Moscow time) on June 29. We expect our Belarusian partners to settle the debt and make the next payment in full.”On June 21, Inter RAO gave Belarus until June 27 to pay the funds owed for deliveries in April and May, threatening to suspend electricity exports to the country. The suspension will be in line with the Russian supplier`s contract and supplementary agreements with Belarus` national power utility DVA Belenerha, said an Inter RAO spokesperson. "A trading company cannot supply electricity on credit."

China Opens Oil Field in Iraq - China’s largest oil company has begun operations at Al-Ahdab oil field in Iraq, making the field the first major new area to start production in Iraq in 20 years, according to an official news report on Tuesday. Operations began June 21, and the field is expected to produce three million tons of crude oil per year, reported China Daily, an official English-language newspaper. The oil field was discovered in 1979 and is believed to contain a billion barrels of crude. The Chinese company, the China National Petroleum Corporation, a state-owned enterprise, secured rights to the field under a technical services contract signed with the Iraqi government in November 2008. Under the contract, the company has development rights for 23 years, China Daily reported. It is investing $3 billion.  Analysts say the Ahdab operation is China National Petroleum’s largest in the Middle East.

Mining Boom Makes Truck Tires Pricier Than Porsches, Miami Condominiums - China’s insatiable demand for commodities has prompted a tripling in the price of mining truck tires, making them more expensive than a Porsche 911 Carrera S type or a condominium in Miami. Prices for tires about 3.5 meters (11 feet) across, used on the Caterpillar Inc. trucks that haul iron ore and coal, have touched $100,000 on the spot market, according to Leighton Holdings Ltd. (LEI), a contractor for mining companies including BHP Billiton Ltd. (BHP) and Anglo American Ltd. Prices rose as high as $150,000 in 2008. That compares with contract prices of about $30,000, according to Roesler Tyre Innovators GmbH, which retreads so- called off-the-road tires. Demand from China, the world’s biggest metals buyer, drove copper, iron ore, gold and coal to records this year, forcing companies to compete for the equipment and labor needed to mine them. “We fear the situation will become as tight as in 2007,”

Recycling: A new source of indispensible ‘rare earth’ materials mined mainly in China - Xiaoyue Du and Thomas E. Graedel note that the dozen-plus rare earth elements (REEs) have unique physical and chemical properties making them essential for defense applications, computers, cell phones, electric vehicles, batteries, appliances, fertilizers, liquid crystal displays, and other products. But there is growing concern about the supply, since only one country, China, is the major source. “Since 1990, China has played a dominant role in REE mining production; other countries are almost completely dependent on imports from China with respect to rare earth resources,” the researchers state. To determine how much recycling potential of the REEs from in-use products could add to the supply, they did the first analysis of the amount of REEs available in products in the United States, Japan, and China. Those countries are the major uses of REEs. The analysis concluded that nearly 99,000 tons REEs were included in products in 2007. This invisible stock, equivalent to more than 10 years of production, “suggests that REE recycling may have the potential to offset a significant part of REE virgin extraction in the future…and minimize the environmental challenges present in REE mining and processing,” the report notes.

Electric Cars: Highly Charged -  CHINA has lots of people, not much oil and rulers who love big projects. Small wonder that makers of electric cars see it as the market of the future. The Chinese government wants to have 500,000 electric cars, lorries and buses on Chinese roads by 2015 and 5m by 2020. It is providing customers with subsidies worth up to 60,000 yuan ($9,250) and other incentives, too. If it carries on doing so, electric cars and plug-in hybrids could account for 7% of new-car sales in China by 2020, says a forthcoming report by the Boston Consulting Group. That would make China the biggest market for electric vehicles, by volume, in the world.  Foreign firms are salivating. But they are also nervous. “The price for market access has gone up,” says Michael Dunne, the president of Dunne & Co, a car consultancy in Hong Kong. Foreign producers are being told about new “draft” rules which mean they must share more intellectual property and branding rights with their Chinese joint-venture partners, he says.

Andrew Sheng Says Sustainability Means Caging Godzillas -  Yves Smith - Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.

China's Wen signals doubt inflation goal can be met - (Reuters) - Chinese Premier Wen Jiabao signalled for the first time that China would struggle to meet its 4 percent inflation target this year, underlining expectations that interest rates will rise further even as economic growth slows down. Wen, who is travelling in Europe, was quoted by Hong Kong media on Monday as saying that while he sees the Chinese economy growing above 8-9 percent this year, it was hard for China to keep inflation under 4 percent in 2011. "China's financial situation will still be among the best in the world this year, with economic growth kept above 8-9 percent, and CPI controlled under 5 percent," Wen told Hong Kong television media during the England leg of his Europe tour. Wen's latest comments sounded somewhat less sanguine than his remarks on Friday, when he said China's inflation was firmly under control this year and should cool steadily. However, they may not alter investors' thinking about monetary policy. Many economists had assumed China would overshoot its 4 percent target given that the inflation rate has stayed well above that mark since January, and is expected to peak at 6 percent in June or July.

China cities owe $1.65 trln, some 'may default' - Chinese local governments held $1.65 trillion in debt at the end of 2010, the state auditor said Monday, warning there is a risk some could default amid fears that bad loans will harm the economy. Excessive borrowing by authorities to fund infrastructure and other projects has sparked concerns among China's leadership about the risks the loans pose to the financial stability of the world's second largest economy. By the end of last year, local governments had 10.7 trillion yuan ($1.65 trillion) of debt, the National Audit Office (NAO) said in a statement, or about 27 percent of China's 2010 GDP of 39.8 trillion yuan. "The ability of some areas and industries to repay debt is weak and potentially risky," the NAO said. The announcement represents the first time China has given an overall figure for local government debt, according to the state-run Xinhua news agency.

Searching for a hard landing in China: Looking for trouble… HOW do you say "hard landing" in Chinese? 硬着陆 (ying zhuolu) that's how. Lots of nervous Chinese have started typing those characters into Google, point out Paul Cavey, Tim Powers and Chen Shao of Macquarie (see chart). There were about four times as many searches for the term this month as last. "That the economy is slowing is filtering into the public consciousness," they conclude. Since economic fears are often self-fulfilling, the googlers' nervousness may contribute to the very slowdown they fear. Of course Google is not the most popular search engine in China. If you type 硬着陆 into Baidu, the market leader, the top result is an entry in Baidu's own collaborative encyclopedia. It defines a hard landing as a strong monetary and fiscal tightening, designed to curb inflation even at some cost to growth. The advantage of such a landing, it explains, is its brevity. Hard landings are a short, sharp shock. Soft landings hurt less but for longer.

Why China’s Heading for a Hard Landing - China’s labor force is aging. Its consumers save too much and spend too little. Its political and economic policy tools remain crude. Its state bureaucracy seems likely to curb spending just as exports weaken, and thus risks deflation. As U.S. consumers retrench, and as the global commodity bubble begins to dissipate, these fundamental weaknesses will combine in a way that’s unlikely to end well for China -- or for the rest of the world.  To start, China is much more vulnerable to an international slowdown than is generally understood. In late 2007, my firm’s research found that too few people in China had the discretionary spending capability to support its economy domestically. Our analysis showed that it took a per-capita gross domestic product of about $5,000 to have meaningful discretionary spending power in China.  About 110 million Chinese had that much or more, but they constituted only 8 percent of the population and accounted for just 35 percent of GDP in 2009, while exports accounted for 27 percent. Even China’s middle and upper classes had only 6 percent of Americans’ purchasing power.

The Shadow Banking Problem in China - Despite Chinese government's efforts to rein in liquidity by hiking rates and raising the reserve limit to an unprecedented 21%, the consumer inflation index has risen 5.5% over the past year. That level is a three years high, according to figures released by Chinese government on Tuesday.In China, the persistence of inflation pressure has brought “shadow banking” into a topic of hot debate recently. According to a study issued by the People's Bank of China in 2010, non-banking sector lending has expanded to 63.3 trillion Yuan, ($10 trillion), 44.4% of total lending activities of China's economy. Shadow banking, a concept coined by the US Federal Reserve, refers to non-banking financial institutions with some banking functions, but they are not or less regulated like a bank. In the U.S., the lack of regulation for the securitization of traditional financial products, including home loans, was one of the major causes of the financial crisis. Shadow banking in China mainly exists in the form of "Bank and Trust Cooperation", the underground financing networks; but small loan companies and pawn shops also play a role in these shadow financing activities.

China’s Shadow Banking Looks a Lot Like Sub Prime Alt-A Market - Much has been made of China’s property bubble (or not) over the last 24 months.  Highlighted by Jim Chanos’ bet that real-estate in the Lone Star Country was headed not only for a major correction but perhaps an all out crash, there have been many a bet made on China experiencing something akin to a hard landing.  As many readers know, we’ve been of that mind for some time. There are, of course,  reasons to be less dour.  Many in China pay cash for houses, the lack of alternative investment markets and the high level of savings make up the top-three of a laundry list of reasons one might see the property market as less-assailable than that of the US in 2007.  However as the PBOC continues its rate-hike policy (they remain very much behind the curve here) and the profit margins for many companies in Guangdong plummeting from 30% growth rates to (gasp) 10% we are becoming more convinced that a major first shoe is about to drop.

New San Francisco bridge built in China to be shipped to US -  Next month, four enormous steel skeletons, the last of the 12 segments of the bridge, will be shipped 6,500 miles from Shanghai to San Francisco before being assembled on site. After building forests of skyscrapers in Beijing and Shanghai, showpiece buildings like the Bird's Nest stadium and the Guangzhou Opera House, and a high-speed rail network that is the envy of the world, Chinese construction companies are flush with cash and confidence. This week, Wen Jiabao, the Chinese premier, lobbied David Cameron to give the contract for the UK's new high speed rail link to a Chinese company. According to Engineering News Record, five of the world's top 10 contractors, in terms of revenue, are now Chinese, with likes of China State Construction Engineering Group (CSCEC) overtaking established American giants like Bechtel. CSCEC has already built seven schools in the US, apartment blocks in Washington DC and New York and is in the middle of building a 4,000-room casino in Atlantic City. In New York, it has won contracts to renovate the subway system, build a new metro platform near Yankee stadium, and refurbish the Alexander Hamilton Bridge over the Harlem river."

China: The End of Cheap Labour - China’s unit labour cost advantage in high-volume manufacturing is being eroded at a faster rate according to this feature piece from Time Magazine. “The average manufacturing wage in China is still only about $3.10 an hour, (compared with $22.30 in the U.S.), though in the eastern part of the country, it’s up to 50% more than that.” There are strong economic, social and political pressures for wages to rise and as they do this will have hugely significant demand and supply-side effects on their economy, for example accelerating the pressure for China to invest more in new technologies and product and process innovation to move higher up the value chain and become less dependent on supplying cheaper products to the rest of the world. My recent China Economics Revision Note focuses on some of these issues.

Another Reason for China to Go Slow on Yuan Revaluation - The U.S. and other of China’s largest trading partners have been arguing for years now that revaluing the yuan would be good for China’s economy. Sure, China might lose some jobs in the export sector as the yuan became more expensive in dollar and euro terms. But it would make up for that disadvantage by boosting the purchasing power of Chinese consumers — whose purchases would create jobs in other sectors of the economy, especially services. A new International Monetary Fund report (pdf), however, warns China against expecting such a happy outcome. A 10% increase in the value of the yuan, adjusted for inflation, would reduce employment growth by 0.4 to 1.4 percentage points “across sectors except for agriculture,” calculate IMF economists. Employment growth would slow not only in the export industry but in service industries too.  The authors say that services and manufacturing aren’t as distinct as they seem. The cost of exported manufactured goods includes a range of services, including banking, transport, retailing and energy.

U.S. Reliance on Exports for Growth May Boost China’s Role - The U.S. economy will have to increasingly rely on exports for growth because of the reluctance of policy makers to use monetary or fiscal policy prescriptions, ITG Investment Research senior economist Steve Blitz said, a formula which poses downside risks. The Federal Reserve‘s closing of its bond-purchase program and the expiration of some stimulus efforts mean an outsized emphasis on selling goods overseas to pull the economy along, Blitz said. U.S. policy makers will have to hope one of its chief economic rivals steps in to pick up the slack. “You’ve got a contractionary bias going forward now on the monetary and fiscal side,” Blitz said in an interview. “How do you keep the economy going? Exports, and that means whether it’s directly to China or not, they are certainly the linchpin.” Blitz said there are sentiment risks as consumers and businesses both show unease about the state of the economy. Any contraction in hiring or negative surprises have the potential to quickly sour consumers’ feelings. “There’s not a lot of cushion or goodwill for the economy to keep people spending if they start to see the economy get worse,”

The Troubles Of TEPCO - THROW yourself into a nuclear reactor and die!” one investor shouted. Japanese shareholders are usually more polite, but this was the annual meeting of TEPCO, the Japanese power company that owns the Fukushima nuclear plant. Since an earthquake in March caused a meltdown, TEPCO faces unlimited demands for compensation. Its shares have fallen by nearly 90% (see chart). A man at the meeting on June 28th suggested that the board take responsibility by committing seppuku, or ritual suicide. Not everything went wrong for TEPCO. A shareholder motion to close all its nuclear plants was defeated. But apart from that, things look grim. TEPCO faces claims for compensation that, in a worst-case scenario, could exceed its assets of ¥15 trillion ($186 billion). No one knows how much it will have to pay. (Oddly, it is the education ministry’s job to issue guidelines for nuclear compensation.) Estimates of TEPCO’s liabilities range between ¥4 trillion and ¥25 trillion. The firm also owes ¥7.8 trillion to bondholders and bank creditors. If TEPCO goes bust, these people take precedence over those affected by the disaster, a fact that is politically radioactive.

