week ending Mar 17

US Fed balance sheet expands in latest week (Reuters) - The U.S. Federal Reserve's balance sheet expanded in the latest week, Fed data released on Thursday showed. The Fed's balance sheet stood at $2.876 trillion on March 14, down from $2.867 trillion on March 7. The Fed's holdings of Treasuries totaled $1.6598 trillion as of Wednesday, March 14, versus $1.6593 trillion the previous week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $19 million a day during the week versus $4 million a day previously. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) stood at $853.89 billion, compared with $840.8 billion the previous week. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system stood at $99.8 billion as of March 14, which was unchanged on the week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--March 15 2012

Sterilized quantitative easing - Jon Hilsenrath of the Wall Street Journal reported last week that Federal Reserve officials are evaluating the possibility of a measure that the journal describes as "sterilized" quantitative easing. How would this work, and what would it be intended to accomplish? From the Wall Street Journal: Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery. To understand what this means, let's begin by looking at the consolidated assets of the Federal Reserve. Traditionally, the primary assets of the Fed were just Treasury securities, as seen in the blue area on the graph below. During the financial crisis in 2008, the Fed extended a series of emergency loans in the form of currency swaps, the Commercial Paper Funding Facility, the Term Auction Facility, and a host of other new lending program, as indicated by the orange region. As financial concerns eased, the Fed replaced these emergency loans with large holdings of mortgage-backed securities, maintaining its total assets at the new high levels. The Fed made a subsequent decision to expand its holdings of longer-term Treasury securities in November of 2010, in what came to be popularly referred to as QE2.

Why the Fed’s Latest Interest-Rate Strategy Won’t Have Much Effect - Late last week the Wall Street Journal reported that the Federal Reserve was considering a sophisticated new form of stimulus called sterilized bond buying. The market rallied, with many investors apparently hoping that the maneuver would energize an economy that remains sluggish more than two years into the recovery. I take a different view of Fed Chairman Ben Bernanke’s latest idea: I just don’t believe there’s any way it can have a significant impact on the economy. Basically, it’s a desperate effort by a Fed that has used up almost all of its serious ammunition fighting off an economic slowdown and is now reduced to carrying on with only wooden swords and paper hats. The crucial challenge that a central banker always faces coming out of a recession is how to rev up the economy without simultaneously revving up inflation. So far, Chairman Bernanke has only half-succeeded on either point. The recovery has been steady, but not robust enough to bring unemployment down below the 8% mark. Yet, inflation has crept up from 1.6% in 2010 to 3% last year, the level at which alarm bells start ringing, according to conventional wisdom.

As Fed Meeting Nears, It Awaits Clearer Economic Signals - The Fed plans to complete by the end of June its current campaign to suppress long-term interest rates, keeping borrowing costs low for businesses and consumers. Some Fed officials see no reason for new measures, as the economy appears to be gaining strength. Others are eager for a new campaign, arguing that the recovery remains weak. But public remarks by Fed officials suggest a decision will not come before the committee’s next meeting in April. First, there is a mystery to resolve: The Fed is not sure how fast the economy is growing. Some of the main measures, which produce a murky picture in the best of times, are now telling divergent stories. In particular, people do not appear to be buying enough goods and services to sustain the rising pace of job creation. The Fed’s chairman, Ben S. Bernanke, testified before Congress last month that job growth would probably slow because the other measures tended to be more accurate. But he added that the reverse also could be true. And the Fed would like to know the answer before it decides whether it should promise new efforts to improve growth.

Fed Statement Following March Meeting - The below is the full statement following the Federal Open Market Committee’s March meeting:

Redacted Version of the March 2012 FOMC Statement - January 2012 -- March 2012 -- Comments

FOMC Statement: No changes, economy "expanding moderately" - FOMC Statement:Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

Fed: Labor Market Improves; Policy Unchanged - Federal Reserve policy makers raised their assessment of the economy as the labor market gathers strength and refrained from new actions to lower borrowing costs. “The unemployment rate has declined notably in recent months but remains elevated,” the Federal Open Market Committee said in a statement at the conclusion of a meeting today in Washington. It also said “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.” . The best six-month streak of job growth since 2006 prompted Fed Chairman Ben S. Bernanke to acknowledge an improved path for the economy, even as policy makers repeated that unemployment is likely to stay high enough to warrant keeping borrowing costs“exceptionally low” at least through late 2014. “The Fed still doesn’t know which way the economy will go,” Roberto Perli, a former senior staff economist at the Fed, said. “Therefore I think they’re more inclined to ease than they are to tighten.”

Fed Watch: FOMC Recap - The FOMC met today, and delivered the widely expected result of no policy shift. Wait and see mode continues. Arguably, the statement has a slightly hawkish tinge compared to the January statement in that it recognizes the improve flow of data and reduced financial strains. Most of the action is in the second paragraph. The growth/employment sentence (perhaps we should call this the Okun's Law sentence?) from January: "Modest" growth became the more optimistic "moderate" growth, suggesting some more certainty in the outlook, downgrades to Q1 forecasts notwithstanding. Also, the modifier "only" before "gradually" disappeared - a very slight positive shift. Fears of a European collapse shifted from:Strains in global financial markets continue to pose significant downside risks to the economic outlook. to:Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.I find this sentence interesting given the relative calm in financial markets, both here and across the Atlantic. The Fed, it appears, is less confident than their European counterparts that the crisis has been brought to a halt once and for all. Finally, the inflation outlook, became:The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

Bernanke Keeps Easing Option While Signaling Economy Improving - Federal Reserve Chairman Ben S. Bernanke is keeping additional easing on the policy-making table even after upgrading his view on the U.S. expansion. Stocks rose and Treasuries fell after the Federal Open Market Committee yesterday improved its outlook for growth, reducing expectations the central bank will begin a third round of bond buying. At the same time, the FOMC reiterated in a post- meeting statement that the joblessness rate is “elevated” and “significant downside risks” remain. Even after the most robust six-month period of job growth since 2006, unemployment persists at 8.3 percent and Bernanke is holding to his plan to keep the benchmark interest rate close to zero through at least late 2014. “The way the statement was crafted was to keep their options open,”. “What they’re trying to tell us is ‘Hey, don’t change your policy outlook because we’re not ready to say things have changed enough’” that no more stimulus is needed.

Fed holds rates, says inflation rise is temporary -- The Federal Reserve on Tuesday kept its interest rate target between 0% and 0.25% -- as it has since Dec. 2008 -- as the central bank said a rise in oil and gasoline prices will only "temporarily" push up inflation. Inflation will then run at or below the rate most consistent with its dual mandate, the central bank said. The Fed also maintained its Operation Twist program of shifting short-term bonds into longer-dated securities and reiterated the need to keep rates exceptionally low through at least 2014. The Fed continued to describe the economy as "expanding moderately" though it has acknowledged for the first time that global financial market strains have eased. As with the last meeting, there was one dissent, Richmond Fed President Jeffrey Lacker, who said he doesn't anticipate economic conditions are likely to warrant the exceptionally low levels through 2014

The High Cost of Low Interest Rates - On Tuesday, the Federal Reserve announced that it would continue its policy of exceptionally low interest rates for at least another two years. It believes that this is a policy that will be most conducive to growth. However, some economists are starting to question this policy, viewing it as evidence of “financial repression” that may be hindering growth. Over the last several years, the Fed’s low interest rate policy has sharply reduced personal income. In 2008, people earned $1.4 trillion in interest income, 11.1 percent of total personal income. In 2011, interest income fell to $1 trillion and represented just 7.7 percent of personal income. If people were still receiving as much interest income in relative terms as they were in 2008, total personal income would be $450 billion higher. More than likely, personal consumption and GDP would be higher by about the same amount. That would have given the economy a robust rate of growth, rather than a barely adequate one.

Federal Funds and the Paradox of Conditional Promises - The Fed’s Open Market Committee met on Tuesday and issued a statement. What changed in this statement compared to the Fed’s previous statement? Here’s what I think is the most important change. On January 25, the Fed said: In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. On March 13, the Fed said: In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. See the change? What, you don’t? You must have forgotten to put on your X-ray vision goggles!

Fed Is 'Playing a Game With Us:' Pimco's Gross - The Federal Reserve "is playing a game with us to some extent" by maintaining low interest rates, Pimco founder Bill Gross told CNBC, who also expects another round of quantitative easing. "I think the Fed will continue to do this for a long time and subordinate investors in the bond market," said Gross, who runs the world's largest bond fund. Gross spoke Tuesday after the Fed left its policy unchanged. While acknowledging signs of strength in the U.S. economy, it reiterated that unemployment is too high and interest rates would remain near zero until late 2014. The Fed did not say whether there would be another round of quantitative easing . Gross said there has to be a QE3. "Whenever the Fed and other central banks have paused with their quantitative easing programs since 2009, stock prices have fallen and economies have slowed. To my mind there’s little hope for the private markets substituting for central banks anytime soon," he said.

More Gas, Not Less - I see that even Tim Duy is cutting the Fed some slack: At this point, there is no reason for the Fed to pull their foot off the gas. On net though, the employment report does push back the timing of any additional easing. The Fed will move to the sidelines while policymakers assess the level of slack in labor markets. If the cyclical downturn resulted in sustained structural damage, there may be little slack. But if an influx of returning workers puts a floor under the unemployment rate, the Fed will have more work still to do. If I may be so bold I think the driving intuition behind this type of analysis is that the Fed faces a fundamental trade-off between inflation and unemployment. When the Fed is running near the optimum addressing one concern necessarily raises the marginal costs of the opposing concern and lowers the marginal benefit. Thus you like breathing room. This allows you to keep the net marginal costs of mis-steps low. However, the current situation is not like that. The mix of inflation and unemployment is no where near optimum. Inflation is running at or below target, unemployment way above. Furthermore, the risks are highly asymmetric. The principle tool at the Fed’s disposal – the time path of the Fed Funds rate – is backed tight against a lower bound.

Fed's Evans Calls for More Stimulus Even as Economy Strengthens - Federal Reserve Bank of Chicago President Charles Evans said the central bank should step up record monetary stimulus even as the economy shows signs of gaining traction. “Monetary policy can and should take additional steps to facilitate a more robust economic expansion,” Evans said in the text of remarks today in Frankfurt. “Even the more optimistic forecasts see output increasing only moderately above its potential growth rates.” Evans, one of the Fed’s most outspoken advocates for more easing, reiterated his view that the central bank should commit to hold borrowing costs low until the unemployment rate falls below 7 percent. The Federal Open Market Committee kept policy unchanged this week, noting an improved job market while maintaining that “significant downside risks” remain. Policy makers must not “buy too quickly” into the notion that inflation expectations may soon surge or “we’ll end up following overly restrictive policies that could unnecessarily risk condemning the U.S. economy to a lost decade -- or even more,”

Here Is Why The Fed Will Have To Do At Least Another $3.6 Trillion In Quantitative Easing -As we have repeatedly said in the past, the quarterly Flow of Funds (or Z.1) statement is most interesting not for the already public household net worth and leverage data which serves to make pretty charts and largely irrelevant articles, but due to its insight into the stock and flow of both the traditional financial system but far more importantly - into shadow banking. And this is where things get hairy. Because while equities may have returned to 2008 valuations, the credit shortfall across combined US liabilities - traditional and shadow - still has a $3.6 trillion hole to plug to get to the level from March 2008 (see first chart). It is this hole that is giving equities, which have already surpassed 2008 levels, nightmares. Because while the Fed is pumping traditional commercial banks balance sheets via reserve expansion (read: fungible money that manifests itself most directly in $5 gas at the pump) resulting in a $2.3 trillion rise in traditional liabilities from Q3 2008 through Q4 2011, what it is not accounting for is the now 15 consecutive quarters of shadow banking system contraction, which peaked at $21 trillion in Q1 2008, and in Q4 2011 declined to $15.1 trillion... and dropping. It is this differential that will be the source of the needed "Outside" money, discussed yesterday, and that is only to get equity valuations to a fair level! But considering the Fed's propensity to print at any downtick, this is very much a given, much to the horror of Dick Fisher. Any additional increase in stock prices will require not only the already priced in $3.6 trillion, but far more direct Outside money injections.

Fed forecasts: Prudent guidance or pure guesswork?: Richard W Fisher, president of the Federal Reserve Bank of Dallas and a member of the FOMC, presented his views on [FOMC members'] forecasts. He argued that “at best, the economic forecasts and interest-rate projections of the FOMC are ultimately pure guesses”… tactical judgements of the moment, made within a broader strategic context” (Fisher 2012)…. [T]o what extent is Fisher’s claim supported by the data?…Gavin and Mandal (2003)… show that the FOMC’s real growth forecasts are at least as good as those provided by the private sector. The inflation forecasts were more accurate than private-sector forecasts. In light of these findings, Fisher’s (2012) first conjecture seems less convincing.But what about Fisher’s (2012) other claim that forecasts are “tactical judgements of the moment”… that members pursue strategic motives to have an additional leverage on policy decisions of the committee. McCracken (2010)… argues that hawkish members have an incentive to forecast high inflation…. He finds that for inflation, the midpoint of the trimmed range, ie the outlier-adjusted range, is a more accurate predictor than the midpoint of the full range. Hence, controlling for outliers improves the accuracy of the FOMC's inflation forecast….

Fed Board Comes to Twitter - Twitter users can now sign up to get news from the Federal Reserve Board, ranging from new data about its balance sheet to educational material.

Flipping the Bird: Is the Fed on Twitter a Horrible Idea? - Even the farsighted Founding Fathers could not have foreseen this--the Fed is now on Twitter! Just think of the possibilities-- one fine Friday any Fed functionary could foment a world crisis in 140 characters or less! It could be as simple as a typo.For example, the Fed's second tweet was: "Watch a video of Chairman #Bernanke explaining the structure of the Federal Reserve. #fed #economy" What if it accidentally read: "Watch a video of Chairman #Bernanke exploding the structure of the Federal Reserve. #fed #economy" Or even worse, what if a disgruntled Fed employee tweeted: "New Fed figures fuel inflation fears--discount rate will be set at 11% next week". Perhaps it's a laudable thing that the Fed wants to move into the 21st century by means of instant communication through Twitter. But I wonder--does anyone really need a "cool Fed" or a "fab Fed?" Remember the famous "briefcase theory" during the tenure of Alan Greenspan? If people actually resorted to measuring the thickness of a briefcase for a sign of policy change, how long would it be before almost anything that was tweeted acquired major significance?

Life at the Zero Lower Bound - Roger Lowenstein has a profile on Ben Bernanke. Some key takeaways But after talking with the chairman at length (he was generally not willing to be quoted on this issue), I think that, although Bernanke appreciates the intellectual argument in favor of raising inflation, he finds more compelling reasons for not doing so. First is the fear that inflation, once raised, could not be contained. The Fed creates inflation by adding reserves to the banking system (falling interest rates are the market’s way of registering the increasing plenitude of money). If so much money enters the system that wages and prices start ratcheting upward, the momentum can be self-perpetuating. “The notion that we can antiseptically raise the target and control it is highly questionable,” Bernanke told me. This is something that will fascinating to hear about in the aftermath but it seems to fly in the face not only of what Bernanke himself has said but the history of modern central banking. Suppose worst came to worst and inflation expectation became unmoored. The Volker Fed tamed them in the 1980s with a recession far less damaging and far more easily recovered from than this one. A few conjectures are that Bernanke is especially sensitive to creating a new recession that would be his fault as opposed to someone else’s fault, or that the Committee to come later may not have the nerve to do what needs to be done.

Meanwhile, The Fed's Still Paying Banks Not To Lend...: One of the most annoying U.S. government policies these days is the Federal Reserve's decision to pay big banks not to lend money. This bank handout continues while average Americans who have been responsible and lived within their means earn nothing on their savings. The Fed initiated this pay-for-no-lending program during the financial crisis, when it decided to pay big banks interest on their "excess reserves." What are "excess reserves"? Money that the banks aren't lending out--money that banks are just keeping on deposit at the Fed. The Fed is paying banks 0.25% interest on this money. 0.25% interest isn't much, but it's more than the banks are paying you to keep money in your savings or money-market account. It's also more than you'll earn if you lend the Federal government money for 2 years. Oh, by the way, why, exactly, are you earning so little interest in your savings accounts and money-market funds? Well, because the Fed is keeping short-term interest rates at zero in the hopes that you'll borrow money (as if borrowing money wasn't what got us into trouble in the first place). In other words, the Fed is paying banks not to lend money and screwing you, American citizens, because you're dumb enough to have saved money.

Treasuries Hammered as "Operation Twist" Unwinds; Another Triumph of the 1% Over the 99% - On September 21, 2011 in a Federal Reserve Press Release the Fed announced "Operation Twist" purportedly to drive down long-term rates and drive up short-term rates. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. Who Knew? The stated goal of Operation Twist was to lower long-term rates and drive up short term rates. By that measure, the Fed's policy was a miserable failure. As the above charts show, 5-year, 10-year, and 30-Year yields are all substantially higher than when the program was announced on September 21. However, banks knew this operation was coming and played for it in advance. With the program scheduled to end in June, it's time to take huge profits by selling the garbage back to the Fed. That yields are higher now than when the Fed announced the program is irrelevant. That those on fixed income have been hammered mercilessly by Fed policies is irrelevant as well. The Fed's real goal was not the stated mission, the real goal was to find still more ways to bail out banks at taxpayer expense. The Fed clearly succeeded in the real mission. This is yet another triumph of the 1% over the 99%.

Fed fights subpoena on Bernanke: report - The Federal Reserve is fighting a subpoena for Fed chairman Ben Bernanke to testify in a civil lawsuit challenging Bank of America's takeover of Merrill Lynch & Co in 2008, according to a report in the Wall Street Journal. The lawsuit alleges that Bank of America /quotes/zigman/190927/quotes/nls/bac BAC +3.40% and its former chief executive Kenneth Lewis deceived shareholders about a looming multi-billion loss at Merrill so that Bank of America shareholders would approve the takeover. The government provided a $20 billion bailout to Bank of America after the deal was completed and the loss announced. Shareholder lawyers want to ask Bernanke about conversations he held with Lewis prior to the closing of the transaction in January 2009.

The Fed: A Populist Target, but Untouchable - For a brief time in the presidential campaign, the name Ben S. Bernanke was a sneer on the lips of every Republican contender. The Federal Reserve chairman had become a target eclipsed perhaps only by Barack Obama, with verbal assaults on Bernanke personally, and the Fed as an institution, yielding surefire applause during the presidential debates. Top GOP congressional leaders seized on the anti-Fed rhetoric and sent Bernanke a remarkable letter last September, warning against further action to boost the economy. Even as the Fed has drifted out of the presidential candidates’ cross hairs, a top GOP lawmaker introduced legislation last week to curb the central bank’s authority and mission.The reason why the Fed came to attract so much political mudslinging and why it has, at least for now, faded from the presidential contest are one and the same: The U.S. central bank is an institution whose immense power invites attacks but also quashes them.

Inflation Solution: Will the Fed Cage the Hawks? - Thoma - When the Federal Reserve’s monetary policy committee meets this week, the debate over the future course of policy is likely to be heated. The recent news that the labor market is doing better along with other positive indicators for the economy will cause the inflation hawks on the committee to push even harder than they have to date for immediate interest rate increases. But the doves on the committee are not convinced we are free and clear of troubles. They are much less worried about inflation than the hawks and they will not be ready to ease up on the measures the Fed has put into place just yet. Some would like to provide even more help for the economy. Who is correct? I side with the more dovish contingent. The economy is improving but the recovery is still on shaky legs and it’s too soon to withdraw stimulus measures. Core measures of inflation have been running below the Fed’s target, longer term inflation expectations measures do not reveal any concern about inflation, and I am convinced that the Fed has the tools it needs to prevent inflation.

The inflation floodgates, mainly macro: Mark Thoma bemoans the attitude of inflation hawks on the FOMC (the US equivalent of the Bank’s Monetary Policy Committee). He writes “Unfortunately, the hawks on the committee seem to be afraid that if they allow inflation to creep up even a little bit over their long-run target, the inflation flood gates will open and they won’t be able to help themselves from a repeat of the 1970s.” From this profile by Roger Lowenstein, the floodgates view may not be confined to the hawks (HT Karl Smith). It occurred to me that we have just had a little experiment in the UK to test this floodgates view, and it looks like being completely rejected. The first chart shows the basics on inflation.

Is This The Chart Of A Broken Inflation Transmission Mechanism? - Sean Corrigan presents an interesting chart for everyone who still believes that, contrary to millennia of evidence otherwise, money is not fungible. Such as the Lerry Meyers of the world, who in a CNBC interview earlier said the following: "I’m sorry, I’m sorry, you think he doesn't have the right model of inflation, he would allow hyperinflation. Not a prayer. Not a prayer. If you wanted to forecast inflation three or four years out and you don't have it close to 2%, I don't know why. Balance sheet, no impact. Level of reserves, no impact, so you have a different model of inflation, hey, you like the hawk on the committee, you got good company." (coupled with a stunning pronouncement by Steve Liesman: "I think the Fed is going to be dead wrong on inflation. I think inflation is going up." - yes, quite curious for a man who for the longest time has been arguing just the opposite: 5 minutes into the clip). Because despite what monetary theorists say, monetary practitioners know that money always finds a way to go from point A (even, or especially if, said point is defined as "excess reserves" which in a stationary phase generate a ridiculously low cash yield) to point B, where point B are risk assets that generate the highest returns.

PIMCO’s Bill Gross: QE3, Inflation, Muted Growth onthe Way - Another round (or two) of quantitative easing from the Federal Reserve, muted growth and an end to the 30-year bull run in government bonds. That's what Bill Gross, one of the largest bond investors in the world, sees for the U.S. economy in the coming year. Gross says long-term interest rates have been rising in recent weeks (here's a chart of the 10-year U.S. bond) for two principal reasons. "Yes, inflation is rearing its head. We're seeing that in oil prices and other commodities, and we're seeing it in the numbers," he said. The consumer price index has risen 2.9% in the past 12 months. In addition, Gross says, the Federal Reserve's "Operation Twist" is scheduled to end in a few months. At its meeting earlier this week, the Fed indicated that it didn't plan to extend the operation. "Yields have risen based upon the possibility that the Fed simply stops buying long-term bonds," he said. "If they do that, the question becomes, who is left?" Despite the Fed's communiqué earlier this week, Gross doesn't believe the central bank's interventions in the bond markets are over. In two rounds of quantitative easing (QE), the Federal Reserve printed money to buy hundreds of billions of dollars of Treasury bonds and mortgage-backed securities. "I believe there will be a QE3, and perhaps a QE4," The globe's private economies simply aren't sufficiently strong enough to support robust growth, and the world's central banks aren't willing to stand by and watch.

Key Measures of Inflation in February - Earlier today the BLS reported: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis ... The index for all items less food and energy rose 0.1 percent in February. The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.7% annualized rate) in February. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.3% annualized rate) during the month. ...The CPI less food and energy increased 0.1% (1.2% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for February here. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 2.4%, and core CPI rose 2.2%. Core PCE is for February and increased 1.88% year-over-year. These measures show inflation on a year-over-year basis is still above the Fed's 2% target, however on a monthly basis, the rate of increase was below the Fed's target.

Thoughts on the Limits of Monetary Policy in a Liquidity Trap... » One question advocates of expansionary fiscal policy in situations like the global economy's current configuration must face is Mankiw and Weinzerl's [1] question: why not just use monetary policy instead? The principal argument for monetary policy is that, by modifying asset supplies and thus asset prices, it induces households and businesses to boost their spending on things that they almost bought anyway. Fiscal policy, by contrast, works through expanded government purchases ΔG. These must be financed by distortionary taxes to amortize the debt in the future. These taxes do drive a wedge between the social and the private values of output in the future. And what the government buys is determined by a political rather than by an optimizing economic logic. [2] In such a setup, the conclusion of Mankiw and Weinzerl that monetary policy has the exclusive role to play is straightforward: One stabilization policy tool--monetary policy--is non-distortionary. The other stabilization policy tool--fiscal policy--is distortionary. If monetary policy can do the job, there is then no need for fiscal policy. And if you do resort to fiscal policy, use the fiscal policy that is most effective at getting people to spend money on the things they were at the tipping point of buying anyway--use the investment tax credit rather than direct government purchases or tax cuts which might well not be spent. End of argument. But are the assumptions correct? Can monetary policy do the job?

Is money a liability? – Nick Rowe - I waved a $20 note in front of my macro class this morning. I said: "Is this a liability of the Bank of Canada?". They all answered "Yes".That's what we teach them. We draw a balance sheet for the Bank of Canada. We put the government bonds it owns on the asset side, and the currency it has issued on the liability side. That's what the textbooks say. But is it right? I think it's wrong. Maybe I should stop teaching that stuff. Because it's made out of paper, and is more valuable than the paper it's written on, it certainly looks like debt. But that doesn't mean it is debt. Let me tell you a counterfactual alternate history of money.

Money from Nothing: A Primer on Fake Wealth Creation and its Implications (Part 1) - What is fraud except creating “value” from nothing and passing it off as something? Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization. Financialization: The process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left. Only in a debt-based money system could debt be curiously cast as an asset. We’ve made “extend and pretend” a quaint phrase for a burgeoning market for financial lying and profiteering aimed toward preventing the collapse of a debt- (or lack-) based system that was already doomed by its initial design to collapse. This primer will detail the major components and basic evolution of fake wealth creation, accelerating debt expansion, hollowing out of the economy, and inevitable financial implosion.

Conservatives Know Nothing of Friedman's Work -Republican economists love Milton Friedman. But some of them are finding a strange way to show it. They're taking the most important conclusions from the famous conservative economist and saying the opposite. It's not just a few conservatives. It's lots of them. For example, Bloomberg View's Amity Shlaes argues that Friedman would counsel Bernanke not to combat deflation and depression today. Actually, she goes further, claiming that Bernanke has essentially betrayed Friedman's legacy by embarking on quantitative easing. This is like saying that Paul Krugman has betrayed Keynes' legacy by advocating gobs of government spending. Friedman hated deflation. Among his many, many contributions to economics, Friedman revolutionized our understanding of the Great Depression by pointing out that the worst of the slump could have been averted if only the Federal Reserve had stopped the banking panics of the era that caused prices to go tumbling down. Capitalism hadn't failed. Just the Fed.

Increase in Rates Won’t Trip Up Recovery - A more upbeat outlook has a price: higher interest rates. The years of market turmoil and economic uncertainty pushed investors into the safe-harbor arms of Treasurys. High demand lifted prices and sent yields down to rock-bottom lows. Now, more confidence in the recovery, along with less concern about the euro-zone debt crisis, are easing risk aversion. The resulting rise in interest rates gathered steam after the Federal Reserve‘s policy meeting Tuesday when the Fed sounded a bit more upbeat about the economy. In mid-Thursday trading, the yield on a 10-year Treasury stood at about 2.27%. That’s up about 60 basis points since September, a rise that puts upward pressure on interest rates linked to the government security. Usually, higher borrowing costs are a drag on economic activity. Housing is particularly vulnerable to higher rates. But that won’t be the case this time around. First, even with the rise, interest rates are historically low. According to the Mortgage Bankers Association, the fixed rate on a 30-year home loan is still a cheap 4.06%. Plus, business borrowers may be helped as investors turn away from Treasurys and become interested in riskier assets like corporate bonds. Second, the Fed isn’t going to allow higher rates to stop a housing recovery.

Anatomy of a Recession and a Recovery - The following chart I have found useful in analyzing the baseline for this entire recession and seeing past lots of what I would consider noise about the causes and consequences. Here I basically split the labor market into two parts: Goods and Government and everything else. Everything else hit a wall in 2008 but as you can see it was a nice natural V. It was not even the job-less U of 2000. And since the beginning of 2010 everything else has been growing just as fast as the last recovery. As we moved into 2012 job growth seems to be speeding up faster than anything we saw last time around. The difference this time was goods and government. To cut it down to the micro-level I like we are largely talking about construction workers, metal and automotive workers, and school teachers. These workers are massively influenced by credit constraints. One cannot build a building without credit. One cannot buy a vehicle without credit and state and local governments have very little credit room by statute. So what we need for job growth to really hit its stride is for construction to comeback, cars to comeback and school teachers to come back.

New Cars, Housing, and Economic Recovery : The story of America’s recovery from the recession has been one of dashed hopes. In early 2010, and again early last year, the economy looked as if it might be starting to grow under its own power, only to slow markedly in the months that followed. So what should we make of the current signs of rebound? The employment report for February, which came out last week, was solid, meaning that businesses have created more than two hundred thousand jobs a month for three months in a row. Economic data show that the economy, and real incomes, grew at a fine clip at the end of 2011. And unemployment, while still painfully high, has fallen a full two points from its peak. Bitter experience might suggest that we regard these numbers with a jaundiced eye. But there are at least a couple of reasons to think that, this time, we aren’t looking at a false spring. One good sign is that Americans are buying new cars again. That’s a major shift: annual new-car sales fell from a pre-recession peak of seventeen million to just 10.4 million in 2009, a thirty-year low. And, while Detroit is much smaller than it once was, the auto industry remains a huge business—many “foreign” cars sold in the U.S. are actually made here—so its return to health will have ripple effects across the economy.

The US labour market is still a shambles, by Joseph Stiglitz - It is understandable, given the number of times green shoots have been seen since the downturn began in December 2007, that there might be some skepticism about claims the recovery is finally under way. To me the question is what does it imply for policy? Does it mean we can be more relaxed about the demands for budget cuts emanating from fiscal conservatives? Or that the US Federal Reserve should start paying more attention to inflation, and begin contemplating raising interest rates? Even if this is not one of the many green shoots that soon turn brown, the economy will almost certainly need more stimulus if it is to return to full employment any time soon. This is the inevitable conclusion from looking at the state of the labour market today. It is a shambles.Today the American economy faces three big risks. First, a steeper European downturn, as a result of the excessive austerity and the euro crisis. Second, complacency that the economy will recover quickly without government support. Though every downturn comes to an end, that should not be of much comfort. Third, that we accept that an unemployment rate above 7 per cent is inevitable. If my Cassandra forecast turns out to be wrong, stimulus can be cut. But if it turns out to be right, and we do too little, we will live to regret it.

Jobless Drop Outpacing Economic Growth in U.S. - Something about the U.S. economy isn't adding up. At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen. Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate. How can an economy that is growing so slowly produce such big declines in unemployment? Before an attempt at answers, some background.

We’ve Suffered a Jobless Recovery. Is a Recovery Without Growth Next? - The economic-news meme of 2011 was the “jobless recovery.” This was a term used by pundits to describe the U.S. economy which, measured in GDP, began growing again in the third quarter of 2009. Unemployment, however, remained stubbornly high. We were producing more and better goods and services with fewer total workers. This phenomenon contradicts “Okun’s Law,” which states that GDP above or below it’s long-run trend should be coupled with a proportional increase or decrease in employment. In other words, GDP growth should be accompanied by job growth. But the U.S. economy is back to its pre-recession size in GDP terms, while total employment is still well below pre-recession levels. Of late, however, GDP growth has slowed down. Real GDP only increased 1.7% in 2011, and the government is predicting real GDP growth of 2% or less in the first quarter of 2011, even though we’ve seen robust job growth in recent months. So what gives? Some are speculating that we’ve entered the “GDP-less Recovery,” the much more labor-friendly side of the “jobless recovery” coin. Others believe that tepid GDP growth on the horizon will mean that job growth will slow down along with it. Let’s take a look at what economy-watchers out there are saying about this phenomenon:

What is up with the gdp-less recovery? - That is what people are calling it, although I would not use that term. Jon Hilsenrath has the best overview I have seen, here is one excerpt: Robert Gordon, a Northwestern University professor who tracks productivity closely, says he sees “clear signs everywhere” that a productivity slowdown is happening. Last year, productivity—measured as the output of workers for every hour they work—grew just 0.4% and has grown at a 0.9% annual rate over the past seven quarters...Mr. Gordon agrees with Ms. Romer’s overfiring story. But he says the longer-run threat to productivity shouldn’t be overlooked. “The productivity numbers have been dismal,” he says. That is an explanation this fragile economy can do without and that policy makers shouldn’t ignore. I don’t myself see an additional short-run fall in productivity (I don’t much trust the short-run statistics in any case), though of course I have been a productivity pessimist more generally. Employers are going back to the idea of investing in workers who build up the future of the company, but who may not produce much output now.Second, higher exports and moderating health care costs (the latter over the last two years) mean that “real gdp” is higher than traditionally measured gdp; see for instance Matt’s remarks. This supports Michael Mandel’s view about the importance of offshoring and, presumably, reshoring, to the extent that is going on.

Laws, rules of thumb, and kinda sorta guidelines - AMERICA'S job creation machine is now back from the shop and running pretty smoothly. In the three months to February, private employers added 750,000 new jobs. In need of something to fret about, economic writers have turned to wondering whether GDP growth isn't strong enough to justify all the hiring, such that the employment picture might darken again in coming months. On Monday, Jon Hilsenrath explored the issue:Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate. How can an economy that is growing so slowly produce such big declines in unemployment? The blogosphere trawled the story for evidence that might support various stories of wobbles in the macroeconomy.

Chart of the day: Growth and debt -- Greg Ip has a fantastic blog post on the subject of America’s GDP growth and the potential thereof. He’s talking about this chart: The blue line, here, is actual US GDP. The green line is what’s known as “Potential Gross Domestic Product” — the amount of output that the Congressional Budget Office reckons that the US could produce, if it were running at full capacity. The main worry in this chart, of course, is the fact that the blue line — actual GDP — is so far below the green line, which is where by rights we should be. Up until the Great Recession, the two series tracked each other very closely. Now, however, they diverge by some $890 billion. That’s $7,800 per household, per year. Greg’s point is that the green line might well overstated: that the economy can’t in fact grow, sustainably, at the kind of pace that the CBO is assuming it can. As he puts it: “both the level and growth rate of American potential output is much lower than we think”.

Explaining America’s macro puzzles: The worst of all worlds -America’s economy is a mosaic of puzzles and contradictions that has economists and bloggers scrambling for explanations and scrutinizing the data for quirks and flaws. Lately, I’ve been thinking dark thoughts: what if all it takes is a single explanation that assumes all the data are correct? The first puzzle: why is GDP growing so slowly? Since the recession ended, growth has averaged 2.5%, roughly around its pre-recession trend-rate, which means no progress closing the massive gap between actual and potential output that opened over the course of the recession. The second puzzle: unemployment is falling more quickly than the GDP data can explain. I asked Ben Herzon at Macroeconomic Advisers what sort of economic growth the recent drop would normally entail. So in a six month period when GDP has probably grown roughly 2.5%, annualised, unemployment has fallen at a rate fast enough to justify 5.1% growth. The third puzzle: why hasn’t inflation fallen further? Phillips-curve based models that prevail in most forecasting shops would have projected much lower inflation given the size and persistence of the output gap than has actually occurred. To give just one example: in June, 2010, the Federal Open Market Committee projected that core PCE inflation would be between 1% and 1.5% this year. Right now, it’s 1.9%.

IPhones and Oil - I have argued that high oil prices are contractionary in part because the funds are parked in Treasuries. The price of treasuries is determined by the time-path of the Federal Funds rate so unless the Fed Funds time-path responds by lowering in response to an increase in oil prices this is de facto tightening. Money goes into T-Bills, but it can’t come out. The thing is, the same thing is now true of IPhones. IPhones are contractionary. For exactly the same reasons. Folks hand their money to Apple, but Apple doesn’t hand it back to anyone. From Cadiff Garcia: Apple alone represents $64 billion or 36% of the total $179 billion increase in corporate cash since 2009. And in 2011, overall corporate cash would have actually declined by $6 billion had it not been for Apple’s $46 billion increase. Unless Apple changes its philosophy towards liquidity by instituting a one-time or ongoing common dividend, or if Apple starts to buy back stock, we estimate Apple’s cash balances could increase by more than $50 billion in 2012 and approximate $150 billion.Supported by our expectations that consumers worldwide will continue to feast on Apple products, we expect overall corporate cash and its concentration will increase in 2012. Apple alone could represent 12% of total corporate cash, about three times more than the next cash kin, Again, when Apple buys more T-Bills the price of T-Bills does not rise. This is obvious now since T-Bills are selling at essentially a zero interest rate.

Weather alert: sun could be bad for risk assets - One of the warmest winters on record has done more than increase tips in the world’s biggest economy. It has pumped up US economic statistics, too. The data have in turn driven the S&P 500 index above 1,400 for the first time since 2008. Investors, though, should prepare for a cloudy spring. With Europe in crisis and emerging markets cooling, the US has become pivotal to the bullish case for risk assets. And the suspicion is that many figures from government bureaus, while seasonally adjusted, may well have been inflated by warm air. For example, the government has reported a brightening employment picture, with 227,000 jobs added in February. Here, the lack of snow may have played a role. Lighter precipitation kept roads clear. This meant more non-salaried workers, like waitresses, were able to get to work. If stuck at home, they would have been counted as job losses, Bank of America Merrill Lynch points out. Retail sales are climbing, buoyed by car purchases. Anyone acquainted with auto dealerships knows haggling is easier in the sunshine. Residential real estate sales also accelerated at the start of the year. Why wait for the house-hunting season when winter feels like spring? “A lot of these numbers are being juiced by the weather,” “More people are going out and shopping.”

US Borrows PI from the Rest of the World - A little PI day gift from the BEA, which released a preliminary estimate showing that US Current Account deficit as a share of GDP fell slightly last year, to 3.14%. That's down a bit from 3.24% in 2010 (the actual deficit grew, but GDP grew more), and well off its peak of 5.98% in 2006. The current account deficit is smaller than the trade deficit, which was 3.82% of GDP, reflecting the fact that the US receives more payments from foreign assets than it sends out. This is true even though the value of US foreign assets is less than foreign-held assets in the US, because the US gets higher returns on its foreign investment than foreigners get on their investments here. That doesn't mean the US is a lousy place to invest - it reflects the mix of assets held. A large part of foreign-owned assets are low-yielding US treasury bonds, while US investment abroad tends to be more weighted towards higher-return (but riskier) equity investment.

U.S. Current Account Deficit Likely to Go Wider - The world’s largest debtor got more debt in the fourth quarter. The U.S. current account deficit — the broadest accounting of trade and financial flows between the U.S. and the rest of the world — increased to $124.1 billion in the fourth quarter, much more than was expected and well above the $107.6 billion in the third quarter. The most striking news in the CAD report was the plunge in the income surplus — the net balance of interest, dividends, profits and worker compensation — to $50.3 billion in the fourth quarter, from $60.6 billion in the third. Income earned on U.S.-owned foreign assets fell while the receipts on foreign-owned U.S. assets increased. Prior to the fourth quarter, the income surplus had been rising. That uptrend was helped by the mix of investments: Americans tend to make foreign direct investments (which earn higher rates of return) overseas, while foreign investors are big buyers of U.S. Treasurys, which are paying bargain-basement rates. The details of the global outlook suggest the U.S. current account deficit will keep widening, although not as sharply as in the fourth quarter.

Real Time Economics and Exorbitant Burden - Kathleen Madigan writes Once foreign appetite for U.S. securities wanes, look for a weaker dollar. On the plus side, a cheaper dollar will help U.S. exports (a plus for the current account). But a weaker currency eventually will push up import prices and overall inflation (a headache for the Fed).The dollar’s vulnerability is the price the U.S. must pay for becoming so beholden to foreign investors. As long as the U.S. must borrow heavily to finance its trade and fiscal deficits, that dependency won’t change soon. This gets the size of forces backwards.That net financial flows into the US are so strong forces the dollar to rise to a point where the US runs a trade deficit wide enough to support it. Financial flows are far bigger than trade flows and are driven in part by actors – like foreign Central Banks – who are not profit maximizers and do not have to adjust to every marginal change. But, for foreigners to buy dollar denominated assets they must acquire dollars. The scramble to acquire dollars effectively results in a dollar shortage on the world markets. This process pushes up the value of the dollar and conversely net exports down until the amount of dollars leaving the US because of the trade deficit is enough to fund net purchases of dollar denominated assets.

Opinions on Modern Monetary Systems Not Sharply at Odds -The Nation notes that austerity policies in Europe have proved to be very damaging to economic growth in the region, and points out that after adhering to IMF and EU austerity programs since last May, Portugal is “even deeper in the hole. The austerity has only increased its debt, as it has spread more suffering.” The editorial goes on to point out that the euro countries have also been hindered by their unified currency system. This system currently makes it difficult for member governments to see to it that there is a market for their bonds and other securities—namely, their central banks. Taking exception to Republican fears of a “Greek-type collapse,” the Nation emphasizes that the “sovereign currency” possessed by the American government has always allowed it to avoid difficulties making payments on its debt. (A web version of the editorial is here. A similar Washington Post opinion piece is posted here.) In an interesting op-ed piece, Martin Wolf of the Financial Times notes that U.S. budget deficits have allowed the private sector to deleverage a bit: “If the public sector does not sustain spending as the private sector cuts back, the latter will go too far, causing unnecessarily deep damage to the economy.” He contrasts the U.S. situation with the crisis in the United Kingdom and Spain, where deleveraging has not gone as far. He points out that Spain’s lack of a sovereign currency has prevented its government from helping along the private-sector deleveraging process.

CBO: Deficit estimate for 2012 hiked to $1.2T after payroll tax cut, jobless benefits (AP) — A new estimate from congressional economists says the government will run a $1.2 trillion deficit for the budget year ending just a few weeks before Election Day.Last year, the deficit was $1.3 trillion. The almost $100 billion spike from earlier deficit projections comes almost exclusively because Congress passed legislation recommended by President Barack Obama to renew a 2 percentage point cut in payroll taxes and jobless benefits for people languishing on unemployment rolls for more than six months.The Congressional Budget Office report comes as Republicans controlling the House are preparing for this year's budget debate, which is sure to spill over into the presidential campaign as the two sides quarrel over Medicare, taxes and cuts to the Pentagon budget.

As US Rakes Largest Monthly Deficit In History, 2012 Tax Revenues Net Of Refunds Trail 2011 - A few days ago we noted that based on preliminary data, the February budget deficit would hit $229 billion (yes, nearly one quarter of a trillion in one month, about where real Greek GDP is these days) - the largest single monthly deficit in history. Unfortunately, this number was low: the final February deficit was just released and the actual print is $231.7 billion. It also means that in the first 5 months of the fiscal year, the US has raked up $580 billion in deficits, oddly matched by $727 billion in new debt issuance, 25% more new debt issued than needed to fund deficits... And that in itself would not be horrible - February is traditionally the worst month for deficits as the Treasury sees a surge in tax refund issuance - if it wasn't for something even more troubling. As the second chart below shows, through last Friday, and net of tax refunds, total US tax revenues were actually lower in the fiscal 2012 year to date period than compared to 2011, by just under $2 billion, at $625.5 billion. Which is the weakest link for any argument that the US is actually growing: what is growing is America's debt (now almost exponentially), while its revenues are at best unchanged. And the scariest: annualizing net tax revenues brings the number to $1.5 trillion. Which is just 50% more where total US debt interest will be in 2014 when debt is $20 trillion, assuming interest rates are somehow allowed to go back up... to the astronomical level of 5%.

CBO Hikes 2012 Budget Deficit Forecast By $97 Billion In One Month, Sees $1.17 Trillion In Funding Shortfall - What a difference a month makes: back on February 7, the CBO released its first forecast for the 2012 budget deficit. The number then? $1.08 trillion. Just over a month later, the CBO has released its amended budget deficit. The bottom line this time around: an increase of just under $100 billion, or $1.171 trillion. Since this number is still about $150 billion less than the President's own scoring, or $1.33 trillion, expect even more revisions. And why not: this is simply debt that nobody will ever repay, and in exchange the money, which is finally flowing through the bottom line at least to the banks (JPM shareholders thank the US Treasury) will proceed to pad if not the middle class, then certainly banker bonuses.But not all is bad news: by 2022, the CBO, which has a pristine track record of predicting one decade into the future, sees a $186 billion reduction in total deficits compared to January. Let's not forget that b then Greece will have negative debt/GDP ratio.

Is Bond Market Whispering Inflation As 3 Year TSY Prices At Highest Yield Since October? - The jump in yield from 0.347% to 0.456% may not sound like much, but that is what just happened following the pricing of the latest $32 billion in 3 Year paper, which came at the highest rate since October's 0.544%. And considering that anything under 3 years is virtually risk free courtesy of ZIRP, this move is actually far more pronounced than it appears on the surface. Also, that the auction closed with a 0.1 bps tail is hardly too notable, although it does show that gradually interest for short-term paper may be decreasing as the Fed may be forced to not only not do QE if inflation courtesy of all the other central banks persists, but have to shorten its ZIRP through 2014 forecast.

The Government Bond Market Is Nervous That the Recovery Is Real - We’ve been getting pretty good economic news for the past couple of months – unemployment claims are trending lower; nonfarm jobs are creeping up; consumer confidence is rising as stock prices climb. So, of course, for the past couple of days U.S. government bonds have been getting crushed because bonds hate good news. This is how the bond market says, holy cow, there’s a recovery in the works. Or at least it seems to think that things aren’t so bad that investors need to take cover in the government bond market anymore, which investors view as a safe place to park their money during troubled times. The monster sell-off began on Tuesday, when the Federal Reserve released notes from its policy meeting. The tone was just a tad more optimistic than it has been in the past, saying the jobless rate had improved “notably” and that spending was up. For a central bank, that’s as close to cheerleading as you’ll get. The Fed also reported that 15 of the 19 biggest banks in the country had aced a “stress test” designed to measure how well they would do if the economy spiraled out of control. Just before that, J.P. Morgan Chase announced it was buying back stock and raising its dividend. To top things off, retail sales in February jumped 1.1% and December and January sales numbers were revised up.

Does This Look Like an Economy Approaching the Edge of a Fiscal Solvency Crisis to You? » It is true that in a sense the U.S. is simply the tallest midget--the least uncertain place to put your money in a world rife with uncertainty. But given that U.S. Treasury debt is regarded as the safe asset in the world economy, it is very difficult to look at this graph and not conclude that for quite a while--since 2000, at least--a dominant feature of the world economy is that there are not enough safe financial assets (or, rather, financial assets generally perceived as safe) in the world economy, and that each time the U.S. government creates another Treasury bond it adds value to the world economy. To be able to borrow money at -2.0%/year real and invest it in useful things is a very, very good business to be in. Ricardo Caballero has been worrying this issue for quite a while, with his line that the global economy's big problem right now is not a monetarist shortage of liquid money (in which case things you can spend would go to a premium and all other financial assets would go to a discount) or a Wicksellian-Keynesian shortage of financial savings vehicles (in which case all financial savings vehicles would go to a premium), but rather a shortage of safe assets in particular.

Bleeding the Patient - Krugman - Brad DeLong and Larry Summers have a paper in progress about fiscal policy in a liquidity trap; some of the analytics here. The bottom line, fleshed out with a lot of evidence, is one that others — including me and Christy Romer — have been arguing for a while: expansionary fiscal policy under these conditions doesn’t just aid the economy in the short run, it may well even improve the long-run fiscal prospect. And austerity may be self-defeating even in fiscal terms. If this is right (and I think it is), austerity-loving pundits and policy makers really are like medieval doctors who believed in treating illness by bleeding their patients, making the patients even sicker, leading to more bleeding.

Losing the Belt - Krugman - A number of people have asked me for a quick, easy explanation of the difference between a government and a family — basically, what’s wrong with the argument that when times are tough the government should tighten its belt. When a family tightens its belt it doesn’t put itself out of a job. When a government tightens its belt in a depressed economy, it puts lots of people out of jobs; and this is a negative even from the government’s own, narrowly fiscal point of view, since a shrinking economy means less revenue. Now, you might argue that slashing government spending doesn’t actually cost jobs — that is, you might argue that if you spent the past few years in a cave or a conservative think tank, cut off from any information about how austerity is working in practice. For the results of austerity policies in Europe have been as good a test as you ever get in macroeconomics, and without exception big cuts in government spending have been followed by big declines in GDP. So lose the belt; it’s a really bad metaphor.

Why Haven’t Business Groups Pushed Harder for Stimulus? - Although recent employment numbers seem to have set off a fresh round of complacency, the December Strategic Analysis from the Levy Institute makes it pretty clear that more fiscal stimulus is necessary if the economy is going to reach decent levels of growth and employment anytime soon. However, there’s very little reason to think that anything substantial is forthcoming on the stimulus front, as the US slides slowly into austerity. And the biggest obstacle is congressional opposition. Short of an historic wave election, substantial new stimulus just isn’t likely (although when it comes to increasing government spending to counteract a recession, Congress appears to be much more accommodating when there’s a Republican in the Oval Office). But short of these once-in-generation electoral outcomes, there’s another possibility: business groups could come around to the realization that they might benefit from an increase in aggregate demand and start seriously pushing their clients in Congress to pass something. An article in Bloomberg points out that just such a push occurred in the 1940s, as a coalition of business interests, concerned about what would happen to demand as war spending wound down, pushed for fiscal stimulus.

CBO Issues Higher Deficit Projection for Obama Budget - President Barack Obama‘s budget would produce a deficit of $977 billion in fiscal year 2013, the Congressional Budget Office said Friday, higher than the White House projected. The CBO, the nonpartisan budget cruncher for Congress, said that, if the president’s budget were enacted, the deficit would rise $3.5 trillion more over 10 years than originally expected. In February, the president proposed a $3.8 trillion budget to fund the federal government. It includes new taxes on the wealthy, and boosted spending on infrastructure, education and manufacturing. The budget, which needs congressional approval, has been denounced by Republicans and is unlikely to pass. The White House said it expected the fiscal year 2013 deficit to be $901 billion, compared with the CBO’s estimate of $977 billion.

Budget Madness - Krugman - I think I need a shower. Talking Points sends us to a badly written article in The Hill about the CBO’s latest budget estimates. If you read the article very, very carefully, you might be able to figure out that the CBO only shows Obama increasing deficits relative to a very unrealistic baseline, which among other things assumes that all the Bush tax cuts expire; relative to CBO’s “alternative” scenario, which represents a continuation of current policy, Obama actually cuts deficits substantially. But a casual read — and the headline — would leave you with the impression of Obama the wild spender. But here’s the thing: it’s not just bad reporting spreading this disinformation. What the CBO report actually says is that it expects deficits to be a bit smaller than Obama projects. Oh, and about spending: here’s the OMB projection of spending with and without Social Security and Medicare — both driven by demography — and interest costs:

Gridlock In DC - This year Obama asked Congress for, and was given, an additional $1.2 trillion of borrowing authority, which will increase the debt limit to $16.4 trillion, just enough to get him past the 2012 election. It could be close, however. If budget projections prove to be overly optimistic, Obama could face another cliffhanger over a further increase in the debt ceiling in the midst of the presidential election in November. How embarrassing to have to say "re-elect me – and by the way, I need to borrow some more money to pay this month's bills."Sometime early in January, the US crossed the line at which its national debt exceeds its gross domestic product of $15.1 trillion. Each party blames the other, but in truth, almost no one in the federal government is willing to bite the bullet and make necessary cuts. Everyone hopes someone else's ox will be gored. The federal government's expenditures have been exceeding its revenues by about $107 billion per month so far in fiscal year 2012. At that rate, there will only be about $100 billion of this additional $1.2 trillion of borrowing authority left come November. That's not much breathing room.

Once Again Why Federal Spending Is So Hard To Cut - Bruce Bartlett forwarded this latest Harris Interactive poll about the budget to me over the weekend. The money quote tells the same story as virtually every other poll on the budget: cutting "federal spending" is popular until you get to the specific programs. Then, with only a few very small exceptions, it becomes impossible. While many polls have shown that large numbers of people want to reduce "government spending" and reduce the budget deficit, a new Harris Poll finds that only rather small minorities of the public want to cut most of the biggest federal government programs. Only 12% of the public want to see a cut in Social Security payments, 21% want to cut federal aid to education and 22% want to cut federal health care programs. The only programs of the 20 listed in the poll that majorities of Americans want to cut are foreign economic aid (79%), foreign military aid (74%), subsidies to business (57%), spending by regulatory agencies (56%), the space program (52%) and federal welfare spending (52%). I was also struck by how popular federal aid to state and local governments appears to be in this poll. Only 26 percent of all those surveyed and only 34 percent of Republicans were in favor of cutting one of the areas of spending that will be hardest if the sequester reductions that were triggered when the anything-but-super-committee failed last November actually go into effect next January.

House GOP Plans to Use Budget Reconciliation All By Itself - We’ve already seen that House Republicans may set the FY2013 budget well below the spending cap laid out in the debt limit deal, risking acrimony and a possible government shutdown right before the 2012 election. The budget resolution should get unveiled next week. But David Rogers adds a new wrinkle to the debate. The House, desperate to void the defense trigger cuts that also came from the debt limit deal, may try to use budget reconciliation to substitute the cuts: At this stage, the goal is not to match the full $1.2 trillion in 10-year savings ordered by the Budget Control Act last summer. Instead, the primary focus is on the first round in 2013, half of which — about $54.7 billion — would come from national defense spending [...] To move fast in an election year, the House would dust off an old budget tool more often associated with the Senate. Individual House committees would be instructed to report back with designated savings and the final package then reported from the House Budget Committee under the expedited, reconciliation procedures allowed for in the budget law. And the goal is to put a bill on the Senate’s doorstep as one alternative to the threatened cuts from the Pentagon.

GOP Going Back On Budget Deal Is Ridiculous, Infuriating -The big federal budget news from last week was that, pushed by their tea party wing, House Republicans were seriously considering a fiscal 2013 budget resolution that proposed to cut appropriations below the levels agreed to last August in the Budget Control Act. What I’m about to say almost certainly will be immediately and repeatedly quoted out of context, but it’s important to note that what the House GOP is thinking about doing isn’t prevented by the BCA. That law set a ceiling rather than a floor on discretionary spending, and while it might not have been promised or anticipated, proposing changes in what was agreed to seven months ago isn’t prohibited.The additional cuts in spending aren’t even the first proposed changes in the law. That honor goes to the drumbeat that the automatic cut in military spending triggered by the failure of the anything-but-super committee not be allowed to go into effect as scheduled on Jan. 2, 2013. But saying that proposing additional cuts in appropriated programs is allowable isn’t the same as saying it’s advisable. On the contrary, the effort is a combination of ridiculous politics and infuriating brinkmanship that will accomplish nothing, or at least nothing positive.

Time to End Washington’s Trust Fund Gimmicks - Why do we bother with government trust funds? As the Senate’s just-passed highway bill proved yet again, Congress is turning these funds into little more than accounting shams. In theory, it makes sense to establish special accounts where designated revenues are set aside for a specific purpose. But in practice, Washington is grossly abusing the idea. There is a lot of money at stake here. The national debt this year will reach almost $16 trillion. Of that, the government owes nearly $5 trillion to itself. That’s because Congress spends trust fund dollars on the rest of government and replaces the money with IOUs. But, as with the highway fund, the game works the other way too: The trust funds live on general revenues instead of designated taxes. With that in mind, let’s take a quick tour of The Big Three funds:

• The highway trust fund. The federal government was supposed to fund its share of highway and transit costs with six excise taxes (let’s call them the gas tax, but there are other levies as well).
• Medicare: Money flies from Medicare to the general fund and back at dizzying speed.
• Social Security. You know the story here. Social Security uses current payroll tax revenues to pay current benefits. There is no real link between the size of the trust fund and what government owes current and future retirees.

The Fetishization of Balance - A good friend pointed out Friedman’s op-ed in the Times earlier this week in which he argues for “grand bargains” and “balanced” solutions to, well, all of our problems. For example, he says, “We need a proper balance between government spending on nursing homes and nursery schools — on the last six months of life and the first six months of life.” Despite the nice ring, that’s about as empty a statement as you can make about public policy. But this is the one that really confused me (and my friend):“The first is a grand bargain to fix our long-term structural deficit by phasing in $1 in tax increases, via tax reform, for every $3 to $4 in cuts to entitlements and defense over the next decade.” Where does this $3–4 in spending cuts to $1 in tax increases come from? To put this in perspective, over the next decade, the CBO’s alternative scenario (the more realistic one) says that deficits will average 5.3 percent of GDP over the next decade. A major deficit reduction agreement would need to bring this down at least to 2 percent of GDP.* Friedman is basically saying that taxes should go up by about 0.7 percent of GDP and spending should come down by about 2.6 percent. Over the next decade, the Bush tax cuts, if extended, will reduce tax revenues by 2.2 percent of GDP.** So Friedman is really saying that the appropriate level of taxes should be well below Clinton levels and slightly above Bush levels.

Geithner calls for reforms to boost growth - The US must prop up short-term growth, make structural reforms to become more competitive and increase tax revenues to tackle its fiscal problems, said Tim Geithner, the US Treasury secretary, in a speech that set out the economic case for the Obama administration.“The three primary economic imperatives we face today are supporting economic growth now, making the right investments and reforms to make our economy more competitive over time and restoring fiscal sustainability,” said Mr Geithner The Obama administration has tried to strike a balance between sustained fiscal stimulus today and longer-term consolidation coming partly from tax revenues. But it has struggled with Republican demands for immediate spending cuts to lower fiscal deficits. “These imperatives require that we resolve the fundamental political divide in this country about the appropriate role of government in the economy,” said Mr Geithner, setting out a theme for this autumn’s presidential election. Mr Geithner also set out to defend criticism of the sustained high unemployment that has plagued President Barack Obama’s term in office since 2009. He argued that the economy has performed as well as possible given the financial crisis and subsequent shocks, such as the sovereign debt crisis in Europe, with average annual growth of 2.5 per cent since the summer of 2009.

Washington Has a Very Short Memory - House Republicans, Senate Democrats and President Obama have found something they can all support: a terrible package of bills that would undo essential investor protections, reduce market transparency and distort the efficient allocation of capital. Of course, supporters don’t describe it that way. They say the JOBS Act — for Jumpstart our Business Startups — would remove burdensome regulations that they claim have made it too difficult for companies to raise money from investors, impeding their ability to grow and hire. Never mind that reams of Congressional testimony, market analysis and academic research have shown that regulation has not been an impediment to raising capital. In fact, too little regulation has been at the root of all recent bubbles and bursts — the dot-com crash, Enron, the mortgage meltdown. Those free-for-alls created jobs and then imploded, causing mass joblessness. Unfortunately, election-year politics and powerful constituencies — rather than research and reason — are driving the JOBS legislation forward. Republicans love it because deregulation is at the core of their corporate-centered agenda. President Obama wants to burnish his pro-business credentials. Most Senate Democrats, keenly aware of big business’s deep campaign contribution pockets, are eager to go along.