Japan could face a third "lost" decade-Moody's (Reuters) - Japan could face a third "lost" decade of sluggish economic growth that will leave it struggling to whittle down the heaviest debt burden among developed nations, Moody's ratings agency said on Monday. It chided the government's failure to meet a self-imposed June 20 deadline for announcing a long-term plan to deal with the country's debts as negative, suggesting it is edging closer to cutting Japan's credit rating. Japan has been mired in economic stagnation for much of the past two decades, slipping from second to third in the world rankings of biggest economies and building up some $10 trillion in debt as it tried to spur growth through spending. The March earthquake and tsunami is set to add to Japan's debt load as the government spends on reconstruction. "While Japan is likely to have a V-shaped recovery later this year from the March 11 earthquake, subsequent economic growth may subside to a lacklustre pace," Moody's said in a statement on its website. "It is not inconceivable the country would have a third "lost" decade of growth," it said. Japan's economy has stagnated since an asset price bubble burst in 1990, leaving banks with high debts and an economy in deflation. GDP growth in the decade up to the global financial crisis in 2008 was about 1.3 percent a year, less than half the 3 percent pace achieved by the United States. "Moody's view is understandable," said Seiji Adachi, senior economist at Deutsche Securities. "The possibility of another "lost decade" for Japan is growing."

Skills Shortages and Supply-Side Policy: Brazil’s Boom Needs Talent - Great article here from the WSJ highlighting the problems Brazil is facing recruiting the right people to cope with its booming economy - ”To cope with a talent shortage, many multinationals are beefing up internship programs, spending more on training and salaries and relocating workers from flat or declining markets. Particularly in demand: English-speaking managers and engineers, as well as those with experience in business development.”  There´s a growing market for equipping people with the skills Brazil´s economy needs right now, one in which the government has been slow to react to - ”local colleges and universities in Brazil were caught off guard by the economic boom. For-profit schools are attempting to fill the gap, but for now many multinational companies say they are having to educate their own employees.” I imagine the government will try to play catch up and embark on programmes designed to provide new industries with the skill sets required alongside other supply side policies so that Brazilians as well as the growing number of expats can also benefit from the good times.

World’s wealthiest people now richer than before the credit crunch - We are not all in this together. The UK economy is flat, the US is weak and the Greek debt crisis, according to some commentators, is threatening another Lehman Brothers-style meltdown. But a new report shows the world's wealthiest people are getting more prosperous – and more numerous – by the day. The globe's richest have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them – nearly 11 million – than before the recession struck. In the world of the well-heeled, the rich are referred to as "high net worth individuals" (HNWIs) and defined as people who have more than $1m (£620,000) of free cash. According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even as austerity budgets were implemented by many governments in the developed world.Click here to see a pdf of this graphic

World’s Wealthiest Richer Than Before Credit Crunch! - click for ginormous graphic

Quelle Surprise! World’s Richest Profited From the Crisis! -- Yves Smith - Much ink has been spilled about the increase of wealth at the top. This graphic comes from the Guardian. From the related article: In the world of the well-heeled, the rich are referred to as “high net worth individuals” (HNWIs) and defined as people who have more than $1m (£620,000) of free cash. According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even as austerity budgets were implemented by many governments in the developed world. The report also measures a category of “ultra-high net worth individuals” – those with at least $30m rattling around, looking for a home. The number of individuals in this super-rich bracket climbed 10% to a total of 103,000, and the total value of their investments jumped by 11.5% to $15tn, demonstrating that even among the rich, the richest get richer quicker. Altogether they represent less than 1% of the world’s HNWIs – but they speak for 36% of HNWI’s total wealth.

Spectre of stagnating incomes stalks globe‎ - Nearly three years after the start of the economic crisis, a new spectre is haunting the world’s most advanced economies: the prospect that the majority of their citizens will face years of stagnant wages. In the postwar years, there was a belief in developed economies that each generation could expect to have materially better living standards than their parents. Yet the outlook for income growth has rarely looked worse than it does today. For some middle-income groups, the idea of stationary or declining incomes is not new. Fork-lift truck drivers in Britain could expect to earn £19,068 in 2010, about 5 per cent lower than in 1978, after adjusting for inflation. Median male real US earnings have not risen since 1975. Average real Japanese household incomes after taxation fell in the decade to mid-2000s. And those in Germany have been falling in the past 10 years. Some of this pressure on the middle income households was masked – at least temporarily – by the credit boom, which allowed families to spend more than they earned. Now, three years after the end of the cheap money era – and with developed countries struggling to get their economies growing again – middle classes around the globe are feeling the squeeze.

Deal Reached for Trade Agreements with 3 Countries -— The White House struck a deal with House Republicans Tuesday to reinstate benefits for workers who lose jobs to foreign competition, addressing a major obstacle to consideration of three free trade agreements with South Korea, Colombia and Panama. Haggling over the modest and obscure benefits program had tied up the trade pacts for months, pitting Democrats concerned about the impact of competition on American workers against Republicans eager to increase foreign trade but loath to increase federal spending on another aid program.  But the deal does not assure that Congress will pass the pacts, which are crucial ingredients in the Obama administration’s recipe for reinvigorating economic growth. Indeed, Republicans quickly said they would continue to insist that the benefits program be considered separately from the trade agreements, a condition Democrats described as unacceptable.

Nurturing Start-Ups and Small Businesses Around the World, Part 1 - In almost every developed country, small companies dominate the business landscape. But in many ways America, the great land of entrepreneurship and opportunity, actually has a weaker small-business presence than most. A new report on entrepreneurship from the Organization for Economic Cooperation and Development finds that the smallest businesses — those with fewer than 10 employees — account for almost all of the businesses in most developed countries. The United States is on the low end of the distribution, though, with only about three-quarters of its businesses being so tiny.  The United States also finds that its biggest companies contribute a much larger share of the country’s exports than is the case in other developed nations. In the United States, companies with more than 250 employees account for 75 percent of the country’s exports; in many European countries, big businesses contribute less than half of national exports.

Nurturing Start-Ups and Small Businesses Around the World, Part 2 - In an earlier post, I looked at some new data from the Organization for Economic Cooperation and Development that showed the small-business presence in the United States to be somewhat weaker than in peer countries. Somehow, though, by many measurements America appears to have an economic environment that is far friendlier to small and new companies. The administrative burden required to start a new company, for example, is relatively low in the United States compared with most other developed and emerging markets.The O.E.C.D. looked at a composite measure reflecting the “procedures, time and costs necessary to incorporate and register a new firm with up to 50 employees and start-up capital of 10 times the economy’s per-capita gross national income.” This metric found Mexico and China to be most restrictive, while Ireland and Germany to be the least. The United States is on the less-restrictive end of the spectrum.

Did Trade Finance Contribute to the Global Trade Collapse? - The financial crisis of 2008-09 brought about one of the largest collapses in world trade since the end of World War II. Between the first quarter of 2008 and the first quarter of 2009, the value of real global GDP fell 4.6 percent while exports plummeted 17 percent, as can be seen in the chart below. The dramatic decline in world trade—a loss of $761 billion in nominal exports—came through two channels: decreased demand for imports and supply effects, most likely arising from financial constraints. In this post, we look at evidence that supply effects, including curtailed funding for export-related activities, played a key role in the trade collapse—and thus in the transmission of the financial crisis from Wall Street to “Main Street,” here and abroad.

The G20 and global imbalances - Global imbalances continue to place the stability of the global economy at risk. The International Monetary Fund’s forecasts anticipate essentially no reduction in existing imbalances in the next five years, assuming the continuance of current policies. And independent observers have suggested that, if anything, the IMF may be overly optimistic about the prospects. A shock that causes those imbalances to unravel quickly could lead to sharp drops in the currencies of countries that depend most heavily on foreign finance for their current-account deficits, This column evaluates the progress made by G20 leaders in the run up to their Cannes summit this November, concluding that the G20 process is unlikely to protect us from the risks posed by disorderly unwinding of imbalances.

Manufacturing From Asia to Europe Cools, Posing Dilemma as Prices Increase - Manufacturing growth is slowing from China to Europe, creating a dilemma for central bankers considering higher interest rates to combat inflation. China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted. In the U.K. and India, output growth also slowed. “There is a broad-based slowdown taking place in the manufacturing sector,” Silvio Peruzzo, an economist at Royal Bank of Scotland Plc in London, said by telephone. “But it’s still too early to jump on the view that we’re heading toward an environment where activity will be contracting.” Europe’s debt crisis and slowing U.S. growth are damping demand for goods, putting pressure on policy makers to delay further rate increases even as prices gain.

European Manufacturing Slowdown Darkens Outlook - The outlook for the European economy darkened Friday as figures showed activity in the manufacturing sector slowed significantly in June, and almost one in 10 people in the euro zone remain unemployed. The latest monthly survey of euro-zone manufacturers by financial information firm Markit showed growth in the sector slowed to an 18-month low in June as exports weakened and budget cuts hit demand in countries at the heart of the currency area’s debt crisis. Manufacturing in Germany slowed more than expected, to its weakest rate of expansion for 17 months, while France and the U.K. slumped to their worst levels in 22 and 21 months respectively. Compounding the gloom, manufacturing in Italy, Ireland, Spain and Greece all contracted in June. “Over the past two months, [euro-zone manufacturing] output growth has weakened to the greatest extent since late-2008,” Markit’s final euro-zone manufacturing purchasing managers’ index, a gauge of activity in the sector based on a survey of about 3,000 firms, fell to 52.0 in June from 54.6 in May. The drop towards the 50.0 level suggests growth in the sector is closer to stalling, as a PMI reading below that level would mean contraction.

Stagflation Goes Global Again - UK And China Join Global Manufacturing Slowdown - It seems that the global economic decline is not limited to the Japapense maanufcaturing base: as expected in a globalized world, manufacturing weakness has now spread to both China and the UK, whose PMI indices are both fractionally above stagnation. On China: "China's official Purchasing Managers Index fell to a 28-month low to 50.9 in June, (below expectations) with the imports index tumbling to 48.7, the lowest since August 2010. It was followed shortly after by the HSBC China manufacturing PMI for June, which slid to 50.1, marking the lowest level since the second quarter of 2009. The drop was sttributed to: "falling liquidity levels, higher interest rates and shrinking tighter credit availability." Which means that the PBoC will be forced to act to rekindle its industrial base even as prices are still not under control and the upcoming inflation print is expected to come north of 6%. The UK's own PMI also was below expectations, coming at 51.3 on consensus of 52 and below May's 52.3 "The CIPS Manufacturing Purchasing Managers Index (PMI), a composite index measuring manufacturing activity, came in at 51.3 in June, down from a revised 52.0 in May, hitting its lowest level since September 2009...UK manufacturing sector activity growth has slowed dramatically in the CIPS series since early 2011.

A Failed Global Recovery - The global economy is in the midst of its second growth scare in less than two years. Get used to it. In a post-crisis world, these are the footprints of a failed recovery.The reason is simple. The typical business cycle has a natural cushioning mechanism that wards off unexpected blows. The deeper the downturn, the more powerful the snapback, and the greater the cumulative forces of self-sustaining revival. Vigorous V-shaped rebounds have a built-in resilience that allows them to shrug off shocks relatively easily. But a post-crisis recovery is a very different animal. As Carmen Reinhart and Kenneth Rogoff have shown in their book This Time is Different, over the long sweep of history, post-crisis recoveries in output and employment tend to be decidedly subpar.. Consequently, external shocks quickly expose their vulnerability. If the shocks are sharp enough – and if they hit a weakened global economy that is approaching its “stall speed” of around 3% annual growth – the relapse could turn into the dreaded double-dip recession. In the attached video, Stephen Roach expands upon the views expressed in this commentary. Click here to watch.

Global Train Wreck Coming - THE global economy is facing ''a slow-motion train wreck'' with Greece only the first nation to be hit, Reserve Bank director Warwick McKibbin has told a Melbourne conference. Referring to the most recent global economic crisis as a mere ''blip'', he said the coming crisis could undo the mining boom and bring on inflation of the kind not seen since the 1970s  Professor McKibbin told the Melbourne Institute conference dozens of European countries now had gross government debts on track to exceed 60 per cent of GDP. "Japan is forecast to be 200 per cent of GDP, the US is forecast to be over 100 per cent of GDP," he said. "At zero interest rates that can be sustained, but at 5 per cent interest rates countries have to put aside 5 per cent of their GDP every year just to service the debt. That is not sustainable."

Economic growth must slow, warns BIS - In its annual report, the Bank for International Settlements said that with the scope for rapid growth closing, monetary policy should be quickly brought back to normal and countries should act urgently to close budget deficits. The tough recommendations were urged on advanced and emerging economies alike from the BIS – the international organisation which came closest to predicting the 2008-09 financial and economic crisis – despite signs of weakening economic momentum this year. The spike in energy prices has cooled the global economy since January and led to fears for the recovery, culminating in the International Energy Agency’s release of 60m barrels of oil in the coming month.  The BIS report, however, warned policymakers not to expect a normal recovery because much of the pre-crisis growth had been unsustainable and capacity will have been destroyed for ever, particularly in finance and construction.  Of course, it goes without saying that there will be different economic effects depending on how spending is cut or taxes are raised. But the first-order effect in either case will be to reduce national income and depress growth.  Global economic growth must slow to curb inflationary pressure around the world, the influential central bankers’ bank has warned, saying that there was little or no slack left for rapid non-inflationary expansion.

Why austerity alone risks a disaster - Enjoy the coming slump. That is not what the Bank for International Settlements says to the US and other overindebted economies. But it is what its latest annual report implies. I admired the warnings of monetary and financial excesses that the BIS gave under its former economic adviser, William White. I respect Stephen Cecchetti, his successor. But I disagree with the thrust of this report. It understates the obstacles to across-the-board austerity. Persisting with monetary and fiscal accommodation is uncomfortable. But unconventional times demand unconventional policies. What makes these times unconventional? The answer is that a number of economies are in what the Jerome Levy Forecasting Center calls a “contained depression” – a period of sustained private sector deleveraging. Implicitly, the BIS report rejects such a view. It argues for monetary and fiscal tightening across the globe. This argument rests on two beliefs. First, the world economy is close to full capacity. Second, “addressing overindebtedness, private as well as public, is the key to building a solid foundation for high, balanced real growth and a stable financial system. This means both driving up private savings and taking substantial action now to reduce deficits in the countries that were at the core of the crisis.”

A BIS report falls in the forest -  The Bank for International Settlements’ annual report is a clarion call for economic orthodoxy. The central bankers’ bank urges its rich-world members to tighten monetary policy, its emerging market members to encourage domestic consumption, and both to counter global imbalances. It is promptly ignored by the central bankers it is aimed at, and their political masters. Compare this year’s report out yesterday: Highly accommodative monetary policies are fast becoming a threat to price stability…once central banks start lifting rates, they may need to do so more quickly than in past tightening episodes.To the 2010 report: Macroeconomic support has its limits...Immediate, front-loaded fiscal consolidation is required in several industrial countries…there are limits to how long monetary policy can remain expansion. The diagnosis reflects policy criticisms from other international institutions. This year the BIS focuses on four issues. High public and private debt in the developed world; global current account imbalances, which may not be sustained by capital flows from the developing to the rich world; excessively easy monetary policy in the developed world; and incomplete financial regulatory reform.

Christine Lagarde named IMF head -  French finance minister Christine Lagarde has become the new head of the IMF after the fund's board confirmed her appointment following a meeting in Washington. Lagarde, who takes over from Dominique Strauss-Kahn, is the first woman to hold the post. She will begin her five-year term on 5 July.After the board's announcement, Lagarde tweeted: "The results are in: I am honored & delighted that the Board has entrusted me with the position of MD of the IMF!"Official confirmation came after the US hadformally endorsed Lagarde's candidacy. Treasury secretary Tim Geithner said: "Minister Lagarde's exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy. We are encouraged by the broad support she has secured among the fund's membership, including from the emerging economies."

France’s Lagarde Named New Head of I.M.F. Christine Lagarde1 on Tuesday became the first woman to be appointed to the helm of the International Monetary Fund2, taking on one of the most powerful positions in global finance as a worsening crisis in Greece threatens the euro3 currency union and rattles financial markets worldwide.  Her victory was sealed when the U.S. Treasury secretary, Timothy F. Geithner, said the United States would endorse her over the Mexican central bank governor Agustín Carstens — her only competitor for the job.  “Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy,” Mr. Geithner said in a statement.  As a top official of one of Europe’s most powerful economies, Ms. Lagarde has been at the forefront of efforts to contain the European debt crisis4, which led Greece, and then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.

The Mystery of Lagarde - Krugman - OK, so it’s Christine Lagarde for the IMF. I wish her luck. And I wish we had any idea how well she’ll do the job. It’s not as if she’s especially enigmatic: in addition to being smart, by all accounts she’s serious, responsible, and judicious. But that, of course, is what worries me. For we’re living in an era in which, for the time being, conventional prudence is folly, conventional virtue is vice. The things Very Serious People want to do — slash deficits right away, “normalize” interest rates, worry about inflation — are exactly the kind of things that could turn the slump of 2008-? into decades of stagnation. So the question is, will the IMF become more sensible under Lagarde? For the sake of the world economy, let’s hope not.

The IMF's new head: Wanted: a French revolution - The Economist -DESPITE all the talk of an “open, merit-based and transparent” contest, there was little reason to doubt that Christine Lagarde would get the top job at the IMF. The European Union, whose members control around a third of the votes on the fund’s board, had united behind her as soon as she entered the fray.  Emerging markets made much of their desire to see a non-European take the job but conspicuously failed to rally around her only rival, Mexico’s Agustín Carstens. All that remained was for America formally to throw its weight behind Ms Lagarde. It did so on June 28th, and soon after the fund’s board confirmed that she would be its 11th managing director.  In most ways, her appointment is in keeping with past practice. Like all ten managing directors who have preceded her, Ms Lagarde is European and got the job largely because of support from the fund’s rich-world shareholders. But there are some differences as well.

Challenges loom for Lagarde in new IMF post - The IMF has just elected the first woman to its managing directorship, and already Christine Lagarde’s new desk in Washington is piling up with folders eagerly awaiting her arrival.

  • First folder: the Greek crisis and the IMF’s role. In an attempt to fill the European institutional vacuum, under its previous leadership the IMF took unprecedented political and financial risks, which have now irreversibly tied the institution to the political and financial developments of the euro area, while narrowing its ability (and credibility) to leverage upon the Greeks and the European creditors to pursue a more effective approach.
  • Second folder: the global economy and the G-20’s mutual assessment process. As she joins the institution in the next few days, the staff will have already finalized the spillover reports aimed at assessing the impact of systemically-important countries/regions (China, euro area, Japan, U.S., and U.K.) on the world economy.
  • Third folder: IMF’s governance reforms. Right from the start, Ms Lagarde will have to ensure that the agreement reached at the G-20 Summit in Seoul in November of last year, later approved by the IMF’s own governance bodies, is ratified by the membership before the Annual Meetings in 2012.

Christine Lagarde And The Demand For Dollars - After receiving US support at the critical moment, Christine Lagarde was named Tuesday as the next managing director of the International Monetary Fund.  In campaigning for the job, Ms. Lagarde – the French finance minister – made various promises to emerging markets with regard to improving their relationships with the IMF.  But such promises count for little and the main impact of her appointment will be to encourage countries such as South Korea, Brazil, India, and Russia to back away from the IMF and to further “self-insure” by accumulating larger stockpiles of foreign exchange reserves – the strategy that has been followed by China for most of the past decade. Seen from an individual country perspective, having large amounts of dollar reserves held by your central bank or in a so-called sovereign wealth fund makes a great deal of sense; this is a rainy day fund in a global economy prone to serious financial floods.  But from the perspective of the global economy, such actions represent a major risk going forward – because it will further push down US interest rates, feed a renewed build up in private sector dollar-denominated debt, and make it even harder to get policymakers focused on a genuine fix to our long-term budget problems.

China Pledges Continued Support for European Debt - Chinese Premier Wen Jiabao on Saturday said China will continue to buy euro-denominated bonds to support Europe, in China's latest public endorsement of the efforts to contain a potential debt crisis in the common currency area. "China has been a heavy investor in the euro sovereign-debt market," Mr. Wen said at a news briefing. "We have bought a lot of euro bonds over the past years and we will continue to support Europe and the euro." "China is ready to seize the opportunity together with its European partners, tackling challenges and driving development to support the quickest possible recovery of the global economy and stable growth," he said. Analysts believe about two-thirds of China's reserves is invested in dollar assets, mostly Treasury debt. Chinese officials have said frequently in recent years that they want to diversify their holdings, but there are few other asset classes that can absorb investments on such a huge scale.

China willing to buy Hungarian bonds - Visiting Premier Wen Jiabao announced on Saturday that China will consider buying a "certain amount" of Hungarian bonds, signaling that his country is still determined to help European countries work out the debt crisis.Speaking at a press conference with Hungarian Prime Minister Viktor Orban, Wen also pledged to double the bilateral trade volume to about $20 billion by 2015, partly by boosting China's imports. He also said China's national development bank would provide 1 billion euros for development projects with Hungary.While Wen didn't specify the amount of Hungarian bonds China would be willing to buy, Hungary was among several European countries including Greece, Spain and Portugal, to which China has extended a helping hand with bond purchases.

China Says It Will Bail Out Insolvent European Countries - As expected, China is the new IMF. No surprise there.  All this means is that China will do everything in its power to prevent the ECB from launching an outright unsterilized monetization episode, which will double the amount of importable inflation (plunging EUR) to hit the Chinese domestic economy, and destabilize the already shaky stability, so critical for the Chinese communist party. And since the USD and the CNY are pegged, this has the added benefit of devaluaing the CNY instead even more if not against the USD, then against the CNY, which is now importing European sovereign risk and will continue to do so, until China finds itself in the same lock out as half of Europe currently. As for the IMF popularity contest, better known as "who is thst most feminine", it has just been relegated into complete historic obscurity and irrelevance. Which is sad because Lagarde may have actually had something worthwhile to contribute. Too bad her organization was just been rendered obsolete.

Suspended Agitation - Woe is unto the world. It doesn't know whether to shit or go blind. The rule of law has been replaced by Murphy's Law. The story in Greece gets more and more curious. One of the latest proposals is to ask holders of Greek bonds to go along with a voluntary rollover, meaning we will pay you on Tuesday for a hamburger today, even though we already owe you for ten years of weekly hamburgers.  Now, the buzz around the cosmic meme-sphere is saying fuggedabowt Greece, we're gonna do the same thing with Portugal and its sillyass bonds. Enter China.  Europe is about to enjoy the greatest monetary Chinese fire drill ever staged. Wen Jiabao will wave a magic wand and the Euro will fly above mundane reality on dragon wings allowing everybody in Greece, Portugal, Spain, Ireland, and Italy to hold a senior management job at the motor vehicle bureau with retirement at 53.  Then, with 80 percent of their former pay, they can open cafes where people still working at the motor vehicle bureau can spend the better part of each afternoon sipping Ouzo and arguing politics, finance, sports... or just enjoying the antics of the boorish German tourists.  Don't get the idea that the USA can just occupy a grandstand seat and stuff its fat face with Cheez Doodles while the current act plays out in the center ring of the world financial circus. Plenty of intermingled American interests depend on how things work out over there, not the least of which is the fact that the International Monetary Fund is actually a proxy American bail-out operation. It worked just fine in the old days when its exertions focused on little urchin nations like Swaziland, but wait until the Tea Party hears that America runs twelve thousand cafes for European motor vehicle bureaucrats to while away the afternoons drinking Ouzo in.

French Banks Said to Offer 70% Greek Government Debt Rollover -French banks, including BNP Paribas (BNP) SA, have told the French government they are willing to partly roll over maturing Greek government bonds in a bid to avoid a default by the debt-laden nation, three people familiar with the plan said yesterday.Under the proposal discussed in recent days between the French Banking Federation and the French Treasury, bondholders would re-invest about 70 percent of Greek sovereign debt maturing from mid-2011 to mid-2014, said one of the people directly involved with the talks. Fifty percent of the redemptions would go into 30-year Greek securities, with the remaining 20 percent invested in a fund made of “very-high quality” securities that would back the 30-year bonds, that person said. The proposal may be altered, he said. All three people spoke on condition of anonymity because the talks are ongoing and private.