Jobs Bill Stalls Amid Fight Over Agency - A fight over a small export credit agency is dividing Congress and holding up a popular bipartisan jobs bill. The Export-Import Bank — a self-financing agency that helps to facilitate the sale of American goods overseas — needs Congressional reauthorization by the end of May. It is also close to hitting its $100 billion lending cap, hobbling its ability to offer new loans, and has asked Congress to raise its financing limit. With those two issues at hand, Congress is arguing over the bank’s future, with some Republicans floating a proposal that might end up abolishing the bank, and Senate Democrats hoping to force its expansion and reauthorization by attaching it to jobs legislation. On Wednesday, Senator Maria Cantwell, Democrat of Washington, introduced an amendment to keep the bank running through 2015 and to increase its loan limit to $140 billion. Senator Lindsey Graham, Republican of South Carolina, is cosponsoring the amendment. The Senate is tying the amendment to the Jumpstart Our Business Startups Act, or JOBS Act, a bill containing a bevy of measures to aid small businesses.“Allowing the Ex-Im Bank to expire would be a crippling blow to our export economy,” Ms. Cantwell said Wednesday. “Extending the Ex-Im bank will provide certainty for American businesses and help support more private sector job growth.”

Reid: Senate will act on small business bills - Senate Majority Leader Harry Reid (D-Nev.) promised Monday that the Senate would promptly take up a package of House-passed small business bills. Reid has indicated that there are differences between the House legislation – called the JOBS or Jumpstart Our Business Start-ups Act -- and the version that Senate leaders prefer. For example, Reid said reauthorizing the Export-Import Bank is critical; that was not part of the House bill. “I suggest to everyone here that I know how important this is to get finished,” Reid said on the Senate floor Monday afternoon. “I don’t need anyone to suggest that we’re not going to do that. We are.” The Nevada Democrat said he wants to complete work on the bill in this work period. The Senate is in session until the week of April 2. He also said the Senate had not yet received the House bill, which a spokesman for Speaker John Boehner (R-Ohio) disputed. “The House sent the JOBS Act to the Senate last Thursday,” spokesman Michael Steel said in an e-mail.

A Jobs Bill That Will Provide Help, but for All the Wrong People - Finally, the House passed a jobs bill last week. And what a bill it is! Officially called the Jump-Start Our Business Start-Ups Act, it calls for reopening our capital markets to exciting new start-ups by ridding protections for investors and stripping away disclosure requirements for smaller companies. The Senate is expected to pass a similar bill this week. John Coffee, a Columbia Law professor, has hailed the bill as “the boiler room legalization act.” And rightly so. Boiler room operations were one of the unsung job creators of the 1990s, producing some of America’s greatest penny stocks and boom times for yacht makers and coke dealers. But these small, hard-working firms have run into hard times. Since the technology stock blowup, the accounting scandals at Enron and WorldCom and the worst financial crisis since the Great Depression, investors have been needlessly wary of putting their savings into fledgling companies offered by Wall Street banks. The JOBS bill fixes that. Taking advantage of the revolutionary possibilities of the Internet, the bill loosens decades-old investor protections so that companies can directly advertise to those who would like to be separated from their money. It does that by giving broad exemptions for start-ups that want to “crowdfund” by raising small amounts of money over the Internet. I.P.O. pitches next to “Lose Your Belly!” ads. Sounds like a great idea!

JOBS Act Financial Deregulation Bill Could Get Tripped Up by Unrelated Measure - Overlooked in the mockery of the GOP House taking some innocuous-seeming bills about small business capital formation and wrapping them up into a package to call them the JOBS Act is that the underlying bills themselves are really not good at all. It’s an effort to exempt a bunch of companies from reporting requirements and weaken investor protections. It’s a financial industry deregulation bill. Jesse Eisinger lays it out. John Coffee, a Columbia Law professor, has hailed the bill as “the boiler room legalization act.” And rightly so. Boiler room operations were one of the unsung job creators of the 1990s, producing some of America’s greatest penny stocks and boom times for yacht makers and coke dealers [...]Since the technology stock blowup, the accounting scandals at Enron and WorldCom and the worst financial crisis since the Great Depression, investors have been needlessly wary of putting their savings into fledgling companies offered by Wall Street banks. The JOBS bill fixes that. Taking advantage of the revolutionary possibilities of the Internet, the bill loosens decades-old investor protections so that companies can directly advertise to those who would like to be separated from their money. It does that by giving broad exemptions for start-ups that want to “crowdfund” by raising small amounts of money over the Internet. I.P.O. pitches next to “Lose Your Belly!” ads. Sounds like a great idea!

Public Transit Benefit was down, is now up again (in Senate) One of the tax provisions that lapsed last year was a very popular tax expenditure supporting public transportation--a tax credit for commuters using mass transit was allowed to lapse back to a $125 monthly benefit from the stimulus level of $230 a month. Ironically, in a time of clear importance environmentally of cutting back on cars and increasing use of public transit, Congress had given preferential treatment to support for parking (likely supporting most those commuters at the higher end of the income scale who like to drive their BMWs from Connecticut to New York City, or commuters who don't have decent access to public transit): the parking subsidy actually increased to $240 a month.Today, the Senate passed the Surface Transporation Reauthorization Bill (see summary, here; for text and other actions, see S.1813 on Thomas). The bill as passed included a provision, retroactive to Jan first of this year when credit lapsed to the lower level, that would restore the public transit credit at the same level as the current parking subsidy. See PR Newswire, Senate Approves Increase to Pre-Tax Benefits for Public Transportation Commuters, Commuter Benefits Work for US.org (Mar. 14, 2012). The House may delay action on the bill though Boehner has said he would call the Senate version for a vote if the GOP majority doesn't agree on an alternative. See Linda Scott, Senate Passes Transportation Bill, PBS NewsHour (Mar. 14, 2012).

For once, the Senate tries to make highway spending less irrational - One of the odd features of U.S. transportation policy is that, by and large, there isn’t an overarching national policy. States generally get money according to a set formula. Congress tends not to prioritize those projects that advance key economic or environmental goals. But on Wednesday, the Senate passed a two-year, $109 billion transportation bill that tries to change all that — at least in a few modest ways. The bill itself is critical because funding for roads, bridges and transit is set to run out on March 31. But there are a few notable reforms tucked away in the legislation itself. For one, the Senate bill actually articulates major national goals for U.S. transportation policy — things like managing congestion, improving road conditions, reducing environmental impacts, improving the reliability of freight, and increasing access to transit. These goals don’t really affect the way funding is handed out, but at least they finally exist.

Wonkbook: 16 days to pass a highway bill - We're 16 days away from infrastructuregeddon. Actually, that doesn't sound so good. Highwaygeddon? At any rate, we're 16 days away from the last surface transportation bill -- the primary vehicle by which we fund infrastructure in this country. The recent history of this issue is not inspiring. Surface transportation bills used to be easy to pass. As Sen. Dick Durbin said, they were "the easiest bill to pass." After all, every member of Congress has a pothole in his district, or a bridge that needs some repairs. In recent years, however, the easiest bill has become a lot more difficult to pass. The last long-term highway bill was signed in 2005. It expired in 2009. Since then, Congress has passed eight short-term stopgaps. It hasn't been able to agree on a longer-term solution. On Wednesday, the Senate managed to pass a two-year highway bill with 74 votes. The legislation was cosponsored by Sens. Barbara Boxer (D-CA) and Jim Inhofe (R-OK). At $109 billion, it's approximately two-thirds as large as the infrastructure request President Obama made in his budget. It also leaves some systemic problems in the infrastructure space -- including that the gas tax is no longer sufficient to fund the needed transportation investments and so it either needs to be raised or supplemented -- unsolved. But it at least gives states a bit of predictability in making infrastructure investments for the next few years.

House Won’t Take Up Senate Surface Transportation Bill Before Expiration Date - The Senate’s transportation bill, which passed earlier this week, is more bipartisan than good. The bill lasts for two years rather than the 5 years requested by the White House, and it funds at about 2/3 the level in the President’s budget request, which itself is relatively low according to infrastructure experts. That said, it begins to actually intelligently tackle infrastructure policy, albeit with limited means, and it’s certainly preferable to the eight stopgap bills that have been the sum total of Congress’ work on this policy since 2009. It looks as if we’re moving toward stopgap bill number 9. The House will not take up the Senate’s transportation bill and its own version won’t hit the floor until mid-April at the earliest, Transportation and Infrastructure Committee aides told industry officials Thursday morning. Democrats on both sides of the Capitol are ramping up their pressure on the House after the Senate approved a two-year, $109 billion bill that garnered votes from nearly half of the Republican caucus [...] John Boehner tried rallying support for the House version of the bill, and now he’s going back on his word, which isn’t worth too much these days. Nevertheless, the practical consequence of this is a ninth straight short-term surface transportation bill. I’m not a big believer in the confidence fairy or the power of certainty, but infrastructure requires long-term planning, and with short-term funding from the federal government, you cannot possibly make that planning at the local level. In this case, uncertainty at the federal level absolutely costs jobs.

Michael Tomasky on GOP Plans to Sink the Economy -We’re just under eight months away from Election Day now, which means that the GOP is starting to run out of time to think up new ways to ruin the economy so that Barack Obama doesn’t get reelected. The Republicans have to do this delicately, of course; they can’t be open about it lest it become too obvious that harming the economy is their goal. But they have to be aggressive enough about it for their efforts to bear some actual (rotten) fruit. There are three fronts—gas prices, jobs, and the budget—on which we should keep our eyes open for signs that the Republicans are trying to achieve Mitch McConnell’s No. 1 goal for America. Let’s take them in order. The Republicans received joyous news Monday in the form of the Washington Post poll that showed Obama’s numbers sinking in inverse proportion to rising gas prices. The gas situation is perfect for the GOP for two reasons. First, there’s very little a president can actually do about gas prices. Second, even though those prices don’t really tell us much about the more general economy, most people have the impression that they do, so for the out-party, it’s just a free whack.

Private Equity Experience a Plus for Government's Loan Programs - The Republican presidential primary elections have sparked a show trial about whether a candidate’s experience as a private equity investor effectively disqualifies him to be the president of the United States. In this debate, private equity experience is linked to some of the industry’s failed investments, lay-offs at restructured companies, or lucrative distributions from successful investments. It is held up as an example of privilege, income inequality and evidence that private equity’s business model is anathema to the role or mission of the federal government. But there is at least one area where Washington is in desperate need of someone with private equity experience. “Only in Washington” accounting rules have helped fuel an explosion in the size of federal government’s loan programs, particularly those that subsidize housing. The rules make these programs appear to generate huge profits for the government, even though they make loans at below-market rates. Someone with private equity experience would be shocked to learn that loan programs appear profitable because official cost estimates systematically exclude the market risk taxpayers bear when the government guarantees loans or makes them directly. A private equity investor is acutely aware that investors charge a premium to bear market risk – the risk that loan defaults will be higher during times of economic stress when resources are scarce and the market prices of assets are depressed – and knows that it cannot simply be ignored when valuing a loan.

“Scoring” the Romney Economic Plan - Well, this could be a short blogpost, because in Mitt Romney’s words, “frankly it can’t be scored” [The Hill]. However, I think it of interest to consider what it would take to make the Romney plan deficit neutral, as he has argued it would be. What can one say, given this constraint of vagueness? One could calculate the tax revenue losses in a static sense, as the Joint Urban-Brookings Tax Policy Center did. TPC notes:TPC found that repealing the AMT and cutting rates by 20 percent would increase the deficit by more than $3 trillion over the next 10 years, even after the 2001/2003/2010 tax cuts are extended. The loss is $8.8 trillion if those reductions are combined with permanent extension of the 2001 and 2003 tax cuts. If however, other proposed tax cuts are implemented, the revenue loss would be even larger. The Committee for a Responsible Federal Budget has tabulated the impact on the Federal debt held by the public, assuming no spending cuts (h/t [Krugman]).

Would a Higher Top Tax Rate Raise Revenues? - On Friday, Prof. Allan Meltzer of Carnegie Mellon University, a well-known conservative economist, offered a commentary in The Wall Street Journal arguing against policies to equalize the distribution of income. His key piece of evidence is the chart below, from a study by the Swedish economists Jesper Roine and Daniel Waldenstrom, that shows the share of income accruing to the top 1 percent of earners in seven Western democracies. They all follow the same trend line, Professor Meltzer says, and it proves that “domestic policy can’t be the principal reason for the current spread between high earners and others.” Leaving aside the fact that the ultrarich have gained far more in the United States than any other country in his sample and that there is no upward trend at all in the Netherlands, he seems to have missed an important implication of his own conclusion. He asserts that we should not raise tax rates on the wealthy, as President Obama has proposed, because it won’t do anything to reduce the share of income going to the ultrawealthy and thereby equalize the distribution of income. But there is another very good reason to raise taxes on the ultrawealthy: the government needs the revenue.

A Nation With Too Many Tax Breaks - President Obama’s insistence that the rich must pay more to preserve programs that help the poor and middle class has crashed against the Republican claim that the president’s Robin Hood policies amount to class warfare. Whatever their merits, both arguments rely on an assumption that is at best overstated: that the government uses resources from those who are richer to pay for programs that mostly benefit the less fortunate. At first glance the budget does seem heavily tilted to take from the rich and redistribute to the rest. Taxpayers in the top fifth of the population shoulder three-quarters of the federal tax burden and receive only about 10 percent of entitlement spending, according to calculations by the Urban Institute and the Brookings Institution’s Tax Policy Center, and the Center on Budget and Policy Priorities. Families in the bottom 40 percent of the income distribution pay less than 1 percent of taxes and receive about 60 percent of entitlements. But this is too narrow a view of taxing and spending. There is an alternate, more comprehensive way to measure how the government moves resources across the economy. It includes amounts that are not reported either as revenue or spending in the budget, but recorded as tax expenditures; that is, money that the government does not collect because of tax breaks.

The richest get richer - (Reuters) - The aftermaths of the Great Recession and the Great Depression produced sharply different changes in U.S. incomes that tell us a lot about tax and economic policy. The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent. In 2010, we saw the opposite as the vast majority lost ground. National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent. Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain. Starting in 1933, government policy aimed to improve the lot of the vast majority through such policies as massive government-financed jobs and construction programs. But since 1980 policy has focused on helping the already rich get richer still with such policies as lower taxes and fewer audits. The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966. At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.

Graphs Show It Clearly--the richest are much richer and most of us are poorer – Linda Beale - David Cay Johnston has employed a couple of key graphic images that tell a significant story about the way that US laws have favored the rich--including tax administrative procedures that have reduced real audits of the rich and tax laws that have cut the top rates significantly and cut the rates on the "favorite" form of income of the rich to extraordinarily low rates. See David Cay Johnston, The rich get richer, reuters (Mar. 15) (noting that the figures he uses here, in 2010 dollars, are from an analysis of IRS data by Emmanuel Saez and Thomas Piketty). The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent. In 2010, we saw the opposite as the vast majority lost ground. National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent. So while the Great Depression acted as a leveler, the cascading impact of tax and other fiscal policies that are extraordinarily favorable to the rich was little influenced by the Great Recession. Here're the two telling graphs from the article.

The Buffett Rule Can’t Pay for AMT Repeal - Congress originally enacted the alternative minimum tax (AMT) to make sure that high-income folks would pay at least a minimum amount of income tax. Sound familiar? It seems awfully similar the “Buffett rule,” the principle that those with incomes above $1 million should pay at least 30 percent of their income in taxes.As currently constructed, the AMT adds enormous complexity to the tax code and increasingly burdens middle-class families. So it seems natural to ask: why not just replace the AMT with a version of the Buffett rule? To help answer that question, the Tax Policy Center estimated what it would cost to scrap the AMT and enact the Fair Share Tax, a recent legislative proposal that would impose a 30 percent minimum tax on individuals earning more than $1 million. (The tax would phase in so its full force wouldn’t hit taxpayers as soon as their income topped $1 million.)We found that the Fair Share version of the Buffett rule wouldn’t come close to paying for AMT repeal. Scrapping the AMT would lose a whopping $1.2 trillion relative to current law between now and 2022. The Fair Share Tax would only recover about $100 billion of that revenue, for a net loss of $1.1 trillion.

Why We Need a Surtax on the Super Wealthy - Robert Reich - The Fed just reported that household wealth increased from October through December. That’s the first gain in three quarters. Good news? Take closer look. The entire gain came from increases in stock prices. Those increases in stock values more than made up for continued losses in home values. But the vast majority of Americans don’t have their wealth in the stock market. Over 90 percent of the nation’s financial assets – including stocks and pension-fund holdings – are owned by the richest 10 percent of Americans. The top 1 percent owns 38 percent. Most Americans have their wealth in their homes – whose prices continue to drop. Housing prices are down by a third from their 2006 peak.So as the value of financial assets held by American households increased by $1.46 trillion in the fourth quarter, the wealthiest 10 percent of Americans became $1.3 trillion richer, and the wealthiest 1 percent became $554.8 billion richer.But at the same time, as the value of household real estate fell by $367.4 billion in the fourth quarter, homeowners – mostly middle class – lost over $141 billion (owners’ equity is 38.4 percent of total household real estate). Presto. America’s wealth gap – already wider than the nation’s income gap – has become even wider. The 400 richest Americans have more wealth than the bottom 150 million Americans put together.

Taxing the Rich Does Not Hurt Jobs - This Real News Network interview with professor of economics Jeffrey Thompson debunks the notion that increasing taxes on the well off is not a negative for employment.

"Without Significantly Deterring the Wealthy from Trying to Earn More" -- Peter Diamond:...Diamond also pointed to some of his own recent research, with economist Emmanuel Saez of the University of California at Berkeley, which found that the optimal marginal income tax rate on the highest earners — those making $400,000 or more per year — is well above the current 36 percent, or even the 39 percent level that existed during the 1990s. “The Washington debate right now is between the Bush and Clinton tax rates on the top,” Diamond said. But his work with Saez shows that a more efficient rate for raising revenue — without significantly deterring the wealthy from trying to earn more — is “somewhere between the tax rate at the top in Reagan’s first administration, which was 50 percent, and the tax rate at the top from the Johnson years up to the Reagan change, which was 70 percent.” ...The objection to increased taxes on the wealthy used to be about growth, but as that argument has been undermined by actual evidence (or lack of it when it comes to detecting the promised effect of tax cuts on growth), the argument has shfted to fairness. It wouldn't be fair to tax them that much, it's their money, etc. But since the gowth of income for the typical household has not kept up with productivity -- the money flowed to the top of the income distribution instead -- the issue of fairness may not work in their favor.

Capital Gains vs. Ordinary Income - In a column titled “Capital Gains, Ordinary Income and Shades of Gray,” the Harvard economist N. Gregory Mankiw, who advises Mitt Romney in his presidential campaign, offers a fine teaching piece on the tenuous and often confusing line between ordinary income and capital gains under our tax code. As Professor Mankiw reminds us, the highest tax rate on ordinary income is now 35 percent while that on capital gains is only 15 percent. Using four illustrations from transactions in real estate, Professor Mankiw concludes that the favorable 15 percent tax rate enjoyed by Mr. Romney on carried interest earned in his years at the private equity partnership Bain Capital is really not different in substance from the preferential tax treatment enjoyed by millions of other Americans on their real-estate transactions . But then, almost as an afterthought, Professor Mankiw touches in passing what for me is the crux of the issue. He writes: Critics of current law think it is unfair that these private equity partners are taxed at capital-gains rates, whereas other high-income individuals like doctors and lawyers pay the much higher tax rates for ordinary income. . But as the tax situations of Abe through Earl illustrate, it is not obvious what the best approach would be. On this point, I beg to differ with my colleague. Why is the answer so difficult? To my mind, the best approach would be to abolish the distinction between capital gains and ordinary income altogether and desist from using the tax system for any kind of economic or social engineering.

The Myth of the Non-Paying 47 Percent, CBPP: The argument that we should raise taxes on the bottom half of households because too many of them don’t owe federal income tax doesn’t take the tax system as a whole into account, our former colleague Aviva Aron-Dine explains in a new piece in the Milken Institute Review. Here’s an excerpt: These are tough times, especially for low- and moderate-income families. For much of 2011, the unemployment rate exceeded 9 percent, and was higher among those without a college education. Last year, 15 percent of Americans lived in poverty, up from 12 percent before the recession. Meanwhile, the median income of working-age households fell sharply for the third year in a row. And that decline came on top of more than three decades of sluggish growth for all but the highest earners. Yet to hear some people tell it, one of the major problems facing America is that the bottom half of U.S. families is getting off too easy. Every major candidate in the Republican presidential race has expressed outrage over the fact that 47 percent of households didn’t owe any federal income tax in 2009. …But the picture changes dramatically once other federal taxes are included. When all federal taxes are taken into account, even the lowest fifth of households (with average incomes of about $18,000) pay 4 percent of income in federal taxes, while the second-lowest fifth (average income: $43,000) pay 11 percent. ...

When Do Humans Want to Share the Wealth? - Jonathan Haidt reports an interesting experimental result: Two three-year-olds walk up to a marble-delivery machine that has two bins. Each stands in front of one bin. Three scenarios:

• 1. One bin has three marbles in it, the other has one: the winner is unlikely to share to equalize the takings.
• 2. There are two ropes to pull; one delivers one marble, the other three: the winner is unlikely to share to equalize the takings.
• 3. Two ropes, but both must be pulled together to deliver the one/three marbles: the winner is likely (75%!) to share to equalize the takings. (Either spontaneously, or on request from the loser.)

If people feel that they must work together to get the goods, they also feel that they should (or even want to) share the goods.
Haidt’s take: If there’s a problem with the ultra-rich, it’s not that they have too much wealth, it’s that they bought laws that made it easy for them to gain and keep so much more wealth in recent decades. Sarah Palin gave a speech last September lambasting “crony capitalism,” which she defined as “the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys.” I think that she was on to something. The problem isn’t that some kids have many more marbles than others. The problem is that some kids are in cahoots with the experimenters. They get to rig the marble machine before the rest of us have a chance to play with it.

Do Oil Companies Pay Their Fair Share in Taxes? -There has been a lot of debate recently about oil and gas companies and the tax treatment they get in the United States. President Obama has on multiple occasions proposed increasing taxes on oil companies specifically, in addition to endorsing general corporate tax changes that would include oil companies. Today's Wall Street Journal (subscription required) provides some valuable context on what oil and gas companies actually pay in taxes: The federal Energy Information Administration reports that the industry paid some $35.7 billion in corporate income taxes in 2009, the latest year for which data are available...That figure also doesn't count excise taxes, state taxes and rents, royalties, fees and bonus payments. All told, the government rakes in $86 million from oil and gas every day—far more than from any other business. Not paying their "fair share"? Here's a staggering fact: The Tax Foundation estimates that, between 1981 and 2008, oil and gas companies sent more dollars to Washington and the state capitols than they earned in profits for shareholders.

ANALYSIS: When a Congressman Becomes a Lobbyist, He Gets a 1,452% Raise (on Average) - Republic Report: Selling out pays. If you’re a corporation or lobbyist, what’s the best way to “buy” a member of Congress? Secretly promise them a million dollars or more in pay if they come to work for you after they leave office. Once a public official makes a deal to go to work for a lobbying firm or corporation after leaving office, he or she becomes loyal to the future employer. And since those deals are done in secret, legislators are largely free to pass laws, special tax cuts, or earmarks that benefit their future employer with little or no accountability to the public. While campaign contributions and super PACS are a big problem, the every day bribery of the revolving door may be the most pernicious form of corruption today. (See our post on Monday about current members of Congress already negotiating for jobs on K Street) Unlike some other forms of money in politics, politicians never have to disclose job negotiations while in office, and never have to disclose how much they’re paid after leaving office. In many cases, these types of revolving door arrangements drastically shape the laws we all live under. For example, former Senator Judd Gregg (R-NH) spent his last year in office fighting reforms to bring greater transparency to the derivatives marketplace. Almost as soon as he left office, he joined the board of a derivatives trading company and became an “advisor” to Goldman Sachs. Risky derivative trading exacerbated the financial crisis of 2008, yet we’re stuck under the laws written in part by Gregg. How much has he made from the deal? Were his actions in office influenced by relationships with his future employers?

Encore Broadcast: On Crony Capitalism on Vimeo: This weekend, continuing its sharp multi-episode focus on the intersection of money and politics, Moyers & Company explores the tight connection between Wall Street and the White House with David Stockman – yes, that David Stockman — former budget director for President Reagan. Now a businessman who says he was “taken to the woodshed” for telling the truth about the administration’s tax policies, Stockman speaks candidly with Bill Moyers about how money dominates politics, distorting free markets and endangering democracy. “As a result,” Stockman says, “we have neither capitalism nor democracy. We have crony capitalism.”Stockman shares details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge.“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman tells Moyers.

Financial Repression Has Come Back to Stay: Carmen M. Reinhart - As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt. Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers. In the past, other measures also included directed lending to the government by captive domestic entities (such as pension funds or banks), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter coordination between governments and banks, either explicitly through public ownership of some institutions or through heavy “moral suasion” by officials. Central banks in both developed and developing countries are being subjected to complementary pressures. Emerging markets may increasingly look to financial regulatory measures to keep international capital “out” (especially given the expansive monetary policy stance pursued by the U.S. and Europe). Meanwhile, advanced economies have incentives to keep capital“in” and create a domestic captive audience to absorb the financing for the high existing levels of public debt.

Global interest rates: Libor – a benchmark to fix - Every day, employees at the world’s leading banks are asked an inelegantly worded question used to calculate the benchmark rates that help determine the price of mortgages, the cost of corporate lending and the interest added to credit card bills. Their answers are now at the heart of a sprawling regulatory investigation into possible manipulation of the London interbank offered rate, one of the most important reference points of the global financial system.At least 10 enforcement agencies in the US, Canada, Europe and Japan are examining whether bankers and brokers colluded to rig Libor – the index interest rate used for $350tn worth of financial products – and other widely watched rates to boost profits from their in-house trading positions. For 18 months, officials have been scrutinising whether some banks, through electronic bids processed in London, submitted artificially low Libor numbers to mask their own mounting financial difficulties as a worldwide credit crisis deepened in late 2007 and 2008. The probe, in which investigators are still sorting through allegations of criminal intent and regulatory shortfalls, has threatened the best efforts of the banking industry to draw a line under the crisis, which led to taxpayers bailing out the financial system. Proved manipulation of index rates could expose banks to a legal and regulatory bonanza, from big fines to class action lawsuits, several of which have already been filed.

Default Swaps are Insurance Products, It's Time We regulated them as Such - Let’s take a closer look at the tortured history of the swaps and see why they should be regulated as commercial insurance policies. Our story thus far: CDS obtained their favored status as unregulated insurance policies courtesy of the Commodity Futures Modernization Act of 2000. It was sponsored by then-Sen. Phil Gramm (R-Tex.) — and benefited Enron, where his wife, Wendy, was a director on the board. Late in the year, the CFMA was rushed through Congress. Passed unanimously in the Senate and overwhelmingly in the House, it was mostly unread by Congress or its staffers. On the advice of then-Treasury secretary Lawrence H. Summers, the bill was signed into law by Bill Clinton. No one associated with this awful legislation has yet to be rebuked for it. Anyone who actually read this debacle and recommended it should be banned for life from having anything to do with public policy or economics. Why? The act was a radical deregulation of derivatives. It was an example of the now widely discredited belief that banks and markets could self-regulate without problems. Management would never do anything that put the franchise at risk, and if it did, it would be suitably punished by the shareholders. It didn’t quite work out that way. Across Wall Street, nearly all senior management involved escaped with their bonuses and stock options intact.

Bernanke Aims to Reassure Community Banks on Dodd-Frank - Federal Reserve Chairman Ben Bernanke assured community banks Wednesday that they aren’t the intended target of many new regulations largely aimed at bigger banks. Bernanke stressed that the Fed wants to make sure that new Dodd-Frank regulations don’t deal an unfair blow to small banks, according to his prepared remarks. Rules on capital, liquidity and risk management should principally apply to large institutions, he said. “These new standards are not meant to apply to, and clearly would not be appropriate for, community banks. We will work to maintain a clear distinction between community banks and larger institutions in the application of new regulations,” he said in the text of his pre-recorded video for the conference. The central banker also said the Fed will be working to understand how regulatory costs are affecting community banks and will try to strike the right balance when it comes to supervision of community banks. The Fed will try to support the banks’ safety and soundness while eliminating “unnecessary costs,” he said. “Bank supervision requires a delicate balance–particularly now,” Bernanke said. The “weak economy” has put pressure on “the entire banking industry, including community banks,”

Americans Like Regulation - It’s a well-known fact that Americans oppose government spending in the abstract yet favor virtually every government spending program. For example, last April Gallup reported that 73 percent of Americans blame the deficit on excessive spending and 48 percent wanted to reduce the deficit mainly through spending cuts (and 37 percent equally with spending cuts and tax increases). Only a few months before, however, Gallup also reported majorities opposed to cutting spending on anything—even “funding for the arts and sciences”—except foreign aid.* (This is not an isolated poll; see, for example, Washington Post-ABC News). I suspected, however, that most Americans would want to cut spending on federal regulatory agencies; I thought that they just overestimated the amount of spending on regulation, which is tiny compared to the large mandatory spending programs. (The Consumer Financial Protection Bureau, for example, last year put in a budget request of around $300 million—less than one-one-hundredth of a percent of total federal spending.) It turns out I was wrong. According to a recent study by the Pew Research Center for the People & the Press (hat tip Harold Meyerson), a small majority (52-40) thinks that government regulation does more harm than good. When you look at every actual type of regulation, however, people wanting stronger regulations vastly outnumber people wanting reduced regulation, and there is little noticeable shift since 1995—another year of intense anti-government sentiment.

During Sunshine Week, Justice Department urges changes to guard new category of gov’t secrets - In the middle of Sunshine Week, when news organizations and advocacy groups promote government transparency, the Obama administration urged Congress on Tuesday to keep secret a whole new category of information even under the Freedom of Information Act. A few miles away, the White House organized a conference call with two senior administration officials to preview an announcement by President Barack Obama about an important China trade issue but told reporters that no one could be quoted by name. The officials were U.S. Trade Representative Ron Kirk and the deputy national security adviser for international economic affairs, Michael Froman. Obama has promised that his administration will be the most transparent in American history. But events on Tuesday, while unrelated, illustrate that old habits die hard. On Capitol Hill, the director of the Justice Department’s office of information policy, Melanie Ann Pustay, told senators they need to protect against public disclosures of material about cybersecurity, critical U.S. computer networks, industrial plants, pipelines and more. Businesses have sought such a new exemption under the law for at least 10 years.

When Wall Street captures Washington - One of the themes running through Noam Scheiber’s new book is the idea that professional technocrats have a tendency to take at face value much of what they’re told by Wall Street. Bankers are very good at capturing/flattering mid-level political operatives, although admittedly they’re less good at it now than they were before the crisis. And certainly there’s no shortage of bankers who have gone into government and have then proceeded to advance the interests of the financial-services industry: Bob Rubin is the prime example. As for legislators, it’s probably no surprise that representatives from places like New York or Charlotte or Delaware will be very friendly when it comes to the financial-services industry. But more generally the industry rains all-but-indiscriminate funds on lawmakers on both sides of the aisle, with impressive results. If Bill Clinton’s economic team set the parameters of what you might call Rubinite economic orthodoxy, then Obama’s team has more or less stayed within those parameters: the few exceptions, from the like of Christy Romer, have had almost no real impact.

When Populism Is Sound - Simon Johnson - “Populism” is a loaded term in modern American politics. On the one hand, it conveys the idea that someone represents (or claims to represent) the broad mass of society against a privileged elite. At the same time, populism is often used in a pejorative way – as a putdown, implying “the people” want irresponsible things that would undermine the fabric of society or the smooth functioning of the economy. But there is still an undercurrent of resistance in Washington to policy ideas with widespread popular support. For example, when President Obama said to leading bankers in March 2009, “My administration is the only thing between you and the pitchforks,” he was suggesting that people favoring a resolution process for large financial institutions — closing them down in an orderly fashion — were akin to some kind of a peasants’ revolt. According to Mr. Obama’s framing of the issues, the administration sided with large banks that were in trouble at the beginning of his administration — and bailed them out repeatedly and on generous terms — because this was the responsible thing to do.This was a mistake, with lasting consequences for the American economy, because it further entrenched the power of these banks and the people who ran them into the ground. It also changed our politics. On financial regulation, anti-elite ideas have broad appeal and represent the responsible course of action — and they should draw support from across the political spectrum.

Money Market Funds See Opportunity In ‘Sterilized’ Easing - Money-market fund managers say “sterilized” asset purchases under consideration by the Federal Reserve are their newest hope to lift returns out of the gutter. The Fed is considering buying long-dated Treasury bonds and simultaneously borrowing the money back for short periods of time, the Wall Street Journal reported last week. The program aims to stimulate the economy by keeping down borrowing costs. It would also create a new pool of high-quality, short-term debt. These assets are in short supply since Europe’s sovereign debt troubles made much of the continent’s debt too risky for money market funds. Instead, these mostly conservative funds that manage nearly $3 trillion have had to compete for Treasury bills, pushing yields here near zero or even negative territory. Many funds have cut fees to avoid losing investors, and some have closed. Fund managers say sterilized easing would boost yields on short-term debt of all types and help rev up returns.

MF Global’s Free Pass? - Joe Nocera in today’s NYT rails about the lack of prosecution in the MFG case: Yet, a few weeks ago, Azam Ahmed and Ben Protess, who have done a remarkable job covering the MF Global bankruptcy for The Times, wrote an article suggesting that prosecutors were having trouble putting together a criminal case against anyone at MF Global. So far, wrote Ahmed and Protess, they’d been “unable to find a smoking gun.” In fact, they continued, “a number of federal prosecutors have expressed doubts” that MF Global “intentionally misused customer money.” Apparently, the current theory is that it was all just a big accident, the chaos of those final days causing the firm’s executives to tap into customer funds without realizing it . . .

The Audacity of Bonuses at MF Global - In the spirit of George Orwell’s Animal Farm commandment: “all animals are equal, but some animals are more equal then others” comes the galling news that bankruptcy trustee, Louis Freeh, could approve the defunct, MF Global to pay bonuses to certain senior executives. This, despite the fact that nearly $1.6 billion of customer funds remains “missing” or otherwise partially accounted for, yet beyond the reach of those customers, perhaps forever, since before the firm declared bankruptcy on October 31, 2011. Three wrinkles of audacity underscore the potential MF Global bonus approvals. First, there is the moral responsibility layer. MF Global, classified as a broker-dealer wasn’t specifically subject to the investment-advisor fiduciary rule that requires ‘systemic safety and soundness’’ with respect to retail customers. But, comingling customers’ funds inappropriately with the firm’s, as former chief, Jon Corzine’s European bets were blowing up, was an abject misinterpretation of the rule's intent. Aside from that, MF Global lied about funds segregation to its customers, which constitutes fraud. The final page of the firm’s brochure touts “the strict physical separation of clients’ assets from MF Global accounts.”

But Of Course It's Not One Giant Cesspool Now Is It? - I came across a very interesting open letter to Jamie Dimon via the financial sleuths over @ZeroHedge. The piece was penned by one time fawning, bootlicking, groupie turned sober adult James Koutoulas. The crux of the letter surrounds douce-bag extraordinaire Dimon and JP Morgan's role in the MF Global swindle but I want to bring your attention to a somewhat of an sideline appetizer piece to the article if you will."Through my role as the co-founder of the Commodity Customer Coalition and pro bono counsel for some 8,000+ customers whose property it looks like your institution may be holding without their consent, I have loudly advocated for JPMorgan Chase to return this property. In response to this, rather than doing the right thing, you closed all of my personal and corporate bank accounts and my personal credit card. I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

Judge orders documents in Overstock case unsealed - Goldman Sachs Group Inc. and Bank of America Corp. documents that were deemed confidential in a lawsuit filed against them by Overstock.com Inc. must be made public, a state court judge in San Francisco ruled. The case involves a 2007 lawsuit by Salt Lake City-based Overstock claiming the banks manipulated its stock from 2005 to 2007, causing its shares to fall. State Court Judge John Munter dismissed the case on Jan. 10, ruling the conduct took place outside of California. Overstock appealed, and also asked Munter to make public those documents he put under seal.Munter granted Overstock’s request to make public a large chunk of documents. "The subject matter of this action is of substantial public interest. This case concerns publicly traded securities and the operation of the national securities markets, and those are of great public interest."

JP Morgan Under OCC Investigation for Serious Debt Collection Abuses; Warnings Ignored for Over Two Years - - Yves Smith - American Banker has released the first in what will be a series of stories on debt collection abuses by the New York bank. It confirms critics’ worst accusations against the financial services and belies Jamie Dimon’s tiresome assertions that JP Morgan is better than its peers. Dimon may still be right if you think excelling in abusing and extorting customers is commendable. The American Banker story discusses the operations of a unit that handled delinquent credit card borrowers. Handling these accounts involved using three different computer systems that communicated reasonably well on current borrowers but not with delinquent or defaulted ones. As a result, the operation had involved a high level of manual checks to make sure the amounts borrowers owed were accurate before they were sent off to collection (which in high population states, was an in-house operation, but for most, involved the use of outside law firms. In 2008, JP Morgan installed new management in the San Antonio operation that oversaw ligitigation, including the verification of borrower information. Edmond Helaire came in as the lead, and the story makes clear that his newly hired deputy Jason Lazinbat went on a campaign to improve results, procedures be damned. Linda Almonte, who was a process specialist who had worked at WaMu, joined in 2009 and was fired, as she charged in a wrongful termination lawsuit, for refusing to send files to collection that has obvious problems in them. Almonte filed a whistleblower complaint with the SEC in 2010 (see an Abigail Field story for more detail).

In powerful Citi ruling, 2nd Circuit stresses deference to SEC - When U.S. Senior District Judge Jed Rakoff rejected a $285 million settlement between Citigroup and the Securities and Exchange Commission last fall, he offered a stern rebuke to SEC lawyers who'd suggested his role was not to protect the public interest. "A court, while giving substantial deference to the views of an administrative body vested with authority over a particular area, must still exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve, or disserve, the public interest," Rakoff wrote in his oft-quoted ruling. In the months since, at least three other federal judges have cited Rakoff in questioning whether settlements proposed by federal agencies serve the public interest, two in SEC cases and one in a Federal Trade Commission case. On Thursday, the agency's position received a very powerful endorsement from the 2nd Circuit Court of Appeals. A three-judge panel ruled that the SEC's case should be stayed pending a joint appeal of Rakoff's ruling by the agency and Citigroup, overturning a Rakoff order that the case proceed. The extraordinary 17-page appellate ruling concludes that Citi and the SEC are likely to succeed in their argument that Rakoff was wrong to reject the settlement.

Killing the competition: How the new monopolies are destroying open markets - The equation is simple. In sector after sector of our political economy, there are still many sellers: many of us. But every day, there are fewer buyers: fewer of them. Hence, they enjoy more and more liberty to dictate terms—or simply to dictate. Over the past four years of financial collapse, many of us have come to view markets as a fantastical scam: a giant mechanism geared to transfer our hard-earned dollars into the hands of a few select bankers. And when it comes to the Wall Street markets we rely on to trade our equities and debt and commodities, this sentiment is not all wrong. But as every previous generation of Americans understood, a truly open market is one of our fundamental democratic institutions. We construct such markets to achieve some of our most basic rights: to deal with whom we choose, to work with whom we choose, to govern our communities and nation as we (along with our neighbors) choose. And so, as every previous generation of Americans also understood, monopolization of our public markets is first and foremost a political crisis, amounting to nothing less than the reestablishment of private government. What is at stake is the survival of our democratic republic.

Moody's: Corporate Cash Reserves Are Still Climbing And Most Of It Is Overseas: Corporations are holding record amounts of cash. And none of them wants to keep it in the U.S. Cash holdings for U.S. non-financial firms rose 3% to $1.24 trillion, according to Moody's. That tops last year's all-time high of $1.2 trillion. Moody's also estimates nearly $700 billion, or 57% of the corporate cash total, is held overseas. The ratings agency attributes this to emerging-market strength, dividends and high levies on repatriated cash. "Without permanent reform that lowers the tax on overseas profits, Moody's expects the absolute and proportionate amount of cash held overseas will continue to rise," the firm says in its release. Even among corporate behemoths, there's a 1%: Apple, Cisco, Google, Microsoft and Pfizer accounted for 22% of all cash balances. Apple alone represented 8% of all holdings.

It's Official - Apple Is Now Bigger Than The Entire US Retail Sector - A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.

Guest Post: How Does FINRA Lose 8 Hours of Testimony? Wall Street’s “Kangaroo Court” - I will admit that having written extensively and aggressively about Wall Street’s self-regulator FINRA over the last three years, I did not think there was anything more I could see that would surprise me. Today I am surprised, shocked, and saddened. For those in our nation who have a semblance of decency and a desire to see due process reflected in legal hearings and financial arbitration, I believe you will be similarly dismayed. The case to which I will refer strikes deep into the core of Wall Street arbitration. I hope you are sitting down and do not have any sharp objects nearby as Dow Jones’ Al Lewis provides a scathing expose of a FINRA arbitration entitled Broker Bankrupted in Kangaroo Court,

Welcome to the Sausage Factory - The Squid has finally hired a new mouthpiece. One’s first reaction is, “Poor, misguided slob.” But, upon reflection, one must admit that this Tin Man’s employment history reads like the résumé of a pathetic young striver who has been desperately chasing the poisoned chalice all his young life:

• humanities graduate from an obscure vocational school in the slums of New Haven, Connecticut;
• first line of defense to a serial philanderer from the Deep South;
• counselor to a known tax evader and professional wet noodle;
• and, in between, bag carrier for all the worst jobs imaginable at a company known for abetting the most appalling scourge possible upon the life and spirit of the modern age: aluminum siding.

I ask you: Communications? Human resources? Business development? The soul shudders. This is someone clearly unafraid of the dirty jobs whence an ordinary, respectable citizen runs screaming in the other direction. Like giving pedicures to Courtney Love. So perhaps it is a match made in heaven, after all.

Why I Am Leaving Goldman Sachs - TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

Goldman Sachs Employee Criticizes Firm for Ripping Off Clients- A departing Goldman Sachs employee mounted an unprecedented public attack on its“toxic and destructive” culture in a New York Times opinion piece, becoming the first serving insider to openly criticize the firm. Greg Smith, identified by the newspaper as an executive director and head of the bank’s U.S. equity derivatives business in Europe, will leave the firm after 12 years, blaming Chief Executive Officer Lloyd C. Blankfein and President Gary D. Cohn for losing hold over the firm’s culture. Executive directors are junior to managing directors and partners, the most senior rank. “I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients,” Smith, a Stanford University graduate, wrote in the New York Times. “It’s purely about how we can make the most possible money off of them.” The attack adds to criticism from politicians and protesters who blame the company for triggering the financial crisis and profiting at clients’ expense. Goldman Sachs has faced congressional hearings probing its role in the financial crisis and paid $550 million in 2010 to settle a lawsuit accusing it of misleading investors in a collateralized debt obligation.

Exec: Goldman Officials Called Clients 'Muppets' - Goldman Sachs, arguably the most storied investment bank on Wall Street, has been compared to a money-sucking vampire squid and called the evil empire of finance. On Wednesday, it got a black eye from one of its own. Greg Smith, an executive director at the bank, resigned with a blistering public essay that accused the bank of losing its "moral fiber," putting profits ahead of customers' interests and dismissing customers as "muppets." "It makes me ill how callously people talk about ripping their clients off," he wrote. The decay of Goldman's proud culture of teamwork, integrity and humility, he wrote, threatened the survival of an investment house that weathered two world wars and the Great Depression. The stinging essay, "Why I Am Leaving Goldman Sachs," appeared on the Op-Ed page of The New York Times on Wednesday morning. It was the talk of Wall Street immediately and circulated online all day.. Smith became a trending topic on Twitter. The Times said the essay had received 3 million page views online by 4 p.m. The second-most-viewed story had 500,000, and that was a business section story about the essay.

MF Global, MBS, and the Goldman Resignation - Matt Taibbi has a good piece on the important and public resignation of a former Goldman executive, Greg Smith. The essence of Smith’s piece is devastating. He points to one simple, specific problem in the company: the fact that Goldman routinely screws its own clients. Paul Volcker has already referred to Smith’s op-ed, blaming Goldman for the change in the culture of Wall Street. Taibbi argues that having an insider come out and blast the culture of Goldman is “the endgame for reforming Wall Street.” It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped. Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry. Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money.

Goldman battles ‘toxic’ culture criticism - Goldman Sachs on Thursday defended itself after a rare public attack from within its own ranks after a departing vice-president depicted a “toxic” culture at the Wall Street bank where executives referred to clients as “muppets”.Greg Smith, a London-based middle-ranking banker at Goldman’s equity derivatives business, launched a scathing attack on his employer of almost 12 years, saying that he was resigning after a change in culture over the past decade that had placed clients at the bottom of the bank’s priorities. “It makes me ill how callously people talk about ripping their clients off,” he wrote in an opinion piece for The New York Times. He said he had seen five managing directors refer to their own clients as muppets in an environment that prioritised extracting the maximum profit from them. “When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch,” Mr Smith wrote. “I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.”

“Our Response to Today’s New York Times Op-Ed” - Freshly arrived in our inbox, and we assume no introduction needed here… Our Response to Today’s New York Times Op-Ed By now, many of you have read the submission in today’s New York Times by a former employee of the firm. Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients. In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people. Everyone is entitled to his or her opinion. But, it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments.While I expect you find the words you read today foreign from your own day-to-day experiences, we wanted to remind you what we, as a firm – individually and collectively – think about Goldman Sachs and our client-driven culture.

What Happened to Goldman Sachs? - Greg Smith's resignation op-ed from Goldman Sachs Wednesday raised a zillion questions. What was the back-story? What was with the ping pong? And what's wrong with being a muppet? But the biggest question would have to be: What happened to Goldman Sachs? Smith wrote that the culture at Goldman had shifted during his 12 years there from valuing teamwork and "always doing right by clients" to one where people "callously ... talk about ripping customers off." That sounds bad. So what are we to make of it? The answer that seems easiest to dispense with is that it's just not true, and Goldman always does right by its clients. I saw mentions of Goldman's charitable activities Wednesday, but not a single defense of it (other than from Goldman's PR department) as a company that puts clients first. And Goldman's behavior before and during the financial crisis just wasn't what any neutral observer could call client-centric. A more popular line of reasoning is that Goldman (and other Wall Street firms) were always about ripping customers off. It's no mistake that one of the classic books about Wall Street is called Where Are the Customers' Yachts? Didn't Smith get that when he joined? Was he that naive?

Check Out The Hilarious Animated Version of Greg Smith’s Resignation From Goldman Sachs – Clusterstock

Does Morality Have a Place on Wall Street? - NY Times "Room for Debate - In his resignation from Goldman Sachs that appeared as a Times Op-Ed this week, Greg Smith spoke of a culture of greed and excess at the investment bank in which the goal is to “rip-off” clients. Does morality have a place on Wall Street? Was Smith being naïve to think that what he saw was anything other than business as usual? Debaters:

• Saving the Street From Itself - Robert Reich, former Labor Secretary
• The End of Partnerships and Rise of Derivatives - Yves Smith, Naked Capitalism
• Marketplace Morality Is Not About Being Nice - James Pethokoukis, Blogger
• Today’s Vampire Squid, Yesterday’s Devil Fish - Steve Fraser, author, "Every Man a Spectator"
• Greed Prevents Good - Dacher Keltner and Paul Piff, University of California, Berkeley
• There Were Once Things One Just Didn’t Do - John C. Bogle, Vanguard Group
• Partnerships Once Inhibited Self-Dealing - Richard E. Sylla, Stern School of Business
• Rules Help Establish Morality -Julie Gorte, Pax World Management

This Is Your Defense of Goldman Sachs and Wall Street? - I found the Bloomberg editorial response to Greg Smith’s resignation letter from Goldman Sachs to be so terrible that ironically I think it is a more damning criticism of the current destructive culture on Wall Street than Smith’s original piece. The editors at Bloomberg basically try to paint Smith as naive and stupid, then conclude by saying: We have some advice for Smith, as well as the thousands of college students who apply to work at Goldman Sachs each year: If you want to dedicate your life to serving humanity, do not go to work for Goldman Sachs. That’s not its function, and it never will be. Go to work for Goldman Sachs if you wish to work hard and get paid more than you deserve even so. Goldman and other investment banks do perform an important role in our economy, and Goldman bankers — most of them, at least — can hold their heads up high. But it is not charity work. Goldman’s clients are mostly very well-off. Smith’s lament that the bank no longer serves their needs above and beyond its own does not tug at our heartstrings. The editors at Bloomberg apparently don’t understand the basic principles by which a good service exchange is supposed to work. This client-company relationship should not be a competition, ideally it should be mutually beneficial arrangement.

If You Took the Greed Out of Wall Street, All You'd Have Left Is Pavement: Why Greg Smith's Critique is Way Too Narrow- Robert Reich - Greg Smith, a Goldman Sachs vice president, resigned his post Wednesday with a stinging public rebuke of the firm on the oped page of the New York Times — accusing it of no longer putting its clients before its own pecuniary goals. If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn’t know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs’s. After the Great Crash of 1929, National City’s top executives helped themselves to the bank’s remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them. The problem isn’t excessive greed. If you took the greed out of Wall Street all you’d have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they’ll get rich by putting their money into the hands of brand-named investment bankers.

Exclusive: Goldman’s God problem goes away, for now (Reuters) - Goldman Sachs Group Inc (GS.N) scored at least one victory in an otherwise tough week - this one against a coalition of religious groups. The bank has been in the spotlight since a mid-level executive resigned and fired off a blistering attack on the firm in a New York Times op-ed on March 14, describing a "toxic and destructive" culture motivated by greed. For the past two years, a group of religious institutions that hold Goldman shares has asked the investment bank to review executive compensation packages and has been successful in getting its proposal taken up at regular shareholders' meetings. This year, the group, including the Sisters of St. Francis of Philadelphia, again sought to have its proposal voted on by shareholders. But for the first time, the U.S. Securities and Exchange Commission sided with Goldman, which argued it had already complied with the request. The SEC's letter of rejection was emailed to the religious groups' leaders on Thursday, the day after the former Goldman executive, Greg Smith, published his scathing op-ed piece in the Times. An official at the Nathan Cummings Foundation, a Jewish group that is the lead filer of the proposal, said she was somewhat surprised that the agency rejected its request given that the op-ed touched on exactly the issues it had hoped to address.

Has Wall Street Really Changed? (Guess what I think) OK, so who do we believe? In a cover story in New York magazine last month melodramatically headlined "The Emasculation of Wall Street," journalist Gabriel Sherman made the case that the big financial firms were engaged in "something that might be called soul-searching" about their many sins and their wildly overcompensated contribution to the U.S. economy. Wall Street, under the whip of the giant Dodd-Frank law, was learning to behave. Reduced compensation packages and increased capital requirements were going to tame or snuff out some of the riskier and most reckless practices that brought the nation to the edge of a second Great Depression, Sherman wrote. Best of all, the domestication of Wall Street would redirect the best minds in the nation back into useful things like real engineering rather than financial engineering. Cool! Now comes Greg Smith, an apparently conscience-stricken renegade from Goldman Sachs, who tells us that not only has nothing changed in the firm's culture but he "can honestly say that the environment now is as toxic and destructive as I have ever seen it." Can these two things both be true? Actually, maybe yes. But the larger point is: we need to pay a lot more attention to Greg Smith than to Gabriel Sherman. There is, first of all, every reason to think Smith was telling the truth.

The Purpose of Occupy Wall Street Is to Occupy Wall Street - Here’s what we don’t do: don’t turn Occupy Wall Street into another bureaucratic, top-down organization. That will certainly kill it. Baby boomers who grew up working within traditional organizations need to calm down and not shoehorn this movement into the old paradigm of “Let’s elect people to office and then lobby them to pass good laws!” Let Occupy take its natural course. Occupy has to continue as a bold, in-your-face movement—occupying banks, corporate headquarters, board meetings, campuses and Wall Street itself. We need weekly—if not daily—nonviolent assaults right on Wall Street. You have no idea how many people across the country would come to New York City to participate in wave after wave of arrests as they/we attempt to shut down the murderous, thieving machine that is Wall Street. Forty-five thousand people a year die simply because they don’t have health insurance. Do you think they have any relatives, friends, neighbors, parishioners who might be a little upset? How about the 4 million people losing their homes to the banks? Or the millions of students being crushed by debt? I think we could organize a few of them to shut down Wall Street.

As Whistleblowing Becomes The Most Profitable Financial 'Industry', Many More 'Greg Smiths' Are Coming - Minutes ago on CNBC, Jim Cramer announced that Greg Smith will never get a job on Wall Street again as "one never goes to the press. Ever." Naturally, the assumption is that the secrets of Wall Street's dirty clothing are supposed to stay inside the family, or else one may wake up with a horsehead in their bed. There is one small problem with that. Now that compensations on Wall Street have plunged, and terminations are set for the biggest spike since the Lehman collapse, the opportunity cost to defect from the club has also collapsed. And if anything, Greg Smith's NYT OpEd has shown that it is not only ok to go to the press, but is in fact cool. So what happens next? Well, as the following Reuters article reports, 'whistleblowing' over corrupt and criminal practices on Wall Street is suddenly becoming the next growth industry. Yes - people may get 'priced out' of the industry, but since the industry will likely fire you regardless in the "New Normal" where fundamentals don't matter, and where the only thing that does matter is the H.4.1 statement, why not expose some of the dirt that has been shovelled deep under the coach, and get paid some serious cash while doing it?

Whistleblowers drawn by tip-off payouts - Company informants tempted by the prospect of multimillion dollar payouts are rushing to US regulators with audio recordings and internal documents to take advantage of a new programme that can make whistleblowing on wrongdoing lucrative, lawyers and regulators say. Many of the complaints, lawyers say, involve allegations of accounting fraud and foreign bribery at financial and industrial companies. Others include allegations of market manipulation or other crimes by hedge funds and private equity firms. Under the programme, created by the 2010 Dodd-Frank law, any person who reports a credible tip or complaint can qualify for 10 per cent to 30 per cent of the amount that the Securities and Exchange Commission recovers through the courts or a settlement. That could result in a big payday for an informant who uncovers a fraud that leads to a multimillion dollar settlement. “We’ve been very pleased with the percentage of whistleblower tips that have [signs] of reliability either because they’re from somebody working at the ­company they’re complaining about or there’s a sufficient amount of specificity, or both,” Sean McKessey, chief of the SEC’s whistleblower office, said he reviewed all paper submissions and, in at least one case, had found a tip to be “extraordinarily specific and credible” and referred it to the agency’s examination and enforcement attorneys immediately.One person familiar with the programme said a whistleblower tip had been the basis for opening a case last week.

Fed to Release Stress Test Results Thursday Afternoon - The Federal Reserve plans to release results of its latest bank stress tests Thursday at 4:30 p.m. Eastern time, the central bank said Monday. The Comprehensive Capital Analysis and Review, or CCAR, looks at how the 19 biggest U.S. banks would perform in a severe downturn–including a peak unemployment rate of 13%, a 50% drop in equity prices and a 21% decline in housing prices. “The stress-test results, including projected capital ratios, revenues and losses in the supervisory stress scenario, will be disclosed for the 19 large bank holding companies that participated,” the Fed said Monday. Three years ago, as the financial crisis was abating, the Fed published potential loan losses and how much capital each institution would need to raise to absorb them. This time around, the Fed has pledged to release a wider array of information. The Fed on Monday released a paper describing the methodology used in the stress test as well as the templates for disclosure of the summary results.

New Stress Tests Expected to Show Progress at Most Banks - In another milestone in the banking industry’s recovery from the financial crisis, the Federal Reserve this week will release the results of its latest stress tests, which are expected to show broadly improved balance sheets at most institutions. The findings would be the latest of several signs of renewed strength in the economy, including the unemployment report last Friday that showed that more than 227,000 jobs were created in February. For the financial sector, including traditional banks and Wall Street firms that were at the heart of the panic during the crisis, the recovery has been slow but steady, with some banks recovering much faster than others. Still, while unpleasant surprises are possible, analysts are counting on the Fed to find banks largely healthy. That would stand in marked contrast with the holes, in the tens of billions of dollars, found on balance sheets in the first round of stress tests in 2009. “Everybody wants to avoid headlines,” “People are angry at the banks, and both the banks and the regulators just want to do something to show we’re working our way back towards normalcy. That’s what everyone is craving.”

‘US bank dividends set to double‘ - The Federal Reserve is this week expected to pave the way for a doubling of bank dividends and share buybacks when it unveils the results of stress tests on the largest US financial groups.If Citigroup passes the test, as expected, it will be in a position to pay more than a notional 1 cent a share dividend for the first time since the financial crisis. Dick Parsons, chairman, said there would be a significant increase in the bank’s return of cash to shareholders. “We intend to move forward with some force in 2012,” he said. Analysts expect JPMorgan Chase, among the strongest of international banks, to pay more than 70 per cent of its earnings in the form of dividends and share buybacks, close to pre-2008 levels. Barclays Capital analysts predict that the average payout ratio for banks, excluding broker-dealers such as Morgan Stanley and Goldman Sachs, will rise from 24 per cent of earnings in 2011 to 48 per cent this year. European regulators and some US academics have voiced concern that any such surge in capital distribution would be too much, too soon after the crisis. Privately, US banks have complained that the stress tests are too stringent and that greater disclosure could hurt them.

Is the Fed Going to Go Easy on the Banks to Help Obama? - - Yves Smith - We were more than a little surprised to read a Bloomberg story on March 10, which reported that the Federal Reserve was giving banks a hard time over its latest stress tests, particularly on the possible losses on consumer debt if the economy were to take a dive. The story indicated that if the Fed held tough, major banks would be restricted in making dividends and buying stock. This seemed to be quite a volte face from the Fed’s previous “give banks everything they ask for and then some” posture. But some Fed defenders argued, no really, once the banks were out of confidence crisis land, the regulators always planned to get tougher with them about building up their capital bases. If today’s Bloomberg story is accurate, whatever resolve the central bank had was awfully short lived: Wells Fargo & Co. (WFC) and Citigroup Inc. (C) may join banks unleashing more than $9 billion in dividend increases and share buybacks if they get passing grades this week on the Federal Reserve’s annual stress test.Thirteen of the 19 largest U.S. lenders may say they’ll pay out $3.79 billion in extra dividends this year and buy $5.52 billion of additional shares, according to estimates of six analysts compiled by Bloomberg. That’s 30 percent more than they spent last year. San Francisco-based Wells Fargo probably will offer the biggest difference at a combined $4.16 billion, followed by Citigroup with $2.92 billion.

Fed To Accelerate Stress Test Result Release Following JP Morgan Disclosure - As noted earlier when we said that Jamie Dimon (who just happens to be one of two Class A directors at the NY Fed) just showed the Fed who is boss, the Fed has now been "forced" to release the Stress Test results today at 4:30 pm instead of as previously scheduled on March 15. Jamie Dimon is now officially defining the Fed's timetable. This is all in jest of course: Dimon would never do anything without preauthorization from Bill Dudley, which means that even as the FOMC statement was a big yawn, the JPM release less than an hour later was planned purely to ramp stocks into the close on the lack of a definitive promise by the Fed to keep printing. Well played gents.

Dimon’s Jerk Move Leads to Early Release of Fed’s Stress Tests - The Federal Reserve, which released the details of its Federal Open Market Committee meeting today (no changes to monetary policy), did not plan on also releasing the results of their stress tests today. But they did in a hurry just a few minutes ago.The reason why is indicative of the incredible arrogance on the part of the banks. It turns out that Jamie Dimon upstaged the Fed, forcing them to release their summary early:Basically, JPMorgan came out with its announcement of dividends and buybacks around 3:00 PM. In that announcement they said they had passed the stress tests from the Fed, and that forced the Fed to move up their schedule. We’re still trying to get the bottom of it, but basically Jamie Dimon just called the shots, and the Fed was forced to play catchup. Now we know who wears the pants in this family.

Fed Releases Stress Test Results, 15 of 19 Pass - The Federal Reserve moved up publication of the results of its stress tests on banks amid concerns there may have been an inadvertent release of information. (Read statements from the banks here) Here is the Fed release: The Federal Reserve on Tuesday announced summary results of the latest round of bank stress tests, which show that the majority of the largest U.S. banks would continue to meet supervisory expectations for capital adequacy despite large projected losses in an extremely adverse hypothetical economic scenario. The Federal Reserve in the Comprehensive Capital Analysis and Review (CCAR) evaluates the capital planning processes and capital adequacy of the largest bank holding companies. This exercise includes a supervisory stress test to evaluate whether firms would have sufficient capital in times of severe economic and financial stress to continue to lend to households and businesses. Reflecting the severity of the stress scenario–which includes a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices–losses at the 19 bank holding companies are estimated to total $534 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, falls from 10.1 percent in the third quarter of 2011 to 6.3 percent in the fourth quarter of 2013 in the hypothetical stress scenario. That number incorporates the firms’ proposals for planned capital actions such as dividends, share buybacks, and share issuance.

Fed: 15 of 19 Banks passed adverse stress test scenario - From the Fed: Federal Reserve announces summary results of latest round of bank stress testsReflecting the severity of the stress scenario--which includes a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices--losses at the 19 bank holding companies are estimated to total $534 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, falls from 10.1 percent in the third quarter of 2011 to 6.3 percent in the fourth quarter of 2013 in the hypothetical stress scenario. Despite the large hypothetical declines, the post-stress capital level in the test exceeds the actual aggregate tier 1 common ratio for the 19 firms prior to the government stress tests conducted in the midst of the financial crisis in early 2009, and reflects a significant increase in capital during the past three years. In fact, despite the significant projected capital declines, 15 of the 19 bank holding companies were estimated to maintain capital ratios above all four of the regulatory minimum levels under the hypothetical stress scenario, even after considering the proposed capital actions, such as dividend increases or share buybacks.

15 of 19 Big Banks Pass Fed’s Latest Stress Test - The Federal Reserve had a key take-away from the latest round of stress tests: most big banks are in good shape. On Tuesday, the central bank said that 15 of the 19 largest financial firms had enough capital to withstand a severe recession. The results, announced two days ahead of schedule, paved the way for JPMorgan Chase and other banks to bolster dividends and buy back shares. “When you put banks under the kind of dramatic scenarios that the Fed did — and they are still doing well — it tells you how well capitalized the majority of the banks are coming out of this downturn,” said Michael Scanlon, a senior equity analyst with Manulife Asset Management in Boston. But the stress tests also underscored the uneven nature of the industry’s recovery. Firms like JPMorgan and Wells Fargo are proving resilient, as they clean up their books and the economy improves. Still others, including Citigroup and Ally Financial, remain on shaky ground, grappling with soured mortgages and other troubled businesses. Banks are completing their third round of stress tests. Developed in the wake of the financial crisis, the examination is intended to assess how banks will fare under weak economic conditions. The Fed looked at whether banks would have enough capital to weather a peak unemployment rate of 13 percent, a 21 percent drop in housing prices and severe market shocks, as well as economic slowdowns in Europe and Asia. The Fed’s stress tests assumed that the 19 banks would be slammed with $534 billion of losses in just over two years. Even after such hits, most banks would emerge with adequate capital, the central bank said Tuesday.

Citi fails Fed stress test. Citigroup, SunTrust Banks Capital Plans Fail Fed Stress Tests. Also Ally Financial and MetLife. Full – Jamie Dimon-bumrushed – Fed release here. Remember the minimum pass was a five per cent tier one common equity ratio. Citi came in with 4.9 per cent. Excerpt from the Fed release… Despite the large hypothetical declines, the post-stress capital level in the test exceeds the actual aggregate tier 1 common ratio for the 19 firms prior to the government stress tests conducted in the midst of the financial crisis in early 2009, and reflects a significant increase in capital during the past three years. In fact, despite the significant projected capital declines, 15 of the 19 bank holding companies were estimated to maintain capital ratios above all four of the regulatory minimum levels under the hypothetical stress scenario, even after considering the proposed capital actions, such as dividend increases or share buybacks… Latest in a generally chaotic afternoon of releases: Wells Fargo is allowed to boost its first-quarter dividend by $0.10 to $0.22. Also Goldman’s green light (‘…the Federal Reserve did not object to Goldman Sachs’ proposed capital actions through the first quarter of 2013, including the repurchase of outstanding common stock and a potential increase in its quarterly common stock dividend.’)

Fed Stress Test Released: Citi, SunTrust, Ally And MetLife Have Insufficient Capital - When we announced the news of Jamie Dimon's surprising announcement, we said that "Since we are now obviously replaying the entire credit crisis, from beginning to end, must as well go all in. Now - who's next? And perhaps just as importantly, who isn't." Who isn't it turns out are 4 banks that did not pass the Fed's stress test results. These are SunTrust, naturally Ally, MetLife and... Citi. Way to earn that 2011 $15 million comp Vic! To summarize: across the 19 banks taking the test, the maximum losses are projected to hit a total of $534 billion. But at least Jamie Dimon gets to pay his dividend. Also, the European LTRO stigma comes to the US in the form of banks who do dividend hike/buyback, vs those that do not.. and of course the 4 unlucky ones that fail the stress test entirely.

Citigroup, SunTrust Banks Capital Plans Fail Fed Stress Tests - Citigroup Inc. (C), the lender that took the most government aid during the financial crisis, will try again to win approval for its capital plan after failing to meet minimum standards in U.S. stress tests. The Federal Reserve objected yesterday to Citigroup’s plan-- which may have included a request for a higher dividend --prompting the bank to say it will submit a revised version later this year. SunTrust Banks Inc. (STI), Ally Financial Inc. and MetLife Inc. (MET) also fell short in the Fed’s test of how 19 of the nation’s biggest lenders would fare in a severe economic slump. The results are a blow to Chief Executive Officer Vikram Pandit, who has told investors the New York-based bank is ready to return capital to shareholders after slashing the dividend during the financial crisis. Capital plans submitted for the tests typically involve requests for higher dividends and share buybacks, which the Fed allowed for JPMorgan Chase & Co. and Wells Fargo & Co. The tests may also set back Ally, the Detroit-based auto and home lender rescued by taxpayers, which had planned an initial public offering to repay its bailout. Ally, run by CEOMichael Carpenter, and SunTrust, led by CEO William H. Rogers, said they will submit revised plans.

Fed Stress Tests: Too Harsh, Not Harsh Enough or Just Right? - The vast majority of analysts seem to think the hypothetical downturn the Federal Reserve used for its latest round of stress tests was sufficiently harsh to provide a credible test of the nation’s 19 largest banks.“We’re talking about a practically apocalyptic economic scenario and the banks are still standing,” said Paul Ashworth, chief U.S. economist for Capital Economics. But not everyone thought the test was as vigorous as it should have been. Simon Johnson, the former chief economist at the International Monetary Fund, criticized the Fed’s test for not taking into account the impact of potential interest-rate risk, or the possibility that long-term interest rates could rise and cut into the value of bonds banks are holding on their books. Under certain scenarios, including the U.S. economy strengthening faster than expected, banks’ long-term bonds could fall quite a bit in value, but the Fed didn’t look to see what impact that would have on balance sheet health, Mr. Johnson said. Mr. Johnson said he detected “central bank hubris” in the decision, warning that the Europeans similarly felt they didn’t have to worry about long-term interest rates last year — until they did.

Daniel Alpert: Deconstructing the Federal Reserve’s 2012 Comprehensive Capital Analysis and Review - It has been just over 36 hours since the release of the 2012 CCAR (the “stress test”) of 19 banks. Market response has been decidedly positive with respect to the three of the four top banks that passed, and Citigroup has, well, wilted. But there is much more in the stress test than is found in the headlines and in media reports, so we thought we’d hunker down with the report yesterday and, after some overall review, focus more on the top four bank holding companies, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo – to see what further conclusions might be drawn. After all, those four banks comprise 68% of all the activity in the CCAR. First off, let’s start with what the stress test is, and what it is not.The CCAR is a test of the banks’ ability to see themselves through a 25 month devastating economic and financial crisis without experiencing a fall in Tier 1 Common Capital (and other ratios, but this is the one most people care about) to below 5% of assets. The CCAR is NOT a solvency test of the banks, or bank assets, on a marked-to-market basis. It does not purport to claim that the carrying values of the banks’ existing hold-to-maturity (HTM) assets are money good today relative to the market value thereof. Nor does it address what would happen to the operating results of the banks after the aforementioned 25 month period. It explicitly assumes a downturn followed by a period of recovery thereafter – not an unreasonable assumption – but it does not continue to “clock” (or present value) likely losses to assets that would be recognized after the projection period.

Why the bank dividends are a bad idea - On the basis of “stress tests” it ran, the Federal Reserve has given permission to most of the largest U.S. banks to “return capital” to their shareholders. JPMorgan Chase announced that it would buy back as much as $15 billion of its stock and raise its quarterly dividend to 30 cents a share, up from 25 cents a share. Allowing the payouts to equity is misguided. It exposes the economy to unnecessary risks without valid justification. Money paid to shareholders (or managers) is no longer available to pay creditors. Share buybacks and dividend payments reduce the banks’ ability to absorb losses without becoming distressed. Before 2008, banks convinced regulators that they were safe on the basis of insurance they bought from AIG. Banks avoided billions in losses when AIG was bailed out. Assets considered “safe” by regulators routinely turn out to inflict losses. We often discover hidden risks when it is too late.When a large “systemic” bank is distressed, the ripple effects are felt throughout the economy. We may all feel the consequences.

We Speak on RT TV About Goldman’s Predatory Culture and the Latest Stress Tests -- Yves Smith - I ducked out of the Atlantic Economy Summit to see Lauren Lyster of RT TV. We talked about the hot story of the day, the New York Times op-ed by departing Goldman executive director Greg Smith that decried what he saw as a deterioration in the firm’s values over his 12 year career. Earth to Greg: the old days were not quite as rosy as you suggest, but it is true that Goldman once cared about the value of its franchise, and that constrained its behavior. So it was “long term greedy,” eager to grab any profit opportunity but concerned about its reputation. I knew someone who was senior in what Goldman called human capital management, and even though, in classic old Goldman style, he was loath to say anything bad about anyone, he was clearly disgusted of Lloyd Blankfein and the crew that took over leadership after Hank Paulson, John Thain and John Thornton departed. Before the firm before had gone to some lengths to preserve its culture and was thoughtful about how to operate the firm. One head of a well respected investment bank told me in the mid 1990s: “It isn’t that Goldman has better people. All the top firms have good people. It’s that they make the effort to manage themselves better than anyone else.” That apparently went out the window when Blankfein came in. My contact said all his cohort cared about was how much money they could make in the current year.

U.S. Lacks Hard Data Tracking Pay Fights - The Justice Department said it doesn't closely track how it is enforcing a law curbing executive pay in corporate bankruptcy cases. The disclosure, made in a letter to key lawmakers, comes amid criticism of such payouts in courts and on Capitol Hill. (Read the letter.) The Justice Department—whose U.S. trustees monitor bankruptcy proceedings—doesn't have precise data on executive-pay plans reviewed since an overhaul of federal bankruptcy law, according to the March 5 letter from Assistant Attorney General Ronald Weich. He added that "anecdotal evidence" suggests trustees' attempts to fight proposed bonuses fail more often than any other bankruptcy challenges they bring. A 2005 federal law restricts "retention" bonuses that reward executives for sticking with distressed companies. But some firms have found legal ways to keep paying bonuses without running afoul of the law. The debate over executive pay in bankruptcy was the subject of a Page One article in The Wall Street Journal on Jan. 27.

Bank of America: Too Crooked to Fail | Politics News - Taibbi - At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard. It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.

JPMorgan Chase Robo-Signed, Trashed Documents in Collection of Credit Card Debts - Hey, remember when JPMorgan Chase abruptly suspended all their debt collection court cases a couple months ago? Now we’re learning more about the problems in their debt collection arena. And surprise, we have more robo-signing!The abuses are so bad that even the bank-friendly Office of the Comptroller of the Currency has been roused to investigate:JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say. The process flaws sparked a regulatory probe by the Office of the Comptroller of the Currency and forced the bank to stop suing delinquent borrowers altogether last year. The bank’s errors could call into question the legitimacy of billions of dollars in outstanding claims against debtors and of legal judgments Chase has already won, For the banking industry at large, the situation at Chase highlights the risk that shoddy back-office procedures and flawed legal work extends well beyond mortgage servicing.“We did not verify a single one” of the affidavits attesting to the amounts Chase was seeking to collect, says Howard Hardin, who oversaw a team handling tens of thousands of Chase debt files in San Antonio. “We were told [by superiors] ‘We’re in a hurry. Go ahead and sign them.’”

Elizabeth Warren on Bailouts - Via James Pethokoukis, comes a statement from Elizabeth Warren and three other former members of the TARP Congressional Oversight Panel. Despite the fact that AIG, GM, and Citigroup all benefitted from a special Treasury rule that allowed them to, as Warren puts it, “duck taxes”, Warren only called attention to the money given to AIG. Here is the phrasing actually used: “When the government bailed out AIG, it should not have allowed the failed insurance giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives AIG a leg up against its competitors at a time when everyone should have to play by the same rules – especially when it comes to paying taxes.’’ The basic issue is this. When a company has a net operating loss (NOL) in one year, they can carry these losses forward into later profitable years to lower their tax bill. Normally, when a company goes bankrupt and ownership stake is changed by more than 50%, the NOLs disappear. According to a paper by Mark Ramseyer and Eric B. Rasmusen, GM had $45 billion in losses, with a book value of $18 billion, that the Treasury’s special exemption allowed them to keep. According to Warren the exemption has provided AIG with $17.7 an extra billion in profits. It’s unclear why you would complain about AIG receiving this tax bailout and not complain about GM doing the same.

Treasury to Auction Off Small Banks’ Stock Acquired Under TARP - The U.S. Treasury Department said Wednesday that it would conduct its first-ever first auction of preferred stock investments made in six banks during the financial crisis. The Treasury said it would conduct public Dutch auctions to recoup as much of its $410.8 million investment in six banks as possible. The auctions are scheduled for on or about March 26. The bank holding companies are: Banner Corp. of Walla Walla, Wash., First Financial Holdings Inc. of Charleston, S.C.; MainSource Financial Group Inc. of Greensburg, Ind.; Seacoast Banking Corp. of Stuart, Fla.; Wilshire Bancorp Inc. of Los Angeles and WSFS Financial Corp. of Wilmington, Del. More than three years after the launch of the Troubled Asset Relief Program in 2008 the federal government still owns stakes in 361 banks, which still owe the government $16 billion.

Bernanke Praises Community Banks - — Community banks are gaining strength even though the American economy is improving only moderately, the Federal Reserve’s chairman, Ben S. Bernanke, said Wednesday.. The speech was similar to one he gave last month in Arlington, Va. Mr. Bernanke said community bank profits were higher in 2011 than the previous year and bad loans were decreasing. He also said they had built up cushions against loan losses. Community banks have assets below $10 billion. Mr. Bernanke did not mention the Fed’s interest rate policies in his taped speech. During the February speech, Mr. Bernanke defended the Fed’s decisions to keep interest rates at record-low levels. On Tuesday, the Fed repeated its plan to keep short-term interest rates near zero through 2014. Mr. Bernanke sought to counter criticism that the overhaul of financial regulations that Congress passed in 2010 was imposing unnecessary burdens on banks. “We take quite seriously the importance of evaluating the costs and benefits of new rules,”

Do we need minority-owned banks for minority communities? - Minority-owned banks first emerged a century ago when segregation forced the creation of a “Black Wall Street,” and they continued to grow during the civil rights era, when big banks were still wary about extending loans to low-income and minority communities. Some of these banks are still around today, but they’ve been hit particularly hard during the current recession — with low-income borrowers holding a disproportionate number of bad mortgages and suffering from high unemployment rates. Now minority-owned banks are having trouble bouncing back, even with big federal bailouts, the Boston Globe reports. Boston-based OneUnited “owes $12 million in federal bailout funds and is skipping interest payments. It also has received poor marks for community lending,” the Globe writes, adding that the bank’s foreclosures on historic churches, among others, have angered many in Boston’s black community. The shaky status of OneUnited — the country’s largest black-owned bank — and other minority-owned banks has prompted some to argue that the institutions aren’t necessary because fair lending laws have been passed and the racial barriers to lending have been lowered. Their argument: Why not just let bigger, more solvent institutions take their place, rather than continue propping them up with federal funds?

Unofficial Problem Bank list declines to 956 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Mar 9, 2012. (table is sortable by assets, state, etc.) Changes and comments from surferdude808: Several changes resulted in the Unofficial Problem Bank List having 956 institutions with assets of $383.3 billion. This week there were four removals and one addition. Last year, the list had 964 institutions with assets of $420.7 billion.

Why It’s Not Enough to Blame Ed DeMarco for Administration Housing Policy - Over the past several weeks, Democratic lawmakers and allied groups have launched an all-out effort to get Ed DeMarco, the head of the FHFA, fired. They cite his resistance to allowing Fannie Mae and Freddie Mac to engage in principal reductions on their loans as the main reason. This culminated in Barney Frank, the ranking member on the Financial Services Committee, calling for DeMarco to be replaced.He’s been too rigid in refusing to help on foreclosures, Frank, the ranking member of the House Financial Services Committee, said Wednesday. “He’s acting as if he was head of two private companies called Fannie and Freddie and not taking into account the impact this has on the economy, and I think he should be more cooperative with efforts to reduce foreclosures.” Asked if DeMarco should go, Frank said, “Yes. … since he won’t be more flexible, yes.” I agree with Frank and other liberal advocates that DeMarco has been inflexible. Actually, he’s been downright dishonest. FHFA’s document defending its decision on principal reductions was a logical mess. He has not been able to justify his position that write-downs would not protect the taxpayer investment in Fannie and Freddie. But there’s a real misdirection here. By contrast, the Treasury Department stands by idly for three years as servicers abuse borrowers seeking loan modifications in HAMP, without ever sanctioning the servicers for their conduct.

Janet Tavakoli: Today's Most Important Finance Story: Lan T. Pham, Ph.D., Told the CBO the Truth About Mortgage "Securities" and Was Fired for It: Part of our financial system is the "support" network that surrounds it. The Congressional Budget Office (CBO) is one of the links in that network. Today's top story involves the CBO and one of its former employees, Lan T. Pham, Ph.D., fired after writing about growing foreclosure problems due to robo-signing and the fact that the ownership of mortgage loans isn't clear due to the shortcuts taken to serve the "securitization" process. This poses fatal flaws for securitization, since ownership of the loans is in doubt. Moreover, this has implications for systemic risk in the financial system. This knowledge isn't unique or new. What is new is that Dr. Pham brought this forward to the CBO and apparently this information is being suppressed and denied by the CBO and in congressional reports. I didn't read her story in mainstream media. I read it at ZeroHedge.com, and now you are reading about it at the Huffington Post. Dr. Pham starts her story with a bang: Following the Wall Street Journal story, "Congress's Number Cruncher Comes under Fire," I realized that the true nature of the issues would not come out. Therefore, I am making public the letter that I wrote to Senator Grassley (Feb. 23, 2011) regarding circumstances that led to my firing after 2.5 months by the Congressional Budget Office (CBO), particularly my writing about mortgage fraud and its roots in mortgage securitization that CBO sought to deny was a problem.

Ex-CBO Staffer’s Warnings About Foreclosures Ignored - Dr. Lan Pham, a former senior staffer financial economist for the Congressional Budget Office, was fired from the organization for her attempts to quantify the economic implications of foreclosures and foreclosure fraud. The CBO rejected her analysis and even dismissed the notion that foreclosures cause a negative hit to the economy. The letter, from February 2011, was just released publicly today. Pham made the allegations in a letter to Charles Grassley, the ranking member of the Senate Judiciary Committee. She said that her time at CBO, which barely lasted 3 months, made her doubt the accepted view that the body gives non-partisan, dispassionate analysis of economic and budgetary issues. Alternative viewpoints are “suppressed” and “questioned,” often by CBO Director Doug Elmendorf, according to Pham. Specifically, Pham wrote repeatedly about banking and mortgage issues in October 2010, when issues of foreclosure fraud and robo-signing were first coming to light in the mainstream. “I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas, in charge of the Financial Analysis Division not to write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households,” Pham alleges. Lucas sought to keep Pham’s writing out of the assessments of economic growth that CBO makes

Lan Pham Letter to Chuck Grassley. (scribd)

A Thursday Night Present… (More Bankster Frauds) -I've repeatedly pointed out that it appears that loans were pledged multiple times in various securitizations, which incidentally is black-letter fraud on two counts. Well, now we have a nice attorney in Hawaii who has run some of these down.It’s no wonder that the Wall Street MBS scheme collapsed. Last night, together with Lisa Epstein, we ran a random audit on WaMu Mortgage Pass-Through Certificates, Mortgage Loan Trusts. One loan was found in 6 different trusts, another loan was found in FIVE trusts’ original SEC loan level data, 39 were listed in 3 trusts, and 503 were listed in two separate trusts. The winner so far is a NEW YORK condo, loan number WaMu loan # 714934858, appeared in 6 DIFFERENT trusts from May through November 2006… Let's count who gets screwed by this.

• The MBS buyer. He bought.... nothing. You see, there's no interest there if the same loan is in more than one security. Only one of those is valid; the other five are, from a legal perspective, counterfeit since the homeowner only promised to pay once.If I run off duplicates of a $100 bill we call that counterfeiting, right? Well?
• The homeowner. He has no idea who is the correct holder. He is paying a note but who's getting the money? The correct noteholder or a pretender? There's no way for him to know. And if he stops paying and the putative noteholder forecloses, it may not be the actual noteholder, in which case the debt is not extinguished at all!

United States Sues Seventeen Major Mortgage Servicers for Unfair and Deceptive Practices - To add to Jean's post on the National AG's mortgage settlement, we now have the lawsuit of all lawsuits to report on, in which the United States of America is suing, along with all the states, all the major mortgage servicers for committing misconduct in connection with the origination and servicing of single family mortgages. We'll attach the complaint when we can but to give you a flavor the suit alleges, among other things, failing to discharge underwriting obligations, failing to do modification underwriting, losing the paperwork, failing to train or maintain sufficient staff to deal with the modification processes, allowing borrowers to stay in trial modifications for excessive periods of time, wrongfully denying modifications, misleading consumers in connection with modifications, and foreclosing while a customer is in modification.

Mortgage Deal Is Built on Tradeoffs - Banks agreed to cut loan balances, a step they had long resisted, but they won't only get credit against their shares of the $25 billion settlement for reducing balances of loans they own. In some cases, they can receive partial credit if investors shoulder the cost of writing down loans the banks service. The banks also will receive credit for some steps they are already taking, such as approving short sales, where a home is sold for less than the amount owed, according to draft settlement documents reviewed by The Wall Street Journal. Those concessions to lenders allowed federal officials to achieve the large dollar figure and to secure relief that will reach more borrowers. Banks, meanwhile, would be able to provide aid at a lower cost to their bottom lines. Of the total $25 billion settlement, around $5 billion will be paid as fines. An added $3 billion will be used to help homeowners who owe more than their homes are worth refinance. To pay the remaining $17 billion, banks will receive credits for helping troubled borrowers, of which $10 billion goes toward cutting loan balances for borrowers who are underwater, owing more than their homes are worth....Banks can satisfy up to 10% of the $17 billion in credits, for example, by waiving the right to pursue deficiency judgments on mortgages that have recourse, such as home-equity loans. ... Banks can satisfy up to 5% of the credits by providing more generous relocation assistance to foreclosed homeowners.

Mortgage Settlement Is Corruption Poster Child - It's simply a failure of law. Barry Ritholtz wrote a admonishment of the Obama administration and state attorney generals for buying into the 50 state mortgage settlement pig in a poke:We never want to see an innocent party “accidentally” evicted from a home. The legal system has evolved so this has become a “legal impossibility.” Imagine returning home from work or vacation to find the front door padlocked, the belongings strewn all over the block, a big orange sticker screaming “FORECLOSED” on the garage door, with an auction sign in the front lawn. Now imagine that this occurred even though you are not in default or even delinquent on payments. Thanks to the robosigning banks, this legal impossibility has happened repeatedly, even to homeowners who paid cash for their houses and had no mortgages. Imagine that — foreclosed with no mortgage. Pretty incredible huh? It used to be no one could simply just take your home. Such a violation of personal and property rights was unheard of. Now the stories are so routine, the press barely covers them. Bloomberg Law interviewed an on fire Ritholtz, who explains, in simple English, why this settlement is such a big deal. Literally the settlement throws out 1000 years of individual property rights, law and is a loss of personal freedom you really need to pay attention to.

The Legal Lie at the Heart of the $8.5 Billion Bank of America and Federal/State Mortgage Settlements - Yves Smith - One in a while, you can discern a linchpin lie on which other important lies hinge. We can point to quite a few in America: the notion of a permanent war on terror, which somehow justifies vitiating not just the Constitution, but even the Magna Carta, or the idea of an imperial executive branch. Now the apparently-to-be-filed-in-court-today Federal/state attorneys general mortgage settlement is less consequential than matters of life and limb. But it still show the lengths to which the officialdom is willing to go to vitiate the law in order to get its way. HUD Secretary Donovan, the propagandist in chief for the Federal/state mortgage pact, has claimed he has investor approval to do the mortgage modifications that are a significant portion of the value of the settlement. We’ll eventually see what is actually in the settlement, but the early PR was that “no less than $10 billion” of the $25 billion headline total was to come from principal reductions. Modifications of mortgages not owned by banks, meaning in securitized trusts, are counted only 50% and before Donovan realized he was committing a faux pas, he said he expected 85% of the mods to be from securitizations, so that means $17 billion. Bear in mind that investors, analysts, and commentators have objected to the very premise of this arrangement. A settlement involves a release of liability, and in anything other than the through-the-looking-glass world of rule by banks, the party that did the bad stuff is the one that pays for the settlement. This deal is like stealing your neighbor’s gold watch and using it to resolve charges of embezzlement.

National Mortgage Settlement Details Posted on the Web - So maybe there is a settlement after all. Details have been posted on the National Mortgage Settlement web page today. http://www.nationalmortgagesettlement.com/ I won't try to summarize all this here immediately, but stay tuned for analysis of the good, the bad and the ugly. News outlets are reporting that settlement documents were also filed in federal court in Washington, D.C., today. The documents filed include a complaint and five consent judgments with hundreds of pages of detail on the settlement but much less on the underlying offenses. The settlement with state and federal regulators was announced February 8, and details have been eagerly awaited since then.

Foreclosure Fraud Settlement Docs Finally Released - The foreclosure fraud settlement has been filed in federal court in Washington. The Justice Department has provided the relevant documents, over a month after the settlement was announced. So now we can finally begin to assess the settlement and what it will mean for housing policy. It’s going to take a while. The documents are long and the rules dense. I don’t expect to get a handle on it for the next several days. But we can make some quick points. First of all, as we’ve been documenting, these are larger releases from liability than at first contemplated. It’s not just a “robo-signing” settlement. Among the elements released in the settlement include foreclosure fraud, numerous instances of varied servicer abuse, violations of the Servicemembers Civil Relief Act, whistleblower claims of fraud in HAMP, origination errors, false documentation in court, violations of the False Claims Act, appraisal fraud at Countrywide, fair lending violations, underwriting inaccuracies on FHA loans, and more. Here’s just one list from the complaint of servicing abuses found by the government:

a. failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements;
b. charging excessive or improper fees for default-related services;
c. failing to properly oversee third party vendors involved in servicing activities on behalf of the Banks;
d. imposing force-placed insurance without properly notifying the borrowers and when borrowers already had adequate coverage;
e. providing borrowers false or misleading information in response to borrower complaints; and
f. failing to maintain appropriate staffing, training, and quality control systems.

Robosigned | $25 Billion Mortgage Servicing (Foreclosure Fraud) Agreement Filed in Federal Court - The Justice Department, the Department of Housing and Urban Development (HUD) and 49 state attorneys general announced today the filing of their landmark $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. The federal government and state attorneys general filed in U.S. District Court in the District of Columbia proposed consent judgments with Bank of America Corporation, J.P. Morgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc., to resolve violations of state and federal law. SETTLEMENT DOCUMENTS:

• Complaint (pdf)
• Ally/GMAC Settlement (pdf)
• Bank of America Settlement (pdf)
• Citi Settlement (pdf)
• JPMorgan Chase Settlement (pdf)
• Wells Fargo Settlement (pdf)

Additional Information:

• Settlement Executive Summary (pdf)
• Settlement Fact Sheet (pdf)
• Benefits to Servicemembers and Veterans (pdf)
• Servicing Standards Highlights (pdf)

Mortgage Settlement filed with Court - The documents are now available online here. From the WSJ: Foreclosure-Abuse Settlement Formally FiledBank of America has by far the largest share of the settlement, at nearly $2.4 billion in cash payments, plus $7.6 billion of aid to troubled consumers and nearly $950 million in refinancing aid. Bank of America also reached a $1 billion settlement to resolve allegations that Countrywide Financial, which it acquired in 2008, issued loans to borrowers who didn't qualify for mortgage backed by the FHA. J.P. Morgan is paying the second-largest share, at $1.1 billion in cash, plus $3.7 billion of aid to troubled homeowners and nearly $540 million in refinancing help. Wells Fargo is paying $1 billion in cash, plus $3.4 billion worth of assistance to troubled homeowners and $900 million in refinancing aid. Citi is paying $413 million in cash, plus $1.4 billion in assistance to homeowners and $378 million in refinancing relief. Ally is making a cash payment of about $110 million, plus $185 million in consumer relief and $15 million in refinancing aid.

Government asks judge to approve landmark settlement over banks’ foreclosure practices - Government officials on Monday asked a federal judge to approve a landmark settlement with some of the nation’s largest banks over flawed and fraudulent foreclosure practices, more than a month after they announced the $25 billion deal with fanfare at the Justice Department. The 99-page complaint filed in a D.C. federal court details the “pattern of unfair and deceptive practices” perpetrated by banks in the wake of the housing bust. Among them: filing false and misleading court affidavits, charging excessive and improper fees to borrowers, keeping abysmal records, frequently losing paperwork, breaking promises to homeowners trying to modify their loans, employing staff with little or no training, and improperly foreclosing on active-duty military members.

Foreclosure Fraud Settlement Docs (I): Ally’s Side Deal - I spent last night reading most of the foreclosure fraud settlement documents that were filed in federal court in DC yesterday. I’m going to lay out my findings in a series of posts. Let’s take a look at the penalties being paid to the states. There’s a discrepancy between the numbers initially contemplated to be delivered to the states and the eventual numbers in the settlement documents. Simply put, all of the numbers in the settlement documents are slightly lower. For example, the spreadsheet showing very specific settlement numbers released on February 9 shows that Alabama would receive $26,474,753. In reality, in the settlement documents, Alabama will receive $25,305,692. New Jersey’s haul from the February 9 spreadsheet? $75,520,276. Their actual total? $72,110,727. The reductions range from $100,000 (in the case of Wyoming) to $20 million (in the case of California). I didn’t do a full tally of the total reduction, but my back-of-the-envelope guess would be over $100 million. What accounts for this? Probably this little nugget buried in a Reuters article on the settlement: Some banks negotiated separate requirements. Ally Financial, for example, negotiated a steep discount on the fine part of its settlement, based on an inability to pay it, according to people familiar with the matter.

Foreclosure Fraud Settlement Docs (II): Giving Homes to Charity as a Penalty - Here’s the second installment in the review of the foreclosure fraud settlement documents. Exhibit D in this document lays out the menu for credits toward the settlement. When we talk about credits, the federal government and state AGs want you to assume that means a set amount of principal reductions that the banks will grant. But in reality, the banks can employ a variety of strategies to receive credit toward the settlement, including a number of routine actions they would probably undertake whether there was a settlement in place or not. First, let’s look at the top line. Banks get a dollar-for-dollar credit on first-lien principal modifications on bank-owned loans when the borrower is under a 175% loan-to-value ratio. [E.g., you still owe $175,000 on a property whose current market value is only $100,000.] Any principal reduction on a portion of a loan over 175% is given half-credit. This stops the bank from getting credit on loans likely to default anyway. Banks can also get $0.40 credit on the dollar by forgiving forbearance on modifications they have already done. Forbearance occurs when a certain amount of principal is shifted to a balloon payment at the end of the loan. If the bank forgives that, they get partial credit, even though that doesn’t affect a monthly payment in the near term whatsoever.

Foreclosure Fraud Settlement Docs (III): “Internal Review Group” - Let’s take a look at the enforcement in the foreclosure fraud settlement. How will the servicers be made to meet their obligations? This is all covered in Exhibit E of the settlement documents. This starts out by telling us that the servicers will have up to 180 days to actually phase in the implementation of both the servicing standards (more on that later) and the consumer relief.In addition to the Servicing Standards and any Mandatory Relief Requirements that have been implemented upon entry of this Consent Judgment, the periods for implementation will be: (a) within 60 days of entry of this Consent Judgment; (b) within 90 days of entry of this Consent Judgment; and (c) within 180 days of entry of this Consent Judgment. Servicer will agree with the Monitor chosen pursuant to Section C, below, on the timetable in which the Servicing Standards and Mandatory Relief Requirements (i) through (iv) will be implemented. In the event that Servicer, using reasonable efforts, is unable to implement certain of the standards on the specified timetable, Servicer may apply to the Monitor for a reasonable extension of time to implement those standards or requirements. So six months from now, elements of this settlement may not be implemented, and servicers can ask for an extension beyond six months.

Foreclosure Fraud Settlement Docs (IV): Association of Mortgage Investors Planning to Challenge in Court - One of the things I looked at in an earlier installment of the foreclosure fraud settlement documents is how banks can satisfy their obligations by modifying mortgages they don’t own. HUD again tried to push back on this with a blog post about “myths v. facts” in the mortgage settlement: Myth: The settlement will be paid on the backs of teachers, firefighter and unions because of pension or other investments in private label securities. Fact: Participating banks own the vast majority of the mortgage loans that this settlement is expected to affect. The settlement could affect some investor-owned loans, depending on existing agreements servicers have with those investors. When banks weigh which mortgage loans to modify as part of this settlement, they will do so based on first analyzing the costs and the benefits of minimizing their losses. If a loan modification, including principal reduction, is projected to cost the creditor or investor less than foreclosure, the creditor will earn more on that loan. In other words, this settlement will not force investors to incur losses. That’s because any loan modification tied to this settlement will result in more of a financial return for an investor than a foreclosure would. This has been the party line from the outset, but it’s only a guess. HUD anticipates that bank-owned loans will be modified first. They don’t say exactly why, but it’s just expected. Common sense, on the other hand, dictates that a bank will pay off their penalty with someone else’s money before they pay it off with their own.

The Mortgage Settlement Lets Banks Systematically Overcharge You And Wrongly Take Your Home - On my first read through of the consent agreements the bailed-out bankers (B.O.Bs), the Feds and the States I saw much as had been promised. One thing I hadn’t seen coming, however, was that the B.O.Bs would now be allowed to systematically overcharge borrowers and steal their homes. Seriously. Who cares about $1 million or $5 million penalties if horrible damage can be inflicted without punishment? To see what I’m talking about, you need to look at Exhibit E-1. (It’s in all the consent agreements; here’s Chase’s.) Exhibit E-1 is a 14 page table titled “Servicing Standards Quarterly Compliance Metrics” That is, it’s a table that details what, precisely, will be monitored to make sure that the B.O.Bs are complying with the agreement and meeting the very pretty servicing standards detailed in Exhibit A (again part of all the agreements.) Now, the table doesn’t come right out and say, we, the federal and state governments of the United States of America do hereby bless the institutionalization of servicer abuse, but that’s what it does in effect. To see it, you need to keep your eye on how the table’s columns are defined. For money issues, the critical columns are C “Loan Level Tolerance for Error.” and D “Threshold Error Rate.” Later I’ll talk about the problems in Column F, the “Test Questions.”

Mortgage Settlement Short On Details For Real Cost To Banks - The massive settlement among states, the federal government and five of the biggest banks landed on Monday, at last, in a Washington, D.C., federal district court to the relief of homeowners and housing activists who have waited with growing impatience to read the fine details of a deal so far sketched mostly in broad outlines. Those details, it turns out, are copious. The government submitted more than 1,600 pages of documents, including a complaint, five "consent" agreements and dozens of exhibits. Yet it still isn't clear whether Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial will actually spend $25 billion to meet their obligations under the deal. The settlement, first announced Feb. 9, came after a 16-month investigation by state and federal officials, including the Department of Justice and the Department of Housing and Urban Development, into widespread reports that banks used forged or "robo-signed" signatures to speed foreclosures, as well as committing other loan abuses in the servicing of home loans. The settlement provides $20 billion in relief for as many as 1 million struggling homeowners, and also sets out a series of regulations that the banks must follow when servicing home loans, in an attempt to end the abuses that have defined the foreclosure era.

Katie Porter Named Independent Monitor for California's Part of National Mortgage Settlement - California Attorney General Kamala Harris has appointed Credit Slip's own Katie Porter as independent monitor for California's part of the national mortgage settlement. The five financial institutions involved in the settlement have committed to provide California homeowners with up to $18 billion in benefits in the settlement. Katie will be monitoring on behalf of the California AG to ensure that they comply. For details, see: http://oag.ca.gov/news/press_release?id=2646 and http://www.latimes.com/business/money/fi-mo-banks-settlement-20120315,0,5768422.story. Congrats to General Harris on a wise choice!

Georgia Joins Other States in Diverting Foreclosure Fund Settlement Money for Non-Housing Purposes - When last I looked in on it, I counted $80.35 million in foreclosure fraud settlement funds earmarked for the states actually headed to purposes other than helping homeowners, its ostensible aim. This includes portions from Missouri, Wisconsin, Maine, Maryland and Vermont. Now we can probably add Georgia to the mix. State legislators and Gov. Nathan Deal will spend $104 million of the $815 million banks are paying Georgia to settle foreclosure fraud claims, but if past indications hold true, much of that money won’t be going to distressed homeowners. The discretionary cash will likely be spent on other areas of the state budget, as is money from Georgia’s settlement with tobacco companies and millions of dollars in directed fees that Georgians pay yearly [...] “The state constitution requires that the money go into the state treasury. The governor would prefer that it go from there to the rainy day fund,” said Robinson said. The rainy day fund ihelps Georgia keep its high bond rating, which saves the state tens of millions of dollars in interest on loans.

HUD IG Report Released With Settlement Details Servicer Abuse Directed From the Top -- Before the foreclosure fraud settlement was announced, I was told by high-level officials that the celebrated but still-secret HUD IG report detailing some of the crimes of the mortgage industry would be released when the settlement terms were filed in federal court. That document was indeed released today, and The New York Times reviewed it. Among other things, they find that top bank managers really were responsible for the criminal conduct: Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators. The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008. But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development [...]

Bank Officials Cited in Churn of Foreclosures - Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to wide-ranging review by federal investigators. The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008. But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development. The examination is among the most extensive to date of the banks’ foreclosure practices, which caused a national uproar and prompted a $25 billion settlement between the banks and the government that was filed in federal court Monday. “I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct?” David Montoya, the inspector general of the housing department, said in a statement. “The answer — simple greed.”

Memo to Shaun Donovan: Your Nose is Getting So Long You Need to Get a Hacksaw - Yves Smith - From the settlement FAQ:

Q: Will investors in mortgage-backed securities ultimately pay for part of this settlement?
A: Participating banks own the vast majority of the mortgage loans that this settlement is expected to affect. The settlement could affect some investor-owned loans, depending on existing agreements servicers have with those investors. When banks weigh which mortgage loans to modify as part of this settlement, they will do so based on first analyzing the costs and the benefits of minimizing their losses. If a loan modification, including principal reduction, is projected to cost the creditor or investor less than foreclosure, the creditor will earn more on that loan. In other words, this settlement will not force investors to incur losses. That’s because any loan modification tied to this settlement will result in more of a financial return for an investor than a foreclosure would.

OK, readers: did you notice how the question in the headline is never answered properly? The answer is YES. Bet you’d never conclude that from the verbiage that follows. Instead it starts off on the utter irrelevance of “mortgage loans that this settlement is expected to affect.” Weren’t not talking about numbers of mortgages or the many ways they can be “affected,” which is certain to mean something more than just loan modifications. This is nowhere near as hard as settlement propagandist in chief Shaun Donavan is trying to make it. The banks are getting a 45% credit for modifying mortgages they don’t own. They will do that all day in preference to modifying their own mortgages, except in those cases where they would have modified them anyhow. And since the banks are held to a total dollar target, and can use mods of other people’s mortgages to meet this target, they are using other people’s money to pay off their misdeeds. There is no two ways about it.

HUD Secretary Shaun Donovan Attacks MBS Investors as Liars on Settlement - There’s a rule of thumb in politics, which is that you cannot fight for someone who won’t fight for himself. The players missing from the financial fraud fight are the investors, or in Wall Street parlance, on “the buy side”. These are the entities getting routinely ripped off by the big banks through a variety of means, and at least the pension and insurance industry folks are temperamentally more passive than the more predatory banks. They are also the ones holding the mortgage backed securities whose value is being pillaged by the big bank servicers. But you can see how they are being punked by the way the Obama administration treats them. Alison Frankel has the goods on Shaun Donovan, who thinks nothing of lying to the investor community. In a conference call on Feb. 14, Secretary Shaun Donovan of the Department of Housing and Urban Development promised about 90 mortgage-backed bondholders that the $25 billion national mortgage settlement would include a 15 percent cap on the number of investor-owned loans that the five settling banks would be permitted to modify, according to the three participants in the call… But on Monday, when the settlement documents were finally released, more than a month after the deal was first announced, there was no such cap. That’s left a contingent of major mortgage-backed bondholders feeling betrayed — and expecting the worst from the banks in the settlement. It gets worse.

Neil Barofsky, Matt Stoller, and Your Humble Blogger on Why the Mortgage Settlement Sucks - Yves Smith - Lauren Lyster of RT TV spent a bit of time discussing the mortgage settlement with us and I thought you might enjoy seeing it: This Bloomberg interview with Neil Barofsky and Matt Stoller gives a nice high-level overview of why the mortgage settlement is terrible. It’s particularly useful if you are looking for a few key issues to present to someone who has bought the Obama administration PR or is late to the topic.

Turns out the Mortgage Deal Is Still Not Done - Q: When is a deal not a deal? A: When the deal documents punt on contentious issues, merely agreeing to agree later. Sadly, that’s what this “deal” does. This “deal” is a hybrid contract and term sheet, with all the crucial, operational aspects of compliance unresolved. A smallish to-be-dealt-with-later item is the timing for implementing the servicing standards. The biggie is the Work Plans; those have not been negotiated at all.Yes, part of compliance has been finalized; the metrics, and the basic enforcement structure. But it’s not enough to have metrics; you also need processes for gathering the metric data and computing the results. Similarly you need more than a structure for enforcement; you need how-to details. The not-yet-existing Work Plan will cover all that. Worse, the negotiations will happen while the clock is ticking on the deal. Servicing Standards Take Effect On a Date TBD When the deal is approved, not all of the shiny new servicing standards take effect. Some get phased in over time. Which standards will take effect when? Who knows–there’s a matrix to be negotiated. Moreover, it’s not clear to me if the matrix is currently being negotiated, or if the negotiations start once the deal gets Judge Rosemary M. Collyer‘s approval. (See E-1 at A.) Regardless, the day the headlines scream that the deal’s been approved and in effect, no homeowner can paste Exhibit A up on the fridge and rely on it as a guide to what her servicer’s supposed to do with her mortgage.

Robosigning Still Going on at Wells Fargo, Reports HUD Inspector General - I’ve been going over the mortgage settlement documents over the past few days – a lot has been released, with many implications. There is plenty to criticize. Subprime Shakeout has a great summary, and David Dayen has done a wonderful job going through the nitty gritty. Abigail Field has a spectacular review of the problems with the servicing standards. I’ll make a few criticisms of my own below. But I think the most interesting parts of the document release were the HUD Inspector General reports on the five banks and the DOJ complaint. What these prove is what we’ve always known – the law enforcement community knew exactly what these banks were doing. DOJ simply chose not to prosecute. There was intent to defraud, fraud, and frankly, according to HUD. In fact, it’s not clear that the past tense is the correct tense to use. The Wells Fargo report is particularly interesting on that last point. Take it away, HUD OIG:At the time of our review, affidavits continued to be processed by these same signers, who may not have been qualified, and these signers may not have adequately verified certain figures because they accessed a computer screen of data showing a compilation of figures instead of verifying the data against the information through review of the books and records kept in the regular course of business by the institution. I’m sorry, but WHAT THE $&*@!?!? I’m so glad Eric Holder has cut a deal with Al Capone while Capone is still on a shooting spree. And note, this isn’t just robosigning, this is potentially overcharging homeowners with junk fees and just generally not verifying accurate data on who owes what to whom. There really is no lesson here except “crime pays”.

HUD Inspector General fills in some details on robo-signing and other abuses - For those without enough reading after the legal document dump on Monday in the national mortgage settlement (see http://www.creditslips.org/creditslips/2012/03/national-mortgage-settlement-details-posted-on-the-web.html), there's more. Also released Monday were five audit reports about the robo-signing and other abuses in the foreclosure processes of the five financial institutions involved in the settlement. http://www.hudoig.gov/reports/featured_reports.php These reports indicate that higher ups were directing many of the abuses, evaluating line employees based on high volume production of documents without concern for their accuracy.

North Carolina County Sues Banks And MERS Over Robo-Signing --A North Carolina county on Tuesday sued four of the nation's largest banks and a private mortgage registration system over forged and falsified loan documents state official said have hurt property values and upended their own efforts at tracking records. The lawsuit filed in a North Carolina court for Guilford County Register of Deeds Jeff Thigpen, names units of Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Citigroup Inc. (C), and MERSCorp., which owns the Mortgage Electronic Registration Systems. It also names mortgage processing and analytics firm Lender Processing Services. Thigpen's lawsuit alleging robo-signing, or the filing of mortgage documents signed without proper review, comes just a day after the four named banks and Ally Financial Inc. agreed with state attorneys general to a landmark $25 billion settlement of similar foreclosure abuses. The banks neither admitted or denied guilt in the attorney general settlement, which doesn't protect them from certain other litigation. Thigpen said he wants the banks and MERS to "clean up the mess" they made and increase the transparency of the private registry that has resulted in fraudulent mortgage filings.

Florida’s Rocket Docket Redux - Remember the Summer of 2010 when America’s eyes were trained on Jacksonville because of a Rolling Stone article and CNN story describing Florida’s Foreclosure Rocket Dockets? The national journalism detailed the cozy relationship between the banks’ lawyers and the band of retired judges who, for upwards of $600 per day, rubber-stamped foreclosure judgments in the face of obviously fraudulent evidence. The media coined the term “Robo-Judges.” You may also recall from that Rolling Stone piece the Chief Judge of the Duval County Rocket Docket famously declaring on CNN that he had never seen any bank fraud in his courtroom. He described the banks’ conduct as merely “sloppy.” I was actually investigated by The Florida Bar for speaking out to CNN about this travesty of justice. With truth as my defense, The Florida Bar could do little to shut me up. Fast forward to present time and the recent $26B settlement between the mortgage servicing industry and state prosecutors. The servicers agreed to pay this rather paltry fine, with over $8B earmarked for Florida, solely to acknowledge the very fraud our band of retired judges refused to see. Mercifully, the Statewide Rocket Docket ran out of funding last year, and the retired judges were replaced with judges actually accountable for their conduct.

New York to Settle Some Mortgage Claims With 5 Banks - Five of the nation's biggest banks have agreed to pay New York a total of $25 million to settle claims by New York State Attorney General Eric Schneiderman regarding their use of a private national mortgage electronic system. The agreement, filed in federal court Tuesday, resolves certain monetary claims by the New York attorney general against Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. The agreement preserves the New York attorney general's right to sue for damages suffered by consumers and to push for procedural changes.

Schneiderman Settles Suit Against Banks for Use of MERS for Paltry $25 Million - One of the big claims by defenders of the foreclosure fraud settlement is that it’s just a down payment on future actions. The release was narrow enough that state and federal regulators can still hold the banks accountable for their crimes. Why, even some active lawsuits were carved out to allow state AGs to pursue claims. One of the biggest was the suit by Eric Schneiderman against MERS and three banks who used the electronic registry. At the time I was unclear how you could let this suit, which alleged that the banks’ deceptive use of MERS led to the creation of false documents, and still release the banks on foreclosure fraud claims. I was assured that the suit was a carve-out, and that Schneiderman could add other banks to the suit for using MERS if they wanted. Well, so much for that. Schneiderman settled the MERS suit with the three banks and two others, for, get this, a measly $25 million. And look, the Delaware and Massachusetts suits against MERS were folded into it as well. Five of the nation’s biggest banks have agreed to pay New York a total of $25 million to settle claims by New York State Attorney General Eric Schneiderman regarding their use of a private national mortgage electronic system

Obstruction of Justice a Feature of Bank Interaction with Foreclosure Fraud Investigators - You can find the HUD IG reports on servicer abuse here. They created one for each bank involved. And they really are incredible, describing a pattern and practice of abuse that is quite extraordinary. They paint a picture of constant demand on the back offices of the major servicers to simply produce more and more foreclosure documents, with no regard for accuracy or even rudimentary knowledge about the loans. And this led to the processing of false documents used in court to kick people out of their homes. The classic takeaway, from the JPMorgan Chase review, is this: We reviewed 36 affidavits for foreclosures in judicial States to determine whether the amounts of borrowers’ indebtedness were supported. Chase was unable to provide documentation for the amounts of borrowers’ indebtedness listed on the affidavits for all except four. When we reviewed the four affidavits, three were inaccurate. Specifically, the amounts of the borrowers’ late charges and accumulated interest did not reconcile with the information in Chase’s mortgage servicing system. In discussions with Chase’s assistant vice president for default support services, he indicated that he did not know why the amounts did not agree. Further, Chase’s vice president and assistant general counsel mentioned that when Chase reverified selected affidavits for the Office of the Comptroller of the Currency, the amounts on the selected affidavits agreed with the information in its system.

Foreclosure Fraud Settlement Predictably Leading to More Foreclosure Actions - I wrote when the foreclosure fraud settlement was announced that a potential consequence would be a spike in foreclosure actions. The fact that robo-signing and servicer abuse appear to be ongoing issues only adds to that analysis. The relief of the burden of lawsuits from state or federal regulators would certainly lead the banks to ramp up the foreclosure machine again, at least in most states where there are no procedural obstacles. Even if they still have liability to using faulty documents, the settlement shows that they can pay their way out of that pretty nominally. And sure enough, the first set of statistics, for February, show an increase in foreclosure actions in 21 states, mostly judicial foreclosure states, according to Realty Trac. “February’s numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed,” Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states.” The caveat, we’re told by Suzy Khimm, is that foreclosures are edging down nationally, a by-product of an improving economy. However, if you want to break that cycle, you would put more foreclosures on the market, reducing housing prices and increasing negative equity. Laurie Goodman at Amherst Securities and other analysts have described how negative equity leaves borrowers completely vulnerable to any financial shock, and how it portends millions more foreclosures in the future.

On Foreclosure Fraud, One of the Good Guys Gets a Win for a Change - This is wonderful news. “The banks are paying $95 million, for example, to settle a case brought by Lynn Szymoniak, a homeowner who was featured on CBS’ “60 Minutes” last year for uncovering details about banks’ so-called robo-signing of foreclosure documents. Szymoniak will get $18 million from the settlement.” Most people don’t know Lynn Symoniak, but the banks certainly do. And so should you. If you want to know how the foreclosure fraud scandal was uncovered, she is a key figure. I first encountered her work in 2009, when I was a naive bewildered staffer working on policy issues I didn’t quite understand with enthusiasm and adrenaline that could partially make up for the ignorance.

Homeowners Battle the Banks to stop Foreclosures...and win - Revenge can be sweet. It can be even sweeter when you use your enemy’s own weapons to extract vengeance. Six years into the worst wave of foreclosures since the Great Depression, shoddy underwriting and legal shortcuts are coming back to haunt mortgage lenders. Homeowners, sick of being pushed around by the banks, are fighting back, sometimes with David and Goliath results. In 2008, Jewel Miser and her husband Jack began trying to get Bank of America to modify their mortgage when Jack lost his job after a local auto parts factory closed.“We were just a month behind then,” said Jewel. “But I tried every way in the world. And they just put me off and gave me excuses.” After more than a year of dead ends and red tape, the Sweetwater, Tenn., couple found a lawyer who successfully challenged the shaky paper trail on which the lender relied on to prove it owned the Miser's note. In the resulting settlement, the bank agreed to new loan terms that cut the Miser’s monthly payments by roughly 15 percent, paid their legal fees and stopped the foreclosure.

Housing: Short Sales increase, Foreclosure Sales down Year-over-year - This will be very useful data over the next several months as we try to track the impact of the mortgage servicer settlement. There are only a few areas where the MLS breaks down monthly sales by foreclosure, short sales and conventional (non-distressed) sale. I've been tracking the Sacramento market to watch for changes in the mix over time. (here was my post this weekend: Distressed House Sales using Sacramento Data for February) Economist Tom Lawler sent me the following table today for several other areas. Lawler writes: "With the exception of Reno (the data for which I did NOT get directly from a realtor association/MLS), the foreclosure share of home sales was down from a year ago – in some cases by a lot – while the short-sales share of sales was up – in some cases significantly." CR Note: For most of the areas (with the exception of Reno), the distressed share of sales is down from February 2011. The share of short sales has increased in most areas, while the share of foreclosure sales are down - and down significantly in some areas. Note: The table is a percentage of total sales.

CoreLogic: 69,000 completed foreclosures in January 2012 - From CoreLogic: CoreLogic® Reports More Than 860,000 Completed Foreclosures Nationally in the Last Twelve Months: CoreLogic ... today released its National Foreclosure Report for January, which provides monthly data on completed foreclosures, foreclosure inventory and 90+ delinquency rates. There were 69,000 completed foreclosures in January 2012, compared to 80,000 in January 2011, and 65,000 in December 2011. The number of completed foreclosures for the previous twelve months was 860,128. From the start of the financial crisis in September 2008, there have been approximately 3.3 million completed foreclosures. Approximately 1.4 million homes, or 3.3 percent of all homes with a mortgage, were in the foreclosure inventory as of January 2012 compared to 1.5 million, or 3.6 percent, in January 2011 and 1.4 million, or 3.4 percent, in December 2011. Nationally, the number of loans in the foreclosure inventory decreased by 145,000, or 9.5 percent in January 2012 compared to January 2011. The foreclosure inventory is the stock of homes in the foreclosure process. This is a new monthly report and will help track the number of completed foreclosures.

Foreclosures fall, but there's a 'rising tide' ahead - The number of homes entering foreclosure dropped in February, but a new up-turn may soon be on its way. The reason? The $26 billion settlement between 5 major banks and state attorneys general over past foreclosure practices. The agreement clarifies how foreclosures must be handled, and that is expected to enable banks to speed up their processing, putting many new delinquent homeowners into the foreclosure process. Cases could go forward after sitting in limbo for months -- even years -- with their delinquent owners squatting on the properties. "The pig is starting to move through the python," said Daren Blomquist, director of marketing for RealtyTrac, which released its foreclosure report for February on Thursday.

RealtyTrac: Data Points To Gradually Rising Foreclosure Tide - The following is the text of the RealtyTrac February report on U.S. foreclosure activity, published Thursday: RealtyTrac (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report for February 2012, which shows foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 206,900 U.S. properties in February. That was a 2 percent decrease from the previous month and was down 8 percent from February 2011 - the lowest annual decrease since October 2010. The report also shows one in every 637 U.S. housing units with a foreclosure filing during the month. "February's numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed," said Brandon Moore, CEO of RealtyTrac. "Although national foreclosure activity was pushed lower by decreases in a handful of larger states, 21 states posted annual increases in foreclosure activity, the most states with annual increases since November 2010.

Underwater and locked in - The couple bought the home for $415,000 and later took out a $65,000 second mortgage. Today, Maria and Jose owe $245,000 more than their home is worth (which is $235,000) and have a loan to value ratio of 204%. Selling the home without harsh negative consequences seems impossible without government assistance, a prospect that is unlikely at best. Either a foreclosure or a bank-assisted short-sale would, in the best scenario, stain their credit rating and make it harder to buy a new home in the next few years. So they continue to pay monthly into a mortgage where they have no equity. “He [Jose] is frustrated because he would like to find another job that makes more money, but in the current situation he is taking the job that is near where we live,” said Maria. The trouble Jose and Maria are experiencing -- being trapped in a mortgage or “locked in” as economists say -- is something they share with millions of other homeowners around the country, though borrowers in California, Florida and Arizona are the most constrained.

Lawler: REO inventory of "the F's", PLS, and FDIC-insured institutions combined down about 21% last year - On Friday I posted a graph of REO inventory (lender Real Estate Owned) for the Fs (Fannie, Freddie and the FHA). Economist Tom Lawler has added estimates for FDIC insured institutions and PLS (private label securities). From Tom Lawler: Below is a chart showing estimates of the SF REO inventory of the F’s, private-label ABS (from Barclays Capital), and FDIC-insured institutions. On the latter I have changed my estimation procedure. Rather than assume a constant carrying cost, I am assuming that the average carrying cost at FDIC insured institutions is 50% higher than the average for Fannie and Freddie. Both Fannie and Freddie’s average REO carrying costs have declined steadily over the past two years, and that’s probably true for banks as well. Compared to the end of 2010, estimated REO inventories for the F’s, PLS, and FDIC-insured institutions combined at the end of 2011 were down about 21% to the lowest level since the end of 2007. As Tom Lawler has noted before: "This is NOT an estimate of total residentil REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories." However this is the bulk of the 1-4 family REO - probably 90% or more. Rounding up the estimate (using 90%) suggests total REO is just around 520,000 in Q4.