Greece: French banks ready to roll over loans, Sarkozy - French President Nicolas Sarkozy says his country's banks would help Greece by giving it 30 years to repay. France's Figaro newspaper said banks are ready to relend - or roll over - 70% of loans they hold. The plan is being worked out by the French government and bankers. Greece, which has not yet exhausted all its first 110bn-euro (£98bn, $158bn) bail-out, is already standing by for further rescue loans expected to be up to 120bn euros. However, the German government and others have been pressing for banks and other private-sector lenders to Greece to be involved this time round. German banks are reported to be very interested in the French model being discussed. A group of international bankers are currently meeting eurozone officials in Rome to discuss the crisis. The matter is fraught because credit rating agencies, who determine the credit-worthiness of borrowers, have already said they will view any roll-over of loans by banks as a technical default, something that is tantamount to bankruptcy.

Germany’s season of angst: why a prosperous nation is turning on itself - Here in the industrial core of Europe, things have never been so good.  Germany's western flank has become the greatest exporter in the Western world, second only to China and far ahead of the United States. The container ports along the Rhine are working day and night to deliver record orders of German products to southern and western Europe, the U.S. and especially to China. Shops are busy. Home sales are rocking. Unemployment hasn't been so low since the eighties. In terms of growth, profits and productivity, the current German economic boom has surpassed even the “wonder years” of the 1950s. These are, by several measures, the most successful people in the world. Yet it is very hard to find anyone here who is happy about this state of affairs. Unlike the great Rhineland industrial booms of the 1950s and 1970s, this one is provoking Germans to turn against their government, against Europe, against technology and growth, against outsiders. It is an inward-looking, self-questioning moment in a country that the rest of Europe very badly needs to be involved in affairs outside its borders.

ECB's Mersch says Greek default would bring "chaos" - European Central Bank Governing Council member Yves Mersch said on Saturday a Greek sovereign debt default would lead to chaos, adding it was up to the parliament to deliver on its austerity promises. Banks and policymakers moved closer to a deal on Friday to help Athens secure funds ahead of a parliamentary vote on austerity next week that Greek Prime Minister George Papandreou must win to avert default. If the vote next week is lost, international lenders are unlikely to release a 12 billion euros funding tranche, meaning the government will run out of cash within days. "Now it's up to the Greek parliament. I observe," he told reporters. "The next step will be to observe whether there will be delivery." When he asked about what would happen if Greece defaulted, Mersch said: "Chaos."

Greek debt restructure inevitable: PIMCO's El-Erian (Reuters) - Greece's sovereign debt restructuring is inevitable, PIMCO co-chief investment officer Mohamed El-Erian said on Sunday, warning the nation's problems could "contaminate" Europe. "It is inevitable that Greece will have to restructure its debt. Europe has been kicking the can down the road, treating Greece's problem not as a solvency issue, but as a liquidity problem," he said on CNN's "Fareed Zakaria GPS" program. Greece is teetering on the brink of defaulting on its huge public debt. The government is seeking parliamentary approval for an unpopular set of austerity measures demanded by the European Union and International Monetary Fund to release a much-needed 12 billion euro ($17.2 billion) loan tranche. The Greek parliament is due to vote Wednesday and Thursday on measures that include 6.5 billion euros worth of additional austerity steps for this year and savings of 22 billion euros for 2012-2015 to cut deficits and keep qualifying for EU-IMF aid.

Greek contagion may be worse than Lehman: D.Bank CEO - Contagion of Greece's debt problems to the rest of Europe could be worse than the collapse of investment bank Lehman Brothers in 2008, Deutsche Bank Chief Executive Josef Ackermann said on Monday. Greece needs 12 billion euros ($17 billion) in European and IMF aid to avoid a default on its debt mountain in mid-July that could spread contagion across the euro currency area and send shock waves around the world economy. "If it is Greece alone, that's already big. But if other countries are drawn in through contagion, it could be bigger than Lehman," he said at a Reuters banking conference on Monday. His words echoed statements top European Central Bank policymaker Juergen Stark made earlier, when he said the impact of a Greek debt restructuring on Europe's markets could eclipse the insolvency of Lehman Brothers, which marked the start of the global financial crisis. French banks have agreed to roll over holdings of Greek debt for 30 years, but no comparable deal has been reached in Germany so far.

What do you want to wager that the IMF's a bit overly optimistic on the outlook for Greek nominal GDP? - Rebecca Wilder - These jokers have no idea what they're doing. The IMF has overshot the ex-post path of Greek nominal GDP in each and every one of their World Economic Outlook forecasts since April 2009. What do you want to wager that they're wrong about 2011, too? And now they want more fiscal austerity... The French are devising a plan to compel bondholers to rollover Greek debt by enhancing the bonds. The new bond rate would be equal to Greece's current borrowing rate on the EU/IMF/EFSF programs plus a variable factor linked to 'an indicator such as GDP'. Just amazing.

Sovereign Debt Risk Surges to Record on Greek Default Concern - The cost of insuring European sovereign debt rose to a record on concern Greece will default if its government fails to pass an austerity plan this week, triggering a banking crisis across the region. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 3 basis points to a record 246 at 11:30 a.m. in London. Swaps on Greece climbed 28 basis points to 2,143, signaling an 84 percent probability of default within five years, according to CMA. Prime Minister George Papandreou needs to unite his lawmakers in two votes on a 78 billion-euro package ($110.8 billion) of budget cuts and asset sales before Greece can tap a fifth loan payment from last year’s 110 billion-euro rescue. The European Central Bank has warned a Greek collapse would cripple the nation’s lenders and hurt banks across the region that are already under pressure to bolster capital. “If Greece will end in an uncontrolled debt restructuring, the risk of a run on Greek banks and of that spilling over to other banking systems is quite high,”

Papandreou Faces Parliament on Second Austerity Call as EU Deadline Looms - Greek Prime Minister George Papandreou faces his second survival test in a week as lawmakers vote on a five-year austerity plan that must pass for the cash- strapped nation to secure more international aid. Failure to pass Papandreou’s plan may lead to the euro area’s first sovereign default as Greece needs to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August. The week, beginning with talks over creditors’ role and ending with a Sunday meeting of finance ministers meet in Brussels, will be marked by a 48-hour general strike in Greece. With 155 votes in the 300-seat legislature, Papandreou needs to unite his lawmakers in two votes on a 78 billion-euro package of budget cuts and asset sales before Greece can tap a fifth loan payment from last year’s 110 billion-euro rescue. Ruling-party lawmaker Thomas Robopoulos said June 24 he may vote against the government, joining Alexandros Athanasiadis, who opposes plans to sell a stake in Public Power Corp SA (PPC), the former electricity monopoly

Stress Increases in Eurozone; Portuguese, Spanish, Irish, and Italian 10-Year Yields All Make New Highs - Eurozone sovereign debt yields pushed higher across the board today. Irish debt has topped 12% for the first time, Italian debt topped 5% and most Euroland debt yields are at all times high spreads compared to Germany. Significantly, yields are at fresh new highs for Spain, Italy, Ireland and Portugal. If by any chance you are wondering whether to believe EU officials or the bond markets, I suggest you believe the bond markets. The charts below are delayed, but the quotes are accurate. Stress increases in Eurozone.

Greek vote hangs in the balance - The Parliament started the debate on the measures today with two votes scheduled for this week, a general on vote on tax and spending targets plus the creation of a privatisation agency expected on Wednesday, and a vote on the enabling legislation on individual budget measures and privatisation of specific state assets on Thursday, Reuters reports. Antonis Samaras on Sunday singled out taxation as his main point of disagreement on the austerity package, insisting that lower taxes are needed to help Greece return to growth and to restore some hope among Greeks, according to Kathimerini. He said that Greeks were “over-taxed” and that the new hikes included in the scheme were “too much of a burden to carry.”  Germany’s Süddeutsche Zeitung newspaper suggested that the European People’s Party, the group of  EU’s center-right parties, should consider either ousting ND or cutting its subsidies. El Pais did an approving comment on Samarras as a man who dared to say No to Angela Merkel.  Hundreds of demonstrators kept a vigil in Syntagma Square outside the Greek parliament late on Sunday, angry at the prospect of more painful cuts after three years of deep recession.  Polls show three-quarters of Greece's 11 million population oppose the measures. The country’s powerful unions, meanwhile, have called a two-day national strike from Tuesday to ratchet up pressure on the government. Many companies, including the main electricity group PPC, which is slated for partial privatisation next year, have started rolling stoppages. 

Maybe Greek MPs would be right to say No - The Greek parliament is today scheduled to start the most important parliamentary debate in the country’s recent history. If a majority approves the agreed austerity package in a vote due on Tuesday, all is well. For now. The European Union and the International Monetary Fund will continue to provide credits. If not, Greece might default within days.  How should Greek MPs vote? Until last week, I would have said: definitely Yes. The country is running a large primary deficit. The austerity imposed by the EU and the IMF is mild compared with the austerity that would be required if the country were to be cut off from any source of external finance. A messy default would destabilise the global financial system and could force Greece to abandon the euro.  Such an argument is vulnerable to relatively subtle shifts in circumstances. One such shift may have occurred last week, when EU and IMF negotiators imposed a new tranche of austerity. The measures included a cut in the tax-free allowance, and a tax levy of €100-€300 for the self-employed. The decision triggered angry protests in Athens. I see it as a political provocation and an act of economic vandalism. It could derail the entire crisis resolution process. There is no doubt that Greece needed a large fiscal adjustment. But it would be a mistake to deprive Greece of all means of political manoeuvre.

Spain's 'Indignant' Launch New Protest March - Spain's 'indignant' activists began their last and longest protest march on Saturday, leaving from the northeastern city of Barcelona to cover 650 kilometres on their way to a major Madrid rally on July 24. Demonstrators lift their arms as they protest against the handling of the economic crisis near the Spanish parliament in Madrid June 22, 2011. The sign reads: 'We are not filthy, we are indignant'. Two other marches set off earlier this week, from Valencia in the east on Monday and Cadiz in the south on Thursday, spreading the message of their anger at unemployment, welfare cuts and corruption. Some 50 marchers left Barcelona early in the morning to applause from passers-by and sympathisers, expecting to pick up more en route. They carried sleeping bags, groundsheets and prophylactics against insect bites, sunburn and muscle cramps. The party also included a doctor and a nurse. Some walking and others cycling, they planned to pass through 29 towns and villages, holding a meeting at each stop on the 652-kilometre (407-mile) route. 'It's a further step for the indignant,' said Rafael de la Rubia, international coordinator of the movement World without War, who is well used to marching for a cause. 'First we took to the streets, then the squares, and now the highways,' he added. 'After that, we will take Europe.'"

Nine Reasons Why Spain Is Not Different -Spain, as those 1990s tourist brochures used to tell us, is different. And it certainly shouldn’t be confused with Greece. Even a cursory look at the most basic of maps should satisfy any doubts we might be harbouring in that regard. But being different is not the same thing as being economically sound. Which is what Societe Generale’s Klaus Baader has just tried to argue in a recent research note entitled “9 reasons why Spain is different”. “The Spanish bond market was hit hard in the wake of the quantum leap in the Greece crisis. But fundamentally the case for Spain remains strong,” he tells us. The reason I have decided to single Klaus out for special treatment here is because he conveniently brings together, in a clear and succinct fashion, a number of arguments which are widely accepted and used by both analysts and policy makers. Unfortunately the fact that arguments are widely held does not make them valid, or in anything other than the most trivial conventialist sense “true”. Indeed it is precisely because I feel that these arguments are not well founded that I have decided to reply to them in this rather detailed way. Basically I don’t buy the idea that Spain is simply suffering from a crisis of confidence, one which, in its turn, puts pressure on the government bond spread. I think Spain has a problem in the fundamentals department, and unless this problem is first accepted and then addressed the wrong (inadequate) remedies will continue to be applied, putting the Eurozone and its citizens at risk of financial catastrophe in the medium term.

Satyajit Das: Default Semantics – Credit Default Swaps & Greece - Yves here. Despite the technical focus of this post, the underlying issue, of whether Greek CDS will pay out as protection buyers expected, is very important. As Das discussed in an earlier post, in the first real test of the CDS market (the Delphi bankruptcy in 2005), credit defaults swaps had required delivery of bonds to get the insurance payout on the contract . Since the volume of CDS on Delphi was over five times the amount of bonds outstanding, that would have meant a lot of people bought dud insurance. That was recognized to have the potential to have very bad outcomes for the market. So, on the fly, the International Swaps and Derivatives Association implemented “protocols” by which any two counterparties, by mutual consent, substitute cash settlement for physical delivery. In other words, they came up with a big fix that was nowhere in the contracts. Ain’t it nice to be a big financial player? Efforts to extend Greek debt may require similar efforts at fixes, and if they aren’t fully effective, it could have a chilling effect on the CDS market (not that we think that is a bad outcome, mind you). But even with all the powers that be out to preserve the product and avoid roiling the markets, the conflicting objectives of various players may render that outcome not so easy to achieve.