Michael Olenick: Beware of Housing Market Cheerleading - CalculatedRisk has issued another housing cheerleader article, noting the inventory decline, especially in his back-yard, Some more comments on Housing Inventory. It’s a shorter than usual than piece so here’s a shorter than usual rebuttal: housing inventory is completely divorced from market reality. Much like the laws of physics don’t apply when studying quantum phenomenon the metrics surrounding housing market price discovery are temporarily suspended until the shadow inventory is accounted for and disappears. CR admittedly slightly tempered enthusiasm stems from an article noting housing inventories are their lowest since 2005, and repeats last month’s post the lower inventory will “lead to less downward pressure on prices.” More tellingly, about twelve hours earlier he posted that CoreLogic’s latest report showing another monthly decline in house prices. Countless homes here in FL are in REO status with no literally no sign of being for sale; no MLS listing, no sign on the front lawn .. nothing. Except for court records, and the lousy job property maintenance companies do maintaining the houses, you’d never know they’re waiting to be sold. Even the NY Times ran an article, “When Living In Limbo Avoids Living on the Street,” noting banks sometimes ask borrowers to stay put after a foreclosure, to live for free, in exchange for maintaining the property and paying the utility bills. Banks even pay the house insurance.

How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI -- Various charts show home prices are now back to levels last seen in September-October 2002. I posted such a chart constructed from the LPS Home Price Index (HPI) in LPS Home Price Index Shows U.S. Home Prices Accelerated Decline. Nominal prices are arguably not the best way of looking at things. I asked Doug Short at Advisor Perspectives if he would chart "Real" home prices. His answer was "In a heartbeat, if I can get the data". "Real" in this case means "Inflation Adjusted" price, nominal simply means the "Current Price". After receiving an Excel spreadsheet of the HPI data from LPI, I passed the spreadsheet on to Doug Short. I suspect he did not know what he was getting into, because once I supplied the data, I started asking for all kinds of charts. I asked Doug for help for the simple reason his charts and the charts by Calculated Risk are in a class of their own. Note that "Inflation Adjusted" itself can mean many things, and indeed this post will take a look at "Real" home prices from several angles.

Lawler: Updated “Distressed Sales” Shares Table, Select Areas - Economist Tom Lawler sent me the updated table below for several distressed areas. He added Orlando and Southern California today. Lawler noted that the Reno data is NOT directly from the realtor association/MLS. Also "SoCal shares are not MLS based, but are Dataquick estimates based on property records". CR Note: This could be very useful data over the next several months (and years) as we try to track the impact of the mortgage servicer settlement and to see if the markets are improving. Obviously fewer distressed sales would indicate a less unhealthy market (except it might be due to process delays right now). For most of the areas (with the exception of Reno), the distressed share of sales is down from February 2011, the share of short sales has increased and the share of foreclosure sales are down - and down significantly in some areas. Look at Orlando: Short sales have increased from 23.7% to 33.3%, and foreclosures have declined from almost half of sales (49.9%) to 28.9%. Note: The table is a percentage of total sales.

Las Vegas House sales up 13% YoY in February, Inventory off sharply - This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Sales in 2011 were at record levels, more than during the bubble, and it looks like 2012 will be an even stronger year - even with some new rules that slow the foreclosure process. GLVAR reports increasing home sales, prices, decreasing inventory. First on a record sales pace: According to GLVAR, the total number of local homes, condominiums and townhomes sold in February was 3,794. Compared to one year ago, single-family home sales during February increased by 17.8 percent, while sales of condos and townhomes decreased by 5.0 percent. And on the decline in inventory: GLVAR reported 6,543 single-family homes listed without any sort of offer. That’s down 18.2 percent from 8,001 such homes listed in January and down 45.6 percent from one year ago. For condos and townhomes, the 1,598 properties listed without offers in February represented an 8.5 percent decline from 1,746 such properties listed without offers in January and a decrease of 45.6 percent from one year ago. And on the percent distressed: Meanwhile, 29.3 percent of all existing local homes sold during February were short sales ... Bank-owned homes accounted for 42 percent of all existing home sales in February, down from 45.5 percent in January. So 71.3% of the sales were distressed, and over half were purchased with cash.

Rise in Phoenix Housing Shows Path for Other Cities - As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country. This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona's foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth. "Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here. The nation's hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines.Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals.

Housing: Seasonality for Searches, Starts, Sales and Prices - Jed Kolko, Trulia's chief economist writes about housing seasonality today: Springtime for Housing: The housing market rides the seasons. Year in and year out, market activity has predictable ups and downs. Sometimes those seasonal patterns are hard to see when longer-term trends (like plummeting housing prices) or one-off events (like the homebuyer tax credit) drive movements in prices, sales and other housing indicators. But seasonal patterns are there, even when they’re beneath the surface. In this post, I look at five measures of housing activity: search activity, asking prices, new construction starts, existing home sales and housing inventory....The chart below shows that sales are typically 29% above their annual average in June and 31% below their annual average in January. Construction starts also swing 25% above and below their annual average over the year. ... Search activity rises 12% above its annual average in March. But inventories stay within 10% of their annual average every month, and asking prices stay within 5% of their annual average every month.

Did the mortgage credit boom cause racial segregation to decline? - Did the rise in subprime mortgages – predominantly to black and Hispanic borrowers – lead to a fall in racial segregation as people were able to move to more desirable neighbourhoods? This column looks at extensive data on mortgages and changes in the ethnic mix at local schools. It finds that the credit boom that precipitated the global financial crisis may actually have increased racial segregation.

Buy or rent as rents rise and house prices fall? - This is a good segment from CNBC on the dichotomy we see in the housing market of still falling house prices and rising rents. Is the rise in rents a foreshadowing of house prices stabilising? Take a look.

Why owning a house may not be the American Dream - Lots of societies outside of America seem to have a preference for home-ownership. I have spoken to policy makers and scholars in several countries--India, Bangladesh, South Africa, Peru--about the importance of a well functioning rental sector. Rental housing allows for mobility, and for people to use savings to invest in such things as small businesses. Rental housing is also a way for small entrepreneurs to earn a return on investment. Yet everywhere I go, I am told that people don't want to rent, they want to own. The principal reason seems to be security of tenure; in places where enforcement of contracts remains an issue, fear of abuse by landlords sours people on renting as an option. And so it is that people want to be owners. Many countries in Western Europe--Germany and Switzerland in particular--do not have fetishes about homeownership. But tenant protections in these countries are strong (see this piece on Germany and this piece on security of tenure beyond lease terms in Switzerland), so renting is sort of "owning-light" in these countries.

Double Bubble - YouTube - I wanted to draw the economic crisis, so first, I drew every connection between the big sectors that represent the whole United States. But we don't need all of these for the main story. It is simple. Loans from the financial system, especially mortgages, helped to pump-up consumer spending, and therefore, pumped-up income and work. This went on for many years. But when the loans stopped, this depressed spending, and therefore depressed incomes, and put people out of work. Again: it pumped up, then it popped. It's a very simple story. Then, after that, the financial system was bailed-out by the central bank, and by the Treasury. But no such generosity was extended to the households. They still owe so much debt that they cannot spend enough to keep the main cycle healthy. The danger in this is that long-term unemployment can permanently hurt people and so it becomes more and more difficult to reverse.

Plenty of Recession Damage Still Left To Undo - The commercial real estate rubble still left over from the Great Recession continues to exact a punishing toll on property values and owners' and lenders' books. In this statistical state analysis, CoStar Group has identified 168,580 office, flex, industrial and retail properties in its national property database with a vacancy rate of 60% or more. The number of properties by type at this level of vacancy distress is as follows:

• Retail: 67,525 properties
  Office: 49,240 properties
  Industrial: 42,475 properties
  Flex: 9,339 properties

Of those properties, 4,700 or so last sold at peak-of-market values in 2007, and another 4,140 were built and came online in 2007. Since Jan. 1, 2008, CoStar has tallied 16,265 commercial property foreclosure or deed in lieu of foreclosure transactions. To help grasp the latest total number of distress properties, it is useful to compare the current levels with a similar analysis CoStar completed in September 2009. At that time, CoStar identified slightly more than 80,000 distressed office, industrial and shopping center properties, so the stack of distressed properties is double what it was two years ago.

Distressed commercial properties nearly 170,000,CoStar says - Commercial real estate still labors under distress, according to a report this week by the CoStar Group. The real estate research firm counts 168,580 office, industrial and retail properties nationally with vacancies of 60 percent or more. Since January 2008, it tallied 16,265 commercial property foreclosures or deeds in lieu of foreclosure transactions. The company listed four distressed San Diego County projects that have been sold since January, two apartment complexes, one retail space and one parcel of land. CoStar defines a distressed commercial property as one that sells below market value or went through a bankruptcy sale.They were:

Why Americans Aren't Moving Anymore - Here's what we know about moving in America: We're not doing it like we used to. The share of single people and families moving between states is the lowest in half a century.But why? We cannot hope to know why 150 million households -- or 300 million Americans -- choose to move or not move across the country to find a new job or to make a new start. There are too many variables to name. But we can start to count them: Jobs play a role. Income plays a role. Affordable housing, and good schools, and cost-of-living, and urban culture, and space -- all these play a role.When we wrote about this "go-nowhere" trend in our article Generation Stuck, we received hundreds of responses from movers and non-movers across the country. Our first batch focused on the the movers. This collection of reader testimonials focuses on the non-movers, but listens to the movers, too. Keep writing. Young people aren't moving to "job centers" because there are no jobs available for them! There is little incentive for a college graduate with $400 monthly college loan payments to move to a city with high rents where jobs are hard to come by and pay is in the $10-15 range.

Aid for unemployed homeowners goes untapped - A $7.6-billion federal program to help unemployed homeowners stave off foreclosure has provided little relief two years after being unveiled, with less than $218 million of the money paid out to needy borrowers as of Jan. 1. California, which was allocated nearly $2 billion from the Hardest Hit Fund, provided less than $38.6 million in assistance for 4,357 borrowers by the end of last year, according to the state's latest report to the Treasury Department. That amounted to less than 2% of the federal funds available to the state's Keep Your Home California program. "It's about helping the homeowner, and that's not happening," said Bruce Marks, head of the foreclosure counseling group Neighborhood Assistance Corp of America. "As we speak, there are thousands of people losing their homes." The Hardest Hit program was funded by the U.S. Treasury Department with money left over from the federal government's TARP program. States have earmarked about 70% of the money to keep unemployed homeowners current on their mortgage payments or to help borrowers catch up on missed payments. The rest is set aside for other relief programs, such as reducing mortgage balances and helping borrowers move after losing their homes.

Flat Population Growth is a Quite Serious Macroeconomic Concern - Dean Baker dismisses them: In fact, measured productivity numbers are unlikely to pick up the full gains that may be associated with lower populations. Large populations and crowding put enormous stress on the environment. Imagine having commuting times cut in half, if smaller populations eliminated rush-hour congestion. This would not be picked up in productivity measures. And, of course, the reduced pollution, including lower levels of greenhouse gas emissions, would also not be picked up in standard measures of productivity. In short, there is no demographic problem facing wealthy countries. The only problem is that people with poor math skills and imperialistic designs hold positions of influence and power. The problem of flat population growth is more serious than Dean imagines. The core problem is that folks want to transfer good and services into the future. This is a fundamentally difficult thing to do. However, one trick is to construct buildings and then to rent those buildings out to future generations. This is what the vast majority of the capital stock in America is devoted to. However, in a world where population is declining this trick will no longer work.

Retail Sales increased 1.1% in February - On a monthly basis, retail sales were up 1.1% from January to February (seasonally adjusted, after revisions), and sales were up 6.5% from February 2011. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $407.8 billion, an increase of 1.1 percent (±0.5%) from the previous month and 6.5 percent (±0.7%) above February 2011. ... Ex-autos, retail sales increased 0.9% in February. Sales for January were revised up from a 0.4% increase to a 0.6% increase. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 22.6% from the bottom, and now 7.8% above the pre-recession peak (not inflation adjusted) The second graph shows the same data since 2006 (to show the recent changes). Excluding gasoline, retail sales are up 18.8% from the bottom, and now 6.9% above the pre-recession peak (not inflation adjusted). The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail Sales: Up 1.1% in February - The Retail Sales Report released this morning shows that retail sales in February were up 1.1% month-over-month from an upwardly revised 0.6% in January. (The Census Bureau notes that the statistical confidence range is ±0.5%.) Today's number is fractionally above the Briefing.com consensus forecast of 1.0% but well below Briefing.com's own optimistic call for 1.8%. The year-over-year change is 6.5%. The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data. I've highlighted recessions and the approximate range of two major economic episodes. The Tech Crash that began in the spring of 2000 had relatively little impact on consumption. The Financial Crisis of 2008 has had a major impact. After the cliff-dive of the Great Recession, the recovery in retail sales has taken us (in nominal terms) 7.8% above the November 2007 pre-recession peak. Here is the same chart with two trendlines added. The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 148.2% since the beginning of this series. Adjust for population growth and the growth drops to 102.2%. And when we adjust for both population growth and inflation, retail sales are up only 22.7% over the past two decades.

Retail Sales Rise In February, But Higher Gas Prices Climb Too - Retail sales are strengthening so far in 2012, according to the Census Bureau. February sales jumped a robust 1.1% on a seasonally adjusted basis, the best monthly increase since last September. There was also good news for the annual pace of retail sales: for the first time in five months, the 12-month percentage change in retail sales rose, suggesting that the worrisome deceleration trend in consumer spending may have run its course. As for last month's retail sales, today's update shows growth persisting across the board. Even after stripping out the volatile numbers for auto sales, spending was higher last month by 0.9%. Consumption, in other words, showed no signs of rolling over last month, confounding some analysts who argue that the economy's headed for trouble.For the moment, even the threat posed by rising energy costs haven't taken a toll. Economist Jonathan Basile at Credit Suisse tells Bloomberg that today's numbers suggest that consumers are "unfazed by higher gas prices." As such, "this is a pleasant surprise on the overall picture for the economy."

Consumer spending up despite higher gas prices -- Americans might complain about higher gasoline prices, but new government data show that hasn’t stopped them from driving to the mall. Retail sales jumped 1.1 percent in February, the biggest monthly increase since last fall, the Commerce Department reported Tuesday. Consumers went shopping for new cars, clothes, electronics and sporting goods despite spending 3.3 percent more at gas stations. The results boosted estimates of how fast the economy is growing, particularly on the heels of data showing a strengthening job market. The data show a new resilience among consumers, which could be a missing ingredient in the recovery, economists said. Consumer confidence, jobs and income have all rebounded, but overall growth has still been tepid. Experts have been waiting for consumers to open their wallets because they are the backbone of the economy, accounting for roughly two-thirds of gross domestic product.

Consumer Prices Rise 0.4% in February, Fueled by Higher Gas Prices‎ - Consumer prices rose by the most in 10 months in February as the cost of gasoline spiked, a government report showed on Friday, but there was little sign that underlying inflation pressures were building up. The Labor Department said its Consumer Price Index increased 0.4 percent after advancing 0.2 percent in January. That was in line with economists' expectations. Gasoline accounted for more than 80 percent of the rise in consumer prices last month, the department said. Outside the volatile food and energy category, inflation pressures were generally contained. Core CPI edged up 0.1 percent after gaining 0.2 percent in January. The February increase was below economists' expectations in a Reuters poll for a 0.2 percent rise. The Federal Reserve said on Tuesday that the recent spike in energy costs would likely push up inflation temporarily. Over the long-term, inflation was likely to run at or below the its 2 percent target, it said.

U.S. February Consumer Price Index Report (Text) - The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment. The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed. Indexes for shelter, new vehicles, medical care, and household furnishings and operations all advanced, while indexes for apparel, recreation, used cars and trucks, and tobacco all declined. The all items index has risen 2.9 percent over the last 12 months, the same figure as last month. The index for all items less food and energy was up 2.2 percent, a slight decline from last month's 2.3 percent figure, while the 12-month change in the food index fell to 3.9 percent in February, its lowest level since last June. In contrast, the 12-month change in the energy index was 7.0 percent in February compared to 6.1 percent in January.

In Sit-Down Restaurants, an Economic Indicator - Over the 12 months through January, sales at what the government calls full-service restaurants were 8.7 percent higher than in the previous 12 months. That was the fastest pace of growth since the late 1990s, when the economy was booming. Moreover, as is seen in the accompanying charts, that rate was much greater than the rate of growth in sales at limited-service restaurants.. Since those numbers became available 20 years ago, that difference has been a reliable indicator of how the economy is going. In tough times, people may still eat out, but they cut back. Full-service restaurants may or may not be expensive. Le Bernardin in Manhattan qualifies, but so does Red Lobster. The range at limited-service places is not nearly as wide. Americans now spend about $220 billion a year at full-service restaurants, and $211 billion at the limited-service places.

Inflation Watch: Year-over-Year Headline and Core CPI Little Changed - The Bureau of Labor Statistics released the CPI data for last month this morning. Year-over-year Headline CPI came in at 2.87%, which the BLS rounds to 2.9%, down fractionally from 2.93% last month. Year-over year-Core CPI came in at 2.18%, which the BLS rounds to 2.2%, down from 2.28% last month, which BLS rounded to 2.3%. Energy is up 6.97% YoY. Here are excerpts from the BLS summary: The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed. The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000. On this chart, I've highlighted the 1.75% - 2% range, which is generally understood to be the Fed's target for core inflation. Here we see more easily see the widening spread between headline and core CPI since late 2010, a pattern that began changing last October as headline inflation declined while core has continued to rise.

What Inflation Means to You: Inside the Consumer Price Index -The Fed justified the previous round of quantitative easing "to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate" (full text). In effect, the Fed has been trying to increase inflation, operating at the macro level. But what does an increase in inflation mean at the micro level — specifically to your household? Let's do some analysis of the Consumer Price Index, the best known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U, which I'll refer to hereafter as the CPI. The slices are listed in the order used by the BLS in their tables, not the relative size. The first three follow the traditional order of urgency: food, shelter, and clothing. Transportation comes before Medical Care, and Recreation precedes the lumped category of Education and Communication. Other Goods and Services refers to a bizarre grab-bag of odd fellows, including tobacco, cosmetics, financial services, and funeral expenses. For a complete breakdown and relative weights of all the subcategories of the eight categories, see the link to table 1 near the bottom of the BLS's monthly Consumer Price Index Summary. The chart below shows the cumulative percent change in price for each of the eight categories since 2000.

Inflation: A Five-Month X-Ray View: New Update - Here is a table showing the annualized change in Headline and Core CPI for each of the past five months. I've also included each of the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation.We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc.The chart below shows Headline and Core CPI for urban consumers since 2007. Core CPI excludes the two most volatile components, food and energy. Core CPI has been on the rise and has now risen above the Fed's inflation target of 2%. However, the more attention-grabbing headline CPI has moderated in recent months after hitting an interim high in September 2011, a decline that was primarily driven by lower energy costs, especially as reflected in the transportation category. This trend, however, appears to be reversing. Gasoline prices have been steadily rising since mid-December (more on that topic here).For a longer-term perspective, here is a column-style breakdown of the inflation categories showing the change since 2000.

US Consumer Prices Up Because of Higher Gas Costs — A sharp jump in gas prices drove a measure of U.S. consumer costs up in February. But outside higher pump prices, inflation stayed mild.The Labor Department said Friday that the consumer price index rose 0.4 percent in February, the largest increase in 10 months. Gas prices rose 6 percent to account for most of the gain. Food prices were unchanged for the first time in 19 months. And excluding food and energy, so-called “core” prices rose just 0.1 percent.In the past 12 months, consumer prices have risen 2.9 percent, the same year-over-year change as last month. Core prices have increased 2.2 percent over the same period. That’s lower than January’s year-over-year figure. Mild inflation allows the Fed to maintain its low interest-rate policy. Most economists expect inflation to remain in check this year. The prices of agricultural commodities such as corn and cotton have come down. And while more Americans are working, few are getting big pay raises. That has limited retailers’ ability to charge more.

Gas Prices Jump, Poised to Keep Rising U.S. gasoline prices jumped 6% in February, and market experts predict they will climb higher because critical refining operations in the Northeast are shutting down. From New York to Philadelphia, refineries that turn oil into gasoline have been idled or shut permanently because their owners are losing money on them. Sunoco Inc. is expected to close the region's largest refinery in July, taking another 335,000 barrels per day in production capacity off the market. The East Coast refineries are getting squeezed by the soaring cost of crude oil, the major component in gasoline. The cost of oil has jumped in the past year due to global economic growth and rising tensions between Western nations and Iran, a major producer. Refineries haven't been able to increase their own prices enough to compensate. The government said Friday that the increase in gas prices had contributed to a 0.4% overall increase in consumer prices in February. Prices at the pump averaged $3.831 a gallon on Friday, according to the AAA, formerly known as the American Automobile Association. Rising gas prices pose a risk to the economic recovery, which is showing signs of gaining steam after faltering last year.

AAA report: Gas prices top $3.80 a gallon - The national average price for a gallon of gasoline rose above the $3.80 mark Monday, resuming the advance that has plagued drivers throughout the winter. The average price rose nine-tenths of a cent, according to the survey of gas stations conducted for the motorist group AAA. It was the third straight advance, with prices gaining 3.4 cents a gallon over Saturday and Sunday. A 27-day run of price increases ended last Tuesday with a 0.3-cent decline. The nationwide average was $3.51 a gallon a month ago and $3.77 a week ago. Last year at this time, the average price stood at $3.56 a gallon. The average price is down 31.3 cents, or about 7.6%, from the record high of $4.114 reported on July 17, 2008. Gasoline averages more than $4 a gallon in four states: Alaska, California, Hawaii and Illinois. At nearly $4.44 a gallon, Hawaii ranks as the nation's high. Prices are within a nickel of the $4 mark in Connecticut, the District of Columbia, Michigan, Oregon, New York and Washington, according to AAA.

Weekly Gasoline Update: Regular Up 60 Cents in 12 Weeks - Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data with an overlay of West Texas Crude (WTIC). Gasoline prices at the pump, both regular and premium, increased 4 cents over the past week, continuing their steady increase since mid-December. Regular is up 60 cents and premium 57 cents from the interim weekly low in the December 19th EIA report. Interestingly some of the key underlying commodities appear to be consolidating over the past two weeks, as the second chart illustrates. As I write this, GasBuddy.com shows four states, Hawaii, Alaska, California and Illinois plus DC with the average price of gasoline above $4 and another 6 states with the price above $3.90. The next chart is an overlay of WTIC, Brent Crude and unleaded gasoline (GASO). During much of last year there was a growing spread between WTIC and Brent Crude, but over the last quarter that spread has shrunk considerably. These commodities appear to be consolidating at a resistance level since February 24th. The price volatility in crude oil and gasoline have been clearly reflected in recent years in both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE).

Monday Map: State Gasoline Tax Rates - Today's Monday Map shows the effective tax per gallon on sales of gasoline. Click on the map to enlarge it.

Gasoline over $4 a gallon in 4 states, DC -- Gasoline is now over $4 per gallon in four states and Washington, D.C. as a three-month surge in pump prices continues. The nation’s capital, Illinois, California, Alaska and Hawaii all had average gas prices above $4 on Wednesday, according to AAA, Wright Express and Oil Price Information Service. Prices in several other states, including Oregon, Connecticut, New York and Washington, are almost there. Nationwide, gasoline has soared by nearly 54 cents this year to an average of $3.81 per gallon. Prices are rising as service stations pass along the higher cost of crude. Benchmark oil prices have risen by nearly 8 percent since January. Oil accounts for about three-quarters of the cost of a gallon of regular gasoline, according to the government. Pump prices also tend to jump this time of year as gasoline suppliers sell off their remaining stocks of winter gasoline to make room for a different grade of gasoline required in the summer. The seasonal switch causes a temporary supply dip that pushes prices even higher.

Gas Price Disparity Seems Here to Stay -THE price of gasoline is rising, but the nation isn’t sharing the pain equally. The average price of a gallon of regular was $3.76 a gallon on Friday — up 8 percent in the last month — a tabulation that masks significant regional disparities, said Avery Ash, manager of federal relations for the AAA. A gallon of regular was only $3.33 in Colorado, for example, and in Wyoming it was $3.28, the lowest in the nation. Along the Gulf of Mexico, the price was a bit higher: $3.59 in Texas, $3.60 in Alabama and $3.62 in Louisiana. For nastier numbers, turn to the Northeast and the West Coast: $3.99 in New York and Connecticut and a whopping $4.35 in California. Global energy markets determine the national trend for oil and gasoline prices, and those markets have been rattled by tensions with Iran. Yet energy markets are also resiliently local, as the patchwork quilt of gasoline prices illustrates. A flood of relatively cheap oil and gasoline is washing through parts of the American heartland, but it’s barely reaching consumers in the rest of the nation. “Energy is all about infrastructure and logistics,”. “While energy markets are global,” he said, “if oil is just sitting in the ground — or if you can’t move it from Point A to Point B — it’s not going to do you a whole lot of good.”

Gas Prices: The Politicians Are Already Doing The Only Thing They Can Do - I’m not trying to be partisan here, but there really is nothing the President can do about gas prices in the near term. There’s actually not all that much he or she could do in the long term. If he or she was the president of Saudi Arabia, then yes, there might be more levers at his or her disposal. But given that our president presides over a landmass that holds 2% of global reserves, there’s nothing he can do to alter the supply constraint.What’s that? He could release oil from the Strategic Reserve? That’s actually supposed to be reserved for emergencies, of which a gas price spike in an election year doesn’t qualify. But more to the point, the analysis I’ve seen suggests pennies on the gallon, not dollars. With summer driving season coming it’s unlikely anyone would notice. And even that doesn’t work if we don’t coordinate with other suppliers; OPEC could easily cancel the impact of our release if they wanted to. What’s that? Build more pipelines? That’s actually a decent point because there do appear to be “logistical” issues in play in the current spike, meaning oil that’s having trouble getting from where it is in America to where it needs to be refined. But there’s no way that solution will help with the current price spike and it’s also not clear why that’s a presidential issue.

What’s Really Driving Up Gas Prices - Oil Industry analyst Daniel Yergin takes to the pages of The Wall Street Journal today, and points out that the major factor driving up world energy prices at the moment have very little to do with domestic energy policy, and everything to do with foreign policy: [E]lection-year politics aside, the forces driving up prices at the pump are very different today than they were four years ago. In 2012, the reason is mainly geopolitics. Last November, the United Nations declared that Iran was clearly developing nuclear-weapons capabilities. The West is responding with sanctions aimed at reducing Iran’s ability to export oil, on which it depends for more than half of its government revenues, to get it to halt its nuclear-weapons program. Tehran has answered by conducting large naval exercises and threatening to close the Strait of Hormuz, through which passes some 35% of the world’s oil exports. Global oil prices and U.S. gasoline prices have both risen about 20% since mid-December. And all this is occurring in a world oil market that is already tight, tighter than it was last year, with no more than 2.5 million barrels of spare capacity. At least half a million barrels a day are currently out of the market because of disruptions in South Sudan and Yemen and civil war in Syria.

AAA: More People Changing Driving Habits In Response To Gas Prices -- A national survey conducted by AAA shows that 84 percent of the respondents have changed their driving habits or lifestyle in some way to deal with the recent spike in gas prices. Combining trips and errands was the most commonly reported cost-cutting measure with 60 percent of respondents reporting have already made this adjustment, according to an AAA news release. The U.S. and Idaho average prices today are 25 and 23 cents higher than a year ago, respectively. SURVEY: Is The Rising Price Of Gas Changing Your Driving Habits? The rapid run-up in prices has hit motorists' wallets earlier than the record pace from a year ago. About 87 percent of respondents would change their drive habits if prices remain at current levels for a sustained period. The ways they would adjust show some interesting differences compared to changes they've already considered or adopted, AAA said. In particular, the recent increase in gas prices has led 16 percent of respondents to purchase or lease a more fuel-efficient vehicle. Should prices remain at current levels, the AAA survey shows that this number would more than double, jumping to 34 percent.

Michigan Consumer Sentiment Falls a Point - The University of Michigan Consumer Sentiment Index preliminary report for March came in at 74.3, down a point from the February final read of 75.3. Today's number was below the Briefing.com's consensus forecast of 75.8 and Briefing.com's more optimistic 76.5.See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I've added a linear regression to help understand the pattern of reversion to the trend. I've also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is about 13% below the average reading (arithmetic mean), 12% below the geometric mean, and 13% below the regression line on the chart above. The current index level is at the 24.3 percentile of the 411 monthly data points in this series. The Michigan average since its inception is 85.5. During non-recessionary years the average is 88.1. The average during the five recessions is 69.3. So the March preliminary sentiment number of 74.3 keeps us above the recession average but well below the average for non-recessionary periods.

Consumer Sentiment Falls Amid Higher Gas Prices - U.S. consumers were less optimistic in early March, according to data released Friday. Inflation worries seem to be lowering sentiment. The Thomson Reuters/University of Michigan consumer sentiment index in early March fell to 74.3 from 75.3 posted at the end of February but up from an early February reading of 72.5, according to an economist who has seen the report. The latest reading was well below the 76.0 expected by economists surveyed by Dow Jones Newswires. The current conditions index increased to 84.2 in early March from 83.0 at the end of last month, while the expectations index fell to 68.0 from 70.3. Household attitudes are being pulled in two opposite directions. Consumers are feeling better because of stronger labor markets, while at the same time they are grappling with the budget squeeze of higher gasoline prices. In early March, gasoline worries seem to be winning. Within the Michigan survey, the one-year inflation expectations reading jumped to 4.0% from 3.3% at the end of February, the highest reading since May 2011. The inflation expectations covering the next 5 to 10 years rose to 3.0% from 2.9%.

Report: Public transportation ridership increases 2.3% in 2011 - From the APTA: 10.4 Billion Trips Taken On U.S. Public Transportation In 2011According to a report released today by the American Public Transportation Association (APTA), Americans took 10.4 billion trips on public transportation in 2011, the second highest annual ridership since 1957. Only ridership in 2008, when gas rose to more than $4 a gallon, surpassed last year’s ridership. With an increase of 2.3 percent over the 2010 ridership, this was the sixth year in a row that more than 10 billion trips were taken on public transportation systems nationwide. During 2011, vehicle miles of travel (VMTs) declined by 1.2 percent. “Two top reasons for the increased ridership are higher gas prices and in certain areas, a recovering economy with more people returning to work,” “Since nearly sixty percent of trips taken on public transportation are for work commutes, it’s not surprising to see ridership increase in areas where the economy has improved.” And below is a graph of gasoline prices. Gasoline prices bottomed in December and have been moving up again. Note: The graph below shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Ceridian Fuel Index Suggests "Recovery in Home Building has Not Yet Taken Hold" - The Ceridian-UCLA Pulse of Commerce Index®, a real-time measure of truck fuel usage, is up this month but down in its most recent three month period according to the March Pulse of Commerce Report“The most recent three-month period from December to February is lower than the previous three months from September to November 2011 by 3.2 percent at an annualized rate. The continuing weakness of the PCI is signaling that, perhaps, the recovery in home building has not yet taken hold. The recent improvement in building permits and housing starts may get building going again and therefore, trucking as well, as it has been said that it takes 17 truckloads to build a home. If we get the saws and hammers going again, we will have a real recovery with much healthier job growth,” said Ed Leamer, chief economist. Regular Mish readers are not surprised by this report as gasoline and petroleum demand have collapsed. On March 10, I noted Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage. The following chart shows U.S. petroleum and gasoline usage for December-February compared with the same three months in prior years. Chart is courtesy of reader Tim Wallace. Note that petroleum usage is back to December 1995 thru February 1996 levels. Gasoline usage is back to December 2001 thru February 2002 levels.

Pulse of Commerce Index: A 0.7% Increase in February - The latest Ceridian-UCLA Pulse of Commerce Index (PCI), a measure of the economy based on diesel fuel consumption, is now available. The published report highlights the 0.7% February increase with some interesting discussion of the March requirements for a Q1 2012 improvement over Q4 2011. Here is an excerpt from the report followed by a pair of charts to illustrate the behavior of this indicator, the second of which adjusts for population growth. The Ceridian-UCLA Pulse of Commerce Index® rose 0.7 percent in February but was not enough to offset the 1.7 percent decline in the previous month. The most recent three-month period from December to February is lower than the previous three months from September to November 2011 by 3.2 percent at an annualized rate. With the first two months of the quarter known, the PCI must grow by over 4 percent from February to March to allow the PCI to grow positively in the first quarter of 2012 compared with the last quarter of 2011. The first chart shows the PCI index unadjusted and seasonally adjusted. As we can readily observe, the index had been trending up since end of the Great Recession, but it has yet to achieve the highs of the immediate pre-recession months and now appears stalled. In fact, we're tracking at approximately the same range as December 2005.

Ceridian-UCLA: Diesel Fuel index increased 0.7% in February - This is the UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index Increased 0.7 Percent in February The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.7 percent in February but was not enough to offset the 1.7 percent decline in the previous month. The most recent three-month period from December to February is lower than the previous three months from September to November 2011 by 3.2 percent at an annualized rate. ...“The continuing weakness of the PCI is signaling that, perhaps, the recovery in home building has not yet taken hold. The recent improvement in building permits and housing starts may get building going again and therefore, trucking as well, as it has been said that it takes 17 truckloads to build a home. If we get the saws and hammers going again, we will have a real recovery with much healthier job growth,” This graph shows the index since January 2000. This index has been weaker than the ATA trucking index and the reports for rail traffic. It is possible that the high cost of fuel is shifting some long haul traffic from trucks to rail (intermodal).

Quarterly Trade Deficit Up 15.3% — The U.S. deficit in the broadest measure of foreign trade increased at the end of last year to the highest level in three years. It was widened by a slight decline in exports and higher demand for foreign goods.The Commerce Department said Wednesday that the current account trade deficit increased 15.3 percent in the October-December quarter, to $124.1 billion.Exports decreased slightly to $380.4 billion, in part because of a drop in overseas demand for U.S. airline tickets. Imports ticked up to $566.7 billion. The increase was partly driven by increased purchases of imported airplanes. For the year, the current account deficit rose 0.6 percent to $473.4 billion, the largest imbalance since 2008.A higher trade deficit acts as a drag on growth. It means more goods and services are being purchased from overseas, while U.S. companies are making fewer sales overseas.Economists think the deficit will keep rising in 2012. Europe’s debt crisis is likely to drag on U.S. exports, as is slower growth in Asia. And stronger growth in the United States should boosts imports.The January deficit for U.S. trade in goods and services increased to $52.6 billion, the largest monthly imbalance in more than three years.

LA area Port Traffic declines in February - The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for February. LA area ports handle about 40% of the nation's container port traffic. To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic is down 0.9% from January, and outbound traffic is up 0.3%. On a rolling 12 month basis, outbound traffic is moving up slowly, and inbound traffic is declining slightly. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). For the month of February, loaded inbound traffic was up 4.6% compared to February 2011, and loaded outbound traffic was down 12.5% compared to February 2011. Note: Every year imports decline in February mostly because of the Chinese New Year.

AAR: Rail Traffic "mixed" in February - From the Association of American Railroads (AAR): AAR Reports Mixed Results for February Rail Traffic:The Association of American Railroads (AAR) today reported U.S. rail carloads originated in February 2012 totaled 1,410,992, down 27,555 carloads or 1.9 percent, compared with February 2011. Intermodal volume in February 2012 was 1,122,458 containers and trailers, up 26,284 units or 2.4 percent compared with February 2011. February’s average of 224,492 intermodal units per week was the third highest ever for a February for U.S. railroads. This graph shows U.S. average weekly rail carloads (NSA). Coal was the main problem in February. U.S. railroads originated 592,316 carloads of coal in February 2012, down 70,583 carloads (10.6%) from February 2011. That’s the biggest year-over-year monthly percentage decline for coal since January 2010. According to the AAR, the decline in coal is because coal is being used less for electricity generation. The second graph is for intermodal traffic (using intermodal or shipping containers):Intermodal traffic is close to the peak year in 2006.

Small-Business Optimism Hits New Four-Year High - Optimism amongst small U.S. businesses rose to its highest level in more than four years in February, data released Tuesday showed, yet business owners remain concerned about future prospects. The National Federation of Independent Business‘s small-business optimism index rose 0.4 point to 94.3 from 93.9 in January. The February figure was its sixth consecutive monthly increase and its strongest level since December 2007. Characterizing the report as “a mixed bag, but mostly headed in the right direction,” the NFIB noted improvement in key areas of business activity. Still, the organization stated the headline index remains mired at levels it considers recessionary. While the report noted easier access to credit and growth in capital spending, respondents were also moderately more pessimistic about the outlook. According to the report, six of the index’s 10 subcomponents lost ground during February.

Export Effects of a European Slowdown on the Midwest - Chicago Fed - As the U.S. economy has shown signs of recovery, attention has shifted to the European sovereign debt crisis and its impact on European economic activity, along with its spillover effects on the rest of the world. In the Midwest, where the manufacturing sector has been leading the ongoing economic recovery, concern has arisen that another recession in Europe could dampen economic activity here too. What effect might a European recession have on international trade and the manufacturing sector in the Midwest? What do we know from past experience about the sensitivity of trade to changes in economic activity? A recent paper from Chicago Fed economist Meredith Crowley studied the causes of recent trade collapses, especially the Great Trade Collapse during 2008 and 2009. Crowley tested three factors that could potentially affect international trade: declining aggregate demand, financing difficulties, and rising trade barriers. In the past five of six U.S. recessions, the U.S. and the world suffered trade declines as economic activity fell in the two to four quarters before the trough of these recessions. Crowley notes that the elasticity of imports for the U.S. ranged from 1.5 to slightly more than 2 , which implies that imports respond more than proportionally to changes in income and demand (an elasticity of 1 would indicate a proportional response). Based on her own and others’ research, she concludes that a drop in demand is the most important factor in determining trade declines. Trade financing exerts a more modest affect on trade, while rising trade barriers have not been an issue recently.

Manufacturing Activity Expands in NY, Philadelphia Regions - Manufacturers from upstate New York down to Delaware are seeing better business conditions this month, according to reports released Thursday by theFederal Reserve Banks of New York and Philadelphia. The New York Fed said its general business conditions index rose to 20.21 in March from 19.53 in February. The March reading was the highest since June 2010. The Philadelphia Fed’s index of general business activity within its area factory sector rose to 12.5 in March from 10.2 in February. It was the highest reading since April 2011.

Philly Fed and Empire State Manufacturing Surveys indicate slightly stronger expansion in March - From the Philly Fed: March 2012 Business Outlook Survey The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, edged slightly higher, from a reading of 10.2 in February to 12.5, its highest reading since April of last year ... The new orders index decreased 8 points, to 3.3, while the shipments index declined 12 points, to 3.5. From the NY Fed: Empire State Manufacturing Survey The general business conditions index was little changed in March and, at 20.2, indicated a continued moderate pace of growth in business activity for New York State manufacturers. The new orders index inched down three points to 6.8, indicating a modest growth in orders. The shipments index fell five points to 18.2, revealing a continued increase in shipments, though at a slower pace than in February. ..The number of employees index rose two points to 13.6, and the average workweek index climbed 11 points to 18.5. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through March. The ISM and total Fed surveys are through February. The average of the Empire State and Philly Fed surveys increased slightly again in March, and is at the highest level since April 2011.

Industrial Production unchanged in February, Capacity Utilization declines - From the Fed: Industrial production and Capacity UtilizationIndustrial production was unchanged in February after having risen 0.4 percent in January. Previously, industrial production was reported to have been unchanged in January. Manufacturing output moved up 0.3 percent in February. ... At 96.2 percent of its 2007 average, total industrial production for February was 4.0 percent above its year-earlier level. Capacity utilization for total industry edged down to 78.7 percent, a rate 1.2 percentage points above its level from a year earlier but 1.6 percentage points below its long-run (1972--2011) average. This graph shows Capacity Utilization. This series is up 11.3 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.7% is still 1.6 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007. Capacity utilization for January was revised up from 78.5% to 78.8%.The second graph shows industrial production since 1967. Industrial production was unchanged in February at 96.2; however January was revised up 0.4

Industrial Production Flat In February But Annual Pace Turns Up - Industrial production was unchanged in February, the Federal Reserve reports. That's bad. But the year-over-year pace for industrial production rose slightly—that's good. The flat report for industrial production last month may be a sign of trouble for the economy, but if it is it'll be a hazard that will soon send a clearer warning through the 12-month rolling change for this series. But after today's update, the future is still open for debate on that front. Recall that one of the factors that persuades the Economic Cycle Research Institute to maintain its recession forecast (first announced last September) is the weakening trend of late for industrial production. ECRI's co-founder Lakshman Achuthan yesterday explained (before today's update) that part of his firm's dark outlook is bound up with the fact that "growth rates of personal income and industrial production have dropped to their lowest readings since the spring of 2010." Does today's report inspire a fresh take on that indicator's signal for the cycle? Maybe. At the very least, the latest data point keeps the dialogue going on where the economy is headed for the rest of the year.

Auto parts suppliers hiring as fast as they can - Detroit automakers are creating thousands of new jobs amid a sales boom. And as they expand, their suppliers are racing to keep up, adding tens of thousands of new jobs. In a dramatic reversal, many suppliers, after improving efficiency — through downsizing and buyouts — find themselves short-handed. With the memory of the Great Recession still so fresh, companies are still wary about hiring too freely. But Sean McAlinden, economist with the Center for Automotive Research, says there actually is a danger of having a shortage of parts and workers. He says the supplier industry will need 174,000 additional workers by 2015, and the pace of hiring right now appears to be too slow. Even when suppliers intend to hire right away, it's not easy. When all those supply companies went dark, many skilled tradesmen, machinists and engineers moved on. Quite a reversal from a few years ago that auto parts suppliers in Michigan might now be facing a worker shortage.

Auto Bailout Is Looking Better to the Public - Back in 2008 and 2009, the Bush and Obama administrations, fearful about losing a major industry during the worst downtown since the Great Depression, stepped in to bail out and restructure Chrysler and General Motors — an effort that ended up costing taxpayers some $80 billion. It was, to put it gently, unpopular. In polls at the time, 3 in 4 Americans said Washington should not broaden its effort to help the carmakers, as it ended up doing; nearly 6 in 10 poll respondents opposed the bailouts once they happened; and 54 percent of people said they were “mostly bad for the economy.” Largely negative polls accumulated through 2010 and 2011, too. But more recent polls seem to show a thaw in public opinion — even if the auto bailout remains relatively unpopular, as far as government initiatives go. A Gallup poll from February indicates the approval and disapproval numbers have narrowed. And a Pew poll conducted a few weeks ago shows that an actual majority of respondents now support the bailout — a first. What might account for some Americans’ changing their minds? For one thing, the automakers that got Washington’s help have returned to the black. The companies have also added thousands of jobs over the past two years. And the motor-vehicle manufacturing industry as a whole has added 126,500 jobs, an increase of about 20 percent, since the end of the recession.

Number of the Week: Who Gets Credit for iPhone Trade? - $6.83 Billion: Estimated amount that iPhone sales added to the U.S.-China trade deficit in 2011.Every iPhone sold in the U.S. adds to the country’s trade deficit with China, but the official calculations may overstate the Asian nation’s contribution. Now statisticians are trying to find a better way of tracking international trade. The iPhone provides a good example of the problems with the way trade is currently calculated. The Apple device features hardware from all over the world, but because it’s manufactured in China that country gets credit for the entire wholesale export cost. According to research, each iPhone sold in the U.S. adds $229 to the U.S.-China deficit. Based on 2011 cellphone activations from AT&T, Verizon and Sprint, Apple sold around 30 million iPhones in the U.S. last year — accounting for about $6.83 billion of the U.S.’s $282 billion 2011 trade deficit with China.But the researchers note that such estimates overstate China’s contribution. Though the iPhone is assembled in China, most of its component parts come from elsewhere. Separate research noted that for the iPhone 3G just about 3.6% of the wholesale price came from China, the rest could be attributed to inputs from companies in Japan, Germany, Korea and even the U.S. (Read more about that study here.)

Labor's Take on the Economy - When when the nation’s union leaders gather each winter at the A.F.L.-C.I.O.’s executive council meeting, they often approve carefully crafted resolutions that the labor federation’s staff members — some have Ph.D.’s — have spent weeks preparing in close consultation with union leaders. Clearly much work and thought went into the resolution on the economy that the labor federation approved on Wednesday, titled “Fixing What Is Wrong With Our Economy.”The resolution is in part cri de coeur on behalf of embattled workers, but it is mainly a full-throated liberal-left take on what’s ailing the American economy and what caused those ailments. As one would suspect, organized labor’s analysis is not sympathetic to Wall Street, deregulation and free trade.The A.F.L.-C.I.O., representing 57 unions and with considerable influence on the White House, said that the recession and financial crisis that the nation plunged into four years ago were three decades in the making. The labor group’s economic resolution asserted that the North American Free Trade Agreement, admitting China into the World Trade Organization and a long-overvalued dollar had fueled the relocation of American operations overseas.

Does the US Corporate Saving Rate Portend a Lower Unemployment Rate? - Rebecca Wilder - An interesting thing happened in Q4 2011: the corporate saving rate declined following two quarters of gains. Nominal net saving by the domestic business sector fell 3%, while nominal gross fixed investment and inventories surged 6% – the two pushed the saving rate down nearly 40 bps to 2.94% of GDP. The corporate saving rate (gross saving less gross investment) has been on a downward trend since the end of 2009, a welcomed trend by the labor market. There’s a very strong correlation between the corporate saving rate and the unemployment rate, 80% according to a simple bivariate OLS regression. I’ve argued in the past that there is some causation to this relationship – but that’s not the point of this post. The point here is that the trend in corporate saving has fallen sufficiently to portend some material declines in the unemployment rate in coming quarters….ALL ELSE EQUAL. For example, a simple bivariate regression would forecast a 7.5% unemployment rate if the corporate saving rate falls another 30 bps to 2.6%. The all else equal is important. The primary driver of this quarter’s decline in the corporate saving rate was the 6% increase in nominal investment spending, the largest quarterly gain since 2010 Q2. Amid relatively weak manufacturing orders and the expiration of the depreciation allowance, I expect that this momentum is unlikely to be matched in coming quarters. Will firms start drawing down nominal saving to finance new hires?

U.S. Extends Its Run of Strong Job Growth Another Month - The economy added 227,000 jobs in February, the Labor Department reported Friday, and though the unemployment rate held steady at 8.3 percent, that was largely because nearly half a million people had joined, or resumed, the search for work in hopes their prospects had improved. The big question was whether such improvement could be sustained, or even accelerate, as is necessary to significantly drive down the unemployment rate. Most projections call for slower economic growth in the first quarter of this year than the last quarter of 2011, and a second report on Friday further reduced expectations. The report, showing a higher-than-expected trade deficit, prompted firms like JPMorgan Chase and Macroeconomic Advisers to lower their growth forecasts for this quarter. The focus, though, remained on more encouraging signs. Public sector job losses, which have been steep, have slowed. Job gains for December and January were stronger than previously reported, the Labor Department said, accounting for 61,000 more jobs than the department estimated last month, and the February report could also have understated the improvement.

Recent Job Gains Are Real and They’re Spectacular - Friday’s job numbers brought very good news about the state of the U.S. labor markets. The economy added 227,000 new jobs in February. Thanks to upward revisions to December and January, hiring averaged a spectacular 245,000 over the past three months–better than the 153,000 pace for all of 2011. Other numbers in the report also looked quite positive for the consumer outlook. The February jobless rate held at 8.3% even though about half a million people came into the labor force. Almost all of them said they were able to find jobs. Fewer of the jobless in February were laid off, while there was an increase in people coming into or returning to the labor market, as well as a jump in people who quit their previous positions. The new mix suggests workers are more upbeat about prospects of finding a new job–a view reflected in consumer surveys. The sentiment change is critical to the overall economic outlook because people less worried about layoffs are more inclined to spend.

Behind the jobs curve -ON FRIDAY, the Bureau of Labour Statistics reported an increase in payroll employment of 227,000 jobs in the month of February. Encouragingly, job gains for December and January were revised upward, by 20,000 and 41,000, respectively. It was the second upward revision for the December payroll total, which was also nudged upward in the January release. Upward revisions have been quite common during the recovery, in fact—a significant change from the norm during the period of heavy recession job loss. The chart at right gives a sense of the magnitude of the error in initial estimates over the course of the downturn (data here). Both lines show the cumulative changes in employment from June of 2009—the final month of the recession. The dark blue line shows the total according to the first reported estimates and the light blue line shows the total according to the data after all revisions. Between the beginning of the recession and its end, initial releases underreported employment loss by roughly 1m jobs. In recovery the trend has swung sharply in the other direction. Initial estimates have underreported job gains since the end of the recession to the tune of almost 1m. Cumulatively, the revised data have indicated a labour market that fell harder and rebounded more strongly than the first estimates, which get the lion's share of news coverage, showed.

Unemployment Numbers Suggest U.S. Economic Boom, or Not - A careful look at the government's unadjusted household unemployment data shows a stunning 740,000 jobs added to the economy in February -- three times the 227,000 reported based on the establishment payroll survey. If the U.S. economy is surging, and jobs increased at the rate of three-quarters of a million last month, why haven't we heard a lot more about it? And, given a rapidly expanding economy, how can Gallup's nearly 30,000 random interviews with Americans across the nation show a significant increase in the unemployment rate? According to the government's household survey, the number of employed Americans increased 740,000 to 140.684 million in February from 139.944 million in January. This increase of three-quarters of a million jobs is how the unadjusted unemployment rate was 8.7% in February compared with 8.8% in January, even as the U.S. workforce increased by 629,000 employees and the number of unemployed Americans fell by 111,000. On the other hand, a comparison of February's household survey results to the government's December 2011 unadjusted unemployment data suggests a much more modest improvement in jobs and the U.S. economy over the past two months. The number of employed Americans increased by 3,000 on an unadjusted basis between February 2012 (140.684 million) and December 2011 (140.681 million). On the same basis, the number of unemployed Americans increased by 738,000 to 13.430 million in February 2012 from 12.692 million in December 2011. The U.S. workforce increased by 741,000 over these two months. The government's unadjusted unemployment rate increased to 8.7% in February 2012 from 8.3% in December 2011.

ART CASHIN: The Experts I Talk To See Some Major Problems In The Latest Jobs Reports: On the headline, the data has been improving. But some of the experts who Art Cashin has been talking to see some major issues with the current jobs data. From today's "Cashin's Comments": The Fed, Jobs And The Election - Today’s FOMC meeting will be watched carefully. The resulting statement will see each sentence diagrammed and each word parsed. Is the Fed mollified by the recent jobs growth? Can they risk sitting on their hands? Will they not be constrained later in the year from taking action, lest they be accused of trying to influence the election? Do they have a political window here impelling them “to use it or lose it” now? Then there is the problem of how accurate is the improving jobs picture. Yesterday, we cited Doug Kass’s interpretation and analysis that temporary jobs and low paying jobs made up almost 70% of the job growth. Similar analyses are popping up elsewhere. Even more disturbing to us was word from a friend who subscribes to The King Report. He says the newsletter says that without the filter of seasonal adjustment, so far in 2012 nearly 1.8 million jobs have been LOST. Wow! We’ll try to check that out.

We Will Hit 84 Degrees In NYC Today (Seasonally Adjusted) -There has been a lot of talk lately about “seasonal adjustments” and what they actually mean and do for the data. Reporting today’s forecast in “seasonally adjusted” terms would not be incorrect. The temperature today is almost 30 degrees higher than the average March temperature in NYC, so reporting it as 30 degrees higher than the annual temperature is fine. You instantly know that today is abnormally warm for the time of year. It doesn’t necessarily help you choose what to wear unless you know the monthly and annual averages. It isn’t wrong, but the information isn’t perfect either. If you only had national average temperatures, how would you seasonally adjust today’s NYC temperature? That gets more complicated. We like “seasonally” adjusted numbers because it “smooths” the data. We don’t get big jumps due to the time of year and we can apply trend lines, etc. to the graphs. There is nothing wrong per se with that, but the adjustments can also mask things in the data. On unemployment, is the BLS adjustment better or worse than what other people model? What variables does it account for? Does it properly account for potential effects of how long a recession has been going. How often does “seasonality” change. In theory, the market could see a -200k number and realize that if normally this time of year it would have been -400k, then it is a good number. It would be a good sign, but it is only +200k for example if the seasonality is consistent.

The Bloom Comes Off the Unemployment Report Rose - 7 graphs - Pundits and press love to gush over the employment report the minute they see proof of life Yet, things are still not rosy. The new official unemployed tally is 12,806,000. The average length of unemployment is still very high, 40.0 weeks, even while dropping a 10th of a percentage point from last month. People unemployed for 27 weeks or more is now 42.6% of the total unemployed, or 5,426,000 million and a seasonally adjusted drop of 92,000 from last month. This percentage has barely budged as a percentage of total unemployed in comparison to pre-recession and historical levels. Some people are in part-time jobs because they want to be, others because they cannot find anything else. Some are stuck in part-time because they got their hours cut by their employer and these part-timers now number 5,446,000, an uptick of 74,000 in February. Below is a graph of forced part-time because they got their hours cut as a percentage of the total employed. If you want to see a recession economic indicator, this looks like a pretty damn strong one. See how closely the percentage increase matches recessions, the gray bars? The percentage of people in part-time jobs due to slack economic conditions has stayed extremely high since the start of the Great Recession, even while declining. An uptick of any size is simply something we do not want to see.

Making 9 Million Jobless Vanish: How The Government Manipulates Unemployment Statistics: When we look at broad measures of jobs and population, then the beginning of 2012 was one of the worst months in US history, with a total of 2.3 million people losing jobs or leaving the workforce in a single month. Yet, the official unemployment rate showed a decline from 8.5% to 8.3% in January - and was such cheering news that it set off a stock rally. How can there be such a stark contrast between the cheerful surface and an underlying reality that is getting worse? The true unemployment picture is hidden by essentially splitting jobless Americans up and putting them inside one of three different "boxes": the official unemployment box, the full unemployment box, and the most obscure box, the workforce participation rate box.As we will explore herein, a detailed look at the government's own data base shows that about 9 million people without jobs have been removed from the labor force simply by the government defining them as not being in the labor force anymore. Indeed - effectively all of the decreases in unemployment rate percentages since 2009 have come not from new jobs, but through reducing the workforce participation rate so that millions of jobless people are removed from the labor force by definition.

Construction Employment, Duration of Unemployment, Unemployment by Education and Diffusion Indexes - A few more graphs based on the February employment report. The first graph below shows the number of total construction payroll jobs in the U.S. including both residential and non-residential since 1969. Usually residential investment (and residential construction) leads the economy out of recession, and non-residential construction usually lags the economy. This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The the long term unemployed declined to 3.5% of the labor force - this is still very high, but the lowest since August 2009. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed". This is a little more technical. The BLS diffusion index for total private employment was at 57.9 in February and for manufacturing, the diffusion index was at 56.8. The index was revised up sharply for January - to the highest level since the '90s. Think of this as a measure of how widespread job gains are across industries.

BLS: Job Openings unchanged in January - From the BLS: Job Openings and Labor Turnover Summary The number of job openings in January was 3.5 million, unchanged from December. Although the number of job openings remained below the 4.3 million openings when the recession began in December 2007, the number of job openings has increased 45 percent since the end of the recession in June 2009. ...In January, the hires rate was essentially unchanged at 3.1 percent for total nonfarm. ... The quits rate can serve as a measure of workers’ willingness or ability to change jobs. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. . This report is for January, the most recent employment report was for February. Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings were unchanged in January, and the number of job openings (yellow) has generally been trending up, and are up about 21% year-over-year compared to January 2011. Quits declined slightly in January, and quits are now up about 9% year-over-year.

Jobless Claims Drop To Post-Recession Low For A 2nd Time - New jobless claims dropped last week by a sizable 14,000 to a seasonally adjusted 351,000. That’s a post-Great Recession low, for the second time. Mid-February also witnessed the 351,000 level and the numbers are knocking on this door again. There are several messages in today’s update. One is that the recent declines in new filings for unemployment benefits are holding their ground. That’s good news because it suggests that real improvement is unfolding in the labor market (despite the challenges of late) and the recent progress in moderately stronger job growth so far this year has legs. The latest decline in claims also sets up this series to poke its way lower to a new post-recession low. A decisive drop in the near future below the 351,000 level would send an even stronger message that economic growth will roll on.

Vital Signs: Falling Applications for Unemployment Benefits - The job market continues to mend. The number of Americans filing new claims for unemployment benefits fell to a seasonally adjusted 351,000 last week, from 365,000 the prior week. But the average for the past four weeks — a less-volatile measure — was largely unchanged for the second straight week. That suggests recent improvements in hiring may be slowing.

Congress's war on the post office - After a stopgap measure last year, Congress will once again debate whether the United States Postal Service as we know it can survive. The better question is: Will Congress let it? The U.S. Postal Service is at risk of defaulting on healthcare obligations or exceeding its debt limit by the end of the year. Last month, USPS management unveiled a “Path to Profitability” that would eliminate over a hundred thousand jobs, end Saturday service and loosen overnight delivery guarantees. The Postal Service also proposes to shutter thousands of post offices. “Under the existing laws, the overall financial situation for the Postal Service is poor,” says CFO Joe Corbett. Republicans have been more dire, and none more so than Oversight Committee Chairman Darrell Issa, who warned of a “crisis that is bringing USPS to the brink of collapse.” Listening to Issa, you’d never know that the post office’s immediate crisis is largely of Congress’s own making. Conservatives aren’t wrong to say that the shift toward electronic mail – what USPS calls “e-diversion” – poses a challenge for the Postal Service’s business model. (The recent drop-off in mail is also a consequence of the recession-induced drop in advertising.) But even so, in the first quarter of this fiscal year, the post office would have made a profit, if not for a 75-year healthcare “pre-funding” mandate that applies to no other public or private institution in the United States.