Greek crisis puts future of CDS in doubt - Earlier this year a eurozone finance minister telephoned a senior executive at one of the region’s biggest banks and told him that a credit event – or pay-out in credit derivatives in the event of a Greek default – must be avoided at all costs. This finance minister knew who to call. The senior executive sits on the board of the organisation that will decide whether a rollover of Greek debt – where banks and investors are encouraged to reinvest in maturing bonds – will trigger a credit default swap pay-out, an event some politicians fear could spark a run on the eurozone banking system. The pressure the banker came under highlights the worries among Europe’s political elite that some banks may be forced into insolvency if they are faced with a multibillion-dollar bill for selling protection on Greek CDS. The overall net pay-out the market will have to make on Greece in the case of a credit event, which will be decided by a committee that meets under the auspices of the International Swaps and Derivatives Association (Isda), is only $5bn.But this may not truly reflect the size of potential losses for some banks. The gross CDS exposure on Greece is $79bn and some analysts speculate that any one bank may have to pay out as much as $25bn.

Greece Update: Banks to Propose Rolling over 50% of Debt - From the WSJ: French Banks Submit Plan for Greek Debt Rollover French banks will propose on Monday ... for private creditors to halve their exposure to Greece by rolling over only about 50% of the Greek government bonds they hold ... Under the proposal, financial institutions would effectively reduce their exposure but tie their hands to Greece for a long period by committing to buy up to 30-year bonds ... Since some analysts were expecting haircuts of up to 70 percent, rolling over half their debt would be a huge positive for the banks. The Greek parliament is expect to vote on the new austerity package on Wednesday or Thursday. The German finance minister, Wolfgang Schaeuble, made it clear that the next bailout tranche was contingent on Greece passing the austerity package.

Can French Banks Save the Eurozone? - The French today came out with a proposal to save Greece and the eurozone. French banks, which hold roughly $21 billion in Greek sovereign debt, have agreed to roll over a big chunk of their Greek government bond holdings for 30 years to keep markets happy and avoid a Greek default. But the key to that plan is getting all the other countries holding Greek debt to do the same. And the question is, would countries like Germany and U.S. follow? Not likely, and TIME's Bruce Crumley tells us why on Global Spin: Without the very tight relationships between government and business leaders that exist in France—and give French politicians more influence in shaping (or meddling in) private sector affairs than elsewhere—it's unclear whether heads of financial companies in other nations could be similarly convinced to reconfigure billions in their investments in the public service interests of helping the Greek economy, and with it European countries using the euro.

Axel Weber on ‘Financial Repression’ to Solve Greek Crisis - The ex-Bundesbank chief sat down with the Wall Street Journal to discuss ways out of the Greece mess, his well-known aversion to ECB government bond buying and how a nearly century-old German solution to paying war reparations may be a way forward for Athens.On private sector participation: not enough private-sector holdings make it worth the risk. “If you really add up all the truly private engagement in Greece, you won’t find very large numbers.”“The only way to enable orderly private-sector involvement is to focus on the new debt issuance and to make private-sector involvement part of a contingent bond contract.”On where the crisis resolution is heading: debt guarantees. “Some very long-term guaranteed debt issuance, such as 30 years, for part of the Greek debt could help Greece return to the market for the remaining debt over a more realistic shorter time horizon.”But Weber’s most provocative suggestion dealt with what he called “financial repression” to avert capital flight from Greece while forcing the private sector to share the financing burden without involving banks:

Greek Debt Talks Widen - Talks about how to get private investors to contribute toward a new bailout for Greece widened Monday to include a possible buyback of Greek government bonds—but people at a meeting in Rome discussing the issue said there were no guarantees the ideas wouldn't lead to a default by the heavily indebted nation.The Rome meeting was the first gathering of Greece's official and private creditors, together with Greek government officials, since the country's debt crisis began more than 18 months ago. Greece was promised €110 billion ($156.08 billion) in aid last year from the International Monetary Fund and European Union, the first of three bailouts to euro-zone nations. But that money won't be enough to finance it until mid-2013 as originally planned.The efforts to get a meaningful private-sector contribution to a fresh bailout, as demanded by Germany and other euro-zone governments, face a tight deadline.  Finance ministers from the rest of the 17-nation euro zone are to discuss a new Greek rescue on Sunday—assuming the Greek parliament agrees to a package of austerity measures this week. Governments are trying to reduce the amount they need to lend to Greece by seeking a framework of how to prevent investors in Greek government bonds just cashing bonds as they come due.

Greece Update - From the WSJ: European Bankers Tackle Greece Debt Plan The efforts to get a meaningful private-sector contribution to the bailout, as demanded by Germany and other governments, face a tight deadline. Finance ministers of Greece's fellow members of the 17-nation euro zone will meet to discuss a new rescue on Sunday ...The ECB has taken a hard-line public stance against any private-sector participation that would result in a default rating for Greece. They are trying to find a way for the private-sector to participate without it being called a default. Not easy ... and of course all of this is contingent on Greece passing the new austerity plan.Looks like next Sunday will be interesting ...The yield for Greek 2 year bonds is up to 29.4%, and the 10 year yield are down to 16.8%. Portuguese and Irish 10 year yields are up to new record highs (12.1% for Ireland, 11.7% for Portugal). Here are the links for bond yields for several countries...

French Greek Rollover Plan Depends on No Default Rating (Bloomberg) -- A proposal by French banks to roll over Greek debt depends on credit-rating firms not cutting Greece and existing or newly issued government securities to default, according to a draft of the plan. European banks and insurers are using the French proposal as a blueprint for discussions toward an agreement to meet politicians’ calls that they contribute to Greece’s second rescue in two years. Fitch Ratings will “very likely” deem Greece in default if the European Union goes ahead with a plan to get private investors to roll over their Greek bonds as part of the Greek rescue.“Fitch would very likely view such a scenario as a sovereign-default event and place the Greek sovereign rating into restricted default,” David Riley, Fitch’s London-based head of sovereign ratings, wrote in a letter in the Financial Times today. A spokesman for Standard & Poor’s declined to comment. EU leaders are pushing for private investors to shoulder some of the cost of a new aid plan for Greece and are seeking to convince bondholders to roll over at least 30 billion euros ($43 billion) of Greek debt maturing in the next three years into new securities to help the country close a funding gap.

Greek Debt Rollover Likely Treated As Default - Fitch Repeats - Fitch Ratings reiterated Tuesday it will likely judge Greece to have defaulted if the private sector voluntarily agrees to a rollover of Greek debt. Under the bailout plan supported by French and German leaders, Greek bondholders would buy new Greek debt when existing bonds mature. "Fitch would very likely view such a 'scenario' as a sovereign default event and place the Greek sovereign rating into 'Restricted Default' (RD)," wrote David Riley, Fitch's head of sovereign ratings, in a letter to the Financial Times. "If it looks like a default, we will rate it as a default," he said, pointing to two recent Fitch reports on the subject. The comment comes amid a positive market tone after French banks drafted a proposal to roll over the majority of their Greek debt exposure ahead of the parliamentary austerity vote Wednesday in the heavily-indebted country. "In many respects it is surprising and unfortunate that so much effort appears to have been invested in circumventing a particular rating outcome,"

EU warns Greece rejecting austerity means default (Reuters) - The European Union warned Greek lawmakers on Tuesday their country faced immediate default unless they approve a hated austerity plan, as strikers began new mass protests against the EU/IMF-imposed measures. With the Greek parliament debating a raft of spending cuts, tax rises and privatisations, the EU's top economic official, Olli Rehn, dismissed reports that Brussels was working on fallback options to keep Greece afloat if the plan was rejected. "The only way to avoid immediate default is for parliament to endorse the revised economic programme ... They must be approved if the next tranche of financial assistance is to be released," he said in a statement. "To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default," Rehn said.

Greece: 48-hour general strike begins - From the BBC: Greece general strike: Unions act amid cuts debateTrade unions in Greece have begun a 48-hour general strike, hours after PM George Papandreou urged parliament to back an austerity package. Huge crowds of protesters are expected on the streets of Athens, while public transport is set to grind to a halt.More than 5,000 police officers are due to be deployed in the centre of Athens on Tuesday morning, when tens of thousands of striking workers are expected to march towards parliament at 1000 (0700 GMT).  Airports will be shut for hours at a time, with air traffic controllers walking out between 0800 and 1200 (0500-0900 GMT) and 1800 and 2200 (1500-1900 GMT). Ferries, buses and trains will also stop running.  We will probably wake up to images of the strike in Greece. The austerity votes are scheduled for Wednesday and Thursday.

Two-Day Strike In Greece Ahead Of Austerity Vote - Police fired tear gas on demonstrators in front of Parliament here on Tuesday as Greeks began a 48-hour general strike ahead of a crucial vote by lawmakers on measures deemed critical to unlocking international financial support for the debt-ridden country. A police spokeswoman said 23 people were detained, with five of them later arrested, and 21 police were injured, none seriously. There were no official figures for the number of injured demonstrators, but local news media said several people were hurt.  The strike, organized by the country’s two main labor unions, is the latest in a series of walkouts and the longest strike in more than 30 years, as public outrage has grown over the Socialist government’s relentless austerity drive.  As the strike began, Olli Rehn, the European Union’s top economic and monetary affairs official, urged the Greek Parliament to approve the measures in votes expected on Wednesday and Thursday, so that its foreign lenders could release the aid Greece1 needs to stave off default.  “The only way to avoid immediate default is for Parliament to endorse the revised economic program,”

It’s not only Greeks who’ve lost their marbles - The essence of ancient Greek tragedy is that the audience knows it will end in disaster, but feels compelled to watch the horror unfold. And so it is with the modern version, a sovereign debt crisis of Sophoclean dimensions. Themes of the great dramatist's finer works are all there: how arrogance, pride and deception result in unbearable pain; the inevitability of retribution and (not yet witnessed in Athens or Brussels) the arrival of wisdom through suffering. Tomorrow, Greek MPs are scheduled to vote on a fresh austerity package. If it's passed, the country will receive the next 12 billion euros of a 110 billion euro bail-out. Sadly, this is little more than a financial hors d'oeuvre. Still required is an additional 100 billion euro deal if Greece is to remain solvent until 2013. In effect, the country is borrowing enormous sums to service existing debts, which it cannot afford to repay. As Sophocles reminds us, when divine and human purposes conflict, the gods will always prevail. In this case, Athena, the deity of endeavour and reason, is deeply offended by Olympian self-indulgence. The upshot will not be a miraculous economic recovery, but a spectacular flame-out. As far as Greece is concerned, there is no deus ex machina. The tragic denouement will involve its default or withdrawal from the single currency, perhaps both. Greece is bust; it already owes 160 per cent of its GDP. Its economy is staggeringly inefficient. Many in the public sector enjoy retirement at 50 and pensions close to full final salary. The private sector is blighted by corruption. The tax-collecting system operates on the basis of a tips box, with only 5,000 Greeks admitting to an income of more than 100,000 euros.

Greek Strike Overshadows Budget Vote - Greek police fired tear gas to disperse protesters in the center of Athens as labor unions shut down government services before a vote on austerity measures that may determine if the nation can avoid a default. Lawmakers have now begun a second day of debate on Prime Minister George Papandreou’s five-year plan of budget cuts and asset sales after a crowd estimated by police to number 20,000 thronged outside Parliament to mark a 48-hour general strike. Hooded youths faced volleys of tear gas as they attacked riot officers, smashed windows at a McDonald’s Corp (MCD) restaurant and set two vans on fire. “We are determined to stop this plan from passing and if it does pass, we will continue our efforts,” said Dimitra Oikonomou, 50, a schoolteacher who joined today’s rallies. “The government might not listen to us now, but in the end they will hear it all at once.”