Real Hourly Earnings Decline in February - Earnings are up a fraction of a percent in February, but the CPI is up four times as much. The result is "real" earnings are down once again, having peaked in October 2010. Real average hourly earnings for all employees fell 0.3 percent from January 2012 to February 2012, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. A 0.1 percent increase in the average hourly earnings was more than offset by a 0.4 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U). Real average weekly earnings fell 0.3 percent over the month due to the decline in the real average hourly earnings combined with an unchanged workweek. Since reaching a peak in October 2010, real average weekly earnings has fallen 1.2 percent. Real average hourly earnings fell 1.1 percent, seasonally adjusted, from February 2011 to February 2012. The decrease in real average hourly earnings combined with a 0.6 percent increase in average weekly hours resulted in a 0.4 percent decrease in real average weekly earnings during this period.

The Stupid, It Freezes - Krugman - I don’t look at the WSJ much these days; it really has gone downhill since you-know-who took over, and I find that I almost never find anything there that isn’t covered better either in the Times or in the FT. But following a link to Allan Meltzer led to to a report that’s bad even by current WSJ standards: Stephen Moore telling us to compare California with North Dakota to see what works economically. Because a resource boom in a state whose total population is basically that of one neighborhood in LA, as compared with a slump caused by the mother of all housing bubbles and its aftermath, totally shows that free markets rool. Incidentally, California’s job gain since the bottom in 2009 is, if I’m not mistaken, bigger than the entire adult population of North Dakota.

Scale and Energy Booms, Continued - Krugman - My posts on the North Dakota energy boom, and its lack of implications for state that actually have a significant number of people, have gotten quite a few comments. So I’ve hit on what I think is a useful comparison: North Dakota versus Pennsylvania. You see, PA has also had a significant resource boom, thanks to fracking. Here’s employment in mining and logging: They’re actually just about equal-sized booms. But the impact on unemployment is, well, not the same: The reason, of course, is that Pennsylvania has around 20 times as many people as North Dakota. And what this shows is that even if you believe in claims that lifting environmental restrictions and all that would lead to a big expansion in drilling, mining, and all that, the effect on overall US employment would be tiny; using North Dakota as a model is just silly.

Resource Booms and Jobs - Matt and Paul are on a tear about how resource booms aren’t really a solution to America’s jobs problem. I am not so sure, and I mean that literally. I am just not sure. The thing to note though is that resource extraction is extremely capital intensive. That’s why the jobs directly associated with even an enormous value of resource extraction are small. However, it also means that the supply chain effects are much bigger. For example, I would expect more people to be employed in the construction of oil wells and pipelines than actually employed by running the oil wells. And, I am 95% sure that in the payroll series they go under the heading specialty trade contractors, non-residential construction. In addition, we should see increased demand for industrial equipment, especially earth moving equipment. We should also see all along the line an increase in the demand for fabricated metals. Then there is the fact that these jobs pay very high wages, which mean that the per job multiplier should be quite large. When you put that together, its not immediately clear that the effect is not noticeable on a national scale.

Peter Diamond On The Slow Recovery Of Employment - Peter Diamond delivered the main plenary lecture on Saturday evening (2/10/12) on "Markets with Search Frictions." While I disagree with some things he said, he mostly gave a wise and knowledgeable presentation about the search model of unemployment, going back into its routes and noting many of its limitations and problems, as well as how it is useful, reminding everyone in the audience what fools those in the Senate are who think he is not qualified to serve on the Board of Governors of the Fed. One general point he made that I had not really thought about, although once pointed out it is obvious, is that labor markets are seriously different from textbook supply and demand models in that there is never a really clearcut equilibrium. There are always vacancies, hence some "excess demand," and some official unemployoment, hence some "excess supply." All the imposed definitions of labor market equilibrium are thus arbitrary. He had stated in his main talk that "the matching mechanism has broken down during the recent recession." He broke it down to the micro sectoral level, although saying that more is going on than just that. But at that level, different sectors have different hiring rates. The one with the most rapid hiring rates is the one with the least hiring, construction. Some with slow hiring rates include education, health, and government.

Black Unemployment Has Topped 10 Percent For Most Of The Last 50 Years - Some semblance of recovery has blossomed in the American jobs market over the last three months, with more than 200,000 jobs created in each of December, January, and February and the unemployment rate falling to 8.3 percent. The private sector has added jobs for 24 consecutive months, and though the economy is still far from healthy, it has improved markedly from the bottom of the recession.The vast majority of Americans benefiting from that recovery, however, are white. The black unemployment rate in February was 14.1 percent, and though that is an improvement from the 27-year high it reached in August, the official unemployment rate for blacks barely changed in 2011. The 9.6 percent unemployment rate America experienced during the worst of the recession, in fact, would be a drastic improvement over the black unemployment rate in most of the last 50 years, as Algernon Austin noted at the Economic Policy Institute: Since 2008, the Black unemployment rate has exceeded 10 percent. My current projections are that the Black unemployment rate will continue to exceed 10 percent through 2015. The sad fact is that for most of the past 50 years, the Black unemployment rate has been above 10 percent.

Teens Absent from Job Gains - It's happened again! In a month that saw job gains for all other age groups, American teens saw their numbers in the U.S. workforce decline. Again. Here, we see that the number of employed teens has fallen by 18,000 from January 2012 to February 2012, while the number of young adults increased by 60,000 and the number of Americans with jobs Age 25 or older increased by 386,000. Compared to November 2007, when the level of total employment peaked in the U.S. ahead of the most recent recession, there are 1,556,000 fewer teens counted among the employed as of February 2012. For all practical purposes, there has been no meaningful in the job market for U.S. teens since that recession ended in June 2009. Or perhaps more significantly, there has been no meaningful improvement in the employment situation for American teens since January 2010, some six months after the most recent increase in the U.S. federal minimum wage. (Six months is the typical period of time we've observed it takes employers to fully adjust to a change in the minimum wage.)

America's Fossil-Fuels Jobs Boom - With gasoline prices spiraling higher and weighing on economic confidence, President Obama called over the weekend for further investment in a “clean-energy future.” But there is a flip side to that increasing pain at the pump: a huge jobs boom in fossil fuels industries. Rising global demand – along with, more recently, concern over the situation in Iran – has driven gasoline prices higher. The climbing prices have been a boon for oil businesses even as they have cut into household budgets, and big oil companies have added rigs and workers in recent years. The natural-gas industry has seen a coinciding boom as advances in extraction have made it possible to get more gas out of shale rock – the controversial practice known as hydraulic fracturing, or fracking. The United States is now extracting record volumes of natural gas – enough that domestic prices have fallen to their lowest level in a decade. (Other countries, particularly Japan, are eager for the United States to build better infrastructure to export it, and prices are two to three times as high abroad.) It all adds up to a fossil fuel jobs boom: oil and gas extraction alone created 150,000 jobs last year – about 9 percent of all new jobs created in 2011, according to a new study from the World Economic Forum, though the industry accounts for only about 5.2 percent of total employment.

Real Wages Remain Below Their Peak for the 39th Straight Year - The release last month of the Economic Report of the President has elicited a great deal of commentary, but none that I have seen touches on what I consider the best measure of long-term income trends, real weekly wages of production and non-supervisory workers, which is contained in Appendix Table B-47, "Hours and earnings in private non-agricultural industries, 1965-2011." According to a Bureau of Labor Statistics staffer I spoke to some years ago (so the percentages may have changed slightly), this covers 62% of the entire workforce and 80% of the non-government workforce. This lets us focus on average workers and excludes what is happening to high-salary workers. Using weekly rather than hourly real wages takes out the impact of varying hours worked per week over the years. The table below extracts from B-47 to reduce its size. The inflation is adjusted using 1982-84 dollars as its base. Thus, we have 39 straight years where real wages have yet to get back to their 1972 peak and, indeed, they are a long way from that peak still. This is doubly surprising when we consider that productivity has been increasing steadily throughout that period, approximately doubling from 1970 to 2011, as shown by the Federal Reserve Bank of St. Louis' data:

Why A Stronger Economy Probably Won’t Translate Into A Raise — Yet - Last Friday’s jobs numbers came in strong, particularly in important areas like manufacturing, on which President Obama is staking much of the economic component of his re-election campaign. If voters start to feel more prosperous than they have over the last few years, it will certainly help him at the polls in November. But in order to cement that feeling, the average Joe needs a raise. So, are salaries finally rising as unemployment is falling? The answer, sadly, is not yet. In 2010, labor’s overall share of the economic pie in this country reached its lowest level in 60 years. It’s rebounded a bit since then, though in theory it should have rebounded more based on the fact that easy productivity gains in this country are largely tapped out. Meanwhile, reduced bargaining power and the effects of globalization have kept the downward pressure on salaries, according to Capital Economics, which believes that we may finally be reaching a turning point at which salaries have to start rising. If they do, it could be bad for the stock market, since it would cut into corporate profits, but it would certainly help fix the most pressing economic problem in the country, which is the shrinking middle.

Inthe Wake of the Great Recession, Don’t Lose Sight of the Big Picture - Brookings Institution: While last week’s strong employment report brought welcome news about the nation’s uneven economic recovery, the American economy faces a set of broader challenges that may prove even more difficult to address. Surveying a large body of economic data, this paper contends that many of today’s problems reflect accelerations of troublesome longer-term trends:

• The country is burdened by high levels of economic inequality and insecurity that the Great Recession amplified, rather than caused.
• Upward mobility, particularly for those at the bottom of the income distribution, continues to fall short as compared to other Western nations.

Finally, this paper addresses that all was not well in the pre-recession economy and the next administration faces the dual task of nurturing a fragile economic recovery and developing a strategy that restores economic prosperity for all Americans.

Where Middle Class America Has Gone - The long term trend in goods and government vs. everything else I think also shows part of what has happened to the American middle class. Goods and Government are what we might have thought about as backbone jobs. These are police officers, fire fighters, school teachers, factory workers, construction workers. When you think of a stereotypical 1950s American, they are doing one of these jobs. And, in the 1950s half of Americans were employed in these sectors. Yet, since then the labor market has radically shifted. Notice these two are plotted on the same axis so from 1939 to 1965 – not including the war boom – goods and government was roughly half of the nonfarm labor force. Then a rapid falling off. One thing I hadn’t considered but is probably true is that goods (via the magic of boxes) and government via transfers between jurisdictions, is not as dependent on urbanization as the rest of the economy.

The Economic Roots of Your Life Crisis - I know: it's not manly, dignified, or barely mentionable in polite conversation. But here's the thing. Lately, I've been in the middle of a full-blown omg what-the-hell-where-is-it-all-going-and-what's-the-point-anyways life crisis. Dragged kicking and screaming to a party where I couldn't handle the small talk, after a while I finally just blurted out: "I'M HAVING A LIFE CRISIS AND I DON'T KNOW WHAT TO DO ABOUT IT!" After staring at me pitifully for a moment or two, my friends admitted one by one: "So am I." Which left me a little puzzled — because, of course, I thought I was the only one lucky enough to be having a life crisis. A few days later, I asked on Twitter: "Who's having a life crisis?" Result: an angst-ridden tweetstorm of "me!!!!" This thoroughly unscientific result has led me to ask: are we, just maybe, in the midst of an epidemic of life crisis? And if we are, why this tsunami of angst rumbling across the globe?

Conventional Wisdom, Conventional Inequality - The ongoing talk about the need to fight inflationary pressures by tighter monetary policy, and the apparent relegation of output considerations to such pricing issues by those that promote such policies got me thinking about something Jared Bernstein comments on here. Jared describes how full employment can be used as a force against rising wage inequality by essentially increasing the bargaining power of lower skilled workers by reducing any excess supply of such workers. With The Fed’s dual mandate it ultimately has to (/should in theory) take employment levels into consideration, the theory being if it focuses too much on the inflationary side it will under some circumstances reduce the output (and thus employment) by an amount that offsets the utility gains of lower inflation. This can easily be seen through consideration of the diagrams here, with regards to aggregate demand and SRAS shocks (initially taken from Alex Tabarrok’s and Tyler Cowen’s Macrotextbook, and also reproduced here by David Beckworth).

The old get wealthier and the young get poorer. - This recession has been unmercifully brutal on younger Americans. Many are entering the most difficult employment market in generations with a flood of low wage jobs saddled with record levels of student debt. Many have never even witnessed how it is to live in a bull stock market. Of course this is assuming they had money to invest since 37 percent have no net worth or even worse, a negative net worth. Even for the cautious minded, they are only able to garner a 0 percent savings rate as the Federal Reserve continues to implement a quantitative easing policy to rescue the banking sector. The data on net worth for US households is disturbing since it highlights a deterioration of the middle class. It is no surprise that this recession has caused many younger Americans to move back home with parents primarily because of the inability to find work and many that do find work find that it is part of the low wage growth sectors.

Democratic Inequality-Why did the household savings rate in the United States plummet before the Great Recession? Marianne Bertrand and Adair Morse offer an intriguing answer: growing income inequality. Bertrand and Morse find that in the years before the crisis, in areas (usually states) where consumption was high among households in the top fifth of the income distribution, household consumption was high at lower income levels as well. After ruling out a number of possible explanations, they concluded that poorer households imitated the consumption patterns of richer households in their area. Consistent with the idea that households at lower income levels were “keeping up with the Vanderbilts,” the non-rich (but not the really poor) living near high-spending wealthy consumers tended to spend much more on items that richer households usually consumed, such as jewelry, beauty and fitness, and domestic services. Indeed, many borrowed to finance their spending, with the result that the proportion of poorer households in financial distress or filing for bankruptcy was significantly higher in areas where the rich earned (and spent) more. ...

The Science Behind “We’re-in-This-Together” - I’ve been stressing a model that links increased inequality to diminished opportunity, less mobility, and a political concentration of power that reinforces that cycle. In that context, a number of folks have asked me, “don’t people realize that it would be better for them if they weren’t the only beneficiaries of growth?”But is that true? In a global economy, does Henry Ford’s insight—pay your workers enough so that they can buy the stuff you’re selling—hold anymore? What about public education of the future workforce and public infrastructure–things the Republican field has tended to inveigh against of late? Do they still matter enough to bind the economic interests of the very wealthy and the rest? I think so, but I’m not so sure. The income share of the top 1% grew about as much on an annual basis in the 1990s recovery, when the middle class did quite well and poverty rates declined, as in the 2000s expansion, when middle and low incomes were stagnant. Moreover, as the current recovery reveals, the corporate sector can achieve high profitability by selling into foreign markets (see figure).

The 1 percent recovery - If you are struggling to understand a roller-coaster U.S. election season your Rosetta Stone should be a dry academic paper by the economist Emmanuel Saez. In an age of celebrity scholars, Saez, a professor at the University of California at Berkeley, is a shy data jock who does most of his communicating by marshaling vast pools of statistics. But he has probably done more than any pundit or political spinmeister to shape the political narrative of our age — it is the number-crunching of Saez and his longtime collaborator, Thomas Piketty, that gave us the notion of the 1 percent and the evidence that they are pulling away from everyone else.. Saez has come up with a killer fact: In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent. That gain is particularly painful because it comes after an 11.6 percent drop in income for the 99 percent, Saez reports, the largest such fall over a two-year period since the Great Depression. That decline more than erases the income gains since the last downturn. We may not yet be a lost generation, but we have certainly experienced a lost decade.

Inequality offensive - MIT -- Economists have measured America’s growing wealth gap in great detail: by income, educational attainment, and in terms of the country’s declining social mobility, among other metrics. At an MIT forum on Tuesday night, however, economists suggested the issue matters for an overarching reason that’s slightly harder to quantify: Inequality, they said, constitutes a threat to America’s values and political system. “If there’s any national religion that we have, it’s the religion of meritocracy, the belief that people get where they end up in life because of hard work and playing by the rules,” said moderator David Autor, professor of economics and associate head of MIT’s Department of Economics. “That’s a very powerful belief system to have … it makes people say, fundamentally, ‘I can accept the outcome I get, because it’s not arbitrary, it reflects some kind of justice.’” By contrast, Autor noted, a decline in opportunities for advancement threatens to undermine that confidence. “If rising inequality makes our society more dynastic, less determined by what you do and more determined by choosing the right parents, that’s harmful … the system is not rewarding [those] values and virtues.” “Given the way we organize Congress and the presidency, [corporations and individuals] with a lot of money … have a lot more of an impact on policies,”

Census Data Shows Inequality Linked to Education, Not Taxes - There have been a number of reports published recently that purport to show a link between rising inequality and changes in tax policy - especially tax cuts for the so-called rich. The latest installment comes from Berkeley professor Emmanuel Saez, Striking it Richer: The Evolution of Top Incomes in the United States. Saez and others who write on this issue seem so intent on proving a link between tax policy and inequality that they overlook the major demographic changes that are occurring in America that can contribute to - or at least give the appearance of - rising inequality; a few of these being, differences in education, the rise of dual-earner couples, the aging of our workforce, and increased entrepreneurship.Today, we will look at the link between education and income. Recent Census data comparing the educational attainment of householders and income shows about as clearly as you can that America's income gap is really an education gap and not the result of tax cuts for the rich.The chart below shows that as people's income rise, so too does the likelihood that they have a college degree or higher. By contrast, those with the lowest incomes are most likely to have a high school education or less. Just 8 percent of those at the lowest income level have a college degree while 78 percent of those earning $250,000 or more have a college degree or advanced degree.

The Wall Street Journal Tells Us That We Should Learn to Love Inequality - Dean Baker - Last week Allan Meltzer had a column in the WSJ telling us that we should stop complaining about inequality and start loving it. His main point is that inequality is increasing everywhere, therefore there is nothing that we can do about it. Neither part of this story is especially true. As Paul Krugman, Mark Thoma and others have already noted, inequality has not increased anywhere to the same extent as in the United States and in many countries there has been little or no change in most measures of inequality. So clearly different national policies can make a big difference in the extent of inequality. However even if inequality was increasing everywhere, it does not mean that policy is not a factor. The WSJ may not have heard, but there are international forums like the G-8 and institutions like the WTO where countries coordinate policy. This means, for example that if they agree on a policy of strong anti-inflation measures that raise unemployment everywhere (as they did), then they have collectively agreed to implement policies that redistribute income upwards. Similarly, if they agree to have stronger patent and copyright protection (as they have), then they have also agreed to policies that redistribute income upward. Unless we think that policies that are decided in international forums should not be subject to political debate, the fact that the same policies of upward redistribution have been imposed in many countries (not just the United States) is hardly an argument that we should not be concerned about them.

This Week in Poverty: Welfare Reform—From Bad to Worse - A stunning report released by the University of Michigan’s National Poverty Center reveals that the number of US households living on less than $2 per person per day—a standard used by the World Bank to measure poverty in developing nations—rose by 130 percent between 1996 and 2011, from 636,000 to 1.46 million. The number of children living in these extreme conditions also doubled, from 1.4 million to 2.8 million. The reason? In short: welfare reform, 1996—still touted by both parties as a smashing success. The report concludes that the growth in extreme poverty “has been concentrated among those groups that were most affected by the 1996 welfare reform.” The law created the Temporary Assistance for Needy Families (TANF) block grant, replacing Aid to Families with Dependent Children (AFDC), which had guaranteed cash assistance to eligible families since 1935. States were given wide discretion to determine eligibility, benefit levels and time limits, and the TANF block grant was also frozen at the 1996 level without being indexed to inflation so those dollars don’t go as far now. Prior to welfare reform, 68 of every 100 poor families with children received cash assistance through AFDC. By 2010, just 27 of every 100 poor families received TANF assistance. A majority of states now provide benefits at less than 30 percent of the poverty line (about $5,200 annually for a family of three), and benefits are below half the poverty line in every state.

Extreme Poverty In The U.S. Has Doubled In The Last 15 Years - According to the latest Census Bureau data, nearly 50 percent of Americans are either low-income or living in poverty in the wake of the Great Recession. And a new study from the National Poverty Center shows just how deep in poverty some of those people are, finding that the number of households living on less than $2 per day (before government benefits) has more than doubled in the last 15 years: The number of U.S. households living on less than $2 per person per day — which the study terms “extreme poverty” — more than doubled between 1996 and 2011, from 636,000 to 1.46 million, the study finds. The number of children in extremely poor households also doubled, from 1.4 million to 2.8 million. While extreme poverty doubled overall, it tripled amongst female headed households. Of course, there’s always the tact taken North Carolina Republican State Representative George Cleveland last week, who simply denied that anyone in his state lives in extreme poverty. As we noted at the time, “the 728,842 North Carolinians who are classified as living in deep poverty might take issue with that assessment.”

Counting benefits does not much change the income stagnation story - Lane Kenworthy reports: A third worry is that the income measure used to calculate median family income is too thin. If a growing portion of GDP has gone to employer benefits, that would help middle-class households, but it wouldn’t show up in these income data. To address these second and third concerns, we can turn to a more encompassing measure of household income. The data are from the Congressional Budget Office (CBO). The measure includes all sources of cash income. It adds in-kind income (employer-paid health insurance premiums, food stamps, Medicare and Medicaid benefits), employee contributions to 401(k) retirement plans, and employer-paid payroll taxes. Tax payments are subtracted. We can use average household income in these data as a substitute for GDP per capita. The CBO data set doesn’t tell us the median income, but it provides something quite similar: the average income of households in the middle quintile of the distribution (from the 40th percentile to the 60th). The following chart adds these two series. The story is virtually identical. He considers some other adjustments too, and this is the final story:

More than 800,000 Oregonians received food stamp benefits in January (Graph) More than 800,000 Oregonians relied on food stamps to put meals on the family table in January, the highest number ever. A report released Monday by the Oregon Department of Human Services shows 800,785 people --or 22 percent of Oregonians --received help in January from the state-federal Supplemental Nutrition Assistance Program. That reflected a 5.9 percent increase from January 2011. Social service officials said they were not surprised to have broken the 800,000 mark. Food stamp numbers have grown steadily over the past few years and state forecasts indicate the number of food stamp recipients could top 840,000 by June. But it does come at a time when Oregon has been seeing some encouraging economic signs, including an unemployment rate that finally dropped below 9 percent. Oregon started the year off with an 8.8 percent unemployment rate in January and the state reported 5,400 new jobs were created. The view from social service offices wasn't as bright.

Who’s a Freeloader? - Rodgers’s review is titled “‘Moocher Class’ Warfare,” picking up on one of their key findings: in general, Tea Party members like Medicare and Social Security, which they think they have earned through their work, but don’t like perceived freeloaders who live off of other peoples’ work. From the paper (p. 33): The distinction between “workers” and “people who don’t work” is fundamental to Tea Party ideology on the ground. First and foremost, Tea Party activists identify themselves as productive citizens. . . . This self-definition is posed in opposition to nonworkers seen as profiting from government support for whom Tea Party adherents see themselves as footing the bill. . . . Tea Party anger is stoked by perceived redistributions—and the threat of future redistributions—from the deserving to the undeserving. Government programs are not intrinsically objectionable in the minds of Tea Party activists, and certainly not when they go to help them. Rather, government spending is seen as corrupted by creating benefits for people who do not contribute, who take handouts at the expense of hard-working Americans. Let’s leave aside the self-serving nature of this distinction—I deserve my entitlement programs, but you don’t deserve yours. Does it even make any sense?

State Unemployment Rates "generally lower" in January -From the BLS: Regional and State Employment and Unemployment Summary: Regional and state unemployment rates were generally lower in January. Forty-five states and the District of Columbia recorded unemployment rate decreases, New York posted a rate increase, and four states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-eight states and the District of Columbia registered unemployment rate decreases from a year earlier, while New York experienced an increase and Illinois had no change. ... Nevada continued to record the highest unemployment rate among the states, 12.7 percent in January. California and Rhode Island posted the next highest rates, 10.9 percent each. North Dakota again registered the lowest jobless rate, 3.2 percent, followed by Nebraska, 4.0 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). Every state has some blue - indicating no state is currently at the maximum during the recession. The states are ranked by the highest current unemployment rate. Only four states still have double digit unemployment rates: Nevada, California, Rhode Island and North Carolina. This is the fewest since January 2009. In early 2010,

Jobless Rates Fall in Most States - See the full interactive graphic. Unemployment rates dropped in 45 U.S. states and Washington, D.C. in January from a month earlier, the Labor Department reported. Nationally, the unemployment rate declined to 8.3% in January. It was unchanged in February, the government reported last week. Fifteen states and Washington had rates higher than the national average in January. New York was the only state to report an increases in its unemployment rate, but that may be a function of some discouraged unemployed looking for work again. Even though the state had more unemployed workers in January, a separate report noted that it created 44,600 jobs, the second most in the nation behind Texas. The Labor Department notes that no state posted a statistically significant increase in its unemployment rate, while 31 of the 45 states that posted declines also weren’t significant. That means when margins of error are taken into account, the rates in those states might as well be flat. Regions hard hit by the housing bust continue to face elevated unemployment. Nevada still far and away has the highest jobless rate at 12.7%, followed by California at 10.9%. With a 3.2% rate North Dakota has the lowest in the U.S.

Rising Tide of Jobs Lifts Most States, Not All - The job market seems to be thawing and employers are gradually hiring, but a lot still depends on geography. Nevada continued its run as the state with the highest level of joblessness in January, with a 12.7 percent unemployment rate, down from 13.8 percent a year earlier, according to the Labor Department. New York was the only state where the unemployment rate rose, to 8.3 percent from 8.2 percent a year ago. In New York City, unemployment shot up to 9.3 percent from 8.9 percent compared with January of last year. New York’s rising state unemployment rate may have disguised other signs of health, however: New York added the second-highest number of payroll jobs in January, with 44,600; only Texas, with 67,200, added more. Florida, Pennsylvania and the District of Columbia lost jobs. North Dakota is still a labor market standout, with only 3.2 percent unemployed, down from 3.6 percent a year ago. The state, fueled by an oil boom, also enjoyed the largest percentage increase in payroll employment over the year. By contrast, Wisconsin, Alaska, Mississippi and Rhode Island all lost jobs over the 12 months.

Georgia Labor Commissioner: Unemployment Insurance Trust Fund In Peril -Georgia faces a crisis that, if ignored, has the potential to cause long-term, severe financial distress to our residents, our businesses and our stretched-thin state budget. The issue? Georgia’s Unemployment Insurance Trust Fund, the fund the state uses to pay unemployment insurance claims, is broke. But it’s not just broke, it’s in debt to the federal government, and the debt and interest are piling up. We must address this issue now or face massive interest payments to Washington. This borrowing continues today and is required by state law. I have developed a plan that will get us out of debt, pay back the interest, and prevent Georgia from being in debt to federal government again. I cannot do this alone. The General Assembly must approve these changes for our Unemployment Insurance Trust Fund to become fiscally sound once again. How did we get into this much debt? In short, the “trust” was taken out of the trust fund. In an attempt to curry favor with Georgia businesses, Gov. Roy Barnes declared a “tax holiday” before Barnes’ failed 2002 re-election campaign. Businesses stopped paying into the trust fund. By the time we hit the Great Recession – and many, many Georgians became unemployed through no fault of their own – the $2 billion Unemployment Insurance Trust Fund had been reduced by $1.3 billion.

The Artificial Line Between Social and Economic Issues: Exhibit A, Andrew Cuomo – Bryce Covert - The bright line that we often draw between the economic and social can lead us to ignore one at the expense of the other. New York Governor Andrew Cuomo is a perfect example of that. He became a hero of the left when he helped usher through the legalization of gay marriage in July. But the rest of his agenda is so fiscally conservative that he’s currently embroiled in a fight with public sector unions over decreasing retirees’ pension payments and benefits for new workers. The enacted 2011 budget reduced overall spending by 2 percent from the year before, “largely through cuts to services and State operations, as well as streamlined government actions,” the Human Services Council reports: he would have cut $400 million to health and human services, while the enacted budget added $271 million back. HSC concludes, however, that even with those restorations, “the final budget [did] not meet the need for services in New York’s communities.” The current budget eliminates the TANF non-residential domestic violence initiative, leaving women seeking services but not in need of a shelter out of luck. Meanwhile, cuts to programs for the homeless will impact women fleeing domestic violence. Abuse leads to homelessness for 28 percent of families. Yet the current state budget proposes the elimination of its share of the Advantage housing subsidy program, which helps the homeless move from shelters to permanent housing. The city will also drop its commitment, meaning that $192 million in funding for housing subsidies will disappear.

Toilet paper crisis in New Jersey's capital city - Supplies have been dwindling down to almost nothing in the months since a spending fight broke out among the City Council in November over a $42,000 spending request for a year's supply of paper products, including toilet paper. Detective George Dzurkoc painted a desperate picture of conditions at police headquarters, where he said the men's rooms are completely bare and just a few rolls are left in the women's rooms.

Will New York City Get A Subway For Garbage? - That giant sucking sound is just the garbage being collected. Envac, a company from Sweden, is in discussions with agencies, neighborhood groups and private developers about erecting its vacuum systems for collecting garbage in select locations around New York. Garbage vacuums work pretty much like those pneumatic tube systems found in “modern” buildings from the early 20^th Century. You put your garbage—or recycling and/or compostables—into the appropriate receptacle. A few seconds later and, whooooosh, a trapdoor opens that drops your disposables into a set of vacuum tubes. Suddenly, your trash is literally flying along silently at 50 miles per hour—credit the awesome powers of vacuum suction –toward a date with the recycling center, a biofuel/composting center or an incinerator.

Deficits Push N.Y. Cities and Counties to Desperation - On Monday, Rockland County sent a delegation to Albany to ask for the authority to close its widening budget deficit by issuing bonds backed by a sales tax increase. On Tuesday, Suffolk County, one of the largest counties outside New York City, projected a $530 million deficit over a three-year period and declared a financial emergency. Its Long Island neighbor, Nassau County, is already so troubled that a state oversight board seized control of its finances last year. And the city of Yonkers said its finances were in such dire straits that it had drafted Richard Ravitch, the former lieutenant governor, to help chart a way out. Even as there are glimmers of a national economic recovery, cities and counties increasingly find themselves in the middle of a financial crisis. The problems are spreading as municipalities face a toxic mix of stresses that has been brewing for years, including soaring pension, Medicaid and retiree health care costs. The problem has national echoes: Stockton, Calif., a city of almost 300,000, is teetering on the verge of bankruptcy. Jefferson County, Ala., made the biggest Chapter 9 bankruptcy filing in history in November and stopped paying its bondholders. In Rhode Island, the city of Central Falls declared bankruptcy last year, and the mayor of Providence, the state capital, has said his city is at risk as its money runs out.

N.J.Governments May Need 20% of Service Cuts, Report Says - New Jersey’s state and local governments may need to cut services by 20 percent to close growing budget deficits over the next five years, a panel that includes former top-level officials said in a report. The state will confront a gap between revenue and spending of as much as $8.1 billion by 2017, while towns and cities may face collective shortfalls as great as $2.8 billion, said the group, which was convened by the Council of New Jersey Grantmakers. Counties’ deficits may be as much as $1.1 billion while schools’ gaps may reach nearly $1 billion, the group said. “Any future debate is likely to include the potential loss of entire programs at every level of government,” the panel wrote in the report. “The government we currently have can’t be supported, and business as usual can’t continue.” Governor Chris Christie, a Republican, cut aid to towns during his first year in office to cope with declining revenue and also limited annual increases in local taxes. Midway through his first term, he seeks a 10 percent across-the-board income- tax cut. Democrats, who control both houses of the Legislature, have proposed giving middle-class families property-tax credits on their income-tax returns.

The Biggest Bankruptcy in American History - First there was Harrisburg, Pennsylvania. Then, Jefferson County, Alabama. Now, hold onto your hats folks -- we could be just days away from seeing the biggest municipal bankruptcy in U.S. history. In California, the city of Stockton boasts a population of almost 300,000 ... and a fiscal emergency. The first number means that if Stockton winds up filing for Chapter 9 bankruptcy protection, as its officials are threatening to do, it will be the most populous U.S. municipality ever to declare bankruptcy. And the fiscal emergency? Such problems are going to become increasingly common as city after city follows the downward path that Harrisburg, Jefferson Co., and Stockton have blazed. Today, Stockton sports an unemployment rate nearly twice the U.S. average, at 16%. Foreclosure rates for the city have ranked in the top 10 among U.S. municipalities for five years running. Stockton's fiscal "budget" for this year calls for expenditures 20% greater than the revenues Stockton expects to take in. Even after planned spending cuts, next year's budget will still leave the city with a $20 million deficit. No wonder, then, that both Moody's and Standard & Poor's rate the city's debt as "junk" -- which means it's too risky for the agencies to recommend investing in it.

Meredith Whitney was right - To readers of the business press, the story is a familiar one: fifteen months ago, superstar analyst Meredith Whitney rocked the world of municipal finance with a December 2010 prediction on 60 Minutes that a wave of municipal debt defaults was headed our way. The bottom fell out of the muni bond market as a result. Investors pulled some $14 billion from muni bond funds between December 22 and February 2, 2011, and returns in the fourth quarter of 2010 were the lowest in 16 years. Long-time players in the space, including analysts, fund managers, and muni brokers, reacted with indignation that an arriviste such as Whitney dared to try to expand her analytical purview into their cozy little corner of the capital markets. She was wrong, they said. She didn't know squat about how their market worked. The kind of defaults she called for were never going to happen. And they were right, in the most literal sense. Since then, there have only been $2.6 billion in defaults from the $3.7 trillion market. Whitney has taken her lumps in both the business press and the more unbridled blogosphere ever since.. The more general point that she was trying to make—that municipal finances in this country were a mess that was only going to get messier—was dead on. Laugh at her all you want, but then try this: go find one person who says their local taxes are falling or their municipal services have improved in the past year or two. I wish you luck in your endeavor.

Late Night FDL: Privatopia - Once again, Republicans have proposed privatizing Medicare, despite the rather chilly reception this transcendently idiotic idea received last time. The logic is, as always, is that the hallowed Private Sector just does everything better than that wasteful, extravagant, ol’ Big Gummint, so why would caring for sick old people be any different? I won’t bore you with inconsequential minutia about risk pools, demographics, or, well, what makes health insurance pencil out as a business proposition, but I wish that, for once, they’d give an example wherein this cockamamie notion actually worked. Privatization is simply another bead on the right-wing rosary; a rote prayer to Goddess Ayn that not only has no basis in reality, but has been repeatedly showered in lightning bolts for decades. Remember when Chicago privatized its parking meters? How about all those states that privatized their prisons, leading to violence, jail breaks, and new lobbyists calling for harsher sentencing, and even brand-new crimes? What about those charter schools? Halliburton? Blackwater? Every time privatization has been tried, it’s instantly led to graft, cronyism, and wasted public resources, but not before an irreplaceable public asset has been hastily pawned off for good to some grabby charlatan unwilling to submit to the slings and arrows of the Free Market. Government, and those who work for it or depend on its services, invariably suffer, but the Privateers rarely, if ever, do.

The war on teachers: Why the public is watching it happen - All over the nation, teachers are under attack. Politicians of both parties, in every state, have blamed teachers and their unions for the nation’s low standing on international tests and our nation’s inability to create the educated labor force our economy needs. Mass firings of teachers in so-called failing schools have taken place in municipalities throughout the nation and some states have made a public ritual of humiliating teachers. In Los Angeles and New York, teacher ratings based on student standardized test scores — said by many to be inaccurate — have been published by the press. As a result, great teachers have been labeled as incompetent and some are leaving the profession. A new study showed that teachers’ job satisfaction has plummeted in recent years. Big budget films such as Bad Teacher and the documentary Waiting for Superman popularize the idea that public school teachers prevent poor children of color from getting a good education, while corporate funded organizations perpetuate the idea that the only way for children to excel is if their teachers lose their job security and bargaining rights. Why has this campaign attracted such strong bipartisan support and why has the public failed to speak out loudly against it?

Pass the Books. Hold the Oil. - A team from the Organization for Economic Cooperation and Development, or O.E.C.D., has just come out with a fascinating little study mapping the correlation between performance on the Program for International Student Assessment, or PISA, exam — which every two years tests math, science and reading comprehension skills of 15-year-olds in 65 countries — and the total earnings on natural resources as a percentage of G.D.P. for each participating country. In short, how well do your high school kids do on math compared with how much oil you pump or how many diamonds you dig? The results indicated that there was a “a significant negative relationship between the money countries extract from national resources and the knowledge and skills of their high school population,” said Andreas Schleicher, who oversees the PISA exams for the O.E.C.D. “This is a global pattern that holds across 65 countries that took part in the latest PISA assessment.” Oil and PISA don’t mix. (See the data map at: http://www.oecd.org/dataoecd/43/9/49881940.pdf.)

Official: Woonsocket schools may close without aid - Woonsocket's school committee is scheduled to vote Wednesday on a proposal to end the school year early because of budget woes, despite a state law that requires schools to remain open for 180 days. School Committee Chairwoman Anita McGuire Forcier told a City Council committee Monday night that the school district needs the state to pay its June education aid installment to the city this month to keep schools open beyond the beginning of April. She said the possible early closure was "no joke" -- though she called it a last resort -- and insisted that schools couldn't open if there is no money to pay teachers. But Elliott Krieger, a spokesman for the state Department of Education, said Tuesday that schools must remain open for 180 days. Under the Woonsocket school calendar, the 180th day is June 13. Krieger said there is an emergency provision under which a school system can reduce its year to 170 days, with the approval of the Board of Regents. But he added that that has never been used because of financial difficulties.

More than 20,000 California teachers pink-slipped -More than 20,000 public school teachers in California opened their mailboxes over the last few days to find a pink slip inside as districts met the state's Thursday deadline for dispensing the dreaded news to the educators that they may not have a job in the fall. The layoff notices are preliminary, the districts' best guess at the amount of money they will get to educate kids next year after the Legislature concludes its annual budget fight this summer. But a proposed tax measure on the November ballot offers more uncertainty than usual. Districts won't know until two months into the new school year whether voters will approve a tax increase that would prevent a $4.8 billion trigger cut to education funding, as proposed in the governor's budget. That cut would be about $807 per student, the equivalent of 55,000 teacher layoffs or 17 days of school, according to The Education Coalition, representing 2.5 million teachers, parents, administrators, school boards and other school employees. "Though the very future of our state depends on California's teachers ... (they) will now spend months in limbo, worrying about their futures and the future of their students,"

L.A. school board to consider millions of dollars in budget cuts - The Los Angeles Board of Education is expected to vote Tuesday on a worst-case $6-billion budget that would eliminate thousands of jobs, close all of the district's adult schools and eliminate some after-school and arts programs, among a slew of other reductions. The budget plan could change, and even if it is approved by the school board, a final version of the budget most likely is months away. But the nation's second-largest school system is under pressure to pare more than $390 million from the budget for next year.Supporters of the programs up for elimination are expected to rally outside of Los Angeles Unified School District’s downtown headquarters ahead of the afternoon meeting. Last month, the board delayed a vote on a budget plan with similar cuts aimed at bridging a $557-million budget gap. Instead, the board directed Supt. John Deasy to work with his staff and the unions for teachers and other employees to develop a proposal that avoids eliminating these programs and allow the parties to consider updated state budget information.

Major Budget Cuts Projected For Long Beach City College - Long Beach City College is struggling to deal will with unanticipated mid-year cuts this year, and major cuts in the 2012 – 2013 fiscal year and beyond due to declining budget support from the state and increasing operating costs. “Long Beach City College is facing devastating budget cuts that have been imposed on all of California’s community colleges by the state,” said LBCC President Eloy Ortiz Oakley. “Unfortunately, the news going forward is worse, with millions more being cut, increased student demand, and no new revenues or support projected for several years.” LBCC will need to absorb $3.5 million in unanticipated mid-year cuts this fiscal year. These mid-year cuts are being imposed in addition to the $7.2 million in revenue reductions over the last three years – a 7.4% reduction in overall allocation from the state.

Building A Caste Society - Krugman - Thomas Edsall has an excellent piece on growing educational stratification in America, specifically how access to higher education is increasingly being denied to the children of the less affluent. And as he says, this is very much about policy. One graphic he links to (ppt) but doesn’t include is just stunning: here’s the declining value of Pell grants compared with college costs: Next time someone tells you that he’s in favor of equality of opportunity, not equality of results, ask him whether he proposes to reverse the decline in Pell grants and other programs giving educational opportunity to the less fortunate. If he demurs, he’s a hypocrite.

Pell Grants on a Downward Slope - Pell Grants, which help nearly 10 million low- and moderate-income students afford college, are an important weapon against growing inequality in higher education. But, as Paul Krugman recently highlighted, they have shrunk considerably over time as a share of college costs.In December, we explained why Congress’s cuts to the program in fiscal year 2012 were both unnecessary and unwise. Here’s a revised version of our chart showing the grants’ long-term erosion.

College, Further and Further Out of Reach - Last week I wrote about how state cuts to public colleges meant shifting more of the burden of educating students onto the federal government. As state subsidies fall, tuition rises, and needy students look to federal subsidies like Pell Grants and Stafford loans to make up the difference. Because of the increasing reliance on federal aid, the Obama administration has championed a series of increases in the maximum Pell Grant students can receive. Even so, tuition growth is still fast outpacing the rise in the Pell Grant ceiling. Here’s a chart showing the maximum Pell Grant value as a share of tuition and fees over time, courtesy of the Center on Budget and Policy Priorities, a liberal research organization.

Why is tuition rising? - It troubled me when President Obama scoldingly said, “We’re putting colleges on notice: you can’t assume that you’ll just jack up tuition every single year”. The UC has raised tuition, but it hasn’t been on its own initiative; it’s been because the state has cut funding to higher education. Now Robert Frank riffs on Obama’s comment, attributing rising tuition to rising faculty salaries. To recruit professors, universities must pay salaries roughly in line with those made possible by productivity growth in other sectors. So while rising salaries needn’t lead to higher prices in many industries, they do in academia and many other service industries. I don’t think rising faculty salaries are the primary cause of increasing tuition costs. Frank’s colleague Ronald Ehrenberg has been more eclectic – and I think more persuasive – in attributing the rise of tuition costs. These include the aspirations of academic institutions; our “winner-take-all” society; the shared system of governance that exists in academic institutions; recent federal government policies; the role of external actors such as alumni, local government, the environmental movement, and historic preservationists; periodicals that rank academic institutions; and how universities are organized for budgetary purposes and how they select and reward their deans.

College Costs Are Rising Amid a Prestige Chase - In a recent speech at the University of Michigan, Obama said that while most new jobs in coming decades would require college training, access to higher education is increasingly threatened by runaway tuition growth. “We’re putting colleges on notice: you can’t assume that you’ll just jack up tuition every single year,” he said. “If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.” Because annual federal subsidies to higher education exceed $30 billion, the speech got college administrators’ attention. Yet some experts remain skeptical. Diane Ravitch, for example, the New York University professor and former assistant secretary of education, has urged college presidents to resist the “accountability juggernaut.” Higher education has long been a primary source of America’s competitive advantage, so government officials would be wise to proceed cautiously. But an examination of the economic forces that have shaped the higher-education market in recent decades suggests that there may be promising opportunities to curb tuition growth.

The Reproduction of Privilege - - Instead of serving as a springboard to social mobility as it did for the first decades after World War II, college education today is reinforcing class stratification, with a huge majority of the 24 percent of Americans aged 25 to 29 currently holding a bachelor’s degree coming from families with earnings above the median income. Seventy-four percent of those now attending colleges that are classified as “most competitive,” a group that includes schools like Harvard, Emory, Stanford and Notre Dame, come from families with earnings in the top income quartile, while only three percent come from families in the bottom quartile. Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce and co-author of “How Increasing College Access Is Increasing Inequality, and What to Do about It,” puts it succinctly: “The education system is an increasingly powerful mechanism for the intergenerational reproduction of privilege.” These anti-democratic trends are driven in part by a supposedly meritocratic selection process with high school students from the upper strata of the middle class performing better on SAT and ACT tests than those from poor and working class families. Contrary to those who say that this is the meritocracy at work, differences in scores on standardized tests do not fully explain class disparity in educational outcomes. When high-scoring students from low-income families are compared to similarly high-scoring students from upper-income families, 80 percent of the those in the top quarter of the income distribution go on to get college degrees, compared to just 44 percent of those in the bottom quarter.

Is a college degree worthwhile...for anyone who isn't rich? - Part of this is sheer unadulterated cost – versus the shrinking aid dollar, both in terms of sheer dollars and the amount that the dollars can buy. Part of this is that there is an increasing lack of jobs for people straight out of college, and youngsters graduating from second and third tier colleges are competing with graduates of first tier colleges who have family and connections to get them them advantage in being considered for those jobs. Part of this is the system which has developed of unpaid internships, where only the children of the rich can afford to get the experience on their resume. Part of this is that the best testing scores seem to come with higher incomes, which in many cases comes with private schooling. In many parts of the country, private elementary, middle and high schools are increasingly being populated by the children not only of the rich, but of the next several tiers of income demographic. These parents recognize that in order to make their children competitive, they must increase the distance between them and families below who go to public schools, no matter how good. Many of these adults also go after school taxes and school budgets, consciously or unconsciously increasing the quality gap between their children’s educational experience and those of families who go to public schools.

Cost of student loans could double this summer - Students will be shocked this summer when interest rates on subsidized Stafford Loans double from 3.4% to 6.8% unless congress prevents the increase. College students delivered more than 130,000 letters to congressional leaders Tuesday opposing the hike. The hike could add about $1,000 to $3,000 dollars to an average graduate's total debt. But opponents say keeping the rate low costs about $6 billion annually. The deadline to get the legislation passed is in July.

Students push to halt big increase in loan rate - College students and their allies are turning up the political pressure on Congress to stop a dramatic hike in interest rates for federally subsidized student loans. In the already supercharged atmosphere of an election year, the July 1 doubling of the Stafford student loan's interest rate from 3.4 percent to 6.8 percent could pose another political land mine for politicians seeking re-election. In his Jan. 24 State of the Union address, President Barack Obama called on lawmakers to stop the increase, saying it would come at at time when Americans already "owe more in tuition debt than credit-card debt." But legislation to extend the lower rate for one year, as the Obama administration wants, could cost $5 billion to $6 billion at a time when the Republicans who control the House have put an emphasis on cutting the deficit and limiting spending. Supporters of the extension counter that such a dramatic jump in student-loan interest rates is not advisable when the economy is continuing its precarious recovery from a major recession.

Three Crises in Higher Ed Affordability - So much of our higher education system is in crisis. The Federal Reserve Bank of New York just found that 25 percent of student debt holders are delinquent in payments. Thomas Edsall finds that college education is reproducing privilege, with access and success tightly linked to parental income. Student loans were the number one concern of those on the “We Are the 99 Percent” Tumblr. Occupy students at the University California at Berkeley and Davis have been beaten and pepper-sprayed by police for protesting the privatization of their schools. With so many problems, it’s helpful to reformulate our current crisis as three separate crises. There’s a short-term crisis with young people graduating into the worst labor market since the Great Depression. There’s a medium-term crisis about what we want student debt to look like and how we want it to function in society. And there’s a longer-term crisis about how to deal with college affordability, and what kind of public universities and education we want to have. Right now youth unemployment is over 13 percent, the highest of any age group. Recent college graduates have an unemployment rate of over 9 percent, compared to the very low rates for college graduates overall. The economy shut down in 2008, and it hasn’t picked up enough steam to absorb new, younger workers alongside the millions of workers thrown out of the labor force during the initial stages of the recession. Any level of debt is going to be unmanageable for a person who can’t find a job. The census department found a sudden 25 percent increase in the number of twenty-five to thirty-four year olds living with their parents. Half of them would be living in poverty if their income was counted on its own, rather than lumped in with total household income.

Help for Student Borrowers - The federal Consumer Financial Protection Bureau is right to take on the poorly regulated, private student lending industry. Too often, college students are lured by schools or lenders into ruinously priced loans, even when they are eligible for affordable federal loans that offer hardship deferments and broad consumer protections. Under a new initiative, the bureau is providing one-stop shopping for complaints on billing and collection disputes, and financial institutions will have to resolve complaints within 60 days. The bureau should require lenders and schools to make the differences between loans clear, and Congress should require private lenders to contact colleges before issuing loans to determine if student borrowers are eligible for federal loans. The schools should then steer students toward the federal program.Currently, for example, the interest rate on most federal student loans is capped at 6.8 percent. Interest on private loans is typically uncapped, with variable rates that can start at 15 percent or higher, according to a 2011 report by the Institute for College Access and Success, a research group that tracks student debt.

The "Let's Pretend" Economy and False Consciousness - Charles Hugh Smith of the blog Of Two Minds has recently published several interesting articles regarding "our 'let's pretend' economy." The first article suggested that student loans are not about education. Smith: "Student loans have little to do with education and everything to do with creating a new profit center for subprime-type lenders guaranteed by the Savior State." Smith's analysis regarding higher education portends that student loans function to throw young Americans into "debt-serfdom" and that higher education is simply a profit-making scam. In light of stagnant incomes and rising costs, Smith suggested that while tuition costs rise the value of a college degree has fallen. Smith: "The supply of those with college degrees exceeds the demand." Even further, "student loans enable young people to 'stay in school' or 'go back to school'", i.e., individuals are "taking out student loans just to live; the loans are essentially a form of 'state funding' a.k.a. welfare that must be paid back." Whereas global corporations are hiring overseas while students graduate with excessive student loan debt only to find a disastrous job market, Smith concluded that the $1 trillion in student loans furthers "profits and debt serfdom". That being the case, Smith suggested that as a growing number of students are beginning to default, the student loan market appears to be starting to implode.

Student Loan Bubble Nonsense: Peter Peterson and the Washington Post Mess Up on the Economy Yet Again - One of the main reasons that the housing bubble grew unchecked is that major media outlets like the Washington Post refused to present the views of those trying to call attention to the unprecedented run-up in house prices and the disaster that would inevitably follow its collapse. Instead the Washington Post was obsessed with reporting on the budget deficit, following the lead of billionaire investment banker Peter Peterson and his dependents, even though the deficits at the time were very modest by any reasonable measure. Today it ran a piece from the Peter Peterson funded Fiscal Times warning about the “debt bomb” from student loan debt. The piece manages to get just about everything wrong. To start with, the piece did not even get the rate of student debt accumulation right. It told readers: “The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year.” The data show that student debt was around $800 billion in 2010. It was already near $200 billion in 2000. ‘This could very well be the next debt bomb for the U.S. economy’ —something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.”This is an absurd statement and any serious reporter should have been able to recognize that fact instantly. At the peak of the housing bubble in 2006, the residential housing market in the United States was worth more than $22 trillion.

Many teacher pension funds underfunded - As new teachers replace baby boomers in schools, states are grappling with what to do about their pensions. A recent analysis of states' teacher retirement funds by the National Council on Teacher Quality finds a majority are underfunded, some significantly so. The situation has stoked political fights across the country as state lawmakers weigh options such as moving teachers from defined benefit pensions to 401(k)-style plans or raising the retirement age. The shortfalls are reflective of what's happening with public pensions nationwide. But it takes on special significance in education because of its impact on kids. Pension policies affect the ability of districts to hire and retain teachers. Funds used to shore up pension funds can mean tax hikes or come at the expense of other areas like education.

CalPERS cuts assumed returns, but not by much - The financially beleaguered state government and school districts probably will be paying more for their employees' pensions, starting next summer. A key committee of the board of the California Public Employees' Retirement System on Tuesday voted 6 to 2 to cut its benchmark assumed rate of return on its investments to 7.5% from a two-decade-old target of 7.75%. The change, if approved Wednesday by a majority of the full 13-member board, would cost the state general fund an additional $167 million, boosting the total bill for the 2012-13 fiscal year to approximately $3.7 billion. School districts would be tapped for an additional $137 million to cover the retirement costs of non-teaching personnel. Cities, counties and special service districts that participate in the CalPERS program would not get higher bills, which have yet to be determined, until July 1, 2014.

Untouchable Pensions in California May Be Put to the Test - When the city manager of troubled Stockton, Calif., had to tell city council members why it was on track to become the biggest American city yet to go bankrupt, it took hours to get through the list. There was the free health care for retirees, the unpaid parking tickets, the revenue bonds without enough revenue to pay them. On it went, a grim drumbeat of practically every fiscal malady imaginable, except an obvious one: municipal pensions. Stockton is spending some $30 million a year to pay for them, but it has less than 70 cents set aside for every dollar of benefits its workers expect. Some public pension experts think they know why pensions were not on the city manager’s list. They see the hidden hand of California’s giant state pension system, known as Calpers, which administers hundreds of billions of dollars in retirement obligations for municipalities across the state. Calpers does not want cities like Stockton going back on their promises, and it argues that the state Constitution bars any reduction in pensions — and not just for people who have already retired. State law also forbids cuts in the pensions that today’s public workers expect to earn in the future, Calpers says, even in cases of severe fiscal distress.

Retirement scare: 60 percent of workers have less than $25,000 - Concerns about job security and piles of debt have left American workers more pessimistic about retirement than ever. Only 14 percent of workers feel "very confident" they will have enough money to live comfortably in retirement, while 38 percent of workers say they are "somewhat confident" and 23 percent say they are "not at all confident," according to a survey by the Employee Benefit Research Institute. The results have remained relatively unchanged since hitting an all-time low in 2009. Many respondents said that saving for retirement has taken a backseat to more immediate financial concerns. About 42 percent of survey respondents said a lack of job security is the biggest issue they are facing, with only 28 percent of workers saying they feel very confident they will have a paying job for as long as they need it. Meanwhile, a whopping 62 percent -- nearly two-thirds -- of workers said their debt is a problem. As a result, many workers barely have any savings, with about 60 percent of workers reporting total savings and investments of under $25,000 (excluding the value of their home and benefit plans). About 30 percent of these respondents said they have less than $1,000 in savings.

Late Night FDL: Pensions Are Good for You - Good for business, good for the economy, even good for the 1 percent: Bovie illustrates pensions’ impact with the example of a retired firefighter. He directly impacts his local economy when he uses his pension income to buy a lawnmower. The indirect impact of his purchase is an increase in income not just for the store where he purchased the lawnmower, but for every company involved in its production and distribution. When those companies benefit from increased income, they can hire new employees who spend their paychecks in their local economies, the induced impact of the firefighter’s purchase. While a single firefighter buying a lawnmower is unlikely to have such a dramatic impact on the national economy, the combined force of the 10,000 baby boomers who will turn 65 every day for the next 19 years (according to the Pew Research Center) and begin retiring and using their pensions, make that pension ripple effect look more like a wave. In addition to the impact on output, expenditures made from pension-benefit payments supported 6.5 million Americans and paid nearly $315 billion in labor income. Retirees’ expenditures of pension benefit payments contributed $553 billion to GDP and $134 billion in federal, state and local tax revenue.

Retired public employees face more pension cuts - Tens of thousands of retired public employees in Wisconsin whose pensions have been reduced for four straight years probably will see another cut in 2013. For tens of thousands more, pension payments will remain frozen at levels that in many cases fall far short of the rate of inflation. The situation is unprecedented in the history of the plan that covers most teachers and government employees - Milwaukee County and city workers are an exception - in the state. Many people in the Wisconsin Retirement System have seen their pensions sliced by 11% since 2008. And it would take an extraordinary investment performance to avoid a further reduction next year. Not everyone is taking cuts. Wisconsin guarantees public retirees that they won't fall below their initial pension level. People who have reached that mark - a rapidly growing number that next year will exceed half of all retirees - are exempt from further reductions. But that also shrinks the pool of retirees eligible to absorb a cut, and increases the size of the reduction for them.

As cities go broke, pensions are slashed (CBS News video) The economy may be working its way back, but governments at all levels are struggling to close billions of dollars in budget shortfalls. That's often caused clashes with public workers over the cost of their pensions. CBS News correspondent Tony Guida reports that there is one Rhode Island town that just made a painful and controversial choice. The smallest city in the nation's smallest state -- Central Falls, Rhode Island -- is bankrupt. The main reason is it can't afford the pensions for its retired city workers. How the city is digging out of its financial hole may have consequences for city pensions in other cash-strapped towns across the country. For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy. "My daughters grew up here, went to school here. It's all gone,"

Really? Medicaid again? - Evidently, this trope is rearing its ugly head again. Medicaid is going to hurt people. There are times I don’t even want to engage anymore. But once more for old time’s sake, huh? Let’s start with a basic fact. Having health insurance is better than not having health insurance. Here’s Michael McWilliams saying it saves lives in a guest post. Here’s another post full of links to others who argue that insurance saves lives. Not only that, but health insurance is good for health. Medicaid is health insurance. Therefore, it shouldn’t surprise you that studies show Medicaid improves health. But wait! You heard that Medicaid actually hurts people. Well, it turns out those studies some interpret as showing Medicaid is bad for health are showing correlation, not causation. Here’s some more examples of that. Want to get in the weeds? Austin describes how the use of instrumental variables can improve research into Medicaid. Here’s a post on Medicaid and mortality for HIV patients. Here’s Medicaid and child health. Here’s Medicaid and saving babies. Here’s Medicaid expansion and health care utilization. Here’s Medicaid expansion and the technology of birth. Here’s a summary of that series:

Health Care Thoughts: Another Major Event - On the 23rd the Obama administration will publish the administrative regulations for Medicaid expansion. http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/REG-03-16-12.pdf As reported by Modern Healthcare, eligibility will be simplified to an income test as a percentage of the federal poverty level. This may expand Medicaid by as many as 17 million recipients by 2016. There are a number of administrative issues addressed, many focused on simplifying and streamlining processing.

A Doctor's Vision For Medicare - Everybody knows what the federal budget’s long-term problem is. The president knows. The Republicans in Congress know. The Democrats in Congress know. The policy community knows. You know. It’s Medicare. I am a physician who has been studying Medicare data throughout my professional life. But now that I’m closing in on becoming a beneficiary, I am thinking more about what I’d like my Medicare program to look like.  My Medicare would be guided by three basic principles:

• • It should not bankrupt our children. Let’s be clear: Medicare is rightly the central source of concern in the deficit debate. Its expenditures are totally out of control, and represent a huge income transfer to the elderly from their children. It’s a pro-gram crying out for a budget.
• • It should not waste money on low-yield medicine. I don’t change my Volvo’s oil every 1,500 miles, even though some mechanics might argue that it would be better for its engine. Nor do I buy new tires every 10,000 miles, even though doing so would arguably make my car safer. But in Medicare (as well as the rest of U. S. medical care) such low-yield interventions are routine.
• • It should recognize the value of having time to talk with your doctor. The current system rewards physicians for doing things to patients, not for talking with them. Not surprisingly, we do too much. Too many clinic visits lead to another medication being started, another test being ordered and a referral to another physician. The end result is totally predictable: too many medicines, too much testing and too many cooks in the kitchen.

Recession's Toll on Health Coverage - The share of children and working-age adults who had insurance through an employer fell 10 percentage points during the last recession, according to a study released on Thursday by the Center for Studying Health System Change, a nonpartisan research group in Washington. From 2007 to 2010, the share of children and working-age adults with employer-sponsored coverage fell to 53.5 percent from 63.6 percent, according to the study. The major contributor to the decline was the loss of employment during the downturn, with almost a third of the people younger than 65 living in a family where no one was working, according to the study. The study is based on the center’s 2007 and 2010 Health Tracking Household Surveys. The surge in unemployment, coupled with the steady deterioration of the number of employers offering coverage and the number of workers signing up for insurance, is causing a “steady erosion” in employer-based coverage. “There’s been a lot of debate about what health reform is going to do to employer-sponsored coverage,” he said, but much of that discussion ignores the significant decline in employers as a source of coverage.