Police, demonstrators clash at Greek austerity protest (Reuters Video)

Banker Occupation of Greece - Economist Michael Hudson calls it "Replacing Economic Democracy with Financial Oligarchy" in a June 5 article by that title, saying: After being debt entrapped, or perhaps acquiescing to entrapment, the Papandreou government needs bailout help to pay bankers that entrapped them. Doing so, however, requires "initiat(ing) a class war by raising its taxes (harming working households most), lowering its standard of living - and even private-sector pensions - and sell off public land, tourist sites, islands, ports, water and sewer facilities" - in fact, all the country's crown jewels, lock, stock and barrel, strip-mining it of everything of worth at fire sale prices. Why? Because the US-dominated IMF, EU and European Central Bank (ECB), the so-called "Troika," demand it as the price for bailout help that wouldn't be needed if Greece wasn't trapped in the euro straightjacket. Membership means foregoing the right to devalue its currency to make exports more competitive, maintain sovereignty over its money to monetize its debt freely, and be able to legislate fiscal policies to stimulate growth. Instead they're entrapped by foreign banker diktats demanding tribute. They call it a "rescue." Now they're at it again, demanding more or they'll collapse the entire economy, or so they say. And the same scheme is replicated in Ireland and Portugal. Moreover, it's heading for Spain, and potentially most of Europe and America as representative governments head closer to "financial oligarchy."

Greece is standing up to EU neocolonialism -Syntagma has become Tahrir Square in slow motion. It is a peaceful, democratic revolt that was easier to start because the fear of brutal repression is smaller, but will be harder to complete as it faces the enormous might of the European Union and global finance capital. Now that the indignant have changed the rules of the political game, it is perhaps time to revisit some basic facts that have been seriously misrepresented.

  • 1. The bailout of Greece is not a gift or grant but a loan bearing high interest. Crucially, bailout funds are not used to pay civil servants' salaries and pensions, but to pay off debt held by German and French banks. According to IMF estimates, Greece will pay €131bn in refinancing and interest payments between 2009 and 2014, far more than the initial bailout loan of €110bn. In a magician-like sleight of hand, German and French workers are forced to bail out their national banks, not directly as in the 2008-9 banking bailouts but through the mediation of Greece, which inevitably becomes the target of populist outbursts.
  • 2. This unprecedented punishment led to an increase in debt and to permanent economic depression. The European governments now propose to offer a second loan, if Greece accepts an even more odious set of measures and sells off the family silver. Acceptance of these measures has been made a precondition for the payment of the fifth instalment of the initial bailout. This is blackmail worthy of a backstreet loan shark. The privatisation plan includes the sale of 17% of the public power corporation, the engineroom of growth, which will remove the state's controlling interest. This post-Soviet style privatisation will pass valuable public assets to private hands.

Greece erupts with riots as protestors face off with police over budget cuts...Riot police clashed with rock-hurling youths in Greece Tuesday amid fury over painful austerity measures in the debt-racked country. Tear-gas swirled as hooded protesters tore up paving stones and set fires near the Greek finance ministry.The violence comes at the start of a two-day strike called by unions over the $40 billion cost-cutting package they say disproportionately hits the poor.The measures need to pass two parliamentary votes Wednesday and Thursday if the country is to receive bailout funds from the European Union and the International Monetary Fund.Unemployment has soared to 16% as Greece teeters on the edge of a serious debt default that threatens to drag down European banks and stagger the global economy.

Athens erupts over austerity - Youths hurled rocks and firebombs at riot police in central Athens on Tuesday as a general strike against new austerity measures brought the country to a standstill. Lawmakers were embarking on their second day of debate on austerity measures that must be passed in votes Wednesday and Thursday if Greece’s international creditors are to release another batch of bailout funds to see it beyond the middle of next month. The austerity drive is hugely unpopular in Greece, and the demonstration in central Athens soon degenerated into violence.For several hours, police fired volleys of tear gas and stun grenades at masked and hooded youths who pelted them with firebombs and chunks of smashed marble. Police said 18 people were detained, five of them later arrested, and that 21 policemen were injured. The clashes, which involved as many as 20,000 protesters, erupted at the start of a two-day strike called by unions furious that a $40 billion austerity program will slap taxes on minimum-wage earners and other struggling Greeks.The measures come on top of other spending cuts and tax increases that have sent Greek unemployment soaring to more than 16 percent.

Greece Struck Down by Strike - —A wave of protests in the Greek capital turned bloody as parliamentarians neared a decision on whether to impose sweeping public spending cuts in exchange for a fresh international bailout aimed at preventing a ruinous default.  Thousands of Greeks demonstrated outside Parliament as lawmakers began a second day of debate on a €28 billion ($40 billion) program of spending cuts and tax increases the country has promised its international creditors. A vote on the measures is scheduled for Wednesday. The demonstrations began peacefully, but later turned violent, leaving more than 40 people injured—including 37 police officers.  The International Monetary Fund—architect of the Greek austerity program and the object of much of the protesters' anger—on Tuesday signaled continuity in its approach to the crisis, naming Christine Lagarde its new managing director. As France's finance minister, Ms. Lagarde played a central role in shaping Europe's response to Greece's worsening problems, in collaboration with the IMF.  Despite Tuesday's violence, the government's majority appeared to be holding. The Socialist government controls a majority of 155 deputies in Greece's 300-member Parliament, but at least four Socialist lawmakers have expressed reservations about the package.

$38bn cuts and tax hikes spark massive Greek strike - More than 5000 police were guarding Athens's city centre, with union protest rallies due to head to parliament. The strike disrupted or halted most public services. Everyone from doctors and ambulance drivers to casino workers and actors at a state-funded theatre joined the protest, which is to continue tonight (AEST). Hundreds of flights were cancelled or rescheduled as air-traffic controllers walked off the job for four hours from 8am (3pm AEST), and were to also strike between 6pm and 10pm. Public transport workers also joined the strike, snarling traffic across the capital. About a dozen protesters cordoned off one of Athens's busiest avenues, which runs past parliament. Unions are angry at a new E28 billion ($38bn) austerity program that would slap taxes on minimum-wage earners and other struggling Greeks, following months of cuts that have pushed unemployment above 16 per cent.

Debt-laden Greece finds no buyers in 'fire sale' of national assets - While Greece erupted in protest again, representatives of the country's government were at Claridge's hotel trying to drum up international investors' interest in a "fire sale" of its national assets. Up for sale are 39 airports, 850 ports, railways, motorways, sewage works, a couple of energy companies, banks, defence groups, thousands of acres of land for development, casinos and Greece's national lottery. George Christodoulakis, Greece's special secretary for asset restructuring and privatisations, said the sell-off would raise €50bn (£44bn) to help pay back the country's €110bn bailout debt. The private equity bosses gathered in the hotel's ballroom for the parade of Greece's national treasures showed little interest in buying anything. Stathopoulous said investors were finding it very hard to assess the risk of investing into Greece, which means assets "will be priced at lower than they are worth, lower than the Greek government, and even the European Union, expects".

Greece Deputy PM Warns Of Tanks In The Streets, Mass Suicides, If Second Bailout Voted Down By Greek Parliament - With just days left until the crucial vote on passing the Greek mid-term austerity package, the assured destruction rhetoric used by the Greek status quo has hit fever pitch. Just to make sure the message is not lost on the broader population that Europe's banks will not admit defeat in a vote that could end the kleptocratic cartel's hegemony for ever, Greece's Deputy Prime Minister Theodoros Pangalos has blasted suggestions that it would be better for his country to abandon the euro and return to the drachma as an "immense stupidity". He didn't stop there. For dramatic impact, the Greek vice PM also said that the country would devolve into complete anarchy, with tanks roaming the streets, a population on the verge of civil war, with mass suicides, just for dramatic impact, should bankers not get their way. More or less in line with the Hank Paulson script that is regurgitated every few years when the Ponzi system is on the verge of imploding yet again.

Provopoulos: “The country would be voting for its suicide.” - Just a few hours before a critical vote on a new package of austerity measures, ruling PASOK and the main opposition New Democracy party made a last-ditch attempt on Tuesday to win round dissenters straying from party lines, Kathimerini reports. Alexandros Athanasiadis reportedly stayed firm in his intention to vote against the bill while at least other PASOK dissenter seem to have softened his stance. The New Democracy put pressure on Elsa Papadimitriou, an ND deputy who suggested earlier that she would go against the party line and vote for the measures. Sources told the newspaper that dissenters could get expelled from the party.  The three other main parties in Parliament are expected to oppose the measures. Unclear is the vote of smaller groupings. Dora Bakoyannis, head of the Democratic Alliance center-right party, did not determine how her party’s five members would vote but called for “votes of conscience.” Even if the government wins Wednesday’s vote, the more difficult vote will be on Thursday - on a bill outlining the implementation of the measures. Central bank governor George Provopoulos told the FT that “For parliament to vote against this package would be a crime – the country would be voting for its suicide.”

Greece faces ‘suicide’ vote on austerity - Greece will be committing “suicide” if its parliament fails to back sweeping austerity measures aimed at averting a catastrophic default, according to the head of the country’s central bank. The stark warning by George Provopoulos, governor of the Bank of Greece, further heightened the stakes ahead of a knife-edge vote on Wednesday in the Greek parliament. It came as Athens’ police fired tear gas after protests at the severity of the measures imposed by the European Union and International Monetary Fund turned violent. Speaking to the Financial Times, Mr Provopoulos expressed concern that Greece’s economic crisis had been played down by politicians over the past 18 months as the country lurched towards a possible default. “We have never really had a debate in this country about what went wrong. In Portugal the new government has come in and said that there will be a difficult two years ahead. We have not had that kind of talk here,” he said. He added: “For parliament to vote against this package would be a crime – the country would be voting for its suicide.”

Majority of Greek lawmakers back austerity plan - A majority of Greek lawmakers have voted in favor of a 78 billion euro package of additional austerity measures and asset sales. News reports said more than 150 lawmakers in the 300-seat chamber backed the plan as voting continued. The package has been deemed a prerequisite for the release of a 12 billion euro installment of aid from the European Union and International Monetary Fund seen as necessary to avoid a default. A further vote on legislation implementing the measures is scheduled for Thursday. If ultimately approved, it would clear the way for euro-zone finance ministers to agree to release the aid tranche at a July 3 meeting.

Greece Secures Austerity Vote - Greece's Parliament approved a five-year austerity plan demanded by its international creditors as a condition for a new bailout that promises short-term relief, but fails to resolve deeper questions about the country's ability to pay back its debts.  The measures passed with a five-vote majority, erasing fears that a failed package would spark a default.  Wednesday's passage of the plan followed an intense debate within the ruling party and Greek society at large on whether the country can bear further austerity. Even with the new spending cuts and promised bailout funds, the fate of the country beyond the summer, and of the debt crisis around the euro zone's fringe, remains open. Doubts about Greece's solvency and its ability to maintain brutal austerity policies remain as widespread in financial markets as they are on the tear-gas-filled streets of this city.

Papandreou Wins Budget Vote as Risk of Default Recedes - Greek Prime Minister George Papandreou clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt-laden nation. Papandreou won by 155 votes to 138, a wider margin than last week’s confidence ballot, as some opposition lawmakers abstained rather than oppose a package that is the condition for further rescue funds. The vote was overshadowed by a 48-hour strike and scuffles outside Parliament that saw police fire tear gas at demonstrators protesting budget cuts and asset sales. Greek bonds rose as approval of the 78 billion-euro ($112 billion) plan sparked optimism Papandreou can keep the country’s coffers intact for now. Attention now shifts to a second bill tomorrow that authorizes implementation of the measures.  “Markets will calm down a little bit and the situation will improve a little,” . “It’s of course only a matter of time until this starts all over again. Greece needs to continue to implement its reforms, and we can tell how difficult that is.”"

Greek MPs vote not to default this summer - In the end, the margin was decisive – 155 to 138 – but few people expect that Greece will be able to implement the package its MPs have voted on. In September, the troika will descend on Athens and investigate whether the programme is still on track. And it will demand that any shortfall will have to be covered by new austerity measures. The expectation is now that the Papandreou government will last until the of the year, and that a debt restructuring is now virtually inevitable.  At yesterday’s vote, all but one of Papandreou’s Socialist MPs, and one New Democracy dissenter, backed the government’s midterm economic program, Kathimerini reports.   Parliament votes on the second bill today. Government and analysts expect it will also pass. The debate in Parliament resumes at 9.30am, the vote is not expected before 2pm, Reuters reports.  . Analysts said the real challenge will come after the bill is voted on and the international money secured. There is a growing concern over whether the government will be able to implement the unpopular cuts in practice to meet a tight schedule imposed by the EU and the IMF. Bloomberg quotes Greek newspaper To Vima calculated the additional burden for an average family of four at €2795 a year, about the same as one month’s income.