CBO: Big Drop in Employer Provided Insurance Could Decrease the Deficit - The Congressional Budget Office has looked at the potential impact of companies choosing to drop their employee provide health insurance as a result of the Affordable Care Act. According to its analysis if a large number of companies stop providing health insurance benefits it should cause the ACA on net to decrease the deficit even further. From the CBO:Significant changes in some of the key assumptions underlying the estimates lead to somewhat higher or lower projections of the change in employment-based health insurance and the budgetary impact of the ACA. However, differences in the projected change in employment-based health insurance tend to have limited effects on the projected budgetary impact of the law because changes in the availability and take-up of such insurance affect the federal budget through several channels that are partly offsetting. Indeed, one scenario examined here shows that larger reductions in employment-based health insurance than expected by CBO and JCT might lower rather than raise the cost of the insurance coverage provisions of the ACA. In CBO and JCT’s judgment, a sharp decline in employment-based health insurance as a result of the ACA is unlikely and, if it occurred, would not dramatically increase the cost of the ACA.

Americans Continue to Have Strong Objections to the Individual Mandate - The American people continue to strongly dislike the individual mandate in the Affordable Care Act, and the intensity of this opposition has only increased. According to Kaiser Family Foundation tracking poll only 32 percent of the country has a favorable opinion of the mandate, while 64 view it unfavorably. Impressively a 54% majority of the country say they view the mandate very unfavorably. In addition the poll found 51% think the mandate to buy private insurance is unconstitutional, while just 28% believe it is constitutional. The American people expressed their strong dislike of the mandate for months while the bill was being drafted. They strongly disliked it when President Obama signed it into law, and they continue to strongly oppose it two years later.The only thing I cannot understand about the individual mandate is why Democrats insisted on defending the mandate in the first place and continue to defend it to this day. The mandate is both poor policy and not necessary for the law to function. There are several less offensive alternatives that could be used to perform its function. The Democrats’ bizarre refusal to respect the clear desire of the electorate on this issue has already politically cost them dearly.

Wealthy Families Skip Waiting Rooms With Concierge Medical Plans - Doctors on-call day or night. Medical care while traveling outside the U.S. Emergency-room grade equipment, modeled on gear used in the White House, installed in the client’s home. Well-heeled executives and their families increasingly are paying tens of thousands of dollars a year for high-end medical services that aren’t covered by insurance. “Wealthy people want to have a little exclusivity and want better service than they can get at their normal health-care facility, and they’re willing to pay for it,” Such white-glove attention, known as concierge care, doesn’t come cheap. It may cost as much as $30,000 a year out-of-pocket for unfettered access to physicians who limit the number of patients they take on. An emergency room in one’s home designed to handle a family’s ailments can cost as much as $1 million.

Health care premiums will surpass median U.S. incomes by 2033: study -The cost of health care will surpass the price of a median income household in the United States by 2033 if current trends continue, according to a study published in the March/April issue of Annals of Family Medicine. Researchers accumulated data from the U.S. Census Bureau and the Medical Expenditure Panel Survey to compare Americans’ incomes and the premiums they’ve paid from 2000 to 2009. The cost of premiums rose by eight percent over that time period compared to just two percent of incomes. If those trends continue, the average cost of a family premium will be half the income of a median household family, which was $49,800 in 2009, in 2021. Premium costs would exceed the median family’s income by 2033 if trends remain unchanged.

TheChart: Health care costs to surpass total income? - Take a close look at the chart up above. It’s taken from a new paper, in the Annals of Family Medicine. If you believe the doctors who put it together, it tells one of the scariest stories you’ll ever hear. The gentle upward slope represents the median income for an American family, projected through 2035. The lighter colored curve is projected average spending on health care - insurance premiums, and out of pocket costs. With current trends, the authors say, in less than 20 years the average family will face medical costs that are higher than their total income. All of it. Dr. Jennifer DeVoe, one of the authors, says she already sees the strain in her practice. “I see people who don’t eat, or don’t pay rent, so they can pay medical bills,” she says. “They can’t afford their medication, or in some cases, even a mammogram.” The basic facts aren’t new. Health care costs have been growing faster than inflation since the government began to track them in the 1960s. Between 2000 and 2009, the paper says, the average annual increase in insurance premiums was 8%, while household income rose an average of 2.1%.

Legal experts predict a Supreme Court win for ‘Obamacare’ - Betting on whether the Supreme Court will declare "Obamacare" unconstitutional this year? At least some of the smart money is on "no." The American Bar Assn. devoted all 40 pages of the latest Preview of United States Supreme Court Cases magazine to the high court's review of Obamacare, formally known as the Patient Protection and Affordable Care Act. (The court is scheduled to hear arguments about the law's constitutionality this month.) For this special issue, the editors of Preview polled "a select group of academics, journalists and lawyers who regularly follow and/or comment on the Supreme Court" to get their predictions on how the court would rule. The result: 85% said the act would be upheld, mainly because they believed the court would find the requirement that all adult Americans obtain insurance coverage to be constitutional. A small faction -- 9% -- believed the court would hold that the challenge to the law was premature because the provisions being challenged won't go into effect until 2014. Most of those polled also said that if the court struck down the individual mandate, it would leave the rest of the act intact.

A “Shocking Disproportion” in Funding of Young and Older Scientists - That young biomedical investigators are getting a raw deal in the competition for funding against older, more established, competitors is a widely held suspicion these days (and not only among young investigators.) It especially rankles because history suggests that young scientists, not well-connected graybeards, are the ones likeliest to do transformative new science. I had no idea just how large the the discrepancy is until Stephen Apfelroth of Albert Einstein College of Medicine told me about some calculations he has done based on information he received from the National Institutes of Health (NIH). Using 2008 figures, Apfelroth concludes that in that year $815 million in grants went to investigators between ages 30 and 39, but $3,312 million to those between 40 and 49, $3,770 million to those between 50 and 59, and $1,722 to those between 60 and 69. Given the nature of the job market and the large numbers of young scientists cooling their heels in postdoc appointments, there are fewer investigators in their thirties than even the most senior age bracket. Apfelroth's results also show, however, that the average amount awarded per investigator increases with age.

Japan Cabinet OKs New Flu Outbreak Bill - Japan's cabinet adopted a bill Friday to restrict some private rights, in order to prevent the spread of virulent new forms of influenza. The bill authorizes the prime minister to declare a state of emergency if a highly virulent flu strain is spreading domestically. The measure is designed to allow prefectural governors to prohibit assembly and forcibly acquire land for medical purposes. Those who disobey orders to stock supplies could be sentenced to up to six months in prison or fined up to 300,000 yen. The bill gives the government "very strong coercive power without scientific grounds," said Masahiro Kami, professor at the University of Tokyo.

California Declares War on Raw Dairy Farmers - "65-year-old senior citizen James Stewart, a California farmer with no criminal history, was nearly tortured to death in the LA County jail this past week. He survived a "week of torturous Hell" at the hands of LA County jail keepers who subjected him to starvation, sleep deprivation, hypothermia, loss of blood circulation to extremities, verbal intimidation, involuntary medical testing and even subjected him to over 30 hours of raw biological sewage filth containing dangerous pathogens." What was his alleged criminal activity? Selling fresh, unpasteurized raw milk. Bail for "The Milk Man" was set at $1 million. By comparison, bail for alleged child rapist Jerry Sandusky, former Penn State sports coach, was set at $100,000. "NaturalNews is calling upon Amnesty International and the American Civil Liberties Union to intervene in this extraordinary violation of basic human rights. For the record, James Stewart has no criminal record and is a permaculture farmer and fresh food advocate. His "crime" consists entirely of arranging for the distribution of raw milk to customers who actually line up to access this nourishing food (people love it!)." Meanwhile, Natural News is reporting separately that: "France, on the other hand, has embraced the health benefits of raw milk. The vending machine is a tastefully-designed kiosk that blends right into the urban setting, allowing it to be set up on a street corner on a French town or even a major metropolitan area."

Food Fight! Stores, Producers, Consumers Battle Over High Food Prices - Here’s a news flash that won’t be remotely surprising if you’re responsible for grocery shopping in your house: The cost of food has been rising. In the past year, consumer food prices have increased 4.4%, compared to a 2.9% price increase for all consumer purchases. The costs of a few foods in particular have skyrocketed: In 2011, meat, coffee, and peanut butter prices rose 9%, 19%, and 27%, respectively. While some are predicting that food prices will plateau or even fall, it appears as if increased regulation and production costs will continue to mean higher food prices for wholesalers, and these higher costs will inevitably be passed on to consumers. Last summer, corn prices hit a record-high of $8 a bushel. Naturally, to get in on the action, farmers all over the globe have shifted production to grow more corn. As a result, prices for “the big daddy of the major U.S. crops,” according to Reuters, could fall 20% this year. Even if that happens, U.S. farmers should still be in good shape, with total domestic farm income anticipated at $96 billion, the second-best year ever (after 2011). Corn may be the “big daddy” in the farming world, but even if corn prices come down, most consumer food costs appear to be headed in the other direction. The increase in gas prices is one reason why food prices are likely to keep rising, but it’s not the only one.

Are honey bees headed towards extinction? - We have all heard about several animal species becoming extinct, even in the modern world, humans have seen whole generations of some animals disappear. Will bees become one of them? Some experts believe that the bees could be about to die and at least one third of our food depends on pollination of flowering plants. Einstein once said: “If the bees disappear, mankind would have only 4 more years of life.” Over 3 million colonies of bees have died in the USA since 2006 and over a thousand millions of bees have died in this period in the world. Scientists believe that the main reason could be the pesticides (found more than 121 pesticides in samples of bees, pollen, and wax). Another phenomenon that has perplexed scientists is that many of the colonies are abandoned, but they are the bodies of bees, in what has been called the Mary Celeste Syndrome (as inexplicably abandoned ship). Some studies relate the effect produced by telecommunications towers with the disorientation of the bees, leaving them unable to return to their hive. Many of the companies engaged in beekeeping are facing serious economic problems while the research to find the causes of the disappearance of millions of bees has a number of funds proportionate to the seriousness of the problem.

Fertilisers behind increase in atmospheric nitrous oxide - The increasing amount of nitrous oxide in the atmosphere over the last 65 years is due to nitrogen-based fertilisers, according to a new study. An international team of scientists, led by University of California-Berkeley researcher Dr Sunyoung Park, made the finding after studying air collected at the Cape Grim Station in Tasmania and sampled from the Antarctic ice sheet. Previous studies have shown a 20 per cent increase in the level of N2O since 1750 - from below 270 parts per billion to more than 320 ppb. Despite being relatively low in concentration, N2O is considered a significant contributor to global warming (about 6 per cent) and also destroys ozone in the stratosphere. It is produced naturally and by human activities such as agriculture. According to this latest report, which appears this week in the online edition of Nature Geoscience, changes in the ratio of nitrogen-14 and nitrogen-15 point to the use of agricultural fertilisers as the main source of the increase. "In this new paper we used isotopes - slightly different forms of nitrogen and oxygen atoms in the N2O molecule - as tracers of what the sources are behind that increase,"

New Report: Nitrate Contamination Threatens California’s Drinking Water -Today, the Food & Environment Reporting Network published its third report, “Farming Communities Facing Crisis Over Nitrate Pollution, Study Says,” on msnbc.com. The most comprehensive assessment so far to date, the report also reveals that agriculture is the main source of 96 percent of nitrate pollution. The five counties in the study area – among the top 10 agricultural producing counties in the United States – include about 40 percent of California’s irrigated cropland and more than half of its dairy herds, representing a $13.7 billion slice of the state’s economy, Holbrook reports. “Nearly 10 percent of the 2.6 million people living in the Tulare Lake Basin and Salinas Valley might be drinking nitrate-contaminated water, researchers found. High nitrate levels in drinking water have been linked to thyroid cancer, skin rashes, hair loss, birth defects and “blue baby syndrome,” a potentially fatal blood disorder in infants. Holbrook explains that nitrates are odorless, tasteless compounds that form when nitrogen from ammonia and other sources mix with water. While nitrogen and nitrates occur naturally, the advent of synthetic fertilizer has coincided with a dramatic increase in nitrates in drinking water. “Current contamination likely came from nitrates introduced into the soil decades ago. That means even if nitrates were dramatically reduced today, groundwater would still suffer for decades to come.”

CA Water Board Votes Unanimously for New Rules on Pollution from Agriculture - Just two days after the University of California at Davis released a highly anticipated report on nitrate contaminated groundwater and the agriculture industry’s culpability therein, the Central Coast Regional Water Quality Control Board Thursday unanimously approved a hotly contested set of rules aimed alleviating water pollution caused by farming. But the new regulations won’t cover nitrates—at least for now. The adopted plan is based on a three-tiered program. For the 3 percent of large farms that use pesticides, large quantities of fertilizer and operate near polluted waters will come under the greatest scrutiny. For most farms regulations will actually loosen, but beginning next year all farmers will have to prepare compliance reports and water quality plans that detail how they will control discharges of pesticides, herbicides and sediment.

Farmers Battle Water Scarcity as Food Demand Grows, UN Says - Farmers will need 19 percent more water by 2050 to meet increasing demands for food, much of it in regions already suffering from water scarcity, according to a United Nations report. “In many countries water availability for agriculture is already limited and uncertain, and is set to worsen,” according to the fourth United Nations World Water Development Report published today. “Concerns about food insecurity are growing across the globe and more water will be needed.” The UN Food and Agriculture Organization has said food output must rise 70 percent by 2050 to feed a world population expected to grow to 9.3 billion from 7 billion now and as increasingly rich consumers in developing economies eat more meat. A quarter of world farmland is “highly degraded” by intensive agriculture that has depleted water resources, reduced soil quality or increased erosion, according to the agency. The UN’s latest warning about water shortages comes as the World Water Forum begins today in Marseille, where ministers, industry representatives and non-government organizations will discuss resource management, waste, health risks and climate change.

Latest US Drought Map -A couple of months back, I promised to start posting the US PDSI drought map once a month or so. Obviously, that has gotten off to a slow start! However, here is the map for the week of March 10th.The good news is that Texas is coming out of the dreadful drought of 2011. The not so good news is that the southeast is still moderately to extremely dry, and much of the west coast is rather dry also.

"Dry Winters" Lead To Hosepipe Ban - Millions of households will have hosepipe bans by Easter, water firms have announced as the Environment Agency warned of "severe drought" in the coming months. Seven water companies across southern and eastern England are bringing in hosepipe bans from April 5, following two unusually dry winters which have left reservoirs, aquifers and rivers well below normal levels. The move comes as the Environment Agency said the drought, which has already gripped the South East and East Anglia, could spread as far north as East Yorkshire and as far west as the Hampshire-Wiltshire border if the dry weather continues. And with sufficient rain to boost low groundwater and river levels unlikely in the coming weeks, a report from the agency said it was "anticipating a severe drought in spring and summer 2012".

March 2-3, 2012, tornado outbreak: 10th largest in recorded history? - (videos) The deadly early-season tornado outbreak of March 2-3 that hit Indiana, Kentucky, and surrounding states, killing 41 people, may have been the 10th largest two-day tornado outbreak since record keeping began in 1950. NOAA's Storm Prediction Center now lists 132 preliminary tornado reports for March 2, and 11 for March 3. It typically takes several months to finish damage surveys and verify all the tornadoes that really occur in a big tornado outbreak. Sixty-one tornadoes have been confirmed so far, according to Wikipedia's tally of the outbreak. The two-day total of 143 tornadoes from March 2 to 3 is probably an over count of about 15%, based on historical levels of over counts. This would give the March 2-3 outbreak around 120 tornadoes, making it the 10th largest outbreak since record keeping began in 1950. Assuming this is true, the past two tornado seasons would hold 4 of the top 10 spots for largest tornado outbreaks in recorded history. Below are the top two-day tornado outbreaks since 1950. Several of these two-day totals were taken from outbreaks that lasted three or more days; the highest two-day period of activity was selected for this list, so that the outbreak would not be mentioned multiple times. The numbers from the 2011 outbreaks are still preliminary:

Climate Central: Record Warm Week Ahead East of the Rockies - The warm winter season is giving way to an even warmer early spring, with record temps spreading throughout the U.S. east of the Rocky Mountains this week. Records are likely to fall from Minneapolis to Maine and points southward starting today and lasting through at least the end of this week, possibly putting an end to the ski season in the Northeast and Mid-Atlantic…. The warm weather is likely to add to the imbalance between warm temperature records and cold temperature records in the U.S. this year. During the month of February, for example, the number of daily warm record-low temperatures outpaced cold records by a stunning ratio of 6 to 1 in the Lower 48. So far this month, there have already been 805 record-high temperatures in the U.S., and just 176 record-cold high temperatures. In a long-term trend that has been linked to global climate change, daily record-high temperatures are now outpacing daily record-lows records by an average of 2 to 1, and this imbalance is expected to grow as temperatures continue to warm. According to a 2009 study, if the climate were not warming, this ratio would be expected to be even.

15 to 20 inches of rain flood southern Louisiana - Record flood waters inundated parts of southern Louisiana early Tuesday after intense rains caused perilous flash flooding and prompted hundreds of rescues. Estimates by the National Weather Service put total rainfall at 12 to 18 inches across the region, with possible amounts of 20 or more inches in some areas. A flood warning has been issued until late Tuesday. Flood waters were cresting overnight for Bayou Vermillion at Carencro at 5.5 feet over flood stage and a full 12 inches above the record set in May 2004.

record March heat wave sets more records - For the second consecutive day, large portions of Illinois, Wisconsin, and Iowa, including the cities of Chicago, Madison, and Dubuque, recorded their all-time warmest temperatures for so early in the year. Perhaps the most extraordinary record occurred in Madison, Wisconsin, which hit 82°F--a temperature 39°F above average. It was the hottest temperature ever recorded in March, and three degrees warmer than any day so early in the year, going back to 1869. Not as many all-time hottest temperature records for so early in the year were set in Michigan and other surrounding states, due to plentiful moisture that generated afternoon cloud cover. The records will continue to fall across the Midwest for another week, as the ridge of high pressure responsible stays locked in place.

HAM weather Climate Center - Record Events for The Past Week - Continental US View – interactive map

National Weather Service facing possible budget cuts -- The National Weather Service is facing a different kind of storm. It's not a hurricane or tornado, but instead a proposed budget cut of $39 million dollars. The government agency that issues daily forecasts, in addition to severe weather warnings, could have their budget cut by as much as four percent. National Weather Service offices across the country, including the one in Charleston, have had to gradually cut back on travel over the last four or five years. "It makes it difficult for conferences when we are trying to get technology and things going, but we cut back about 75 percent on travel, so we are pretty limited now in what we can do," "Fortunately, technology helps us in some respects in that with the use of things like webinars that we are producing over the Internet that we don't lose as much training as you would if we just took 75 percent off the top." If the budget reduction is passed, Alsheimer said it's likely that there will be a delay in getting some new technology.

World Water Supply: Climate Change And Food Pressures Adding Challenges, UN Study Says - The world’s water supply is being strained by climate change and the growing food, energy and sanitary needs of a fast-growing population, according to a United Nations study that calls for a radical rethink of policies to manage competing claims. “Freshwater is not being used sustainably,” UNESCO Director-General Irina Bokova said in a statement. “Accurate information remains disparate, and management is fragmented … the future is increasingly uncertain and risks are set to deepen.” It says that demand from agriculture, which already sucks up around 70 percent of freshwater used globally, is likely to rise by at least 19 percent by 2050 as the world’s population swells an estimated 2 billion people to 9 billion. Farmers will need to grow 70 percent more food by that time as rising living standards mean individuals demand more food, and meat in particular.

O.E.C.D. Warns of Ever-Higher Greenhouse Gas Emissions -— Global greenhouse gas emissions could rise 50 percent by 2050 without more ambitious climate policies, as fossil fuels continue to dominate the energy mix, the Organization for Economic Cooperation and Development said Thursday. “Unless the global energy mix changes, fossil fuels will supply about 85 percent of energy demand in 2050, implying a 50 percent increase in greenhouse gas emissions and worsening urban air pollution,” the Paris-based O.E.C.D. said in its environment outlook to 2050 . The global economy in 2050 will be four times larger than today and the world will use around 80 percent more energy. But the global energy mix is not predicted to be very different from that of today, the report said. Fossil fuels such as oil, coal and gas will make up 85 percent of energy sources. Renewables, including biofuels, are forecast to make up 10 percent and nuclear the rest. Because of such dependence on fossil fuels, carbon dioxide emissions from energy use are expected to grow by 70 percent, the O.E.C.D. said, which will help drive up the global average temperature by 3 to 6 degrees Celsius by 2100 — exceeding the warming limit of within 2 degrees agreed to by international bodies.

Loss of Greenland ice could become irreversible - The Greenland ice sheet has a lower melting point than previously thought, with scientists saying not only that it could melt completely at a lower temperature than once believed, but also that the melting process could soon become irreversible. "Once the process of melting the ice begins, it is very hard for it to change course even if we can lower temperatures in the future," "So even though melting the whole ice sheet could take a really long time, we will essentially decide the fate of Greenland within the next century." The study was published Sunday in Nature Climate Change. The Greenland ice sheet is about 1,490 miles at its longest and more than a mile thick, according to Science Daily. Why is it important? "Understanding the sensitivity of the ice sheet to climate change is extremely important," Robinson said, "because it contains enough water volume to raise sea level by 7 meters," or about 23 feet. This ice sheet and the one that covers most of Antarctica contain more than 99% of the freshwater ice on Earth, says the National Snow and Ice Data Center. The sheets influence weather and climate, the center's site says, with plateaus at higher altitudes changing storm tracks and conjuring cold winds that move downslope close to the surface of the ice.

NSIDC, Arctic Sea Ice Report of March 6, 2012: February ice extent low in the Barents Sea, high in the Bering Sea - As in January, sea ice extent in February was low on the Atlantic side of the Arctic, but unusually high on the Pacific side of the Arctic, remaining lower than average overall. At the end of the month, ice extent rose sharply, as winds changed and started spreading out the ice cover. Sea ice extent in late winter can go up and down very quickly, getting pushed together or dispersed by strong winds. Ice extent usually reaches its annual maximum sometime in late February or March, but the exact date varies widely from year to year. Arctic sea ice extent in February 2012 averaged 14.56 million square kilometers (5.62 million square miles). This is the fifth-lowest February ice extent in the 1979 to 2012 satellite data record, 1.06 million square kilometers (409,000 square miles) below the 1979 to 2000 average extent.

Met Office: Arctic sea-ice loss linked to colder, drier UK winters - The reduction in Arctic sea ice caused by climate change is playing a role in the UK’s recent colder and drier winter weather, according to the Met Office.Speaking to MPs on the influential environmental audit committee about the state of the warming Arctic, Julia Slingo, the chief scientist at the Met Office, said that decreasing amounts of ice in the far north was contributing to colder winters in the UK and northern Europe as well as to drought. But she stressed that while it was one factor and not the “dominant driver” in the UK. The south-east and other parts of England are experiencing especially dry conditions after months of below-average rainfall, with some water companies pledging on Monday to introduce hosepipe bans to conserve water. Slingo told the MPs that there is “increasing evidence in the last few months of that depletion of ice, in particular in the Bering and Kara seas, can plausibly impact on our winter weather and lead to colder winters over northern Europe”.

Rising Sea Levels Seen as Threat to Coastal U.S.- About 3.7 million Americans live within a few feet of high tide and risk being hit by more frequent coastal flooding in coming decades because of the sea level rise caused by global warming, according to new research. If the pace of the rise accelerates as much as expected, researchers found, coastal flooding at levels that were once exceedingly rare could become an every-few-years occurrence by the middle of this century. By far the most vulnerable state is Florida, the new analysis found, with roughly half of the nation’s at-risk population living near the coast on the porous, low-lying limestone shelf that constitutes much of that state. But Louisiana, California, New York and New Jersey are also particularly vulnerable, researchers found, and virtually the entire American coastline is at some degree of risk. “Sea level rise is like an invisible tsunami, building force while we do almost nothing,” . “We have a closing window of time to prevent the worst by preparing for higher seas.”

Climate: A Valuable New Tool Lets You See Where the Sea Will Rise - When Hurricane Irene neared New York at the end of August, the city took the unprecedented step of shutting down the entire transit system—buses, subways and commuter trains in the largest city in America. The danger was that heavy rains from Irene could cause flooding that would swamp tunnels and tracks, causing lasting damage to the most important public transit system in the country. Irene could just be a preview of what the entire country will be facing in a warmer world. According to new research by the nonprofit group Climate Central—which employs TIME contributor Michael Lemonick—about 3.7 million people live within a few feet of high tide and are in danger of being hit by more frequent coastal flooding in the future because of sea level rise caused by climate change. And if sea level rise accelerates because of rapid warming—as seems likely to happen barring major reductions in greenhouse gas emissions—major coastal floods that are now rare could become a much more frequent occurrence. “The sea level rise from global warming has already doubled the risk of extreme coastal floods,” says Benjamin Strauss, one of the co-authors of the two papers that outline the new research. “We hope this research can help everyone prepare for this.”

Changing the Chemistry of Earth’s Oceans - The oceans have always served as a sink for carbon dioxide, but the burning of fossil fuels since the beginning of the industrial revolution, especially over the last 40 years, has given them more than they can safely absorb. The result is acidification — a change in the chemical balance that threatens the oceans’ web of life. In earth’s history, there have been many episodes of acidification, mainly from prolonged volcanic eruptions. According to a new research review by paleoceanographers at Columbia University, published in Science, the oceans may be turning acid far faster than at any time in the past 300 million years. Changing something as fundamental as the pH of seawater — a measurement of how acid or alkaline it is — has profound effects. Increased acidity attacks the shells of shellfish and the skeletal foundation of corals, dissolving the calcium carbonate they’re made of. Coral reefs are among the most diverse ecosystems on the planet. Ocean acidification threatens the corals and every other species that makes its living on the reefs. The closest analogies are catastrophic events, often associated with intense volcanic activity resulting in major extinctions. The difference is that those events covered thousands of years. We have acidified the oceans in a matter of decades, with no signs that we have the political will to slow, much less halt, the process.

World entering a ‘third era’ of climate change in which impacts are are unavoidable- After 20 years dominated by inaction on climate change, the world is entering a “third era” when the impacts of climate change are unavoidable, says a London climate expert. Even if countries instantly reduced carbon emissions to zero, the impacts of emissions already in the atmosphere are “inevitable and unavoidable for the next 20 or so years,” said Saleemul Huq, a climate expert at the London-based International Institute of Environment and Development. Speaking at a recent program on climate change in South Asia, Huq, whose work focuses mainly on Least Developed Countries (LDCs), said climate change will have “disproportionate impact” on poorer and less developed countries and called for large industrialized countries to begin taking the problem more seriously. However, the new “third era” of climate change - the period beyond early awareness of the problem and initial efforts to solve it, such as the Kyoto Protocol – is different from earlier periods in that “today even rich, industrialized nations are affected,” Huq said, and now “adaptation is central not only to poor countries, but these rich ones as well.“

What's wrong with climate change economics? - Er, nothing? Joe Romm: Last week economist William Nordhaus slammed global warming deniers and explained that the cost of delaying action is $4 Trillion. As I wrote, Nordhaus’s blunt piece — “Why the Global Warming Skeptics Are Wrong” – is worth reading because, like most mainstream climate economists, he is no climate hawk. A key reason for that, I believe, is a chronic low-balling of future temperature rise and hence future climate impacts and hence future climate damages by the mainstream economic profession. Nordhaus’s piece proves that point. In his argument on why CO2 is a pollutant and negative externality—”a byproduct of economic activity that causes damages to innocent bystanders”– he writes: The question here is whether emissions of CO2 and other greenhouse gases will cause net damages, now and in the future. This question has been studied extensively. The most recent thorough survey by the leading scholar in this field, Richard Tol, finds a wide range of damages, particularly if warming is greater than 2 degrees Centigrade.⁷ Major areas of concern are sea-level rise, more intense hurricanes, losses of species and ecosystems, acidification of the oceans, as well as threats to the natural and cultural heritage of the planet.

Please, Secretary Chu, Retract your Retraction. High Gas Prices are Good. You Were Right the First Time - Why would a president want to bring an eminent scientist like Energy Secretary Steven Chu into government? In the hope, one would suppose, that he would speak truth to power. Sadly, that hope seems to have been been dashed in the case of Secretary Chu. In 2008, before becoming part of the cabinet, he had said that as part of the effort to protect the environment and wean the U.S. economy from its energy addiction, "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe." But earlier this week, at a hearing of the Senate Energy and Natural Resources Committee, Chu caved to political pressure, saying "I no longer share that view." Digging himself in deeper, he explained that he and the president felt consumers’ pain at the pump, and were doing everything they could not just to hold the line on gasoline prices, but to reduce them.

Rick Santorum: ‘The dangers of carbon dioxide? Tell that to a plant’ -Rick Santorum told attendees at the Gulf Coast Energy Summit in Biloxi, Mississippi, on Monday to trust his judgment on the environment, highlighting his position on climate change—that is, that it's a liberal myth. "The dangers of carbon dioxide? Tell that to a plant, how dangerous carbon dioxide is," Santorum said, according to the Associated Press.

Collapse Of The Shiny Pretty Things - All the green initiatives in the world combined with all your good intentions intermixed with a million heartfelt promises to do better, all the environmental summit agreements and all the solar panels and recycled toothbrushes and spending all those hours sorting plastic from glass and carefully rinsing your mustard bottles? Not helping. Or rather, not helping much, given how it appears we would need, according to recent measures, 1.5 Earths to sustain our current rate of consumption, and you can point to China and India all you want but they're far from the primary culprits (that would be, of course, us) and anyway the odds are very good you're pointing to them on your iPad and your smart phone as you sit at a fine cafe gorging on five times more food than the average Hindu eats in a year.It absolutely cannot be sustained much longer, is what they're (still) saying, this rapaciousness, this constant craving for more. They say we're pushing the planet to her absolute breaking point quicker than ever, no really we are, and in fact she's actually now well past the breaking point in many categories and has run out of many natural resources, ores and precious minerals and essential planetary nutrients, not to mention thousands of animal species and sufficient fresh water and nuanced human thinking. The oceans? Don't even start.

Brazil Slowing Rainforest Destruction Cuts Greenhouse Gas Burden for All - As world political and business leaders ready for the Rio+20 U.N. sustainability conference in June, Brazil’s leaders are debating policy changes that could jeopardize the leadership it has earned from reducing Amazon deforestation and greenhouse gas emissions. Since hosting the 1992 “Earth Summit,” which produced the first international agreement on forest protection, Brazil has risen from the ninth- to sixth-largest economy, ahead of the U.K. and just behind France. Deforestation in the Amazon last year fell to the lowest rate since government began monitoring the world’s biggest rainforest in 1988. The rate is down almost 80 percent in six years. “A decade ago, almost everyone would have said efforts to get Brazil to stop cutting down the Amazon were a total failure,” said Doug Boucher, head of the Tropical Forest and Climate Initiative at the Union of Concerned Scientists. “Thanks to a shift in political dynamics and rise of a strong environmental movement, it became a huge success story.”

European Airlines and Airbus Seek to Ease Emissions Rule - Airbus and Europe’s biggest airlines on Monday called on the European Union to find a compromise on aviation carbon curbs, warning that Europe’s emission limits on foreign carriers could lead to retaliation. Airbus, the world’s biggest maker of civil aircraft, and eight airlines including Air France-KLM, Lufthansa and British Airways urged European leaders to “use their influence” and push for a global agreement to tackle emissions from the industry and avoid an escalating trade conflict, according to a letter sent to the prime ministers of France, Germany, Spain and Britain. “The situation is becoming intolerable for the European aviation industry,” according to the letter. “We have always believed that only a global solution would be adequate to resolve the problem of global aviation emissions.”

Clean Energy Opponents Attack Super-Efficient Light Bulb Because The Washington Post Can’t Do Math - A slanted Washington Post story by Peter Whoriskey attacked the innovative $50 light bulb that won the Department of Energy’s $10 million L Prize for lighting innovation as being “costly,” “exorbitant,” and “too pricey” in comparison to a $1 incandescent bulb — based on faulty math. The Philips LED bulb, which is assembled in Wisconsin with computer chips made in California, is a technical breakthrough, with high-efficiency natural-color light. At no point does the article — which appeared online with the tendentious headline “Government-subsidized green light bulb carries costly price tag” — compare the lifetime cost of the super-efficient (10-watt), long-lasting (30-year) bulb with that of traditional 60-watt light bulbs. An accompanying infographic prepared by Patterson Clark and Bonnie Berkowitz compared costs, asserting that the lifetime cost of the $50 bulb plus electricity would end up being $5 more than traditional bulbs:Unfortunately for the Washington Post’s credibility, the cost calculation was extremely wrong. Clark and Berkowitz’s assessment assumes that the kilowatt-hour price of electricity is $0.01, instead of actual average retail price of $0.12 and rising.

New Solar Panels Blossomed Despite a Tough Year for the Industry - Last year seemed like a dark one for the solar industry: stiff competition from China drove American manufacturers to layoffs and even bankruptcy, while the low price of natural gas and the loss of a critical government subsidy weakened incentives for new solar developments. And then there was the long shadow of Solyndra, whose bankruptcy after receiving federal loans cast a pall over other green-energy endeavors. And yet, by the numbers, 2011 was a banner year for all those sparkling blue modules, according to a report published on Wednesday by the Solar Energy Industries Association and GTM Research. About 1,855 megawatts of new photovoltaic capacity was installed, more than double the 887 megawatts of the year before. The number of large-scale installations grew as well, to 28 from just 2 in 2009. Globally, the United States represents only 7 percent of all photovoltaic capacity, the report found, but that’s up from 5 percent in 2010... System prices fell 20 percent because of cheaper components (the average price of a panel dropped 50 percent), more options for financing, better installation methods and the shift to larger arrays. In addition, with the expiration of the Treasury Department’s 1603 tax grant program, many developers rushed to get their projects going before the end of the year

Nearly doubling renewable energy generation - Today the Administration released their Blueprint for a Secure Energy Future: One-Year Progress Report. Almost every time President Obama talks about energy he mentions wind and solar power. He used to talk about nuclear power as well. Doing so was politically courageous for a Democrat because nuclear power splits the environmental left. The President rarely mentions nuclear power these days, I presume because of the Fukushima earthquake + nuclear incident a year ago. The White House blog post accompanying the Blueprint includes the following highlight: Doubling Renewable Energy Generation: Thanks in part to the Obama Administration’s investment in clean energy – the largest in American history – the United States has nearly doubled renewable energy generation from wind, solar, and geothermal sources since 2008. “Nearly doubled” in less than four years sounds pretty good but reminds me of this Dilbert cartoon.In it Dilbert raises his hand and asks the marketing manager:Are you asking a room full of engineers to be excited about a big percentage increase over a trivial base?

API sues EPA over biofuels -- The U.S. Environmental Protection Agency is out of touch with its mandates for cellulosic biofuels, the American Petroleum Institute said. The API announced that it filed a lawsuit in Washington Circuit Court challenging what it claims are "unachievable requirements" for use of cellulosic biofuels in 2012 fuel standards. The EPA requires refiners to buy around 8.65 million gallons of biofuels per year in 2012. That's down substantially from the mandate of 250 million gallons imposed when the measure went into force in 2007. "EPA's unrealistic mandate is effectively a tax on manufacturers of gasoline that could ultimately burden consumers," said Bob Greco, directory of downstream operations for the trade group. The policy for 2012, he said, was "regulatory absurdity." The EPA opted to lower the target after the industry failed to meet the 2007 mandate. The 2011 mandate was set at 6.6 million gallons.

Gas Prices Are Too Low - GOP presidential candidates are blasting President Obama for not lowering the price of gasoline. Rep. Steve Scalise (R-LA) doesn’t stop there. He claims Obama is deliberately driving prices to $4 a gallon. He’s not. But he should. In an election year, Obama may be the last guy who wants gas prices to rise. However, if we want to reduce our need for foreign oil, slow climate change (yes, Virginia, the planet is warming), and encourage development of new energy technology, we ought to be raising taxes on fossil fuels. A lot. I know that this sounds like elitist left-wing heresy. But in the dim past (2008), GOP presidential candidate John McCain embraced the system known as cap-and-trade, which was effectively a tax on carbon-based fuels. Greg Mankiw, a former top economic aide to President George W. Bush and now an adviser to Mitt Romney, says its reasonable to boost the 18.4 cent a gallon tax to $2. As Mankiw recently wrote, “by taxing bad things more, we could tax good things less.” Newt Gingrich used to support cap-and-trade. So did both presidents Bush. Carbon taxes, in any form, have become exceedingly politically incorrect. But they were a good idea when McCain and Gingrich supported them. And they still are.

The Conundrum: David Owen Explains How Good Intentions Hurt the Environment - Owen’s core argument is not that we shouldn’t try to save the environment. Rather, he says that our focus on technological innovation, particularly efficiency, is misguided. He addresses problems inherent in several favored technologies and strategies, such as solar panels and buy-back programs for older, inefficient vehicles. What will happen if we make more-efficient, more-affordable cars? Owen says that the number of drivers worldwide will skyrocket. Since that “green” car would not be entirely without environmental consequences, the bump in car ownership and driving (since a fuel-efficient car would mean spending less on gas) would likely have a net negative effect. Instead, he proposes that a truly “green” car might have “no air conditioner, no heater, no radio, unpadded seats, open passenger compartment, top speed of twenty-five miles an hour, fuel economy of five or ten miles a gallon. You’d be able to get your child to the emergency room, but you’d never run over to Walmart for a bag of potato chips, and you’d take public transportation to work.”

In America power and fuel are separate issues - In his weekly address President Obama said: But you and I both know that with only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices – not when consume 20 percent of the world’s oil. We need an all-of-the-above strategy that relies less on foreign oil and more on American-made energy – solar, wind, natural gas, biofuels, and more. Solar, wind, and natural gas have almost nothing to do with the price of gasoline. Policies that affect oil, gasoline, ethanol and biodiesel, hybrid vehicles, battery technology, and vehicle fuel efficiency can all directly and significantly affect the price of transportation fuel (although often quite gradually). In America there is little overlap between fuel used for transportation and electricity used to light, heat, and power our homes and businesses. If you could magically make solar power price competitive with electricity produced from coal or natural gas you would do almost nothing to lower the price at the gas pump because there are so few electric-powered and hybrid vehicles on the road. Similarly the development of massive shale (natural) gas resources in the U.S. will make electricity more affordable in the U.S. but will have almost no effect on the cost of our transportation fuel.

Employers Need Wind Power Technicians - NPR reports that Oklahoma is one state benefitting from the energy boom. With a wind power rush underway, companies are competing to secure the windiest spots, while breathing life into small towns. The problem is, each turbine requires regular maintenance during its 20-year lifespan, with a requirement of one turbine technician for every 10 turbines on the ground. So even with a job that can pay a good starting salary (for technicians with a GED or high school diploma who complete a four-week turbine maintenance training program), there aren't enough qualified technicians to do the work. 'It seems odd, with America's unemployment problem, to have a shortage of workers for a job that can pay in excess of $20 per hour. But being a turbine technician isn't easy,' says Logan Layden, adding that technicians typically have to climb 300 foot high towers to service the turbines.

UK wants 2030 renewable energy target scrapped - The UK government wants nuclear power to be given parity with renewables in Europe, in a move that would significantly boost atomic energy in Britain but downgrade investment in renewable generation, according to a leaked document seen by the Guardian. The move would in effect remove the most important prop from the beleaguered renewable energy sector – the Europe-wide targets stipulating that a proportion of each member state’s energy must come from renewable sources. That target should be scrapped when its current phase – requiring member states to generate 20% of energy from renewables – runs out in 2020, according to a secret submission to the European commission.

Team: Radiation Exposure In Tokyo Far Below Limit - Researchers say Tokyo residents' internal radiation exposure from the nuclear accident in Fukushima is far below government-set safety limits, so the risk to human health is extremely limited. A team led by University of Tokyo researcher Michio Murakami estimated the amount of radioactive materials people in Tokyo have ingested through drinking water and food since March last year. The team used data compiled by local and central governments. Total exposure was 0.048 millisieverts for infants; 0.042 millisieverts for pre-school children; and 0.018 millisieverts for adults. The figure for infants is about one-twentieth of the permissible level. The team estimates that this level of radiation exposure will increase infant cancer rates later in life by 3 per 100,000 individuals. The risk is said to be a little lower than that caused by exhaust gas from diesel-engine cars. The team says a shipment ban on foods that contain radioactive cesium above legal safety levels has reduced the risk of cancer by 44 percent for infants; 34 percent for pre-schoolers; and 29 percent for adults.

Japan’s rubble economy - On March 11, a year will have passed since Japan was struck by the triple tragedy of an earthquake, tsunami and nuclear accident. According to figures announced by the country's National Police Agency, the Great East Japan Earthquake left behind 15,854 dead and 3,155 missing - the largest loss of life due to natural disaster in Japan since World War II. Searches for the missing - mainly at sea - are still continuing. The number of buildings affected by the earthquake or the tsunami include 128,582 completely destroyed, 243,914 partly destroyed, 281 completely or partly burned, 33,056 flooded (including 17,806 above the ground floor and 674,641 with other types of damage). Approximately 320,000 people lost their homes, of which more than 90 per cent continue to live in temporary housing. Where to rebuild their homes remains undecided.

Nuclear Disaster in Japan Was Avoidable, Critics Contend - Japan’s nuclear regulators and the plant’s operator, Tokyo Electric Power, or Tepco, have said that the magnitude 9.0 earthquake and 45-foot tsunami on March 11 that knocked out cooling systems at the Fukushima Daiichi Nuclear Power Plant were far larger than anything that scientists had predicted. That conclusion has allowed the company to argue that it is not responsible for the triple meltdown, which forced the evacuation of about 90,000 people. But some insiders from Japan’s tightly knit nuclear industry have stepped forward to say that Tepco and regulators had for years ignored warnings of the possibility of a larger-than-expected tsunami in northeastern Japan, and thus failed to take adequate countermeasures, such as raising wave walls or placing backup generators on higher ground. They attributed this to a culture of collusion in which powerful regulators and compliant academic experts looked the other way while the industry put a higher priority on promoting nuclear energy than protecting public safety. They call the Fukushima accident a wake-up call to Japan to break the cozy ties between government and industry that are a legacy of the nation’s rush to develop after World War II.

Japan's Energy Rebellion- The anti-nuclear movement grows in the wake of public distrust of TEPCO. CNN's Kyung Lah reports.

Fukushima: No Reason for Nuclear Energy Ban - This week marks the one-year anniversary since the 9-magnitude earthquake and subsequent tsunami rocked Japan. Within hours of the afternoon quake, Tokyo Electric Power Co. reported a loss of power at the Fukushima Daiichi nuclear power plant and later a meltdown. One year later, the international community is debating the safety of nuclear power. Though the Fukushima disaster was on par with the Chernobyl event in 1986, calling for a ban on nuclear power, however, may be something of a knee-jerk reaction. The accident sparked a near-universal examination of the safety of nuclear power. German Chancellor Angela Merkel announced a decision to phase out nuclear power in the wake of the accident to close eight of the country's 17 nuclear reactors by the end of 2011 and ordered a complete shutdown by 2022. That decision, by their estimates, cost Germen energy companies RWE and E.ON about $1.3 billion.

Coal Power Drops Below 40% of U.S. Electricity, Lowest in 33 Years - The U.S. Energy Information Administration reported on Friday:… coal’s share of monthly power generation in the United States dropped below 40% in November and December 2011. The last time coal’s share of total generation was below 40% for a monthly total was March 1978. A combination of mild weather (leading to a drop in total generation) and the increasing price competitiveness of natural gas relative to coal contributed to the drop in coal’s share of total generation.It’s a tad ironic that warming weather, driven in part by coal-fueled emissions, contributed to the drop in coal use. Another reason for the steady decline in coal power is that the Sierra Club, with the support of centrists like Mayor Michael Bloomberg of New York, is working to shut down all U.S. coal plants in the Beyond Coal campaign.

Fossil fuel production on federal lands at 9 year low - The Energy Information Administration (EIA) just released its report, Sales of Fossil Fuels Produced on Federal and Indian Lands, FY 2003 Through FY 2011.[i] This report shows that total fossil fuel production on federal lands is falling, natural gas production on federal lands is falling, and oil production on federal land fell in 2011 ending two years of increase. Specifically the new EIA report shows:

• Fossil fuel (coal, oil, and natural gas) production on Federal and Indian lands is the lowest in the 9 years EIA reports data and is 6 percent less than in fiscal year 2010.
• Crude oil and lease condensate production on Federal and Indian lands is 13 percent lower than in fiscal year 2010.
• Natural gas production on Federal and Indian lands is the lowest in the 9 years that EIA reports data and is 10 percent lower than in fiscal year 2010.
• Natural gas plant liquids production on Federal and Indian lands is 3 percent lower than in fiscal year 2010.
• Coal production on Federal and Indian lands is the lowest in the 9 years of data that EIA reported and is 2 percent lower than in fiscal year 2010.

PG&E records 'a mess' -Records kept by utility company Pacific Gas and Electric Co. regarding its natural gas transmission lines are "a mess," California regulators said. PG&E announced it reached an agreement to pay $70 million to the city of San Bruno, Calif., in restitution for recovery efforts after a deadly Sept. 9, 2010, pipeline explosion. A natural gas pipeline operated by PG&E exploded in the San Bruno neighborhood, killing eight people and damaging 38 homes. A report from California regulators found that PG&E's record-keeping on its gas transmission lines was substandard. "In lay terms, PG&E's record keeping was in a mess and had been for years," the Contra Costa (Calif.) Times cites the records as stating. "Gas transmission records and safety-related documents were scattered, disorganized, duplicated and were difficult if not impossible to access in a prompt and efficient manner."

Real Natural Gas Prices Lowest Since July 1995 - Last week the spot price of natural gas (Henry Hub Gulf Coast) fell to $2.30 per million BTUs, which is the lowest inflation-adjusted price since July 1995, more than 16 years ago when the price was slightly lower at $2.17. Without adjusting for inflation, it was the lowest price in a decade, since January 2002. Welcome to the game-changing, shale gas revolution. As Scott Grannis commented, "If there is any reason to be optimistic about the future of the U.S. economy, [falling natural gas prices] is arguably the best."

Chart of the Day: Natural Gas Prices Fall to Fresh Record Low vs. Oil on an Energy-Equivalent Basis - Here's an update of a chart I've featured before comparing prices for oil and natural gas on an energy equivalent basis. To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy. With natural gas selling for about $2.30 per million BTUs, its equivalent price for the same energy as a barrel of oil would be $13.34, or 87% below the price of WTI oil at $104.71 per barrel. When measured on an energy equivalent basis, natural gas has never been cheaper than oil than it is today. Forbes reports that major oil and gas companies Chevron and Exxon Mobil will continue drilling for natural gas, even with record low prices, with Chevron planning to double its production in the Marcellus region:

The Natural Gas Massacre - Natural gas is dirt cheap, hovering at a 10-year low. In the US, that is. In other parts of the world, natural gas is four, five times more expensive—a rare discrepancy in a globalized economy. In 2011, the US, the largest producer in the world, produced more natural gas than ever before. But, stunningly, there are no facilities to export significant quantities of it (as liquefied natural gas), though there are facilities to import it, which are now used for storage because imports have ground to a halt at the current price differentials. In President Obama’s energy"Blueprint" released Monday, the White House touts its initiatives that encourage production and use of natural gas, particularly for transportation. It claims that developing the 100-year supply of shale gas that the US seems to have would “support 600,000 jobs by the end of the decade.” But there is a problem: price. Natural gas is too cheap. And the low price, ironically, is throwing a monkey wrench into these plans. . Storage levels are 48% above the five-year average (EIA report). And prices, recently at around $2.28 per MMBtu, are less than half of the already low prices of last year. In fact, gas is so cheap that when it occurs as a byproduct in oil wells, it is often“flared,” that is burned off at the well, because installing the equipment to process and transport it is simply not worth it.

Natural Gas Gears Up for a Long Cold Summer - Soaring crude oil prices have been grabbing the headlines as they hover above $100 a barrel amidst concerns about Iran’s possible confrontation with Israel and the West. In their shadow, however, another big energy story has been hiding. Natural gas prices, ironically, have set a string of 10-year lows throughout 2012 so far. The two trends are not entirely separate. As energy producers have set off to drill for oil, encouraged by the lofty prices, they have also found natural gas. Meanwhile, new drilling technology means it’s possible to extract more natural gas than ever before from previously inaccessible rock formations (including the infamous “fracking”). On top of that, demand has been anything but rosy. Inventories are almost 44 percent higher than this time last year, thanks to warmer-than-average winter weather, and so utilities haven’t been drawing down stored reserves to deliver to consumers. And winter is ending early, with temperatures in parts of the country 10 to 20 degrees above seasonal norms. The “norm” for natural gas may not be seen again any time soon, analysts say. That norm is traditionally calculated on how much oil and how much natural gas it takes to produce a comparable unit of energy – and the relationship is completely out of whack right now. . “Forget about $5 natural gas. When can we get back to $3?” . (Natural gas prices currently hover at around $2.37 per thousand cubic feet.)

Water a concern in Western oil shale expansion - Amid bickering on Capitol Hill about the scope of shale oil extraction on public lands in the West, environmentalists are calling for deeper study into whether the thirsty region could handle the industry’s added strain to local and regional water supplies. The Obama administration last month released a plan that would open up nearly 462,000 acres of land in Colorado, Utah and Wyoming for the research and development of oil shale — fossilized algae trapped in rock that can be converted into energy in the form of shale oil. That scope of the plan was dramatically reduced from a Bush-era proposal, now being pushed by Republicans in the U.S. House of Representatives, which would open some 2 million acres of land. The U.S. Geological Survey estimates the U.S. holds about half of the world’s oil shale reserves, which could help boost the domestic energy supply. But environmentalists worry the difficult extraction of the resource would drain and taint water in the West. “Oil shale would foul our air and water, soak up enormous amounts of water, and disrupt local economies,”

Natural Born Drillers - Paul Krugman - To be a modern Republican in good standing, you have to believe — or pretend to believe — in two miracle cures for whatever ails the economy: more tax cuts for the rich and more drilling for oil. And with prices at the pump on the rise, so is the chant of “Drill, baby, drill.” More and more, Republicans are telling us that gasoline would be cheap and jobs plentiful if only we would stop protecting the environment and let energy companies do whatever they want. Thus Mitt Romney claims that gasoline prices are high not because of saber-rattling over Iran, but because President Obama won’t allow unrestricted drilling in the Gulf of Mexico and the Arctic National Wildlife Refuge. Meanwhile, Stephen Moore of The Wall Street Journal tells readers that America as a whole could have a jobs boom, just like North Dakota, if only the environmentalists would get out of the way. The irony here is that these claims come just as events are confirming what everyone who did the math already knew, namely, that U.S. energy policy has very little effect either on oil prices or on overall U.S. employment. For the truth is that we’re already having a hydrocarbon boom, with U.S. oil and gas production rising and U.S. fuel imports dropping. If there were any truth to drill-here-drill-now, this boom should have yielded substantially lower gasoline prices and lots of new jobs. Predictably, however, it has done neither.

Study Finds Tar Sands Has Higher CO2 Emissions Than Thought, Calls Land Restoration Pledge ‘Greenwashing’ - A new study finds the tar sands have yet higher CO2 emissions than expected because of the threat they post to forests and peatlands. Climate Progress has previously pointed out that tar sands development threatens the carbon-rich boreal forests. Now it has been quantified. A new study in the Proceedings of the National Academy of Sciences finds that existing industry plans for exploiting the tar sands will destroy over 29,500 hectares (65%) of local peatland. Peatlands are better known as bogs, moors, mires, and swamp forests. Their decaying organic matter is rich in carbon and already emerging as a major amplifying carbon-cycle feedback. The study, “Oil sands mining and reclamation cause massiveloss of peatland and stored carbon,” finds that this destruction will release stored carbon equivalent to 42 to 173 million metric tons of carbon dioxide, “as much as 7-years worth of mining and upgrading emissions at 2010 production levels. The study notes that this “will reduce carbon sequestration potential by 5,734–7,241 metric tons C/y” and points out These losses have not previously been quantified, and should be included with the already high estimates of carbon emissions from oil sands mining and bitumen upgrading

To the Last Drop - Witness - Al Jazeera -The small town of Fort Chipewyan in northern Alberta is facing the consequences of being the first to witness the impact of the Tar Sands project, which may be the tipping point for oil development in Canada. The local community has experienced a spike in cancer cases and dire studies have revealed the true consequences of "dirty oil". Gripped in a Faustian pact with the American energy consumer, the Canadian government is doing everything it can to protect the dirtiest oil project ever known. In the following account, filmmaker Tom Radford describes witnessing a David and Goliath struggle.

Canadian Government Targeting Opponents of New Oil Sands Pipeline - As U.S. environmental groups renew their battle against the resurrected Keystone XL oil pipeline, their counterparts in Canada are facing a deeper problem—a government campaign to limit their influence over Canada's Northern Gateway pipeline. The proposed Northern Gateway would funnel tar sands crude oil from Alberta to the Pacific Coast, where Canada could ship the oil via tankers to China and other countries. Canadian Prime Minister Stephen Harper expressed his support for the $6.6 billion project in January, before the first public hearing was held, and he reiterated his position during a recent visit to China. The Northern Gateway would consist of two 731-mile pipelines. One would funnel up to 525,000 barrels of oil per day from Alberta to the city of Kitimat on the British Columbia coast. The other would flow from Kitimat to Alberta, carrying a liquid used to dilute the heavy crude so it can flow in pipelines.

How much would Keystone pipeline help US consumers? - Often lost in the political wrangling over the controversial Keystone XL pipeline – on hold after President Obama rejected TransCanada’s initial construction proposal – are some key findings that run counter to the rosy picture of abundant supply and lower prices so often painted by US politicians. . Canadian companies backing the Keystone XL – touted as enhancing US energy security with a big new surge of imported Canadian oil – actually expect it to supply more lucrative Gulf Coast export markets as well as raise Midwest oil prices by reducing “oversupply” in that region. These little-publicized findings are contained in the studies and testimony of experts working for TransCanada, the company that wants to build the pipeline from Alberta’s tar sands across America’s heartland to Gulf Coast refineries.

Oil price gap costs producers $50-million a day - It’s costing the energy patch $50-million for every day that Canadian oil sells on the cheap. That’s an $18-billion annual hit to companies, and it could endure into 2013 or longer, according to a new analysis of the damage wreaked by an ongoing supply glut. “If you don’t think this is a big issue, think again,” said analyst Andrew Potter, who calculated the dollar impact of the current lower value of Canadian oil.Mr. Potter based his analysis on what he called, in a recent report, the “double discount” facing the Canadian oil patch. The industry spent 2011 watching the value of North American crude tumble relative to the international price of oil because of pipeline backups in Cushing, Okla., the key U.S. trading centre. Now, additional backups face Canadian oil moving into its key export market, the U.S. Midwest, and prices have fallen further. With the benchmark West Texas Intermediate price at more $105 (U.S.) a barrel, Canadian light oil this month has barely broken $90, while Canadian heavy has sold in the mid-$70s.

North Dakota oil drillers taking steep discounts for crude: North Dakota oil production is outpacing the ability to efficiently move the product to market, causing drillers to take deep price cuts at a time when national gasoline prices are on the rise, the U.S. Department of Energy said. Crude oil from North Dakota's rich Bakken and Three Forks formations has traded at record price discounts in 2012 compared to West Texas Intermediate, the U.S. benchmark, according to the Energy Information Agency, a branch of the Energy Department. The agency said Bakken crude reached a record price gap of $28 a barrel on Feb. 10. The price discount has thinned in recent weeks but remains well above historic levels, the agency said. Bakken crude was fetching $92.38 a barrel on Thursday, $15 below West Texas Intermediate. State Mineral Resources Director Lynn Helms said prices for North Dakota sweet crude generally mirrored West Texas Intermediate prices last year but began widening in January when President Barack Obama temporarily halted the $7 billion Canada-to-Texas Keystone XL pipeline, which would have carried 100,000 barrels of crude daily from North Dakota and Montana. "The Keystone XL was slated for 100,000 barrels a day in volume, and with that delay, the oil traders picked up on that," Helms said.

Why Twenty-First Century Oil Will Break the Bank — and the Planet (Michael Klare) Oil prices are now higher than they have ever been — except for a few frenzied moments before the global economic meltdown of 2008. Many immediate factors are contributing to this surge, including Iran’s threats to block oil shipping in the Persian Gulf, fears of a new Middle Eastern war, and turmoil in energy-rich Nigeria. Some of these pressures could ease in the months ahead, providing temporary relief at the gas pump. But the principal cause of higher prices — a fundamental shift in the structure of the oil industry — cannot be reversed, and so oil prices are destined to remain high for a long time to come. In energy terms, we are now entering a world whose grim nature has yet to be fully grasped. This pivotal shift has been brought about by the disappearance of relatively accessible and inexpensive petroleum — “easy oil,” in the parlance of industry analysts; in other words, the kind of oil that powered a staggering expansion of global wealth over the past 65 years and the creation of endless car-oriented suburban communities. This oil is now nearly gone.

Oil imports down, domestic production highest since 2003 - Against the backdrop of gasoline prices rising in an election year, a new Obama administration report cites "significant progress" in reducing foreign oil imports and increasing domestic oil and gas production. The report by six federal agencies was released early Monday on the first anniversary of a speech by President Obama in which he pledged to reduce American dependence on foreign oil imports by one-third in about a decade. According to the study, the United States reduced net imports of crude oil last year by 10%, or 1 million barrels a day. The U.S. now imports 45% of its petroleum, down from 57% in 2008, and is on track to meet Obama’s long-term goal, the administration maintains. Imports have fallen, in part, because the United States has increased domestic oil and gas production in recent years. U.S. crude oil production increased by an estimated 120,000 barrels a day last year over 2010, the report says. Current production, about 5.6 million barrels a day, is the highest since 2003. The U.S. has been the world’s largest producer of natural gas since 2009, the report says. Use of renewable sources of energy, such as wind and solar, is still relatively small but has doubled since 2008.