Second vote passed, and now what? - The Greek government got the parliamentary approval for the implementation of austerity measures in the second vote on Thursday, now set to secure emergency payment and avoid immediate default. The bill was passed with 155 against 138 votes. Even after the successful passage of the main austerity measures, financial market nervousness over Greece’s future will remain high amid ambitious privatisation and consolidation targets. Finance minister Evangelos Venizelos told parliament his priorities were to complete an overhaul of the tax administration and press ahead with the privatisation programme by setting up a national wealth fund to handle €50bn of disposals by 2015, the FT reports.  The main protest site Syntagma square went back to normal. Athens began cleaning up after Wednesday riots, while the government defended the police from accusations by opposition parties of heavy-handedness, Kathimerini reports. The City of Athens said it will cost €55000 to repair the 176 dumpsters vandalized on Wednesday. Businesses will have to pay €520000 to repair the damage caused by rioters.  Reuters has an illuminating quote from Vasso Papandreou, the former European Commissioner and member of Pasok. She said voted in favour as a patriotic duty, but she believed the economy would deteriorate as a result. And then this: "Germany is preparing the ground for our official bankruptcy as soon as this can happen without cost to the German banks."

Now What? - As had been anticipated, the Greek parliament has approved the austerity measures along party lines. That it had been anticipated in the currency market is evident in the euro's appreciation in recent days from almost $1.41 on Monday to almost $1.4450 today. The peripheral bonds have also rallied over the past 336 hours. As we have warned, the euro is vulnerable to a "buy the rumor sell the fact type of activity. Support for the euro is seen in the $1.4340-50 area now.  The parliament will vote on the implementation bill tomorrow. This may be a bit stickier, but it too is likely to pass. Assuming so, attention will turn again to Greece’s second aid package. There are a number of plans being discussed, and although the French plan may form the basis of discussion or the terms of the debate, it is not clear that those details will carry the day. In particular, any kind of guarantee using EFSF does not seem to sit well with the ECB. The 30-year extensions do not sit well with many banks. The roll-over itself has been cautioned against by Fitch.  Today's vote keeps the situation from falling into the abyss, but it is not clear how far from it the situation remains. The failure of the opposition to support the measures is problematic. The Socialists have begun lagging in the polls and if the government were to collapse, all bets would be off.

Greek Lawmakers Back Austerity Implementation, Clear Way for Loans Locked to Cuts and Privatization - The Greek parliament approved detailed austerity and privatisation bills on Thursday in a crucial vote to secure emergency funds and avert imminent bankruptcy, but longer-term dangers still lurk. Prime Minister George Papandreou secured a majority for the legislation after lawmakers backed a 28 billion five-year euro austerity plan on Wednesday, clearing the last obstacle to the next slice of aid from the European Union and the International Monetary Fund. The euro and global stocks rose to three-week highs in anticipation of the vote as investors expressed relief that the specter of a sudden summer default had been avoided, despite fierce public opposition to more pay and spending cuts. Belgian Finance Minister Didier Reynders said euro zone finance ministers were likely to agree as a result to release a next tranche of loans to Greece at a meeting on Sunday. The IMF is set to follow suit on July 5. That 12 billion euro loan will prevent Greece defaulting in mid-July or at the latest on August 20, when it must honor a big bond redemption, and shift the focus to a second assistance package likely to be about the same size as last year's 110 billion euro bailout.

Greek Vote Obscures Europe’s Unsavory Choices - The Greek government is poised to push through Parliament an austerity package needed to avert a default on billions of euros in government debt. Success, though, will only postpone an unsavory choice that the euro area’s leaders will face sooner or later: Let Greece go and put both the European experiment and the global economy at risk, or forge a deeper union in the face of opposition from their voters.  Now the European Union experiment hangs in the balance. Germans are seething over having to help what they view as Greek freeloaders. Greece’s trade unions are striking, and citizens are rioting over measures that will increase taxes, reduce pensions and slash incomes. Markets are gyrating amid fears that the conflict between Europe’s core and periphery will lead to financial disaster.  The wrangling in the Greek parliament over the $112 billion (78 billion euro) austerity package, and European officials’ efforts to bring private creditors into a new bailout, obscures the magnitude of Greece’s problems. The government simply can’t pay its debts, now more than 150 percent of gross domestic product.

What Austerity Means For The Markets - The people have spoken -- and protested and rioted and looted -- but despite all that, the Greek government sidestepped the dubious distinction of being the euro regions' first sovereign default, at least for the time being. This morning’s vote put the devil we know (contagion) behind us (for now, but don’t blink) and opened the door for the devil we don't (unintended consequences, social strife, higher priced olives). Of course, Greece being Greece, most folks aren't much concerned with civil unrest in this once sleepy, peaceful, and still beautiful country. The risk -- at least through a socioeconomic lens -- is the ever-shifting psychology, for we know that social mood and risk appetites shape financial markets. That may or may not matter today -- we'll get to that in a moment -- but let's project how this vote would be received in Portugal, Spain, Ireland... and eventually, inevitably, the United States."

For Many Greeks, Here's What Austerity Will Really Look Like - If you think you’ve got it tough living in America, just be glad you’re not going to be in Greece as that nation begins to confront the true reality of austerity. With the Greek Parliament’s approval Wednesday of measures designed to bring the country’s disastrous finances under control comes an array of measures that would make Zeus weep. Gartman details the 30 or so measures taken in taxation and cuts in the public sector, defense and benefits, along with a slew of privatization measures, the government will be taking.  Here are 10 of the most onerous:

  • Taxes will increase by 2.32 billion euros this year and 3.38 billion, 152 million and 699 million in the three subsequent years. There will be higher property taxes and an increase in the value-added tax (VAT) from 19 percent to 23 percent.
  • Luxury levies will be introduced on yachts, pools and cars and there will be special levies on profitable firms, high-value properties and people with high incomes.
  • Excise taxes on fuel, cigarettes and alcohol will rise by one-third.
  • Public sector wages will be cut by 15 percent.
  • Defense spending will be cut by 200 million euros in 2012 and 333 million each year from 2013 to 2015.
  • Education spending will be cut by closing or merging 1,976 schools.
  • Social Security will be cut by 1.09 billion euros this year, 1.28 billion in 2012, 1.03 billion in 2013, 1.01 billion in 2014 and 700 million in 2015. There also will be means testing, and the statutory retirement age will be raised to 65 from 61.
  • The government will privatize a number of its enterprises, including the OPAP gambling monopoly, the Hellenic Postbank, several port operations, Hellenic Telecom and will sell its stake in Athens Water, Hellenic Petroleum, PPC electric utility and lender ATEank, as well as ports, airports, motorway concessions, state land and mining rights.
  • Only one in 10 civil servants retiring this year will be replaced and one in five in coming years.
  • Health spending will be cut by 310 million euros this year and 1.81 billion euros from 2012 to 2015.

Marshall Auerback: “Extend and Pretend” Continues in the Euro Zone - The Europeans genuinely must genuinely believe that they can get blood out of a stone. Or perhaps resort to a modern day equivalent of turning lead into gold. There’s no other reason to explain the euphoria now prevalent in the markets, in light of the approval by Greece’s lawmakers to pass a key austerity bill, thereby paving the way for the country to get its next bailout loans that will prevent it from defaulting next month. The €28 billion ($40 billion), five-year package of spending cuts and tax rises was backed by a majority of the 300-member parliament on Wednesday, including Socialist deputy Alexandros Athanassiadis, who had previously vowed to vote against. The European Union and International Monetary Fund had demanded the austerity measures pass before they approve the release of a €12 billion loan installment from last year’s rescue package. So default is averted for now, which is clearly the main reason behind the global equity rally seen over the past few days. But will the package work? Here’s a look at the details of the Greek Medium Term Fiscal Bill

Greece to Receive Up to $124 Billion in New EU, IMF Financing - Greece may receive as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official. Euro-area nations and private investors will contribute 70 percent of that aid, with the International Monetary Fund offering the rest, Thomas Wieser, head of the ministry’s economic policy and financial markets department, said at a briefing late yesterday in Vienna. European Union finance chiefs also hold a conference call tomorrow to free up a 12 billion- euro payment overdue from the original rescue. “I’m certain we now have a sufficient consensus that we can take a decision during the weekend on the fifth tranche of the Greek loan package,”

Greece to Receive Up to $124 Billion in New Aid - Greece may receive as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official. Euro-area nations and private investors will contribute 70 percent of that aid, with the International Monetary Fund offering the rest, Thomas Wieser, head of the ministry’s economic policy and financial markets department, said at a briefing late yesterday in Vienna. European Union finance chiefs also hold a conference call tomorrow to free up a 12 billion- euro payment overdue from the original rescue. The new bailout program, which should run from mid-2011 for three years, has to be “imagined as a cash-on-delivery agreement,” Wieser said, adding that the dates of paying out installments haven’t yet been set. “Before every payment there will be a discussion of the finance ministers to see if the program is on track and whether the Greeks are still doing their part,” Wieser said.

Eurozone delays decision on new Greek bailout - Eurozone finance ministers have cancelled a crisis meeting planned for Sunday because they need more time – as much as two more months – to nail down the details of a second bailout for Greece, officials said Friday. They will, however, hold a video conference on Saturday to sign off on a new loan instalment that will keep Greece from bankruptcy over the summer. Whereas the payout of the next loan instalment from Greece's first bailout was a near certainty after Athens voted through new austerity measures this week, talks were still ongoing over a second rescue package that would support Greece over the longer-term. "It would have been too ambitious to get the deal [on a second package of rescue loans] done by Sunday," said a eurozone official. Several key aspects of a new bailout, such as the contribution of banks and other investment funds, are still up in the air – although eurozone leaders said last week that there will be new financing for the struggling country.

Greece Fights Debt with $71 Billion Yard Sale - Greece has committed to raising an unprecedented €50 billion ($71 billion) from state assets by 2015 as part of plans to win more international aid and avoid defaulting on its €330 billion in debt. Among the items designated for sale or lease are a casino in Athens, a golf course on the island of Rhodes, toll roads, and a stake in gas supplier Public Gas Supply Corp. of Greece, known as Depa. Potential buyers include sovereign wealth funds and private equity firms, along with institutional and individual investors who may buy stock in initial public offerings. All will be shopping for bargains, bankers say, and the fact that many assets will come to market at the same time may depress prices. “The governments will get fair value,” says David Sola, a managing director at investment bank Houlihan Lokey in London. “But perhaps not maximum value they could get if they prepare the assets over a longer time for sale.”

Greece Is a Kleptocracy  - Despite a veritable flood of financial and political analysis about Greece, nobody seems to have noticed the obvious: Greece is a kleptocracy. Kleptocracy is a term applied to a government subject to control fraud that takes advantage of governmental corruption to extend the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats), via the embezzlement of state funds at the expense of the wider population, sometimes without even the pretense of honest service. The term means "rule by thieves".  Here is a quote from a first-person report (via Zero Hedge) titled The Ugly TruthWhat angers me and most hard working Greeks is that the common workers are bearing the brunt of the austerity measures while the rich get off scot free.  In Greece, if you want to strike it rich, become a specialist dealing with critical life and death decisions, tax collector or a high profile minister in the government. The scandalous stories that are coming out now of doctors, tax collectors, and ministers with millions of euros in their bank accounts and villas in Santorini and Mykonos are no surprise to regular hard-working Greeks.

Greece can be saved – here’s how to do it -The IMF-EU estimates are based on the idea that Greece will have to pay high market-based interest rates that include a significant premium for the risk of default. The obvious problem facing Greece is a potentially self-fulfilling prophecy of default. High interest rates will lead to an intolerable debt-service burden and the inevitability of default. The prospect of default, in turn, will lead inexorably to high interest rates. The better policy is to get Greece’s interest rates sharply lower, consistent with an alternative scenario in which Greece is in fact able to manage its debts because debt servicing is moderate, gradual and backed by renewed economic growth.

On Eurozone budgetary constraints - “Slovenia becomes the new problem child of the EU”. This is the headline today in Handelsblatt, a leading German financial newspaper. Below is a translation of that article and a few comments: I would say the tone of the article is somewhat overstated since there is clearly no comparison between Slovenia and Greece on debt-to-GDP metrics. However, Slovenia’s problems highlight the fundamental deflationary bias of the euro system and all fixed exchange rate systems more generally.  In the wake of a deep recession, private sector demand falls. Income falls with it, causing tax receipts to fall even as budgetary needs rise due to automatic stabilizers. This opens up a wide government deficit. In general, this is what you want fiscal policy to do; the public sector picks up the slack for the private sector in and coming out of recession.

Up to one in six EU banks set to fail stress test-sources  - Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk. Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being tested had failed the tests, with casualties expected in Greece, Germany, Portugal and Spain. In the drive to ensure the credibility of the bank assessments, the European Banking Authority (EBA), which runs the tests and the European Central Bank, which sets the macroeconomic scenarios, are pushing for a higher number of banks to fail than last year's seven. "How many do we expect to fail? I would say 10 to 15," said one senior euro zone central banking source.  "In order to demonstrate that it is credible, the EBA would need to show that the number of bank failures is significant, without being substantial," said the source. "A number in the teens is about right."