Why is American oil production up? - Here is President Obama, speaking about energy yesterday in Maryland:First of all, we are drilling. Under my administration, America is producing more oil today than at any time in the last eight years. (Applause.) Any time. That’s a fact. That’s a fact. We’ve quadrupled the number of operating oil rigs to a record high. I want everybody to listen to that — we have more oil rigs operating now than ever. That’s a fact. The President is right – oil production has climbed steadily and significantly since 2007. This helpful graph from the Energy Information Administration shows us why.The surge comes almost entirely from a big increase in the production of tight oil, aka shale oil. EIA projects this positive trend in tight oil production will continue:Production from tight oil plays is expected to continue climbing. High oil prices make tight oil development profitable in spite of the higher costs associated with the advanced production methods being used. The two big tight oil plays are known as the Bakken formation in North Dakota and Montana and the Eagle Ford shale in south Texas. According to EIA these two accounted for 84 percent of tight oil production in November 2011. Bakken is bigger than Eagle Ford but Eagle Ford’s production is growing more rapidly.

Vital Signs: Rising Cost of Imported Oil - The price of imported oil keeps rising. Petroleum import prices, which ultimately impact the price consumers pay at the pump, rose 1.8% in February, after rising 0.3% in January. Oil prices have climbed in recent months on tensions with Iran, but are muted compared with last year when oil import prices increased 2.1% on average each month.

Governments Spent $409 Billion Subsidizing Fossil Fuels In 2010 - In the midst of an election year, tied to a flurry of headlines about high prices for gasoline, there have been a lot of questions about the value and significance of government subsidies for the oil and gas industry. On a global scale, a closer look at the role of government subsidies reveals that they can be very much to blame for high oil prices. Call them subsidies, or tax breaks, or credits, the question is not about semantics, it's about evaluating whether one of the most profitable industries in the world needs a government benefit. But if you look at this issue worldwide, the problem is much greater than the drama surrounding America's $4 billion payout.

Saudi oil: The threat from within - Oil consumption in Saudi Arabia is the highest in the world, despite the fact that the economy is not heavily industrialized. According to International Energy Agency (IEA), Saudi Arabia consumes about three million barrels a day or about one billion barrels each year. If you divide that total by a population of 27 million people, oil consumption would amount to about (40) barrels per person each year, the highest per capita in the world. To put that in perspective, that rate is more than four times the rate of oil consumption in the United States, five times the rate of South Korea, and eight times the rate of consumption in Japan! What is more alarming is that while industrialized countries’ usage has been falling, ours has been growing. In the United States, which used to be criticized for its oil guzzling ways, per capita oil consumption has fallen from (11) barrels a day in 2005 to less than (9.5) barrels a day, a decline of about 14 percent in five years. Japan’s usage has declined from (7) barrels to around (5) barrels during the past decade, a decline of 25 percent. By comparison, consumption of oil in Saudi Arabia has jumped from around (30) to over (40) barrels a day, during the past decade, or 33 percent increase. If current trends continue, some experts expect Saudi domestic consumption to top seven million barrels a day by 2030!

IEA warns of falling spare oil production capacity - World oil markets face a “bumpy ride” in the months ahead, amid falling global crude supplies and tightening western inventories, the International Energy Agency said. In its closely-watched monthly oil market report, the IEA said that a series of unscheduled supply outages from Syria to the UK had reached 750,000 barrels a day. The outages, combined with concerns about Iran, have helped to push crude prices up 20 per cent since December. In recent weeks, prices have posted record highs in euro-denominated terms, surpassing the peak reached during the 2008 price spike. That has created a headache for western leaders, especially in the US where high petrol prices could jeopardise the fragile economic recovery and undermine President Barack Obama’s re-election hopes. As a result of the supply disruptions, the IEA, which advises the industrialised countries on energy policy, downgraded its full-year forecast for non-Opec production growth to 730,000 b/d from 900,000 b/d. As recently as last December, it was predicting non-Opec supply growth of 1 million b/d. The agency stressed it expected non-Opec production to recover as 2012 progresses

Global Fuel Supply Flattening? - This is interesting. In the OPEC MOMR released a few days ago, they have sharply revised down the level of liquid fuel supply for the past few months (by the best part of 1mbd). That in turn has given a shape to the average production curve (above) of flattening off in recent months (after the sharp rise in the fall of 2011). It's a bit too soon to read too much into that (given that the IEA is not deigning to release their total oil supply number in the free summary lately and that the EIA is always a few months behind). Still it's interesting and certainly could help to explain the sharp upward price movement of the last couple of months: Actually stagnant production could easily be as important as fear over war with Iran.

IEA Predicts Bumpy Ride for Oil Amid Non-OPEC Supply Cuts - The International Energy Agency cut forecasts for oil supplies from outside OPEC this year because of lower exports from Sudan and Syria, cautioning that reduced spare output capacity raises the risk of a price surge. Producers not in the Organization of Petroleum Exporting Countries will provide 53.5 million barrels a day this year, or 200,000 a day less than the IEA forecast last month. The agency kept estimates for global oil demand in 2012 unchanged, predicting fuel use will remain “stunted” by the economic slowdown and higher prices. Disappointing non-OPEC output will make the market more reliant on a “slim buffer” of spare production capacity from a few OPEC nations, the IEA said. “A real risk of another year of underperforming non-OPECsupply shines a spotlight once more on OPEC spare capacity,”the Paris-based agency said in its monthly market report today.“Non-OPEC output should recover as 2012 progresses. Until then,the market’s relatively slim ‘buffer’ suggests a bumpy ride inthe months ahead.”

SocGen: We're Getting Close To A Global Oil Tipping Point: SocGen is out with a new note on The global engine’s oil problem, looking at how long the global economy can bear prices at these levels. Here's the key part: While there is clearly upside for oil, due to real and threatened supply disruptions, the upside also continues to be contained by the limited strength of global demand, as it was through 2011. As a share of the global economy, oil consumption is already at extreme levels. Though coal and natural gas prices have helped contain the overall global energy budget, it is clear that another surge in oil prices, resulting from a supply disruption and not a surge in economic strength would be enough to tip the global economy back into recession. What is also important is that a weaker EUR and higher Brent prices have resulted in a disproportionately high price for the more fragile European economies. By contrast, the weaker mid-continent WTI price in the US, though not being felt at the pump owing to stronger product exports, has boosted refinery margins and lifted oil transportation and infrastructure employment in the US. In China, a stronger CNY and cheaper Asian and Middle Eastern oil have also dampened their exposure to the price rally. Emerging markets are additionally being cushioned by still relatively low coal prices and a lower aversion to coal consumption. These three charts also tell a lot:

Spikes and Speculation in the Oil Market – Flash Crash Part Deux? - If there is one thing that the history of commodity markets tells us it is that if producers can support and manipulate prices in their favour, then they will. As those who have read my previous two Naked Capitalism posts (here and here) will know, my analysis of the oil market in recent years is that investment banks have enabled oil producers to create not just one but two bubbles in the oil price. The first – a private sector bubble – was from 2005 to July 2008, and then – after a collapse in price from $147/barrel to $35.00/barrel in November 2008 – a public sector bubble was inflated in the first half of 2009 which remains to this day. I firstly outlined how passive ‘inflation hedger’ investors in Exchange Traded Funds and Index Funds essentially lent dollars to oil producers, and were able to borrow oil in return. In doing so, they not only perversely caused the very inflation they aim to avoid, but also eroded the foundations of the crude oil derivative markets as a risk management mechanism. Secondly, I explained how much of this flow of medium and long term risk averse investment which has financialized the oil market has used the very same Prepay technique which Enron used to defraud investors and creditors. By creating what is essentially Paper Oil the investment banks who come between the funds and the producers have been able to inflate and distort the market price of physical oil, and hence the derivative contracts based upon that price.

The $10-Per-Gallon Gas Has Arrived, In Paris - In early December, Christophe de Margerie, CEO of Total, the Exxon à la Française, shocked the French when he said that there was "no doubt" that a liter of gasoline would reach €2 and that the only question was when. He cited the calamities in the news at the time to justify the skyrocketing prices of oil and gasoline—source of Total’s mega profits. He was talking his book, obviously, which isn't illegal, not even in France. And now, €2-per-liter gasoline has arrived! More precisely, it has arrived at a gas station in the Rue Saint-Antoine in Paris, not far from the Bastille, in the 4th arrondissement. I used to walk by it every day an eternity ago when I lived in “le Marais” as the arrondissement is called. It’s a tiny gas station with rip-off prices by a parking garage entrance. And now it had the audacity to be the first in France to charge €2.02 per liter. $10 a gallon. It was reported on Carbeo.com, a site that tracks gas prices across France, and then made the national news, though it must have done little to bring business to the station. The national average, which has been hitting all-time highs since late last year, was €1.62 ($8 per gallon) as of last week, also a record, according to the Ministry of Sustainable Development—they have a ministry for everything in France.

Understanding the New Price of Oil - In the Spring of 2011, when Libyan oil production -- over 1 million barrels a day (mpd) -- was suddenly taken offline, the world received its first real-time test of the global pricing system for oil since the crash lows of 2009. Oil prices, already at the $85 level for WTIC, bolted above $100, and eventually hit a high near $115 over the following two months. More importantly, however, is that -- save for a brief eight week period in the autumn -- oil prices have stubbornly remained over the $85 pre-Libya level ever since. Even as the debt crisis in Europe has flared. As usual, the mainstream view on the world’s ability to make up for the loss has been wrong. How could the removal of “only” 1.3% of total global production affect the oil price in any prolonged way?, was the universal view of “experts.” Answering that question requires that we modernize, effectively, our understanding of how oil's numerous price discovery mechanisms now operate. The past decade has seen a number of enormous shifts, not only in supply and demand, but in market perceptions about spare capacity. All these were very much at play last year.And, they are at play right now as oil prices rise once again as the global economy tries to strengthen.

Has the global economy become less vulnerable to oil price shocks? - This paper examines the impact of oil price changes on global economic growth. Unlike some recent studies, this paper finds that oil price rises have had significant negative impacts on world economic growth. A time-series analysis of the data from 1971 to 2010 finds that an increase in real oil price by 10 dollars is associated with a reduction of world economic growth rate by between 0.4 and 1% in the following year. As oil prices approach historical highs, the global economy may be vulnerable to another oil price shock. As oil prices approach historical record levels, the debate on how important the impact of oil price changes is on the global economy has been resumed. Most recently, a paper by Tobias Rasmussen and Agustin Roitman, two IMF economists, finds that oil price rises have generally been associated with good times in the global economy. The authors do concede that for OECD economies, oil price shocks have lagged negative effects on the output, but insist that the effects have been small: for oil importing countries, a 25% increase in oil price is found to be associated with only 0.3% decline in output over two years

World Energy Consumption Since 1820 in Charts - If an economist views the period between World War II and 1970 as “normal” in terms of what to expect in the future, he/she is likely to be misled. The period of rapid energy growth following World War II is not likely to be repeated. The rapid energy growth allowed much manual work to be performed by machine (for example, using a back hoe instead of digging ditches by hand). Thus, there appeared to be considerable growth in human efficiency, but such growth is not likely to be repeated in the future. Also, the rate of GDP growth was likely higher than could be expected in the future. Even the period between 1980 and 2000 may be misleading for predicting future patterns because this period occurred before the huge increase in international trade. Once international trade with less developed nations increases, we can expect these nations will want to increase their energy consumption in any way that is possible, including using more coal. Another false inference might be that per capita oil consumption has declined in the past (Figure 6), so future declines should not be a problem. For one thing, the past drop in oil availability may very well have contributed to the employment issues noted above during the 2000 to 2010 period in the United States. Figure 2 also illustrates that a transition from one fuel to another takes many, many years–we have not at this point transitioned from away coal, and nuclear is still only a small percentage of world energy consumption.

Inter-Regional Trade Movements of Petroleum: Part 2 Global Trends in Exports and Imports - With the house-keeping chores of Part 1 out of the way, let’s look at the global trends.In subsequent parts of this series, I will described the petroleum export and import trends for each of the nine regions, which I have already analyzed and summed up in order to arrive at the world-wide trends described here.These data suggest that gross and inter-regional global imports and exports of petroleum and crude oil peaked five years ago in about 2007, or earlier in some cases. Global Trends in Total Petroleum and Crude Oil Production and Petroleum Consumption: I will start with the world-wide total petroleum and crude production statistics, as reported by the BP review (2011) and the EIA (Figure 1). The EIA’s International Energy Statistics division reports production as “total oil supply,” from 1980 to 2010.The EIA defines the total oil supply as including, “the production of crude oil, natural gas plant liquids, and other liquids, and refinery processing gain” (See Table Notes).Crude Oil data for Canada include oil processed from Alberta oil sands.

Most Americans Would Back US Strike Over Iran: Poll — A majority of Americans would support U.S. military action against Iran if there were evidence that Tehran is building nuclear weapons, even if such action led to higher gasoline prices, a Reuters/Ipsos poll showed on Tuesday. The poll showed 56 percent of Americans would support U.S. military action against Iran if there were evidence of a nuclear weapon program. Thirty-nine percent of Americans opposed military strikes. Asked whether they would back U.S. military action if it led to higher gasoline prices, 53 percent of Americans said they would, while 42 percent said they would not. The Reuters/Ipsos poll also found that 62 percent of Americans would back Israel taking military action against Iran for the same reasons. U.S. President Barack Obama has said all options are on the table in dealing with Iran's nuclear program, but he has encouraged Israel to give sanctions against Iran more time to have an effect.

It's 10 Minutes to Midnight: Introducing The Iran War Clock - War or peace in the Middle East amounts to a coin toss. The probability that the United States or Israel will strike Iran in the next year is 48 percent according to a new project that predicts the chances of conflict--the Iran War Clock. And as a result, the clock is set to 10 minutes to midnight. How does the Iran War Clock work? We've assembled a high-profile panel of experts from the policy world, academia, and journalism to periodically predict the odds of conflict. It's a diverse group ranging from a former Deputy Assistant Secretary of State for Iran, to a Senior Vice President at the Council on Foreign Relations; from a Deputy Head of the Institute for National Security Studies in Tel Aviv, to a military correspondent at Haaretz. Each panelist makes an individual estimate about the percentage chance of war and we report the average score. Based on this number, we adjust the Iran War Clock so that the hand moves closer to, or further away from, midnight. The Iran War Clock is not designed to be pro-war or anti-war. Instead, the purpose is to estimate the chances of conflict in the hope of producing a more informed debate. If people hold a very inaccurate view of the odds of war it could be dangerous.

Iran’s Crude Oil Exports to Fall 50% on Embargo, IEA Says - Iran’s oil exports will probablydecline by 50 percent when European sanctions take full effectin July, the International Energy Agency said. Shipments will fall by at least 800,000 barrels a day,David Fyfe, head of the IEA’s market and industry division, saidby phone from Paris, citing discussions with marketparticipants. Iran exported just below 2 million barrels a daylast month, compared with 2.6 million in November, the IEA,adviser to 28 industrialized nations, said in a report today.Iran’s oil minister said exports haven’t decreased. “It’s likely Iran will be casting around to try and findbuyers for 800,000 barrels to 1 million barrels,” Fyfe said.“That sets the floor of what potential reductions in Iranianexports might be. It could be much bigger than that.” U.S. and European Union leaders are increasing pressure onIran over its nuclear program, which the government in Tehransays is for civilian purposes. Oil sales earned the Persian Gulfcountry, the Organization for Petroleum Exporting Countries’second-biggest producer, $73 billion in 2010, accounting forabout 50 percent of government revenue, according to the U.S.Department of Energy. Saudi Arabia is OPEC’s biggest exporter.

High Oil Prices Cushion Iran from Sanctions - So far, high petroleum prices are helping Iran beat the new, ‘crippling’ US and EU sanctions. While Iran is producing about 500,000 barrels a day less today than was typical for it in recent years, the price has risen over 20% in recent months. As the Bernama article points out, if Iran made $250 million a day on petroleum exports of 2.5 million barrels a day at $100 a barrel (the Brent crude price of last fall), and if the exports have fallen to 2 million barrels a day but the Brent crude price has risen to $125, then the income isn’t that much reduced. Moreover, it is likely that some of the reduced sales to China were temporary, as a result of a tough price renegotiation. As Iran’s Asian importers realize that Iranian petroleum is a buyer’s market because of the European boycott, they will seek a price reduction. Some of Iran’s problems will come from tanker companies being unable to secure insurance if they carry Iranian petroleum. This obstacle, however, is likely to be overcome by trucking gasoline through Asia and by building overland pipelines to Pakistan, India and China. Pakistan is already openly defying the US on this score. Petroleum is fungible, and once it leaves Iran, it is hard to see how it can be sanctioned. In essence, it can be laundered.

U.S. asks Saudis to lift oil output from July (Reuters) - The United States is pressing Saudi Arabia to boost oil output to fill a likely supply gap arising from sanctions on Iran, Gulf oil officials said, adding that an increase in production is unlikely to be needed before July. Saudi Arabia is the only producer with spare capacity and oil importers will rely on Riyadh to fill the gap should Iranian output drop. Saudi Arabia has made clear it will only raise output if it sees additional demand for crude and does not want its oil policy implicated in efforts to disrupt Iran's atomic programme which the West says aims to develop a nuclear weapon. "There were talks held between Saudi and the U.S. and the U.S. asked if Saudi could be accommodating once the sanctions take effect in July. And the Saudi response was that it was ready to meet demand in the market if required, but would not like to take part in the politics," one Gulf official said. The official was speaking at a gathering of energy ministers from producer and consumer nations at the International Energy Forum (IEF) in Kuwait. A U.S. official declined to comment on the talks, saying only, "We consult regularly with the Saudis on a range of bilateral and global energy issues."

U.S. Said to Have Received Saudi Assurances on Ample Oil Supply - The U.S. has received assurances from Saudi Arabia, the United Arab Emirates and Kuwait that theywould raise oil production to help offset the effect of economicsanctions on Iranian exports, according to participants in discussions between the U.S. and oil-producing countries. While there have been no formal requests, negotiations oragreements for increased output, the U.S. officials said theyare confident that the Saudis and the UAE will boost production enough to prevent a dramatic increase in oil prices. The three Arab countries had excess capacity of 2.47 million barrels of oil a day, with most of that coming from Saudi Arabia, according to the Paris-based International Energy Agency’s Feb. 10 market report. While that’s not enough to compensate for the loss of all of Iran’s 3.5 million barrels, it would help limit the increase in crude and gasoline prices that the sanctions cause when they start to take full effect in July.

Saudi oil chief pledges to offset shortfalls - Saudi Arabia's oil minister said Wednesday that his country and other oil exporters are ready to offset any shortfalls in supply because of market volatility - an apparent reference to showdowns with Iran over its nuclear program. "There is ample production and refining capacity ... Saudi Arabia and others remain poised to make good any shortfalls - perceived or real - in crude oil supply," said Ali Al-Naimi at a major oil conference in Kuwait where he addressed envoys alongside Iranian oil minister Rostam Ghasemi. A transcript of Al-Naimi's remarks was given to reporters. Al-Naimi made no specific reference to Iran, which is OPEC's second largest oil producer after Saudi Arabia. But the comments come as U.S. and Western partners urge key Iranian oil customers in Asia, such as China and India, to cut back on their imports from the Islamic Republic and turn to other suppliers such as Western ally Saudi Arabia.

The Noose Tightens - Let’s assess this situation based upon the facts:

• U.S. economic sanctions are creating a hyperinflationary situation in Iran. Will that make the average Iranian supportive of the U.S. as they starve to death?
• The U.S. has now completely cut Iran off from electronically paying or receiving funds for their oil, effectively destroying their ability to trade.
• The U.S. will have three aircraft carrier attack forces off the Iranian coast in four days.
• The U.S. just moved a big deck amphibious attack ship into position off the Iranian coast in the last 7 days.
• Our number one ally in the world – Great Britain – has been meeting with Obama all week.
• Obama just floated the idea of releasing oil from the Strategic Reserve in order to suppress the price of gasoline.

It sure appears like preparations for war. It sure seems like we are tightening the noose around Iran’s neck in order to make them do something foolish. I don’t see Hillary being dispatched to Tehran in an attempt to ratchet down the escalation. I only see a military buildup and preparations for an attack. What do you see?

The Fear Premium - Today’s fragile global economy faces many risks: the risk of another flare-up of the eurozone crisis, the risk of a worse-than-expected slowdown in China, and the risk that economic recovery in the United States will fizzle (yet again). But no risk is more serious than that posed by a further spike in oil prices. The price of a barrel of Brent crude, which was well below $100 in 2011, recently peaked at $125. Gasoline prices in the United States are approaching $4 a gallon, a damaging threshold for consumer confidence, and will increase further during the high-demand summer season. The reason is fear. Not only are oil supplies plentiful, but demand in the United States and Europe has been lower, owing to decreasing car use in the last few years and weak or negative GDP growth in the U.S. and the eurozone. Simply put, increasing worry about a military conflict between Israel and Iran has created a “fear premium.”

Oil demand shift: Asia takes over - America, Europe: Get in the back seat. Someone else wants to drive. The realization that oil prices aren’t about them anymore has been slow to dawn on Americans after a century of being the world’s swing consumers. But the fact is that the world’s developing economies have been outbidding the developed OECD countries for oil since 2005. Some time this year, non-OECD oil demand will overtake OECD demand, and they will stay in the driver’s seat for the remainder of oil’s reign as the lifeblood of the global economy. The reason is simple: In Asia, they put eight guys on a small motorcycle that gets 60 to 80 mpg in fuel economy, or one guy and a load of boxes on a moped getting 225 mpg, while in the U.S. we drive around solo in SUVs that get under 18 mpg. So if you should wonder why oil prices remain stubbornly high while U.S. demand continues to fall precipitously, just keep the above photo in mind. Conventional oil supply hit its peak-plateau around 74 million barrels per day (mbpd) at the end of 2004, but demand kept right on growing, pushing prices up. To increase liquid fuel supply to meet the 90 mbpd the world will demand this year, we had to turn to unconventional fuels like tar sands, tight oil, and biofuels, all of which have far higher production costs.

China Jan oil demand up 5 pct on yr, off Dec peak - China's implied oil demand rose nearly 5 percent year-on-year in January, a touch below December's all-time record high, as refineries ramped up production and new processing facilities started up. Reuters calculations, based on preliminary government data from the world's second largest oil consumer, showed implied demand was about 9.59 million barrels per day (bpd) in January, largely due to refinery production hitting an all-time high of 9.34 million bpd. Real demand, however, could be weaker as stocks of refined oil products staged a third consecutive monthly gain by end-January and rose 14 percent from December, the official Xinhua news agency has said. "China usually builds up fuel stockpiles in January and February. From March, fuel stocks begin to fall quickly as industrial and agricultural activities accelerate," said a Beijing-based oil analyst who asked not to be identified. Implied oil demand is calculated by adding refinery throughput and net fuel imports, but not inventory changes. In December, implied demand was a record 9.71 million bpd.

Asia Fuel Oil-Hits 39-month peak, dents demand (Reuters) - Asia's fuel oil market languished on Wednesday, with only moderate activity seen for the swaps contracts, as the demand outlook remained depressed by high prices tracking the strong Brent crude benchmark. The March swaps contract rose to $752.13 a tonne by the Asian close, the highest level for a front-month contract since July 17, 2008, Reuters data showed. High outright prices encouraged sellers to price spot cargoes on a flat-price basis instead, with three out of the four deals transacted on such basis during the trading window. This has also pressured the premiums physical cargoes are able to fetch, with India's Bharat Petroleum (BPCL) cancelling its tender for a March 27-29 lifting parcel from Mumbai due to poor bids, according to industry sources. Taiwan's demand for fuel oil in January eased nearly 10 percent to 89,982 barrels per day, while exports from the country rose to 141,055 tonnes, government data showed. Formosa Petrochemical Corp has only sold its standard monthly offering of 40,000 tonnes of high-sulphur fuel oil and 15,000 tonnes of pyrolysis fuel oil for March lifting, with no additional cargoes offered so far. Bunker demand has also been pretty badly hit, with end-users taking limited supplies from Asia's largest bunkering port.

U.S. to challenge China’s curbs on mineral exports; China says it will push back - The Obama administration filed a trade complaint on Tuesday asking China to loosen its restrictions on exports of rare-earth minerals — materials essential to the manufacture of a wide range of products, from missiles and computers to car batteries and cellphones. In an appearance at the White House Rose Garden, President Obama announced that the United States has asked the World Trade Organization to facilitate formal consultations with China over its limits on rare-earth exports, in a case filed jointly with Japan and the European Union. Officials in Beijing said Tuesday that China will vigorously defend its right to control the export of such materials. The official state-run news agency, Xinhua, warned that any U.S. move to lodge a trade complaint over the issue would “backfire.” In choosing to make a stand, U.S. officials are highlighting an industry over which China has a near-monopoly. The country now produces more than 95 percent of the world’s rare-earth minerals, which are used in almost all advanced industrial products, from helicopter blades to solar panels to the batteries in electric cars to flat-screen televisions.

Obama Announces WTO Case Against China Over Rare Earths (CNN Video) -- The United States, the European Union and Japan are filing a challenge with the World Trade Organization against China's export restrictions on minerals that are crucial for the production of many high-tech devices, President Barack Obama announced Tuesday. In a statement to reporters at the White House, Obama said the case seeks to force China to lift export limits on certain minerals known as rare earths. China produces 97% of all rare earths, according to the European Union. The materials are used in products such as flat-screen televisions, smart phones, hybrid car batteries, wind turbines, energy-efficient lighting, electronics, cars and petroleum. "We want our companies building those products right here in America," Obama said. "But to do that, American manufacturers need to have access to rare earth materials which China supplies. Now, if China would simply let the market work on its own, we'd have no objections."

EU Joins U.S., Japan in Challenging China’s Rare-Earth Export Restrictions - President Barack Obama said his decision to challenge China’s export limits on rare-earth minerals at the World Trade Organization is part of his quest to make the U.S. more competitive in the global economy. “Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing,” Obama said in the White House Rose Garden this morning. “Our competitors should be on notice: You will not get away with skirting the rules.” The U.S., EU and Japan requested consultations with China, a step that will lead the governments to ask WTO judges to rule should negotiations fail to resolve the issue. China produces at least 90 percent of the world’s rare earths, 17 chemically similar metallic elements used in Boeing Co. (BA) helicopter blades, Nokia Oyj (NOKIA) cell phones, Toyota Motor Corp. hybrid cars and wind turbines. China says it curbed output and exports to conserve resources and protect the environment. In a similar case, the WTO found in July that Chinese limits on raw-materials exports broke global rules and gave domestic companies an unfair advantage.

China defends rare earths limits -- China defended curbs on production of rare earths used in mobile phones and other high-tech products as an environmental measure Tuesday, responding to reports the United States, Europe and Japan plan to file a trade complaint with the WTO. Global manufacturers that depend on Chinese supplies were alarmed by Beijing's 2009 decision to limit exports while it builds up an industry to produce lightweight magnets and other goods that use them. China has about 30 percent of rare earths deposits but accounts for 97 percent of production. Beijing needs to limit environmental damage and conserve scarce resources, said a foreign ministry spokesman, Liu Weimin. "We think the policy is in line with WTO rules," Liu said at a regular briefing. The United States, the European Union and Japan plan to file a World Trade Organization case challenging the restrictions, according to U.S. officials. They said President Barack Obama would announce the action Tuesday in Washington.

Vital Signs: Climbing Copper Prices - The price of copper continues to climb. Copper rose 6.7 cents Friday to settle at $3.8585 a pound, as investors cheered the latest U.S. employment report. February’s gain of 227,000 jobs comes amid concerns about global growth. Some view copper prices as an economic bellwether, because the metal is used widely in industry. Although copper lost some steam recently, it is up 12% this year.

Michael Pettis: The World Bank Proposes Tough Medicine For China - Contrary to some recent research reports cited in the press I do not think we have seen any substantial rebalancing of the economy towards consumption in 2011. This is largely an argument being made by economists who did not see why Chinese consumption repression was all along at the heart of the growth model. These economists are now too quick, I think, to hail evidence of a surge in consumption, but I find the evidence very weak and more importantly I am convinced that there cannot be a sustainable surge in consumption as long as the investment-driven growth model is maintained and as long as debt continues to rise unsustainably.And as for debt, it is still rising quickly. As regular readers know I have always argued that the rise in Chinese debt, as bad as it is, was not going to lead to a banking collapse or any other sort of financial collapse because of the way local and specific debt problems would be “resolved”. Debt would simply be rolled onto the government balance sheet. Financial Times gave me a nice gift – an opportunity to center my discussions – with this article: China has instructed its banks to embark on a mammoth roll-over of loans to local governments, delaying the country’s reckoning with debts that have clouded its economic prospects. China’s stimulus response to the global financial crisis saddled its provinces and cities with Rmb10.7tn ($1.7tn) in debts – about a quarter of the country’s output – and more than half those loans are scheduled to come due over the next three years.

Why China Faces a Catch-22 on Financial Reform -Amid all of the aggressive market reform that has taken place in China over the past 30 years, the country’s financial and capital markets are a glaring exception. Capital controls restrict flows of money in and out of the economy. The value of the currency, the yuan, is stage-managed by the state. The yuan isn’t fully convertible or allowed to trade freely outside of the country, either. Foreign investors can buy stocks on local exchanges only on a very limited basis. Interest rates are controlled by the government as well. Foreign banks hold a measly 2% of the country’s banking assets. For the good of China’s future economic development, this situation can’t persist. At the same time, opening up China’s financial markets and liberalizing capital flows will prove to be one of the most difficult reform efforts ever undertaken by Beijing’s policymakers. The leadership is presented with a nasty Catch-22. Keep capital markets and the financial industry tied up in regulatory knots and run the risk of an economic crisis. Liberalize capital flows and free up the financial sector and run the risk of a financial crisis. How China in coming years manages this problem will have huge implications not just for the health of the Chinese economy, but for the entire world.

Fighting for Answers From China’s Central Banker - At the People Bank of China’s annual press conference in Beijing on Monday, local journalists fought for a rare chance to put a question to China’s monetary policy makers, creating tense moments. A journalist from the Worker’s Daily attempted to wrest the microphone from a Xinhua reporter. A television presenter from Hunan television grabbed the mike from her colleague at the same organization and held forth with her own question. Sitting on the panel, central bank Gov. Zhou Xiaochuan appeared amused by the tooth-and-nail antics, smiling throughout. Mr. Zhou, who is approaching the end of his second term at the PBOC, also got some laughs from the crowd. In response to a question on whether he would throw his hat into the ring for the World Bank president job, after the departure of Robert Zoellick, he said ”there’s not too much point in thinking about it.” “If you study the history of the institution, it seems like they normally have an American in charge.”

Wealth Gap on Display at China’s Parliament - Outside its scripted meetings, China’s annual parliament gives rise to two activities that expose opposite ends of the country’s growth story: a boom in luxury shopping matched only by a surge in public complaints about corruption. The contrast between the opulence and the anger underlines one of the more negative legacies of President Hu Jintao and Premier Wen Jiabao, who presided over the final parliamentary session of the National People’s Congress, on Wednesday. They have pledged to build a fairer, “more harmonious” society, but the wealth gap has steadily widened during their time in office even as economic growth has averaged 10 per cent. The richest and the poorest have at least one habit in common – both flock to China’s rubber stamp parliament, which came to an end on Wednesday. Malls in Beijing benefit from a flurry of gift-buying for the thousands of officials who have congregated in the Chinese capital for the ten days of meetings. But just a few miles from their red-carpet conclave in the Great Hall of the People, another group that numbers well into the thousands descend on the grimier streets of Beijing. Ordinary citizens who have lost their land or their jobs, or have any number of other complaints, have over the past 10 days come to seek help from a central government that they hope is on their side.

Wen attacks party conservatives - Chinese premier Wen Jiabao fired a parting shot at conservative officials in the ruling Communist party, warning them that China could face another Cultural Revolution unless it undertakes urgent political reforms. “Without successful political structural reform, it is impossible for us to fully institute economic structural reform and the gains we have made in this area may be lost,” Mr Wen said at his farewell briefing at the National People’s Congress, China’s rubber stamp parliament which meets for just 10 days every year. “New problems that have cropped up in Chinese society will not be fundamentally resolved and such a historical tragedy as the Cultural Revolution may happen again,” the premier added, in remarks that were broadcast live on national television. “The mistake of the Cultural Revolution and impact of feudalism are yet to be fully eliminated.”Mr Wen, who will step down from the party’s powerful politburo standing committee later this year, directed his aim at rivals including Bo Xilai.

Wen Says Curbs Needed to Avoid China Property ‘Chaos’ -- Chinese Premier Wen Jiabao said that home prices remain far from a reasonable level and relaxing curbs could cause “chaos” in the market, indicating no imminent relaxation of cooling measures. “We must not slacken our efforts in regulating the housing sector,” Wen said at a press conference in Beijing today, according to an English translation. A bursting property bubble would hurt the entire economy, and the government wants “long- term steady and sound growth” in housing, he said.

Chinese Economy Already in ‘Hard Landing,’ JPMorgan’s Mowat Says - China’s economy is already in a so-called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist. “If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.” His team was a runner-up for best Asian equity strategists in a 2011 Institutional Investor magazine poll. Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. A report today showed foreign direct investment in China fell in February. Mowat said in May the risk of a hard landing was building in China as fixed-asset investment in real estate had increased even as property demand remained weak. That meant residential inventories will increase and lead to a contraction in construction activity,

China needs a new growth model, not a stimulus - Michael Pettis -- China is slowing down. After growing by more than 10 per cent a year for more than a decade, its economy is decelerating. Dreams of double-digit growth are over, as premier Wen Jiabao admitted last week to the Chinese leadership. Many analysts have therefore concluded that China needs monetary easing. They are wrong. On Friday we learnt that consumer price inflation had dropped to 3.2 per cent in February from 4.5 per cent the previous month. Other data releases were, however, weaker than expected. Industrial output growth was sluggish. Retail sales growth had dropped sharply. This is important: because China must urgently rebalance its economy away from investment and towards consumption, any weakness in consumption growth is a bad sign. The combination of good inflation numbers and bad growth numbers has led economists to call on the People’s Bank of China to goose the slowing economy by easing credit and perhaps even lowering interest rates. This, they argue, can spur consumption and investment growth, and with inflation dropping quickly, the authorities need not worry about igniting further price increases. This advice is based on a fundamental misunderstanding of how monetary policy works in a financially repressed banking system. In the US, monetary easing tends to boost both investment (by lowering the cost of capital for businesses) and consumption (by lowering the cost of credit and increasing wealth). But monetary easing doesn’t work that way in China. It does boost investment, as in the US. But Chinese monetary easing actually reduces consumption. Why? Because expanded credit and lower real interest rates increase the already very high financial repression tax imposed on Chinese households.

Satyajit Das: “All Feasts Must Come to an End” – China’s Debt & Investment Fueled Growth (Part 1) - The re-emergence of China has dominated recent economic and political discourse. The Chinese economy is forecast to expand by around 60% in the period between 2007 and 2012, compared to around 3% for developed economies. While China’s rise is important, its drivers are frequently misunderstood and poorly analysed. China’s economic structure is deeply flawed and fragile. The Chinese growth story may be ending. As an old Chinese proverb, probably apocryphal, holds: “There is no feast that does not come to an end.” Prior to the global financial crisis, China’s impact was mostly in manufacturing, especially consumer goods, and demand for commodities. With its large, low cost labour force China became the world’s manufacturing centre of choice, exporting around 50% of its output. This helped reduce inflation, lowering living costs throughout the world. China also emerged as a large purchaser of commodities. It is now the largest purchaser of iron ore and other nonferrous metals. It is also one of the biggest purchasers of cotton and soybeans. Chinese savings and foreign exchange reserves (totalling over $3.2 trillion) were a major source of capital for financing developed countries, especially governments. China exported savings of around $400 billion each year, helping reduce interest rates in the US by as much as 1.00% per annum. Its role as an exporter of capital flows is surprising given China’s average income per capita is around $4,000, well below that of the US and Europe.

“All Feasts Must Come to an End” – China’s Debt & Investment Fueled Growth (Part 2) - China’s recovery from the initial effects of the GFC was no miracle. Like the rest of the world, it was the result of “Botox economics”. Using the advantages of a centrally controlled, command economy, Beijing boosted output through government spending and directed bank lending to maintain growth. Unfortunately, China now faces significant problems. The weakness of its two major trading partners (US and Europe) means export demand is likely to remain subdued. Domestically, the side effects of debt driven investment are now emerging. The conventional view is China will be able to continue to stimulate demand using its large foreign exchange reserves, large domestic savings and low levels of debt. China’s $3.2 trillion in foreign exchange reserves are invested in predominately in US dollars, Euro and Yen, primarily in the form of government bonds and other high quality securities. These assets have lost value, through increasing default risk and falls in the value of the foreign currency against the Renminbi. Attempts by the Chinese to liquidate reserve assets would result in sharp falls in the value of the securities and a rise in the Renminbi against the relevant currencies with large losses. The reserves also force China to buy more US dollar, Euro and yen securities to defend the value of the existing portfolio, increasing both the size of the problem and risks.

Satyajit Das: “All Feasts Must Come to an End” – Fake Goods, Fake Growth? (Part 3) A significant part of China’s growth has been an illusion. Since 2008, China’s headline growth of 8-10% has been driven by new lending averaging around 30-40% of GDP. Given that (up to) 20-25% of these loans may prove to be non-performing, amounting to losses of 6-10% of GDP. If these losses are deducted, Chinese growth is much lower. The China economic debate is focused on the alternatives of a soft or hard landing. Both scenarios assume a slowdown in growth and transition to a troubled maturity. The case for the soft landing assumes that the investment and property bubbles are less serious than thought. Beijing has sufficient financial capacity to boost growth by loosening monetary policy and bank lending, while adjusting specific policies, such as lifting restrictions on housing sales to prop up prices. China is able to boost domestic consumption, replacing investment as the key driver of its economy. Excess capacity is gradually absorbed as the world economy recovers. Growth comes down gradually, without causing social and political disruptions. The case for the hard landing assumes the rapid and destructive unwinding of asset price bubbles and problems within the Chinese banking system. A poor external environment and losses on foreign investment exacerbates the problem. Growth collapses triggering massive social unrest and political tensions. More benign scenarios rely on the self interest of the Party and Chinese leaders, who will risk anything to maintain growth at around 7% or 8% to preserve social stability and control

More signs of a bumpy Chinese landing - So, the many meetings of the leaders of China have came to an end and the Shanghai stock market celebrated by falling 2.6% yesterday. There are a few things wroth noting from the past two days. As mentioned early on, Wen Jiabao has made it clear that GDP growth target for the year would be 7.5% instead of 8%. And just to recap, the inflation target is 4% yoy, and the M2 target is 14% yoy. Curiously, even though we have long known that the growth target will be lowered, the market did not like this. Bear in mind that 7.5%, if achieved, would be a very decent growth. There is a possibility that China is already growing less than 8%. J.P. Morgan certainly is declaring that a hard landing has already begun, via Bloomberg:“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

China Reports a Huge Trade Deficit - China said Saturday that its monthly trade deficit reached $31.5 billion in February, its weakest performance in over a decade and the latest indication of slowing growth in the nation’s economy. The huge size of the deficit surprised analysts, but they also cautioned that trade figures covering the first two months of the year tend to be distorted here by the Chinese New Year holiday. In January, China recorded a trade surplus of about $27.3 billion. For the two months combined, exports rose about 7 percent, while imports rose by about 7.7 percent, according to government data. Still, with China’s economy beginning to moderate amid growing signs of weakness in Europe, there are concerns that global growth will slow as well. Chinese leaders are already preparing for more moderate growth this year, closer to 7 percent, a significant slowdown from the last few years when growth was cresting closer to 9 or 10 percent. China also reported last week that industrial production and retail sales had slowed in the first few months of this year. In addition, China’s once-booming property market has been showing signs of weakness.

Enough appreciation for now - THE Financial Times reports today that China's central bank is hinting at an end to appreciation of the yuan, for the moment anyway: Top Chinese central bank officials on Monday said China’s huge trade deficit in February showed that the value of its currency was close to equilibrium after more than six years of gradual appreciation. “This trade deficit is a positive sign that the renminbi exchange rate is close to its equilibrium level,” Yi Gang, deputy central bank governor, said at the National People’s Congress, the annual session of China’s rubber-stamp parliament. China has run trade deficits with some regularity in recent months (apart from January, the data for which was influenced by the Chinese New Year), though for 2011 as a whole its economy ran a surplus. Rising commodity imports have helped drive the shift from deficit to surplus, though rising labour costs have also contributed to the move toward balance. As a piece in the most recent print edition argues, "cheap China" is increasingly an anachronism:

China central bank eyes freer yuan, policy flexibility (Reuters) - China will encourage the value of its yuan currency to be set by the market and step back from intervention "in an orderly manner", while keeping policy flexible to support credit growth in the face of volatile capital flows, the central bank said on Monday. Speaking days after China posted its biggest trade deficit in at least a decade, People's Bank of China (PBOC) Governor Zhou Xiaochuan Zhou said monetary policy moves would respond to liquidity conditions determined by the balance of payments, demand for yuan in markets and international capital flows. "The closer the yuan is to an equilibrium, the bigger role market forces will play in the yuan exchange rate. We will allow and encourage market forces to play a bigger role, and the central bank's participation and intervention in the market will decrease in an orderly manner," Zhou said. Zhou did not comment on speculation that China is ready to widen the yuan's trading band to create more flexibility, even as Beijing pushed the yuan sharply lower on Monday. It has set a weaker trading midpoint for the currency in five of the last six trading sessions, fueling some speculation in financial markets that Beijing may rely more on foreign exchange policy to stimulate exports and broader growth.

China to Speed FX Reform, Allow Freer Yuan Trade: Wen - China will intensify reforms of its currency regime and allow the yuan to float more freely, Premier Wen Jiabao said on Wednesday at the end of an annual parliament session punctuated by signs of a slowing economy. "In the Hong Kong market, NDFs (non-deliverable forwards) have started to fluctuate both ways. This tells us the yuan is possibly near a balanced level," Wen told a news conference on the last day of the 2012 National People's Congress meeting. "We will step-up exchange rate reforms, especially in increasing two-way fluctuations," the 69-year-old Wen said at his last annual post-parliament news conference. Wen retires next year along with President Hu Jintao, and recent data suggest the economic headwinds they face at home and abroad in their final year in power will complicate the ruling Communist Party's focus on maintaining stability. At the opening of the meeting last week, Wen cut China's annual economic growth target to an eight-year low of 7.5 percent, in part to create some leeway to rebalance the economy and defuse price pressures in the run up to the leadership transition that begins later this year.

China Faces a Tough Year in Exports - Speaking before Chinese and foreign reporters on the sidelines of the ongoing National People’s Congress on March 7, Chen Deming, China’s trade minister, stressed the challenges ahead. Beset by global economic troubles, rising domestic labor costs, and tightening at home, China’s growth in exports may reach 7 percent this year, with imports up slightly more, year on year, compared with the 20.3 percent and 24.9 percent jumps in 2011. China will likely achieve this year’s overall trade growth target, said Chen, but only with “arduous efforts.” The euro zone crisis weighs heavily on Chinese trade policy makers. Since Europe is the mainland’s largest trading partner and accounts for 18 percent of all Chinese exports, according to Shenyin & Wanguo Securities, problems there will continue to constrain China’s sales abroad. Chen said today that exports rose about 7 percent in January and February combined, over the previous year. That figure suggests February exports, due to be announced on March 10, will come in lower than the 32 percent gain shown in an earlier Bloomberg survey.

Vietnam offers manufacturers China alternative - Rapidly rising wages may be a headache for manufacturers and the Communist leadership in China, but they are good news for people like Ngo Truong Chinh in Vietnam. Mr Chinh recently took a job as a quality control manager at a factory that XP Power, the UK-listed electronic components manufacturer, has just opened in Binh Duong province, part of Vietnam’s main industrial belt near Ho Chi Minh City. “Labour costs are cheaper in Vietnam but the workers’ skills are good,” says Mr Chinh, a 35-year-old electronics graduate.“That’s why many foreign manufacturers are investing in Vietnam.” More video XP Power is just one of many manufacturers looking to diversify production beyond their China base to capitalise on lower wages and mitigate the risks of concentration in one location – a peril highlighted last year by the industrial impact of the devastating Thai floods and Japanese tsunami and earthquake. With China’s experienced workforce, well-developed supply chain and vast scale, few people believe its position as the world’s workshop is under threat. But spiralling wage costs in China have driven a growing number of labour-intensive manufacturers to switch to countries with lower wages, such as Bangladesh, Indonesia and Vietnam.

India Revokes Cotton Export Ban After China Complains: Limit Down - If there was any confusion as to who calls the shots in the world, the following anecdote should provide some needed clarity. Hint: it is not the US. After last week India announced it would proceed with a Cotton export ban, two days ago China logged "a formal protest against India's ban on cotton exports amid signs that India is rethinking the ban that was implemented a few days ago." As a result hours ago India announced that less than a week after enacting said ban, it is now overturning it. Of course, there is the diplomatic snafu of just why it did, and for India it has to do with "protecting" the interests of its farmers, who "complained that, due to higher production this year, they were already suffering from lower prices than they had expected and needed to export to recover their domestic losses." Of course, the farmers' position was well-known before the ban overturn. What wasn't known is just how vocal China would be, as suddenly it would scramble to find alternative sources as it fills its strategic cotton reserve. Turns out it was quite vocal. And India, unwilling to risk a trade war with the world's biggest economic power, promptly relented.

Chinese buying up Bordeaux estates (Reuters) - You could hardly do better than Chateau du Grand Moueys if you were looking for a metaphor to demonstrate Chinese interests in European wines, luxury goods and travel. It has a history that includes a Templar legend, vineyards in the heart of France's famed Bordeaux region and a new Chinese owner with plans to export the wine home and turn its palatial 18th century house into a luxury hotel for tourists from China. The French estate's new owner, Jin Shan Zhang is part of a wave of Chinese interests across Europe seeking to satisfy domestic demand for the finer things in life: French wines, luxury travel, foreign cars and fashionable clothes. In France, Britain, Italy, Germany and elsewhere across Europe Chinese tourists are being catered to in high-end shops selling them top labels in everything from couture to cutlery. Hotels, department stores and luxury boutiques have taken on Chinese-speaking staff and most of Europe's luxury firms have an Asian business strategy they are actively pursuing.

Tokyo says approval won for purchase of Chinese gov't bonds - Under the deal, Beijing gave the nod for Tokyo to buy 65 billion yuan (US$10.3 billion) in Chinese public debt, but completing the purchase “will take several months” because of administrative requirements, he said. China has already been investing in Japanese government debt in an apparent bid to diversify some of its currency reserves — the world's biggest — into yen amid concerns about Europe's debt crisis and prospects for the U.S. dollar. The December deal, following talks between the Japanese and Chinese premiers in Beijing, aimed to include “supporting sound development of the yen-denominated and the yuan-denominated bond markets.” But no further details of the Japanese purchase were given at the time. The Asian economic powers also agreed to promote the use of their currencies in bilateral transactions — such as yuan-denominated foreign direct investment by Japanese companies in China — to reduce foreign exchange risks.

'Made in Japan' stamp to disappear as tsunami sees industry move out - 'Made by Japan' will increasingly replace the 'Made in Japan' stamp on the goods the world buys, as the prolonged impact of the country's devastating tsunami pushes manufacturing overseas, according to economists. On Sunday, Japan marked the first anniversary of the disaster that decimated Japan's northeast coast, left more than 19,000 dead or missing, and sparked the worst nuclear disaster since Chernobyl. The disruption wreaked on global supply chains by Japanese factory shutdowns in the wake of the crisis has made businesses wary of the concentration of production in the country, Capital Economics has warned. These concerns are accelerating the "hollowing out" of Japanese industry, with companies trying to reduce risk by sourcing from Japan's competitors. Japanese manufacturers are meanwhile pushing production abroad and establishing back-up sites. "It is likely to mean fewer goods are 'Made in Japan', but more are 'Made by Japan',"

Japan's Shocking Keynesian Slip: "We Are Worse Than Greece" - In a stunning turn of events, a Japanese Ministry of Finance official admits to Richard Koo's worst nightmare "Japan is fiscally worse than Greece". Bloomberg is reporting that, at a conference in Tokyo, Yasushi Kinoshita says Japan's 2011 fiscal deficit was up to 10% of GDP and its debt-to-GDP has soared to over 230%. What is more concerning is the Kyle-Bass- / Hugh-Hendry-recognized concentration risk that Kinoshita admits to also - with a large amount of JGBs held domestically, the Japanese financial system is much more vulnerable to fiscal shocks (cough energy price cough) than Europe. Of course, the market is catatonic in its reaction to this - mesmerized by the possibility of buybacks and hypnotized at big-banks-passing-stress-tests - though we do note the small reverse stronger in USDJPY has reversed as this news broke and the USD pushes modestly higher.

BOJ Expands Loan Program to Fight Deflation The Bank of Japan said Tuesday it will stoke the economy with an additional ¥2 trillion ($24.32 billion) in lending, following a surprise monetary easing at its last meeting as it heightens its drive to rid the economy of debilitating deflation. "We came up with the measure as part of a package" to deal with deflation along with the credit-easing move last month, BOJ Gov. Masaaki Shirakawa said at a news conference following a two-day meeting of the bank's policy board. "Persistent efforts are needed to create growth potential and thereby defeat deflation,"

Japan Debt-Financing Concern Clouds BOJ’s Bond Buying:Economy - Some Bank of Japan board members are concerned that increased bond purchases by the central bank may be viewed as financing government deficit spending, minutes of last month’s meeting show. They said it was important “to clearly recognize and explain to the public” that bond purchases are not “for the purpose of monetization,” the document on the BOJ website showed today. The planned purchase of about 40 trillion yen ($479 billion) of debt a year is a “large amount,” they said. Government fiscal burdens, such as Japan’s public debt of twice the nation’s gross domestic product, can increase pressure on central banks to sacrifice their independence and prop up state spending. In the absence of fiscal austerity measures, last month’s expansion of bond buying could be seen as paving the way for monetization, JPMorgan Chase & Co. said previously in a report.

U.S.-Korea free trade pact takes effect amid controversy (Reuters) - A long-delayed U.S.-South Korea free trade agreement (FTA) that has stirred controversy in both countries took effect on Thursday, although the opposition in Seoul has vowed to renegotiate it if it wins elections this year. The deal between the world's top economy and Asia's fourth largest will boost trade by billions of dollars and create tens of thousands of jobs, the two sides say, making it one the biggest deals of its kind. "The U.S.-Korea agreement is a landmark deal with an important ally," U.S. Trade Representative Ron Kirk said in a statement hailing the accord as the most significant U.S. free trade pact in 20 years. "Starting today, Korea's doors are wide open for Made-In-America exports that will support well-paying jobs here at home," Kirk said. The deal has provoked outbursts of violence in South Korea's parliament and street protests, mostly by farmers, including a small demonstration in the capital on Thursday. The leader of the main opposition party, Han Myung-sook, this week backed down from a vow to repeal the deal altogether, saying she only wanted parts of it renegotiated.

The Global Innovation Revolution - Laura Tyson – As countries around the world struggle to lay the foundations for stronger sustainable growth in the future, they would do well to focus on policies that encourage innovation. Empirical studies across time and countries confirm that innovation is the primary source of technological change and productivity growth. And investments in research and development, as well as in the scientific and engineering workforce on which they depend, are critical drivers of innovation and national competitiveness.A new study by the National Science Board, the governing body of the National Science Foundation in the United States, examines trends in such investments for both individual countries and regions. These trends indicate that the global landscape for innovation changed significantly during the last decade. That landscape is likely to change further as several Asian economies, particularly China and South Korea, increase their investments in R&D and scientific and engineering education to secure their place as significant hubs of innovation. At the same time, crushing debt burdens may compel the US, Europe, and Japan to reduce their investments in these areas.

David Apgar: The Trouble With Jeff Sachs - Jeff Sachs has always been the most outspoken advocate of development aid so it would be out of character if he were not outspoken about becoming the head of the World Bank. But there has always been a lingering concern about his projects and his approach to development. And it sheds a lot of light on where development, economics, and politics are heading even if it’s the wrong concern. The concern is that because Sachs is so sure he has identified the best places to apply development aid – and so outraged aid offered to date has failed to meet his standards even for obvious causes such as health – he brushes aside risks like corruption and mistakes in program design. Worse, he sometimes seems to accuse aid critics of bad faith. And yet there are cases like Ethiopia where government military offensives have indeed followed periods of drought that saw big increases in assistance – at the urging of Sachs, among others. A deeper question for Sachs is whether impatience is really always a good thing in development. And his impatience puts Sachs in the company of the glassy-eyed optimists who have an enduring belief in the simplicity of development solutions.

Seven principles for better banking regulation - The global crisis has raised many questions. High on any list would be how regulators and supervisors missed the warning signs so spectacularly, particularly those responsible for overseeing the dangerously exposed financial system. This column, by one of CESifo’s European Economic Advisory Group, provides a diagnosis of the problem and outlines what can be done about it.

Greece 'Meets Bailout Conditions' After Debt Swap- Greece took an important step towards its second bailout after it managed to win a crucial debt swap, European leaders have said. The Greek deal with banks and other lenders is the largest restructuring of government debt in history. Some lenders who lost money as a result of the debt swap will be compensated. That is after the International Swaps and Derivatives Association classified the deal as a "credit event", triggering insurance payments. Under the debt swap, banks and other financial institutions have agreed to exchange their existing Greek government debt for new bonds, which are worth much less and pay a lower rate of interest. Some investors bought a type of insurance against that happening. Those payouts could be worth in total up to $3.2bn, only a small fraction of the 105bn euros ($138bn, £88bn) wiped-off Greece's debt burden. The credit ratings agency, Moody's declared Greece in default on its debt on Friday.

What Greece Means, by Paul Krugman - So Greece has officially defaulted on its debt to private lenders. It was an “orderly” default, negotiated rather than simply announced... Still, the story is far from over. Even with this debt relief, Greece — like other European nations forced to impose austerity in a depressed economy — seems doomed to many more years of suffering. And that’s a tale that needs telling. For the past two years, the Greek story has, as one recent paper ... put it, been “interpreted as a parable of the risks of fiscal profligacy.” Not a day goes by without some politician or pundit intoning, with the air of a man conveying great wisdom, that we must slash government spending right away or find ourselves turning into Greece. But what Greek experience actually shows is that while running deficits in good times can get you in trouble ... trying to eliminate deficits once you’re already in trouble is a recipe for depression. These days, austerity-induced depressions are visible all around Europe’s periphery. Greece is the worst case, with unemployment soaring to 20 percent... But Ireland, Portugal and Spain are in similarly dire straits. This was not what was supposed to happen. Two years ago, as many policy makers and pundits began calling for a pivot from stimulus to austerity, they promised big gains in return for the pain.

Greece Officially Defaults; Which European Country Is Next? - Well, it is official. The restructuring deal between Greece and private investors has been pushed through and the International Swaps and Derivatives Association has ruled that this is a credit event which will trigger credit-default swap contracts. The ISDA is saying that there are approximately $3.2 billion in credit-default swap contracts on Greek debt outstanding, and most analysts expect that the global financial system will be able to absorb these losses. But still, 3.2 billion dollars is nothing to scoff at, and some of these financial institutions that wrote a lot of these contracts on Greek debt are going to be hurting. This deal with private investors may have “rescued” Greece for the moment, but the consequences of this deal are going to be felt for years to come. For example, now that Greece gotten a sweet “haircut” from private investors, politicians in other European nations are going to wonder why they shouldn’t get some “debt forgiveness” too. Also, private investors are almost certainly going to be less likely to want to loan money to European nations from now on. If they will be required to take a massive haircuts at some point, then why in the world would they want to lend huge amounts of money to European governments at super low interest rates?

CDS: Insurers Pay Only When the Bond Is ‘All Dead’ - Rebecca Wilder - The saga that is the Greek CDS trigger – a credit event being ruled only after CACs were inserted retroactively and then used by the Greek government to force the debt swap – made me think of a classic scene in the Princess Bride. Watch the YouTube clip of Billy Crystal as Miracle Max, who famously states that Wesley is only ‘mostly dead’: “It just so happens that your friend here is only MOSTLY dead. There’s a big difference between mostly dead and all dead. Mostly dead is slightly alive. With all dead, well, with all dead there’s usually only one thing you can do….Go through his clothes and look for loose change.” In the context of the Greece CDS market, CDS were triggered only after Greek bonds were deemed ‘all dead’. Going forward, will CDS insurers pay only when a bond is declared ‘all dead’, rather than being ‘mostly dead’? This does to some extent discredit the viability of CDS as a hedge. Bill Gross agrees, as reported by the FT, stating that the sanctity of the contracts have been challenged. Historical data on gross CDS notional support Bill Gross’ views.

First, Let's Pick All the Judges - These days in Hungary, one person picks all the judges. This judicial “czar” just announced today that she was filling 129 vacant judgeships. Only 23 of the newly assigned judges were already judges before. That means fully 106 of these positions are awarded to judicial newcomers. New judges enter the Hungarian legal system for three-year probationary terms, under the watchful eye of the very government that will decide on their reappointments. These judges, therefore, are independent at their peril, knowing that their jobs depend on how the government evaluates what they do. The judicial czar also has the power to assign specific cases to specific courts. Hungarian law specifies where cases are normally tried, but in Hungary’s new constitutional order, these usual rules can be overridden by the judicial czar who can transfer specific cases to courts other than the ones that are assigned by law. These transfers of cases do not have to be accompanied by reasons explaining why the judicial czar selected those cases or why they wound up in the courts that they did. What is to prevent Hungary’s judicial czar from picking the judges and then moving sensitive cases to the judges the government prefers? Not the law, at least not anymore.

EU to cut off funds to Hungary, OECD sees recession (Reuters) - The European Union prepared to freeze half a billion euros in aid to Hungary on Tuesday, for the first time punishing a member state for flouting budget rules Hungary was trying to block the move, a diplomat said, as a report from the OECD group of developed nations predicted the country of 10 million would slide into recession this year. A decision to hold back 495 million euros in EU cohesion funds raises the stakes in Prime Minister Viktor Orban's struggle to secure funding from Brussels and the International Monetary Fund that he needs to stabilise the economy and prop up the ailing forint currency. The EU charges that some of Orban's policies clash with its rules. "Our understanding is that the suspension decision is going to go ahead,"

Spain’s new government faces first strike - Spain’s two largest unions, Comisiones Obreras and UGT, voted on Friday to call for a general strike on March 29 against reforms they called “the most regressive in the history of Spanish democracy”. The labour reforms of Mariano Rajoy’s government grant employers greater flexibility to pay lower compensation when they fire workers, a change Mr Rajoy argues is crucial to increase Spain’s economic competitiveness, but one that has enraged the country’s unions. Spain is struggling with more than 5m people, a fifth of its workforce, unemployed. The government argues that strong support from employers for the labour reforms demonstrate that it is taking the right steps to tackle joblessness. The previous general strike in Spain, called in September 2010 against the Socialist government of José Luis Rodríguez Zapatero for raising the national retirement age, saw 7.5 per cent of all state workers walk out, according to the then government.