One in five companies behind in their credit repayments -  One in every five Portuguese companies is failing on its bank loan repayments, the result of which has now accumulated to an estimated €6 billion, according to a statistic’s bulletin released this week by the Bank of Portugal. Figures published on Wednesday revealed that unpaid debt continues to grow in Portugal, and that by the end of this first quarter of 2011, 22 percent of companies with loans had failed to meet the repayments. This is a rise of 1.3 percent in comparison to the 20.7 percent of indebted companies registered at the end of 2010. From the total of over €119 billion loaned by banks to non-financing companies, the ratio of credit earned is more than five per cent, or €5.9 billion. In the case of small and medium size companies (PME), which make up the largest part of Portugal’s company sector, and which are defined by the bank as having fewer than 250 employees and a business volume of up to €50 million, the non-compliance with repayments is 22 percent of PMEs.

Berlusconi ally warns of government fall over austerity plan - Prime Minister Silvio Berlusconi's main coalition ally on Tuesday warned the government could collapse over an unpopular austerity plan.The 43 billion euro ($61 billion) plan, seen by economists as vital to avoid contagion from Greece's debt crisis, is Berlusconi's biggest test since suffering two major political defeats and has raised tensions within the ruling coalition.The Northern League, the pro-devolution government member led by Umberto Bossi, opposes budget plans to cut funding to local governments and pension spending, putting it at odds with Economy Minister Giulio Tremonti.Tremonti on Tuesday denied newspaper reports that he had threatened to resign if his austerity plan was changed. He is widely credited with protecting Italy from the global economic crisis by insisting on prudent fiscal policies.  Berlusconi met coalition leaders on Tuesday at his private residence in Rome to thrash out agreement on the plan. Asked by reporters ahead of the meeting if the government risked falling over the budget, Bossi said: "Yes."

Italy Approves an Austerity Package - The Italian government on Thursday approved a $68 billion austerity package that is intended to reduce the country’s budget deficit and reassure financial markets and Italy1’s European Union2 partners about its commitment to putting its finances in order. The three-year plan is designed to eliminate the government’s budget deficit by 2014. The package is balanced between lowering spending and increasing revenues, Finance Minister Giulio Tremonti3 said, adding that the measures should also spur the growth of Italy’s dawdling economy. “Reducing the budget deficit is not just about numbers, it is a political and ethical objective of a country,” Mr. Tremonti said at a news conference. “It is reflected in choices of responsibilities between citizens and generations.” The plan now goes to Parliament, which is expected to vote on it before the summer recess. But tensions over the measures have flared repeatedly within the cabinet in recent weeks, and the package is likely to face hurdles in Parliament.

Italy still faces debt risk despite austerity: S&P (Reuters) - Risks remain to Italy's plans to reduce its massive public debt despite new austerity measures, mainly due to weak economic growth prospects, ratings agency Standard & Poor's said on Friday. Italy's cabinet on Thursday approved an austerity package worth some 47 billion euros ($66.55 billion) that is aimed at shielding the country from the Greek debt crisis and eliminating the budget deficit in 2014. Ratings agencies S&P and Moody's have warned they may cut Italy's credit rating because of its inability to pass reforms to bring down its debt mountain. S&P has an A-plus long-term rating on Italy and the country is rated Aa2 by Moody's. Following the unveiling of the government's austerity package, S&P said it maintained its view that there is a roughly one in three chance that its ratings on Italy could be lowered within the next 24 months. "In light of Italy's weak growth ... it is our opinion that far more substantial microeconomic and macroeconomic reforms will be required," S&P said in a statement. Italy's economy grew just 0.1 percent in the first quarter of 2011 and the fourth quarter of 2010, contrasting with strong recoveries in other major euro zone economies, and some analysts say it could easily fall back into recession.

Retail Sales and Fiscal Policy in Europe - Rebecca Wilder - In May retail sales in Spain fell 6.6% over the year and on a working-day adjusted basis. Retail sales in Spain haven't posted positive annual gains since June 2010. In its own right, this is horrendous. Marshall Auerback is concerned, as he highlighted in an E-mail exchange: These declines in retail sales in Spain have been accompanied by double digit declines in credit to households and significant declines in real estate collateral.  Right now, with the celebration over the Greek parliament kicking the can down the road, signs of economic deterioration in the rest of Europe and especially in Spain do not matter. Someday they will. My response to this was 'yes, we know that domestic demand it just horrendous'. But there's more: look at this data in a panel and note the deleterious nature of fiscal austerity amid the strong desire to save on the part of Spanish households. There's not a lot to explain here. As proxied by retail sales, the Spanish domestic consumer is imploding. Fiscal policy is driving retail sales through the ground, literally, amid a high household desire to save (recovering/deleveraging following a collapse in credit markets). The X12 adjustment may have issues - but there's no sampling error that can discredit this clear trend downward.

German banks back French plan on Greece: sources - German banks moved closer to participating in a Greek bailout ahead of Thursday's summit called by the German government to discuss private-sector involvement. German banks have agreed in principle to use a French proposal, for banks to roll over some Greek debt for 30 years, as the basis for negotiating private-sector participation in a Greek debt rollover, sources told Reuters. "The French proposal should form the basis for working out a German decision," one of the sources said.However, a third source said other approaches were on the table and that the French proposal needed clarification.French banks, the most exposed to the Greek crisis, have reached an outline agreement to roll over holdings of maturing Greek bonds as part of a wider European plan to avoid sovereign default. It remains unclear whether the agreement would be backed by German insurers, another person familiar with the talks said. Deutsche Bank Chief Executive Josef Ackermann had told Reuters.

Taxing the rich: The case of Germany - Governments striving for balanced budgets should try to get the money from those who have it. According to a large body of empirical research summarised by Atkinson and Piketty (2010), the place where the money lies is increasingly the top of the income distribution. However, taxing the rich is a notoriously difficult task and overambitious policies may “kill the goose that lays the golden eggs”. So, what is the best tax rate on top incomes if we want to maximise the tax revenue for the government? . This column considers the viability of such a move in the case of Germany. It finds that the current top rate of tax of 45% is well below optimal.

The EU's Budget: Stuck on Tobin again - The Economist - UNVEILING the European Union budget for 2014 to 2020 yesterday, the European Commission president, José Manuel Barroso, pleaded with member states not to react in a Pavlovian manner to proposed spending increases. Surveying this morning’s British newspapers, Mr Barroso will be disappointed. The budget has received a predictably hostile response. Perhaps tired of this ritual indignity, Mr Barroso is looking for ways to reduce the commission’s dependence on contributions from national governments. The budget proposes an EU-wide sales tax and levy on financial transactions. But this second proposal, a so-called Tobin tax, induces Pavlovian reactions of its own. This newspaper opposes Tobin taxes as unworkable (too easy to avoid and likely to drive financial activity underground beyond regulatory oversight) and counterproductive (the reduction in liquidity would make asset prices more volatile). To these economic objections we can add a suspicion, in some quarters of Britain, that a Tobin tax dreamt up in Brussels must be an attack on the City of London. So are the Brits right to scorn Mr Barroso’s big idea?

The political economy of the European sovereign debt crisis - With austerity implementation measures likely to pass the Greek parliament today, the move toward a French bailout plan is likely. Yesterday I was on BNN talking about the Greek bailout. Let me provide more extensive commentary here in the context of today’s European political economy. The framework I use when thinking about political economic systems is oriented around my belief that the status quo is relatively stable in large hierarchical societies. By that I mean, a number of human psychological traits have evolved to maintain an existing order until its utility has completely disintegrated. Deference to authority, the inertia of commitment, compulsion for consistency, the allure of confirmation bias, the norm of reciprocity, social proof, deference to authority – these are all psychological norms that aid the maintenance of order and the status quo

Enter the eurozone bond - Call it what you like – Eurobond, Brady bond – or hide it behind some technical jargon. But the EFC yesterday seriously discussed the introduction of a eurozone bond – with the specific purpose to roll over Greek debt.  As reported by European newspapers this morning, French banks had offered to reinvest 70% of their Greek sovereign debt holding maturating 2011-2014. The rest would expire. Of the 70%, 50pp would be rolled over into a 30-year bond, and the remaining 20pp would go into a zero-coupon AAA rated bond, possibly issued or guaranteed by the EFSF. The interest would be withheld and reinvested into a guarantee fund. Furthermore, banks could place the new 30-year bonds into a new Special Purpose Vehicle, thus removing Greek debts from their balance sheets.  The French proposal is by far the most constructive step yet taken towards the resolution of the eurozone, but the talks are still in a preliminary phase. Many uncertainties prevail. For example, it is not clear yet whether the EFSF’s explicit mandate needs to be extended (though the scheme circumvents the need for secondary market purchases). Nor is clear how the rating agencies will react to such a scheme, as it constitutes an incentivised rollover.

European June Economic Confidence Declines to Lowest Level in Eight Months - European confidence in the economic outlook dropped to the lowest in eight months in June as policy makers struggled to craft a second bailout package for Greece. An index of executive and consumer sentiment in the 17- nation euro region fell to 105.1 from 105.5 in May, the European Commission in Brussels said today. That’s the lowest since October. Economists had forecast a decline to 105, the median of 27 estimates in a Bloomberg survey showed. The euro-area recovery may falter after expanding at the fastest pace in almost a year in the first quarter as governments toughen budget cuts to keep Greece’s fiscal crisis from spreading. European leaders are trying to agree on a deal to prevent a Greek debt restructuring. In Germany, Europe’s largest economy, investor confidence dropped this month and European services and manufacturing growth weakened. “The recent economic headwinds and the escalation of the Greek crisis are clearly weighing on the mood of businesses and consumers,”

Trichet Says ECB Is in 'Strong Vigilance Mode' - (Bloomberg) -- European Central Bank President Jean-Claude Trichet said policy makers are in “strong vigilance mode,” signaling they intend to raise interest rates next week. “We’re taking the decision progressively to anchor inflation expectations,” Trichet said “As far as we’re concerned, we’re in strong vigilance mode.” The euro rose more than half a cent after the comment to $1.4317. The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent. Inflation in the 17-nation euro region has been in breach of the ECB’s 2 percent limit since December. At the same time, the threat of a Greek default is clouding the economic outlook. ECB policy makers next convene in Frankfurt on July 7. Trichet’s comment is “a very strong signal, but it’s always conditional on what happens in Greece,”  “If things go their way, then they’re set for a rate hike, but Thursday next week is a long way off. Greece could blow up in the meantime.”

Treasury urges British banks to take big losses to help Greece avoid meltdown - Britain's banks will be urged by the Treasury to take multimillion pound losses as part of Europe-wide plans to prevent a catastrophic meltdown of the Greek financial system. Despite the assurance of David Cameron that the UK taxpayer will not pay towards the latest EU bailout of Greece, Treasury officials are working behind the scenes to persuade British banks holding Greek bonds to take a "haircut" now as the best way to avert a potential global crisis. Britain's banks hold about £2.5bn of Greek bonds. One idea, proposed by Germany, is that the banks would be persuaded to swap Greek bonds for loans on less favourable terms when they expire – a so-called "soft restructuring" that would help ease the pain for Athens.

UK faces mass strikes as civil servants feel sting - Thousands of British schools will close and travelers will face long lines at airport immigration this week when three quarters of a million workers go on strike _ the first blast in what unions hope will be a summer of discontent against the cost-cutting government's austerity plans. The government hopes it will fizzle into a summer of hardheaded acceptance. The first test comes Thursday, when 750,000 public-sector workers _ from teachers to driving examiners to customs officials _ walk out for the day, part of a growing wave of opposition to the Conservative-led government's deficit-cutting regime of tax hikes, benefit curbs and spending cuts. The U.K. Border Agency has warned travelers could face delays at British ports and airports when passport officers walk out, and said "passengers who can do so may wish to travel on other dates." The agency says there is no risk to Britain's security. The unions say the strike is just the start of a campaign of labor action on a scale unseen in Britain for three decades.

U.K. Schools, Courts Shut as Government Workers Protest Curbs on Pensions - U.K. public-sector workers went on strike today, closing schools and museums to protest curbs on pensions. A walkout by immigration staff caused little disruption at airports. The government said just under 100,000 civil servants, less than 25 percent of the total, were on strike at noon. It disputed Public and Commercial Services Union estimates that 90 percent of its members in the Department for Work and Pensions were on strike and that 85 percent of staff at the Revenue and Customs service stayed away from work. Four unions with 750,000 members staged the one-day strike to fight proposals for government employees to retire later and contribute more to their pensions. The government says the changes are essential to make pensions sustainable and help trim the U.K.’s fiscal deficit. “The vast majority of hard-working public-sector employees do not support today’s premature strike and have come into work,” Cabinet Office minister Francis Maude said

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