Avoiding a Lost Generation - iMFdirect - Young people were innocent bystanders in the global financial crisis, but they may well end up paying the heaviest price for the policy mistakes that have led us to where we are today. Young people will have to pay the taxes to service the debts accumulated in recent years. Moreover, the global economy is threatened by continued strains in the euro area, and unemployment is still climbing in several countries, in particular in Europe. Young people (those aged 15 to 24) are the most affected, and youth unemployment has reached record levels in a number of countries. If the right policies are not put into place, there is a risk not only of a lost decade in terms of growth but also of a lost generation. Consider this. In Spain and Greece, nearly half of all young people cannot find jobs. In the Middle East, young people account for 40 percent or more of all unemployed people in Jordan, Lebanon, Morocco, and Tunisia and nearly 60 percent in Syria and Egypt. And in the United States, which traditionally has had a strong job creation record, more than 18 percent of all young job seekers cannot find employment. (video)

Portugal Yield at 13% Says Greek Deal Not Unique: Euro Credit - The good news is Greece won’t default on March 20, and 10-year borrowing costs for Spain and Italy have dropped below 5 percent. The bad news is similar- maturity Portuguese bonds still yield more than 13 percent. Last week, Greece pushed through the biggest sovereign restructuring in history, with private holders forgiving more than 100 billion euros ($131 billion) of debt, a condition for the nation to win the bailout it needs to repay 14.5 billion euros of debt coming due next week. Unlimited European Central Bank loans to banks have halted a bond-market rout that prompted investors to drive German yields to record lows and yield premiums on the securities of its regional peers to euro-era highs. The Italian 10-year yield has dropped more than 150 basis points and the rate on similar- maturity Spanish debt is about 80 basis points lower since the ECB announced Dec. 8 it would offer loans to financial institutions through two longer-term refinancing operations.

Economic malaise forces Belgium to extend austerity (Reuters) - Belgium will extend austerity measures by 1.82 billion euros ($2.39 billion) because of a possible contraction of its economy this year, to keep its 2012 budget deficit within EU limits. After a full week of talks, ministers from the six-party coalition agreed a series of measures on Sunday as well as the freezing of a further 650 million euros of spending, in case further economic weakness meant more savings were required. Belgium will raise tax on tobacco and investment products. It will save by postponing delivery of army helicopters, promoting generic medicines and giving less aid. One-offs, notably the 289.6 million euros of state subsidies that postal services operator Bpost must return, will also help. The new savings add to the 11.3-billion euro package of measures agreed when the government took power at the end of the year. Those measures included raising the effective retirement age from a current average of 59 and hiking tax on company cars. Belgium has pledged to bring its public sector deficit down to 2.8 percent of gross domestic product (GDP) this year from 3.8 percent in 2011. It risks an EU fine if its deficit does not fall to at least 3 percent.

ECB Calls for "Naming and Shaming" of EMU Budget Violators; Public Warnings, My Goodness! - After years of violating the 3 percent maximum budget deficit restriction as stated in the Maastricht Treaty, Germany is finally a solid citizen. The Spiegel Online notes German Budget Deficit Plunges to 1 Percent of GDP. Greece, Portugal, Italy and Spain may hog most of the negative press when it comes to debt in Europe. But Germany too has been in violation of European Union budget rules in recent years, posting a deficit of 4.3 percent of gross domestic product (GDP) in 2010, well above the 3 percent maximum imposed by the Maastricht Treaty. On Friday, though, Germany's Federal Statistics Office announced that the country's deficit plunged in 2011 and, at 1 percent, is now well within EU limits. Now that Germany has gotten its act together, it's time for "Naming and Shaming" of everyone else. The Financial Times reports ECB calls for tougher rules on budgets:The European Central Bank has sharpened its hardline stance on eurozone fiscal policy by urging the still-tougher policing of member states’ public finances, including by “naming and shaming” the worst offenders.

EU Budget Deal May Leave Spain Struggling to Meet Deficit-Reduction Goal - European Union pressure on Spain to make additional budget cuts may not be enough to compel the government in Madrid to bring its deficit in line with the 27- nation bloc’s rules next year. European finance ministers told Spain late yesterday to make cuts equivalent to 0.5 percent of gross domestic product from the 2012 budget. Economy Minister Luis de Guindos said Spain, the euro region’s fourth-biggest economy, remained “absolutely committed” to getting the shortfall under the EU’s 3 percent limit in 2013. “Spain would have to reduce the cyclically adjusted public deficit by a total of about 7 percent of GDP this year and next,” which would be an “enormous tour de force.”

Brussels Presses Spain for Budget Details on How Spain Will Reduce Deficit to 3% of GDP; Threatens 2 Billion Euros Fine - EMU officials in Brussels want to see specific details on how Spain will reduce its budget deficit to 3% of GDP in 2013. Given Spain's 2011 deficit was 8.5% of GDP, EMU officials do not believe Spain can meet a goal of 3%, nor should anyone else. The targets will not be met. Moreover, some in Brussels accuse Spain of artificially inflating the 2011 deficit so as to better meet its interim target. Those are contradictory accusations actually. If the deficit is artificially inflated, it should be easier to make the targets. Should Spain come up with the numbers to show it can hit a 3% target in 2013, then the EMU bureaucrats may give Spain some leeway on the dates and interim targets. Otherwise Brussels threatens to fine Spain .2% of GDP, roughly 2 billion euros. From El Economista via Google Translate: Brussels Presses Spain for Budget Cut Details If Spain introduces "new and real measures" that will not endanger the fulfillment of the Stability Pact, then the Eurogroup would be willing to negotiate relaxing the deficit target this year (which the Government has placed unilaterally in 5.8% instead of 4.4% agreed with the EU). However, if De Guindos does "not convince" the EMU that Spain will respect its commitments, the Eurogroup will leave the way open for the Vice President of the Commission responsible for Economic Affairs, Olli Rehn, to reactivate the excessive deficit procedure penalty that could ultimately a fine of up to 0.2% of GDP (about billion euros).

Europe’s Trust Deficit, by Barry Eichengreen - There is no shortage of talk nowadays about Europe’s deficits and the need to correct them. ... But none of these is the deficit that really matters. The deficit that prevents Europe from drawing a line under its crisis is a deficit of trust. First, there is deficient trust between national leaders and their publics. We saw this most visibly in the person of former Italian Prime Minister Silvio Berlusconi... But even the most stalwart European leaders have lost their followers’ trust by baldly saying one thing today and the opposite tomorrow. Second, there is a lack of trust among European Union member states. The real reason why the northern Europeans have been unwilling to provide a “big bazooka” – that is, extend more financial assistance to Southern Europe – is that they don’t trust the beneficiaries to use it wisely. Third, there is lack of trust among the social groups called on to make sacrifices. In other words, lack of social trust blocks structural reform. The Greek version of this dilemma, in which no one pays taxes because no one else pays taxes, is particularly stark.

Italy GDP data confirm 'technical' recession --- Italy's gross domestic product declined by 0.7% in the fourth quarter, compared to the three months in the prior quarter, Italy's statistical office, ISTAT, said on Monday. Compared to the year-ago quarter, GDP fell 0.4%. The figure was inline with expectations and confirmed a preliminary estimate released in February. The data confirm that Italy has now experienced two consecutive quarters of shrinking GDP, the technical definition of an economy entering recession. The Italian FTSE MIB /quotes/zigman/1482176 XX:FTSEMIB -0.13% was down 0.4% at 16,415.90 in early-afternoon trading.

Italy in recession, headache for PM Monti - Italy is in recession, final data confirmed on Monday, underscoring the difficulties facing Mario Monti's technocrat government as it grapples with a shrinking economy dragged down by austerity measures and a debt crisis. Italy's economy shrank 0.7 per cent in the fourth quarter of 2011, following a 0.2 per cent decline in gross domestic product in the third quarter. Mr Monti, who rushed through a 33 billion euro (S$54.6 billion) austerity plan in December and is now working on reforms to boost growth, is due to meet Germany's Chancellor Angela Merkel on Tuesday for talks in Rome. Germany's economy contracted by 0.2 per cent in the fourth quarter, but analysts are expecting Europe's largest economy to pick up steam again this year, while Italy is seen lagging. Weak consumption in the euro zone's third largest economy weighed heavily in the fourth quarter, while investments and inventories also declined but net exports contributed positively.

Tax Cheats Become Italy’s Public Enemy - When five officials from Italy's internal revenue service entered the Dal Duca restaurant in Rome’s trendy Trastevere neighborhood one night two weeks ago, they were not there to eat. Instead, over three hours the tax collectors interviewed the staff, took a look at the books and then checked out the cash register receipts at the end of a busy night of dinner service. The unexpected intrusion was part of a new, all-out war against tax evaders that Italian officials have opened on several fronts, hoping to close Italy’s $2.5 trillion public debt and revive a frail economy that has been buffeted by the euro crisis. In addition to banning cash transactions, it has included an ad campaign comparing tax evaders to parasites. There have been headline-grabbing raids on stores, hotels and restaurants in affluent Italian cities. For good measure, tax officials have also been stopping luxury cars and asking drivers to show their licenses, then using the information to pull their most recent tax returns.

Vital Signs: Italy’s Falling Borrowing Costs - Italy’s borrowing costs, which some investors consider a gauge of the intensity of Europe’s sovereign-debt crisis, have tumbled in 2012. The yield on the 10-year Italian government bond inched up to 4.918% Monday, but is far below the 7% level notched in January. On Nov. 25, Italian bond yields hit 7.33% — a level economists warn is unsustainable over the long run.

Sarkozy Threatens to Exit Schengen Agreement - French President Nicolas Sarkozy delivered a stern ultimatum to the European Union at an election rally Sunday, saying he will withdraw France from the Schengen accords, which allow free circulation within most of the bloc's borders, unless the E.U. hardens its immigration policy. The incumbent president, who is trailing Socialist rival François Hollande in polls, also said that if re-elected he will demand EU partners pass a "Buy European Act" similar to the "Buy American Act" adopted by the U.S. in 1933, which required the government to prefer U.S.-made products in its purchases. Failing significant progress within the year, France will apply the rule unilaterally, he said. "I want a political Europe that protects its citizens," Mr. Sarkozy said. The French president, who is hoping to kickstart his flagging re-election campaign, said that unless significant progress is made within twelve months to cut the number of foreigners allowed to enter EU borders, France will leave the Schengen area, a move that would deal a blow to the free circulation of people within the union.

Exclusive: Bailout can make Greek debt sustainable, but risks remain: EU (Reuters) - Greece's second bailout package can make its debt sustainable, but Athens will have to stick firmly to agreed policies until 2030 and may need more money after 2014, an updated debt sustainability analysis by international lenders shows. The analysis, prepared by the European Commission, the European Central Bank and the International Monetary Fund for euro zone finance ministers and obtained exclusively by Reuters, shows that after the debt swap at the weekend, Greek debt could fall to 116.5 percent of GDP in 2020 and 88 percent in 2030. "Results show that the program can place Greek debt on a sustainable trajectory," said the analysis, marked strictly confidential. However, it also warned that the debt trajectory was extremely sensitive and the program was "accident prone". It said the restructuring of privately held Greek bonds would help to initially reduce debt, but that debt would spike up again to 164 percent of GDP in 2013 due to the shrinking economy and incomplete fiscal adjustment. "Once the fiscal adjustment is complete, growth has been restored, and privatization receipts are accruing, steady reductions of the debt ratio commence. Greece would have to maintain good policies through 2030 to reduce the ratio below 100 percent of GDP," the report said.

Yields jump on new Greek bonds after restructuring-- New Greek bonds issued after the country's 206-billion-euro ($270 billion) bond-swap deal last week started trading Monday at the highest yields in the euro zone, according to media reports. The debt-laden country issued 20 new bonds with maturities between 11 and 30 years and early pricing showed that bonds with the shortest maturity traded at yields around 19%, while the 2042 bond traded at yields around 14%. Analysts said the inverted yield curve indicates that investors remain skeptical of Greece's ability to meet the terms of its second bailout and might need further debt restructuring, the media reports said. Greece succeeded in shaving off more than 100 billion euros from its debt in a bond swap deal Friday, after using collective-action clauses to force some bondholders into the swap. The International Swaps and Derivatives Association said that the use of CACs qualified as a credit event, which requires a payout to those who held credit-default swaps as insurance against a Greek default. The debt restructuring was necessary to receive a second bailout from the European Union and the International Monetary Fund, which is expected to get final approval when the euro-zone finance ministers meet in Brussels later in the day

New Greek Bond Prices Signal Further Woes --Greece looked set to secure a second bailout package worth EUR130 billion Monday after pushing through a crucial debt exchange deal, but the distressed levels at which its new government bonds began trading Monday highlighted the enormity of the challenge the country faces to gets its debts on a more sustainable footing. Greece received strong participation at a debt restructuring deal last week which was seen as crucial to receiving the second bailout package. The country had to tie up external assistance as it faced a EUR14.4 billion bond redemption that it could not afford to meet. Although Greece was expected to tie-up the funds, the new series of Greek government bonds were being quoted at around 22-26 cents to a euro, price levels that are normally associated with heavily distressed debt. Under the debt exchange, private-sector investors will swap their old bonds for new ones with less than half the face value, lower coupons, and longer maturities, effectively writing off EUR105 billion in Greek debt holdings The new Greek government bonds have a range of maturities between 11 and 30 years, with step-up coupons. These coupons range from 2% up to 2015, 3% from 2016 to 2020, 3.65% in 2021 and 4.3% between 2022 and 2042.

'Mistake' to Think Greek Crisis Over: German Finance Chief - It would be wrong to assume that the euro zone has resolved Greece's sovereign debt crisis after the successful completion of the country's debt swap with its private creditors, German Finance Minister Wolfgang Schaeuble said on Friday. Athens won strong acceptance from its private creditors on Thursday for the bond swap deal, a crucial requirement for unlocking a second bailout from the European Union and the International Monetary Fund worth 130 billion euros. "Greece has today got a clear opportunity to recover. But the precondition is that Greece uses this opportunity. It would be a big mistake to give the impression that the crisis has been resolved. They have an opportunity to solve it and they must use it," Schaeuble told a news conference.

Greece is now on its way to a real disaster - In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. And fourth quarter GDP was revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008. Unemployment is veering toward disaster: 21% in December, announced Thursday, was horrid enough. But youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!No economy can service a gargantuan mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.

“A harder Default To Come”“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner. In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008. Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!

The Greek PSI Lawsuits Begin - You didn't think investors would voluntarily give up on the potential to generate returns between 50% and 333% now did you following the 'coercively voluntary' (aka Schrodinger Spanish Inquisition) Greek debt exchange? Because here they come. Reuters reports that a Hamburg law firm representing 110 Greek bond holders have formed a class action group and intend to sue banks and the Greek state following the Greek swap. It is unclear yet if there are any hedge funds participating in the group, or if these are the entities represented by Bingham. Most likely not: those will almost certainly seek non-class action status so as not to dilute the legal effort, if not fees. However, now that the precedent is set, look for the onslaught of lawsuits to start in earnest. What is probably quite important is that European taxpayers will now be delighted to know they are paying the Troika lawyers' $1000/hour legal fees (and uncapped expenses).

Adding Insult To Injury, Greek Gas Prices Are Now The Highest In Europe - Just because being officially the first broke Eurozone country, having 50%+ youth unemployment, and a collapsing economy is not enough, adding absolutely insult to injury is the following chart from Reuters, which shows that compared to other European economies, Greece now has the highest gas price in the old continent. And indicatively while America complains over what is now the highest gas prices in 2012 per AAA, at $3.80 average for a gallon of regular, 30 cents higher than a month ago, and 35 cents higher compared to a year earlier, gas in Greece now sells for over $9.00/gallon. But at least the IMF's worst case projects that Greek economy will be flat in 2013. And that's the "worst case scenario." But at least Europe sure taught Iran a lesson by halting crude imports. Oh yes, that Iran just happened to be one of the biggest suppliers to Greece - oh well. At least Greece still gets to proudly say it is a European colony, everything else be damned.

Is The IMF Giving Up On Greece?: The International Monetary Fund appears to be scaling back its contributions and exposure to Greece, Bloomberg reports. While the Fund contributed 27 percent—or €30 billion ($39 billion) to the first bailout—it will only be responsible for 14 percent—€18.2 billion ($23.8 billion)—of aid contributed as part of Greece's second bailout package. The IMF is set to formally approve €28 billion ($36.7 billion) for Greece, comprising both funds remaining from the last bailout and the new money stipulated as part of the second bailout. This developement comes just as Greece completes a debt restructuring with its private creditors. This constituted the first default of an advanced economy in more than 60 years. The IMF's wariness in devoting more funds to the Greece rescue is an ominous sign that it sees the likelihood of a second Greek debt restructuring in the future. While increasing its net exposure, it is nonetheless doing so cautiously.

IMF Approves $36 Billion Funding for Greece — The International Monetary Fund says it has approved $36.56 billion in funding for crisis-hit Greece over the next four years.An IMF statement says the executive board’s decision Thursday allows for immediate release of $2.15 billion of these funds as part of the country’s second bailout. Greece will receive a total $225.7 billion in rescue loans from its eurozone partners and the IMF to keep it afloat in the next few years, as dizzily high borrowing rates have blocked its ability to raise money on the international bond markets. The country has survived since May 2010 on a first rescue loan package worth a total $143.63 billion. In return for both bailouts, Athens has imposed stringent cost-cutting measures, slashing pensions and salaries while repeatedly increasing taxes.

Greece’s Pyrrhic Victories - C J Polychroniou explains how the latest pair of efforts aimed at addressing the Greek crisis, the newest bailout package and the bond swap, create tremendous complications down the road even if they may offer a temporary respite. As you know, the bailout money was shackled to a series of grim austerity measures that will push the already struggling nation further under water. But his analysis of the bond swap is even more intriguing. One way of getting at the political challenge in the eurozone is to note that many powerful economic solutions involve, not to put too fine a point on it, reinvesting resources from countries like Germany into countries like Greece. This is something that happens all the time within units that understand themselves as nations (or aspire to such an understanding. As Dimitri Papadimitriou and Randall Wray point out, after reunification Germany invested resources in the former East Germany in much the same way). But the question of whether revenues from New York are being shoveled into Mississippi rarely becomes a live issue. Within the eurozone, however, these distributional questions are fraught with political peril; dooming a whole host of solid policy solutions. And Polychroniou suggests that the restructuring of roughly 200 billion euros in private debt that just took place may have actually made these political dynamics worse.

The Greek Debt Deal: Austerity on Steroids -The deal Athens struck with its private creditors looked like a pipedream to most of us just a couple of months ago. About 85 percent of private-sector lenders agreed to accept a bond swap in which new bonds they receive will be worth about 25 percent of the value of the bonds they surrender. Before this finishes, that percentage will rise to 90-odd percent. This will include the major U.S. banks, which hold about $80 billion in Greek bonds, roughly $30 billion of which is insured, leaving them with a net exposure of about $50 billion. But the real U.S. exposure is more broadly based: It is to the European economies as a whole and its wobbly banks in particular. With last week's deal, Greece will have cut $132 billion from the $272 billion in sovereign debt held by the private sector. That will save Athens about $20 billion in interest and principal payments per year. In addition, it can look forward to the EU and the International Monetary Fund signing off as early as this week on a rescue package worth $171 billion, which Greece needs immediately—as in right now—if it is to avoid a default on a portion of its remaining debt.

Greek Students Fight Stray Dogs and Despair Amid College Cuts - In the universities of Athens, the city where Plato taught and Cicero studied, campuses are covered in anarchist graffiti, stray dogs run through buildings and students take lessons in Swedish with the aim of emigrating. Higher education in Greece, as in much of Europe, has been battered by the recession and austerity measures. Budget cuts of 23 percent since 2009 mean buildings aren’t heated in the winter, schools have slashed faculty salaries and newly hired professors can wait more than a year to be appointed. Students say it’s hard to be hopeful with youth unemployment surpassing 50 percent and protesters seizing university buildings. “People are pessimistic and sad,” said Konstantinos Markou, a 19-year-old law student, speaking in a lobby at the University of Athens, where dogs fought nearby and students say drug dealers and users congregate. Public spending on universities has been cut across the region, with Italy, Greece, Hungary and the U.K. seeing reductions of more than 10 percent since 2008, according to the European University Association in Brussels. The cuts are especially damaging for countries in southern Europe transitioning from low-productivity economies based on agriculture and light manufacturing to knowledge-based economies that demand an educated workforce.

Troika Finds Greece Already Likely To Miss Bailout Budget Targets - The money for Greece has not yet been wired, and already a deeper dive into the previously released Troika report shows what is glaringly obvious to anyone who follows the actual collapse of the Greek economy: that the country is already on course to miss its budget targets for the immediate future (for insane EU assumptions on what the Greek economy should look like through the lens of a Eurocrat, see our chart of the day). The Telegraph reports: "Athens has probably cut spending enough to bring its primary deficit down to 1.5pc this year as agreed. But "current projections reveal large fiscal gaps in 2013-14" according to a leaked draft report by the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF). In its report, the troika said Athens will have to impose further fiscal cuts of as much as 5.5pc of GDP to meet next year's targets."

Greek Bonds Signal $2.6 Billion Payout on Credit-Default Swaps -- Greek bonds issued as part of the biggest ever sovereign debt restructuring signal sellers of default insurance will have to pay about $2.6 billion to holders of credit swaps. Investors are using new Greek 30-year bonds that are trading at about 23 cents on the euro to calculate the payout, according to Teo Lasarte, a European credit strategist at Bank of America Merrill Lynch in London. The credit-default swaps will be settled at an auction on March 19 after investors were forced to exchange their Greek debt holdings at a loss. Austria may have to inject 1 billion euros ($1.3 billion) into KA Finanz AG, the so-called bad bank of Kommunalkredit Austria AG, to help cover Greek swap payouts, the nationalized lender said. "People are using the longest-dated new bond as an indication of recovery," Lasarte said. "The important thing is that the payout will be reflective of the economic loss faced by most bondholders."

Greek February Bank Deposits Fall EU3 Billion, Naftemporiki Says - Greece’s banking system saw more than 3 billion euros ($4 billion) withdrawn by businesses and households last month, Naftemporiki said, citing bank estimates. Early figures for March show a stabilization in the amount of money being withdrawn and banks reckon the successful conclusion of Greece’s debt-swap means some funds will return, the Athens-based newspaper reported today. Deposits dropped to 169 billion euros in January from 174 billion in December, the Bank of Greece (TELL) said on Feb. 29.

A third bailout for Greece seems inevitable -- French President Nicholas Sarkozy declared Friday that the long-running Greek debt "problem" had finally been "solved," following the successful implementation of a massive debt restructuring in the country. But while the restructuring was more successful than many had anticipated, even with the triggering of credit default swaps, Greece's debt woes, as well as those of the rest of the eurozone, are far from over. A longer-term and more robust solution will be needed before the "Mission Accomplished" banner can truly be rolled out on this long-running debt crisis. The debt exchange that finally came to a head on Friday could serve as a template for future restructurings involving other peripheral eurozone members, like Portugal and Ireland. It was months in the making. Creditors, politicians, banks and bureaucrats from around the globe debated the issue ad nauseam until an agreement was put in place that would allow Greece to avert a humiliating hard debt default that would have jeopardized the stability of the euro. The key decision was the one made to force Greece's private bondholders to take a major hit to help finance the nation's recovery. All-in-all, the private bondholders ended up receiving new bonds worth 73% less than what they had before, effectively wiping out 100 billion euros off the nation's burgeoning debt load.

More austerity needed in Greece: EU/IMF (Reuters) - Greece will have to slash a further 5.5 percent of GDP in government spending in 2013 and 2014 to meet agreed fiscal targets underpinning the second international bailout for Athens, a European Commission report said. The Compliance Report by the European Union's executive describes the progress of Greek reforms necessary for the release of new euro zone money to Athens and recommends the first disbursement be made as soon as possible. The report, obtained by Reuters, said a package of savings adopted by Greece in early 2012 worth 1.5 percent of gross domestic product should allow Athens to meet the target of bringing the primary deficit down to 1 percent this year. "However, current projections reveal large fiscal gaps in 2013-14," the Commission report said, adding that the shortfall for the two years totaled 5.5 percent. "Therefore, substantial additional expenditure cuts will have to be announced and adopted by Greece in the coming months, in particular when Greece updates its medium-term budget in May 2012," the report said

Bill Black: (Re) Occupy Greece - While the Occupy Wall Street (OWS) movement set its sights on occupying a financial center, Germany has accomplished the vastly more impressive feat of occupying an entire nation – Greece. Germany has experience at occupying Greece having done so during World War II. The art of occupying another nation is to recruit a local puppet to do the dirty work required to repress the citizens. Germany used several puppets, most notoriously the murderous Ioannis Rallis, to (nominally) rule Greece and terrify the Greek people during World War II. (After Germany’s defeat, Rallis was executed for his treason.) This time around, Germany has been far more successful in recruiting and using a puppet to (nominally) rule Greece and terrify the Greek people before the German occupation. It was able to put its puppet, Lucas Papademos in place and have him “request” that Germany reoccupy Greece. Papademos is not elected. He is in power because his elected predecessor, George Papandreou, announced that Greece would hold a plebiscite on whether to agree to the terms of a deal on Greece’s sovereign debt that would have the effect of surrendering Greece’s remaining sovereignty and consigning the Greek people to an even deeper depression. The inevitable German reaction to the plebiscite was: Democracy in Greece – inconceivable! Germany threatened to destroy Greece’s economy if there were a plebiscite. Germany’s extortion led to the collapse of Papanderou’s elected government and Papademos’ appointment as Greece’s de facto prime minister.

Germany Fails To Meet Its Own Austerity Goals - As she travels from one European Union summit to the next, Angela Merkel's constant mantra in recent months has been austerity, austerity, austerity. But apparently the German chancellor hasn't been quite as strict when it comes to her own country's budget. SPIEGEL reports this week that the German government didn't reach even half of its planned savings in the federal budget. Only 42 percent of the spending cuts named by Merkel's coalition government, comprised of the conservative Christian Democrats and the business-friendly Free Democratic Party, were actually not implemented. Calculations made by the influential Cologne Institute for Economic Research indicate that only €4.7 billion ($6.16 billion) of the €11.2 billion in austerity measures stipulated by the savings package actually took shape in 2011. The government is also falling behind on its targets for this year. Of the originally planned €19.1 billion in savings, less than half has been implemented. For the coming year, the concrete measures that have been agreed on so far cover just one-third of the announced amount of savings. Merkel's cabinet is hoping to agree to the basic foundations of the 2013 federal budget in March.

Soaring Target2 Imbalances Stoke German Risk Angst: Euro Credit - German angst is growing as an entry on the Bundesbank’s balance sheet swells to a sum worth about 20 percent of economic output, a sign of the extent to which Europe’s largest economy is funding the region’s laggards. The European Central Bank’s Target2 system, which calculates debts between the euro region’s central banks, shows the Bundesbank is owed 489 billion euros ($656 billion), up almost 65 percent from a year earlier. German central bank President Jens Weidmann wrote to ECB President Mario Draghi last month to warn about growing systemic risks, Frankfurter Allgemeine Zeitung newspaper reported Feb. 29. “The Germans are very much justified in their concern,”said John Whittaker, an economist at Lancaster University Management School, who drew attention to the growing imbalances in papers published last year. “The Target2 liabilities are just as risky and just as real as holding the government bonds of Greece and other peripherals.”

Dear Germans: Bring Out Ze Checkbooks - Something funny happened on the road to a "fixed" Europe. A week ago we presented the €2.5 trillion closed liquidity loop at the heart of Europe's (solvency and mercantilist) problems: the cumulative capital account deficits of Europe's import countries (virtually all of them except for Germany and Holland), and the under the table funding mechanism, in the form of Germany's subsidizing of said countries via the ECB TARGET2 cash settlement process. In simple terms, in order for the PIIGS to import German "stuff", Germany had to fund their economies in a very roundabout, yet unmistakable fashion (see chart). Well, as the latest update from TARGET2 shows (courtesy of Sean Corrigan of Diapason), the fact that this now accepted enabling mode of existence continues, as nothing has changed in Europe except for Greece going bankrupt, and all the PIIGS still pretending they have fixed their economies when in reality all that has happened is a $1.3 trillion cash injection providing some very brief dry powder to drive bonds to lower yields temporarily, Spain and Greece have just posted their biggest draw on TARGET2 bringing the total to just under €400 billion! Congratulations Germany - This is the amount that Jens Weidmann and the German Bundesbank will have to fund to keep the ponzi going.

Merkel coalition threatened by vote for austerity - German Chancellor Angela Merkel has seen her domestic approval rating rise after patching together the Greek bailout, but her governing coalition is crumbling beneath her partly as a result of fallout from the crisis. The latest threat to the stability of her coalition came Wednesday, when the government of Germany’s largest state unexpectedly collapsed over a budget impasse. A snap election in North Rhine-Westphalia is certain to expose the weakness of the Free Democrats, junior partner in Merkel’s national government. The state election in May will also test German voters’ own reaction to the austerity that Berlin is happily imposing on Greece, Spain and other southern European countries. The minority government in Düsseldorf, capital of Germany’s most populous state, failed to win approval for its budget on Wednesday because the Free Democrats voted against it. In this case, the Free Democrats dug in their heels over a budget they felt was too expansive, with more spending and borrowing than they liked. They said they did not want the state to go down the same path as Greece. Sound familiar? It’s the same argument that U.S. fiscal hawks sometimes use to justify drastic spending cuts in state and federal budgets here.

Draghi vs Weidmann - Round Two - Another day, another crack appears in the ECB facade. Now it appears Germany and Jens Wiedmann have added to their list of concerns following the ECB actions over the past five months. Along with concerns over rising inflation, Wiedmann and the German Chancellor Angela Merkel are now concerned with imbalances that have developed within the Eurozone’s central payment system called Target2. Essentially what has happened is that the Bundesbank has amassed over E500 billion in claims against central banks in the Eurozone, and is now worried that it is vulnerable to large scale counterparty risk should the ECB break up. To be more specific, Hans-Werner Sinn and Timo Wollmershäuser from the Ifo economics institute produced a report entitled “TheExposure Level” in which they found that the Target2 imbalances were highly correlated to current account imbalances since the financial crisis. Prior to the crisis such an event never occurred since a country could run a current account deficit and the respective commercial banks of those nations would finance it. However since that no longer became a possibility, the responsibility of taking over the funding of such deficits moved to the national central banks and their balance sheets. As Wolfgang Münchau explains; “If a Spanish company buys a German product, for example, the chain of transactions goes from the buyer’s Spanish bank to the Spanish central bank, which effectively creates the money for this transaction, and then sends it on to the Bundesbank, which records this transaction as a claim against the eurosystem...if the euro were to collapse suddenly, Germany could stand to lose a large proportion of its claims – some 20 per cent of gross domestic product.”

Dutch Backing For EU Fiscal Pact Under Threat- Opposition to the European Union's new fiscal pact geared up a notch on Tuesday when two leading Dutch Labour MP indicated they could block it unless The Netherlands gets more time to lower its deficit. Such a move could strip the Dutch government of its majority support in parliament for the pact, which is designed to go hand-in-hand with budgetary discipline. This would not in itself spell defeat for the treaty because European leaders agreed last month it will come into effect once just 12 states have ratified it, so it could succeed without The Netherlands. But it is another hurdle to implementation. Ireland decided last month to hold a referendum on the treaty and Germany's Social Democrats have demanded concessions in return for support to the budget rules. The Dutch Liberal-Christian Democrats coalition depends on opposition parties to secure Dutch parliamentary support for euro zone rescue measures because its natural ally, the Freedom party led by Geert Wilders, opposes bailouts. Labour is the second-largest party in the Dutch lower house and is wary of too much austerity.

Economic malaise forces Belgium to extend austerity - Belgium will extend austerity measures by 1.82 billion euros ($2.39 billion) because of a possible contraction of its economy this year, to keep its 2012 budget deficit within EU limits. After a full week of talks, ministers from the six-party coalition agreed a series of measures on Sunday as well as the freezing of a further 650 million euros of spending, in case further economic weakness meant more savings were required. Belgium will raise tax on tobacco and investment products. It will save by postponing delivery of army helicopters, promoting generic medicines and giving less aid. One-offs, notably the 289.6 million euros of state subsidies that postal services operator Bpost must return, will also help. The new savings add to the 11.3-billion euro package of measures agreed when the government took power at the end of the year. Those measures included raising the effective retirement age from a current average of 59 and hiking tax on company cars. Belgium has pledged to bring its public sector deficit down to 2.8 percent of gross domestic product (GDP) this year from 3.8 percent in 2011. It risks a EU fine if its deficit does not fall to at least 3 percent.

Italy's public debt hits record 1.94 trillion euros - The public debt increased by 37.9 billion euros from December, the central bank said, citing seasonal factors, the higher cost of servicing Italian debt and a contribution to the European financial rescue fund. The Italian public deficit meanwhile hit 4.0 billion euros in January, up from 1.5 billion euros a year earlier, the bank said. Italy's staggering debt load is equivalent to about 120 percent of its annual gross domestic product (GDP) and the country is due to issue almost 450 billion euros worth of short- and medium-term debt this year.

Italy Said to Pay Morgan Stanley $3.4 Billion to Exit Derivative -- When Morgan Stanley said in January it had cut its "net exposure" to Italy by $3.4 billion, it didn't tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates. Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasury's payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private. The cost, equal to half the amount to be raised by Italy's sales tax increase this year, underscores the risk derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.

ECB margin call deposits hit new record high (Reuters) - Cash deposits to cover the declining value of guarantees posted against European Central Bank loans rose to their highest level ever last week, balance sheet data showed on Tuesday. Deposits related to margin calls - money that banks place at the ECB after the market value of their collateral value declines - ticked up to 17.3 billion euros at the end of last week from 17.1 billion the week before, the previous record high. High cash deposits to cover margin calls could be a sign that some banks were running out of eligible collateral to cover the shortfall last week after the securities they had posted fell in value. Banks in some euro zone countries, including Greece, have also access to Emergency Liquidity Assistance by their national central banks against collateral with looser rules than the ECB uses in its operations. The ECB stopped accepting Greek government bonds as collateral late last month, throwing a spanner into works for Greek bank financing. However, it said on Thursday that it restarted accepting them. Gold and gold receivables held by euro zone central banks rose by 4 million euros to 423.449 billion euros in the week ending March 9, the ECB also said.

The missing long-term perspective on government debt - When looking at the challenges of government debt in Europe the severity of the problem can look very different depending on the perspective one takes. If we focus on the last 5 years we see that:
1. The government of Spain has more than doubled its (net) debt measured as a % of GDP.
2. In the same period of time Italian (net) debt has also increased by about 20 percentage points of GDP.
The situation seems unmanageable and justifies a quick and radical reaction by those two governments. But if we go back a few more years and plot the evolution of government (net) debt for these two countries in comparison to France and Germany, the message is much more comforting. Not only the level of debt is not high by historical standards (in the case of Italy is lower than back in 1996) but it is not far from the other two European countries. Just business as usual. Spain will be slightly above Germany in the coming 5 years but still below the level of France, that has increased at a much faster pace during the last two decades.

Spanish Banks’ ECB Borrowings Surge to Record of $199 Billion - Spanish banks’ borrowings from the European Central Bank rose in February to the most on record with Spain-based banks taking almost half the total for the region as the central bank stepped up its emergency lending. Average net borrowings by banks in Spain climbed to 152.4 billion euros ($199 billion) in February from 133.2 billion euros in January, the Bank of Spain said on its website today. Lenders in the whole euro system took 322 billion euros, the data showed. Lenders have increasingly tapped the ECB after Europe’s debt crisis intensified, making it harder for them to line up other funding. The ECB said on Feb. 29 it would lend 800 financial institutions 529.5 billion euros in its second three-year operation.

Spanish Underlying Inflation Slows as Economy Contracts - Spain’s underlying inflation slowed in February as the economy suffered its second recession in as many years and the government tried to rein in the euro area’s fourth-largest budget deficit. Core consumer prices, which exclude energy and fresh food, rose 1.2 percent from a year earlier, compared with an increase of 1.3 percent in January, the National Statistics Institute in Madrid said today. Headline inflation, based on European Union calculations, was 1.9 percent, matching an initial estimate on Feb. 29. Spain’s People’s Party government is set to announce more budget cuts on March 30 after a 15-billion euro ($19.8 billion) package in December, even as it forecasts the economy will shrink this year. Retail sales fell 6 percent in January from a year ago, the statistics institute said on March 9.

Spain looks to cut health, education costs next (Reuters) - Spain's new center-right government will embark on its most sensitive austerity measures to date -- health and education spending cuts in the country's autonomous regions -- as soon as it clears a local election hurdle at the end of March. Cuts in social services are likely to set off street protests as Spain struggles to save at least 30 billion euros this year to meet tough European deficit reduction goals while the economy shrinks and almost one in four are out of work. So far, Prime Minister Mariano Rajoy has announced a 40 percent reduction in infrastructure and other investment, a 12 percent cut in spending at central government ministries and layoffs and salary cuts of up to 30 percent at public companies. Now on the firing line are budgets controlled by the 17 autonomous regions, which include low-cost public universities and high-quality universal health care with almost no waiting periods.

Spanish Home Prices Fall Most on Record as Economy Shrinks - Spanish home prices fell the most on record in the fourth quarter as the euro area’s fourth-largest economy shrank and a reduction in mortgage lending crimped demand for property. The average price of houses and apartments declined 11.2 percent from a year earlier, the most since the measurement began in 2008, the National Statistics Institute in Madrid said today in an e-mailed statement. Prices dropped 4.2 percent from the previous quarter and are down 21.7 percent from the market’s peak in the third quarter of 2007. “The drop in the fourth quarter is just the start of things to come,” “Legislation passed by the government in February to push banks to provision for real estate will mean steeper declines in 2012 as banks lower prices to offload property.” Prime Minister Mariano Rajoy is battling to turn around a slump in the real-estate industry as his government forecasts an economic contraction of 1.7 percent this year that will push the European Union’s highest unemployment rate to 24.3 percent. His government passed a decree on Feb. 3 forcing Spanish banks to make deeper provisions for losses linked to real estate in an effort to push down prices and boost sales.

Spain's public debt soars to record high - Public debt amounted to 734.96 billion euros ($960 billion), equal to 68.5 percent of annual economic output at the end of 2011 -- up from 66 percent three months earlier and 61.2 percent at the end of 2010. The accumulated debts breached the European-Union agreed limit of 60 percent of gross domestic product (GDP) but was still below the eurozone average, which approached 90 percent in the third quarter last year. It was the highest public debt ratio recorded in Spain since statistics in the current format were first published in 1995. Spain's public debt is rising fast because of runaway annual public deficits that have shot past EU-agreed targets, in part owing to high spending by regional governments. The previous Socialist government, ousted by the conservative Popular Party in November elections, had forecast a debt of 67.2 of GDP for the end of 2011, aiming to curb it to less than 70 percent in 2014.

Spain Deficit Decision Sparks Austria Appeal The decision by finance ministers of the 17-country eurozone to give Spain some leeway on cutting this year's deficit has already triggered demands from other European countries for more fiscal leniency. The move also signals the difficulty Europe faces in enforcing the strict spending rules it has worked out over the past two years amid renewed recession. Spain on Monday night was given the go-ahead by eurozone finance ministers to run a deficit of 5.3 percent of gross domestic product this year — above its original target of 4.4 percent. However, Madrid still has to cut its deficit back to 3 percent by 2013, as had been planned. The European Union's Economic Affairs Commissioner Olli Rehn, who is in charge of policing the bloc's fiscal rules, said the 2012 target had to be eased because Spain's 2011 deficit of 8.5 percent of GDP was much higher than expected and the country's economy is also doing worse. Officials also insisted that Madrid was making far-reaching structural reforms, such as overhauling its labor market, in an effort to make its public finances more sustainable.

Moody's cuts Cyprus to junk on Greece worries (Reuters) - Moody's Investors Service cut Cyprus's sovereign ratings to junk on Tuesday, saying there was a heightened risk the government, shut out of debt markets, would have to support its banks that have been battered by exposure to Greece. Moody's cut the island-state one notch to Ba1 from Baa3. The outlook was negative, it said. It is the second ratings agency to cut Cyprus to junk, after Standard and Poor's, which has Cyprus at BB+. Fitch rates Cyprus BBB-, one notch above junk. Among other euro zone countries, Portugal is rated junk by all three rating agencies, Ireland has one junk rating from Moody's, and Greece is either rated junk or in default by all three. Moody's said there was an increased risk the Cypriot government, itself shut out of financial markets for funding, would have to prop up banks. It said the level of recapitalisation required could exceed 20 percent of Cyprus's GDP. In a statement, Cyprus's finance ministry said it believed the downgrade was unjustified because conditions had not materially changed since Moody's last cut its ratings in November. It said that it would continue to work to meet fiscal targets and cooperate with the central bank to meet challenges in the banking sector.

Renault car sales – a troublesome chart - Can you say "EU-wide recession"?

Ukraine Cites Greece in Bid to Postpone $3 Billion IMF Debt - Ukraine said it wants to postpone $3 billion of bailout repayments to the International Monetary Fund, as Standard & Poor’s cut its outlook on the former Soviet state’s debt to negative, citing “significant” funding risks. Negotiations to restructure the debt, part of a 2008 rescue loan, for as long as a decade “are on,” First Deputy Economy Minister Vadym Kopylov said today in the capital, Kiev. The lender said Ukraine hadn’t asked to reschedule payments. “Why not? If we have Greece and such huge debts,” Kopylov told reporters, adding that Ukraine should delay repayments for 10 years. The former Soviet republic was granted a $16.4 billion bailout loan in 2008 as its main steel and chemical exports shrank in the wake of Lehman Brothers Inc’s bankruptcy, and agreed on a second $15.6 billion rescue package two years later. That loan has been frozen since last March after the government failed to raise household utility tariffs to balance the budget.

Official: Portugal, Ireland May Need More Aid - Former European Central Bank Executive Board member Lorenzo Bini Smaghi said officials must accept that Portugal and Ireland may need further assistance if they want to limit debt restructuring to Greece. “It should be recognized right away that Portugal may not be able to return to the markets next year and needs an additional bailout package,” Bini Smaghi said in an article published on the Financial Times website today. “If it is unable to finance itself until 2016, it will need approximately 100 billion euros. The same could be done for Ireland, which requires an additional 80 billion euros.” Portugal’s implied borrowing costs have increased as investors fret about whether the nation will follow Greece in having to restructure its debt, with the yield on its two-year bond having doubled in the past year to 11.3 percent. The International Monetary Fund said on March 2 that Ireland may struggle to regain “sufficient” access to bond markets in 2013. Both countries have already received bailouts.

Ireland Presses Debt Rescheduling —Ireland will seek support from its bailout lenders to reschedule €31 billion ($40.7 billion) in promissory notes it pumped into failed banks now that Greece has secured its bailout, but a deal is unlikely by the end of the month, Finance Minister Michael Noonan said Monday. "I don't think everything will be sorted but I think we are making progress so we'll stick with it," Mr. Noonan said. "But I think there's general agreement that the promissory note was a pretty, pretty bad arrangement and a very expensive arrangement for Ireland and that alternatives can be put in place." Ireland faces a €3.1 billion payment on the promissory, or IOU, notes on March 31, and government officials have been playing down the likelihood of a deal to reschedule them before then. The promissory notes were pledged to Anglo Irish Bank Corp., and Irish Nationwide Building Society—now jointly renamed Irish Bank Resolution Corp.—over three years ago. Based on those pledges, both banks qualified for emergency loans from Ireland's central bank.

Rehn rules out Irish delay in €3.1bn bank debt repayment -Taoiseach Enda Kenny has rejected calls for Ireland to follow Spain's lead on demanding concessions from Europe, insisting the two countries were in completely different positions. With no breakthrough imminent in the Government’s long campaign with Europe to restructure Ireland’s banking debt, Irish officials have privately raised the possibility of delaying a postpone a €3.1 billion bank debt repayment which falls due at the end of this month. Minister for Finance Michael Noonan left open that possibility as he arrived in Brussels yesterday for talks with his EU counterparts, saying it was a long way to the end of the month and that nothing was ruled in or out. Speaking in the Dáil today, the Taoiseach said he did not wish to give the public false hope the promissory note due to be paid on March 31st will be scrapped.

The Irish Begin to Wake Up to the Fact That They are Repaying Money That is Then Burned - About a year ago a couple of friends and I were sitting around drinking beer and talking. As so often happens today in day-to-day Irish conversation, the economic situation and the repayment of debts was raised. One of my friends said that, naturally, the debts had to be repaid. I pointed out to him that by repaying the debt we were just sending away money to be effectively destroyed. He couldn’t believe what I was saying and I didn’t blame him because it sounded like madness. But I pointed out to him that the money the Irish people were repaying by accepting decreases in government spending and increases in taxes was simply going to the central bank and from there it was being destroyed. I explained that what had happened was that the central bank had created a load of new money and thrown it into the crumbling Irish banking sector. Now the Irish people were paying back this newly created money so that it could be destroyed by the central bank. My friend thought about it for a while and then pointed out that if the new money wasn’t paid back and destroyed it would result in inflation. Not so, I said, because the money has already entered the economy. The Irish banks loaned out the money during the boom years and this had driven a speculative bubble in the property market. But now we were just trying to prop up the banks that had made these loans. Effectively we were taking newly created money, throwing it into a black hole in the banking system and then scalping tax payers and citizens so that we could pay back money that would be destroyed by the central bank. He refused to believe me. The story was too incredible. After all, why on earth would the central bank want the money back if they were just going to destroy it? Why would they want to destroy it if it would not lead to inflation? Politics, I said. He shook his head and took another sip of beer.

Euro zone may up bailout fund capacity to near 700 billion euros: officials (Reuters) - The euro zone may raise the combined lending power of its bailout funds to close to 700 billion euros from 500 billion in a trade-off between German opposition to committing more money and calming markets, euro zone officials said. Euro zone finance ministers and central bankers will discuss the size of their bailout funds - the temporary European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM) in Copenhagen on March 30-31. The 440 billion euro EFSF and the 500 billion ESM now have a combined lending ceiling of 500 billion euros, which means that in the 12 months from July 2012 when they co-exist, they cannot lend together more than 500 billion euros. Markets have long been pushing for a higher capacity for euro zone lending to make sure the 17-nation bloc has enough money to bail out even its large members like Italy or Spain, should that be necessary, but Germany has been adamantly opposed to such an increase.

The PIIGS Strike Back - So, as I suspected would happen, the push-back against the suicide pact continues. This week Spain managed to convince the EU that it should be allowed to loosen its deficit targets for this year a little in return for a greater push in 2013. Eurozone finance ministers have given unemployment-ridden Spain more wiggle room in cutting its big deficit, signalling that new, tighter rules against overspending in the currency union retain some flexibility for hard-hit countries.The ministers from the 16 other states that use the euro said Spain had to make further cuts worth 0.5% of gross domestic product, which indicates that the country is now expected to slash its government deficit to around 5.3% of GDP this year from about 8.5% last year.That is still below the 5.8 % deficit target Spanish prime minister Mariano Rajoy announced earlier this month, but significantly softer than the 4.4% deficit the country had originally promised to its partners in the euro. Well at least we are seeing a little reality creeping into the crisis, but an attempt to cut 3.2% of GDP in government spending against a very depressed private sector while maintaining a trade deficit still utter delusion. I would suggest that, once again, you prepare for a disappointing outcome followed by more requests for leniency because the Spanish economy has not behaved “as expected”.At the same time that Spain has been pushing for some leeway, so has Ireland.

Spanish Banks Account for 47% of ECB Credit in February; Spain's Real Debt to GDP Ratio is 110% Not Reported 68%; Spain Will Implode. It's a Wonder it Hasn't Already - Spain's weight in the eurozone economy is roughly 14%. Yet Spanish Banks Account for Nearly Half of ECB Credit in February. Via Google translate ...Spanish banks in February captured almost half of the credit granted by the European Central Bank (ECB), before the drought through the wholesale market funding. As reported on Wednesday the Bank of Spain, the use of the entities to the extraordinary liquidity window of the body that presides Mario Draghi reached half the 152,400 million euros, equivalent to 47% of total outstanding debt to return to ECB for all banks in the Eurosystem. Both the percentage and the total volume of borrowed money account for two-time highs, exceeding by far the weight of Spain in the European sector, 14%. Furthermore, for the future, the figure will rise, as these data do not reflect the impact of the second extraordinary auction to three years of the ECB, on February 29 which dealt with 529,000 billion from 800 banks. Public debt has grown by 21% on bank balance sheets in December 2011 compared to 2010, "which shows that liquidity in the ECB does not reach the economy."

The Fool's Game: Unraveling Europe's Epic Ponzi Pyramid of Lies - If we just take the newest figures for Spain, which were released this morning, we find an admitted sovereign debt of $732Bn and a touted debt to GDP ratio of 68.5% which is up 10.7% from last year. In a report issued on 2/29/12 and apparently ignored by everyone including the ratings agencies, Eurostat reports that Spain has total sovereign guarantees of “other debt” which is 7.5% of their total GDP which would total around another $72.2 billion in uncounted debt. Then if we consider [all] the “known” debt we find:

• Admitted Sovereign Debt ................. $732 Billion
• Admitted Regional Debt ................... $183 Billion
• Admitted Bank Guaranteed Debt ..... $103 Billion
• Admitted Other Guaranteed Debt .... $72 Billion
• Total Admitted Debt ......................... $1.09 Trillion
• A More Accurate Debt to GDP Ratio ....... 113.2%

In the same Eurostat report, by the way, of 2/29/12 we also find that Belgium’s sovereign guarantee of “other debt” is 21.3% of their GDP, for Italy it is 3.6% of their GDP and for Portugal the number is 7.7% of their GDP. This does not include any guarantees of bank debt which would also have to be added in to the totals to reflect some sort of accurate fiscal picture. Consequently, as investors, we are not in some murky place but smack dab in a carefully engineered plan of outright Fraud where we are given manipulated and inaccurate numbers in the hopes that we will fund based upon them.

Cutting roads repair budget will cost taxpayer more, MPs warn - Motorists will have to spend more repairing their cars because cuts to road maintenance budgets will lead to more potholes, a committee of MPs has said .... Councils, who are responsible for 90 per cent of the country’s road network, have been told to find £223 million from their roads maintenance budget. But it is unclear how these savings – equivalent to 40 per cent of the total – will be found, the Public Accounts Committee has warned in a report on the Department for Transport’s spending published today.Councils, who are responsible for 90 per cent of the country’s road network, have been told to find £223 million from their roads maintenance budget. "The Department doesn't fully understand what impact its cuts to road maintenance will have on the state of the UK's roads,”

Don't believe bankers' warnings about a Robin Hood tax - In Merchants of Doubt, a group of high-level scientists, with deep connections in politics and the tobacco industry, ran effective campaigns to mislead the public and deny well-established scientific knowledge on the link between tobacco and cancer. The same tactics are being used by London bankers today with regards to the proposal for a financial transaction tax (FTT), or Robin Hood tax. It is not the activity of bashing bankers that draws me to this debate, but the deliberate obfuscation by the industry. We know the UK government is opposed to the idea, and yet as finance ministers meet in Brussels to iron out the details of the 0.1%-0.01% tax on transactions that could raise as much as £48bn a year (£8.4bn in the case of the UK), nine of Europe's economies are in support.Listening to some London bankers, you would think that a 0.1% tax would usher in a nuclear winter. Bankers are effectively saying that, while they justify their high pay with claims of superior creativity, credibility and connectivity, all of that cannot compete with a tax on each transaction of just one tenth of one per cent. If, despite the industry receiving billions in implicit public subsidies and guarantees, the largest sector in the UK economy hangs by such a thin thread, its value-added must be seriously questioned.

Ian Fraser: Will We Finally See Some Bank Board Members Face the Music? - Last Friday was an extraordinary day in the world of banking. First we had confirmation from Barclays, Lloyds Banking Group and Royal Bank of Scotland that they are doling out obscene sums in bonuses to executives, even as performance flags and share prices plunge. Then we had the ridiculous saga of the ISDA determinations committee confirming what everybody already knew; that Greece was defaulting on much of its €177 billion of debt pile (the world’s biggest sovereign default had been priced in to the extent it barely ruffled the markets). And then, at 1.40pm came the FSA’s HBOS bombshell.In a 37-page report the FSA censured HBOS for “serious misconduct” which, in ‘FSA speak’, is about as strong as it gets. The regulator said that the Bank of Scotland, the brand that HBOS used for its corporate lending businesses, had broken Principal 3 of the FSA’s 11 principals of business. The Principal reads as follows:-“3: Management and control – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”The regulator said the Bank of Scotland “was guilty of very serious misconduct, which contributed to the circumstances that led to the UK government having to inject taxpayer funding into HBOS”.

U.K. May Revive 'Perpetual Gilt' Used After South Sea Bubble -- Britain is proposing to revive "perpetual gilts," first used in the wake of the 1720 South Sea Bubble crisis, to allow the government to borrow for as long as possible at record-low rates, according to two people familiar with budget discussions. Chancellor of the Exchequer George Osborne will use his March 21 budget to announce a consultation on introducing government bonds of up to 100 years and reviving debt with no fixed maturity, a sort of bond first issued in the 19th century to put off repaying debt resulting from the South Sea Bubble. The cost of 10-year borrowing for the U.K. fell to a record low earlier this year as investors sought a haven from the euro- region debt crisis and the Bank of England bought gilts to help stimulate the economy. Yields on benchmark gilts reached 1.92 percent on Jan. 18, the lowest since Bloomberg started tracking the data in 1989. The securities currently yield 2.27 percent, compared with an average of 4.22 percent over the past decade. "A 100-year bond is effectively a perpetual,"

Britain to offer 100-year gilts - Britain is to offer 100-year gilts, meaning current Government borrowing will not be repaid until the next century, under a radical plan to be unveiled by George Osborne in next week's budget. The Chancellor hopes that the 100-year gilts will help to "lock in" the benefits of Britain's international "safe haven" status. Currently, the average duration of the Government's £1 trillion debt is around 14 years – with maturities ranging from months to a 50-year bond issued in 2005. Longer-dated debt is widely thought to offer a country more stability. A Treasury source said tonight: "This is about locking in for the future the tangible benefits of the safe haven status we have today. The prize is lower debt interest repayments for decades to come. "It is a chance for our great-grandchildren to pay less than they otherwise would have done because of the government's fiscal credibility."

George Osborne budget plan could mean never having to pay his debts - George Osborne is to exploit Britain's historically low borrowing rates by making plans to issue "perpetual" government bonds which will never have to be repaid. In an unprecedented move in the modern era, the chancellor will unveil plans in the budget to relieve the debt burden on future generations by extending the length of bonds to 100 years or into perpetuity. Britain last issued perpetual gilts in the aftermath of the first world war. These are still being paid at a rate of 3%, which makes it cheaper to carry on paying the loan than pay off the whole debt.

Markets wrong, says Osborne - It’s being reported that George Osborne is planning to issue 100-year gilts or even perpetual gilts in order to “lock in today's low borrowing rates.” From several perspectives, this makes no sense.Put it this way. If the government issues a perpetual, it could “lock in” a borrowing cost of at 3.8% per year (the current yield on War Loan). But why pay 3.8% when it could issue a five year gilt and pay 1.06%? The answer’s simple. Borrowing costs are expected to rise, so that when the five year gilt matures, the government will have to pay a higher interest rate.But the total cost of a perpetual should be the same as a five year gilt, rolled over indefinitely. This is because the cost of borrowing to the tax-payer is just another way of saying the expected return to the investor. Investors should, in theory, expect the same returns on a perpetual as on five year gilts, rolled over; if they expected higher returns on the perp, they’d all buy the perp and none would buy the five year. Prices should adjust so that total expected returns on gilts of all maturities are the same. Which means total borrowing costs are the same. This is what the expectations theory of the yield curve predicts.

Learning to love unorthodox monetary policy - BUTTONWOOD draws attention to an interesting FT piece on the way in which the Bank of England might deal with some of its holdings of government debt. It reads: After buying £325 billion of debt from the market, the public sector (the Treasury) is paying interest to itself (the BofE) on debt that it owes to itself. It makes no sense for the public sector to owe itself money... The main obstacle to retiring the debt lies with the markets and the credit rating agencies. They may see this as a slide towards Weimar Republic economics; monetary financing of government debt by printing money. Buttonwood comments: Indeed they might, for that is what it would be. It would also be an effective default, even if the buyer was conniving in the write-off. Those who were suspicious of QE have feared that this might be the end game all along. I certainly understand this view, but I think it's possible to see the point another way. A temporary bout of money-financed fiscal policy is not economically beyond the pale. It amounts to Milton Friedman's "helicopter drop" of money, which scholars like Fed Chairman Ben Bernanke have judged a reasonable way to boost the economy when the policy rate is near zero and can't be reduced. It would indeed be problematic to finance the government through money creation on an ongoing basis. There is no reason to expect this to occur

Why quantitative easing is the only game in town - The onus of UK macroeconomic policy falls on the Bank of England. George Osborne, chancellor of the exchequer, has nailed his colours to the mast of fiscal discipline instead. Whatever wheezes appear in next week’s Budget are likely make little difference to immediate performance, as my colleague, Chris Giles, pointed out last week. This does not make the Budget unimportant. As Paul Johnson, director of the Institute for Fiscal Studies, has also noted, a tax system devoid of principles and rife with gimmicks is unpredictable and so a source of damaging uncertainty. But that is, alas, unlikely to change. The big macroeconomic doubt is whether “quantitative easing” works. The sums involved are startling. At the end of its third round of asset purchases, the BoE will own £325bn of financial assets, predominantly government bonds (or gilts), which it will have bought with newly created money. It will own close to a third of the gilt market. Yes, this is monetisation. So is it effective? Is it even dangerous? The BoE’s view is that QE is a natural extension of monetary policy, necessary when the short rate is 0.5 per cent, the lowest rate in the 318 years of the BoE’s existence.* With conventional measures exhausted, the BoE, like the Federal Reserve and the European Central Bank, has been driven to try highly unconventional measures instead.The BoE argues that asset purchases work by restoring confidence, signalling future policy, forcing rebalancing of portfolios, improving liquidity and increasing the money supply when the standard mechanism – lending by banks – has frozen. Overall, suggests the BoE’s analysis, the initial QE of £200bn raised gross domestic product by 1½-2 per cent and inflation by ¾-1½ per cent. If so, it prevented a “double dip” recession, while worsening already high inflation – a reasonable trade-off.