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

Saturday, November 10, 2012

week ending Nov 10

Fed's Balance Sheet Edges Up in Latest Week - The Fed's asset holdings in the week ended Nov. 7 edged up to $2.832 trillion, from $2.825 trillion a week earlier, it said in a weekly report released Thursday. The Fed's holdings of U.S. Treasury securities increased to $1.651 trillion on Wednesday from $1.645 trillion. The central bank's holdings of mortgage-backed securities rose slightly to $852.06 billion from $852.04 billion a week ago. In September the Fed began buying $40 billion a month of additional mortgage-backed securities on an open-ended basis. Fed officials have said that they plan to continue buying bonds until the labor market improves significantly. Thursday's report showed total borrowing from the Fed's discount lending window was $1.17 billion Wednesday, down from $1.26 billion a week earlier. Borrowing by commercial banks fell to $6 million from $37 million a week earlier. U.S. government securities held in custody on behalf of foreign official accounts declined to $3.611 trillion, down from $3.617 trillion in the previous week. U.S. Treasurys held in custody on behalf of foreign official accounts decreased to $2.915 trillion, down from $2.921 trillion in the previous week. Holdings of agency securities edged down to $696.04 billion from the prior week's $696.25 billion.

FRB: H.4.1 Release--Factors Affecting Reserve Balances ...November 8, 2012

Fed's Williams: QE3 to likely top $600 billion -  The U.S. Federal Reserve's latest round of asset purchases will probably top $600 billion, surpassing its second round of bond-buying, as the central bank continues to buy assets until the labor market improves, a top Fed official said on Monday. The effect of the Fed's asset purchases on the economy will depend on how much market participants think the central bank will ultimately buy, something the Fed itself does not know, John Williams, president of the San Francisco Federal Reserve Bank, told reporters after a lecture at the University of California, Irvine. But given the state of the labor market and the pace at which it is improving, the Fed will likely need to keep buying assets "well into next year," he said. The Fed will want to see sustained jobs gains and a consistent drop in the unemployment rate before it stops buying assets, he said.

Fed’s Bullard Sees Twist End, More QE3 on the Table - The Federal Reserve may be forced to end a program known as Operation Twist at year-end because of its depleted supply of short-term securities, and it isn’t clear what will happen to replace that leg of central-bank stimulus, a top U.S. monetary policy maker said.“My sense is that it is unlikely we’d extend Operation Twist because there is only so much balance sheet we can use” for the program, Federal Reserve Bank of St. Louis President James Bullard told reporters after a hometown speech. He was referring to a central-bank program that sells short-dated Fed-owned Treasury debt to buy a like amount of long-dated securities.Operation Twist was designed to increase the stimulative power of the Fed balance sheet without expanding its size, by changing the average maturity of central bank holdings. The program is set to end at the conclusion of the year.

Economists Expect Fed to Shift From Twist to Treasurys Purchases - When the Federal Reserve program known as “Operation Twist” ends in December, the central bank is most likely to shift to buying Treasury securities outright, according to a majority of economists surveyed by the Wall Street Journal. Since September 2011, the Fed has been selling about $45 billion in short-term Treasurys each month and using the proceeds to purchase about the same amount in long-term Treasurys. The program, which the Fed extended in June until the end of 2012, is intended to help lower long-term interest rates to spur spending, investment and hiring.

Reading Labor Markets - Atlanta Fed's macroblog - When the September employment report was released on October 5, the top-line payroll employment gain for the month, as reported in the U.S. Bureau of Labor Statistics' (BLS) establishment survey, logged in at 114,000. Under standard assumptions, a number of this magnitude would be barely enough to absorb the growth of the labor force and keep the unemployment rate constant. In contrast, in that same October 5 report we learned from the BLS household survey that the measured unemployment rate fell from 8.1 percent in August to 7.8 percent in September. According to Friday's BLS report on the employment situation for October, the top-line payroll employment gain for the month from the establishment survey was 171,000. At that pace—which is also the current average gain for the past three months—the Atlanta Fed jobs calculator suggests the unemployment rate should fall another one-half of a percentage point over the next year. At the same time, according to the BLS household survey, the unemployment rate rose from 7.8 percent in September to 7.9 percent in October. This is as good an illustration as any to explain why, on November 1, Atlanta Fed President Dennis Lockhart said the following in a speech "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."... For policy purposes, I think it's appropriate to be cautious about relying on a single indicator of labor market trends—for example, the unemployment rate—to determine whether the condition of "substantial improvement" has been met.

Bill Gross: QE1-3 Added No Savings or Investment - In case you missed it, bond investing legend Bill Gross has just provided the most damning evidence that various Fed easing efforts have been worse than useless. You'd think all of this helicopter dropping of cash would encourage more investment which in turn would generate more jobs, but capital expenditures Stateside are actually dropping like a rock even if real interest rates are well and truly negative: It is of course expected that Americans just keep spending their brains out since they can't help it. But, to put money aside for productive expenditures? You must be joking. We're talking about modern America here, an instant gratification society that hasn't had much to be grateful for as of late. And, where there's no investment there's no savings. Much has been made of laughably puny increases in consumer savings since the events of 2007, but if you add together government, business and consumer savings, the truth is that US net national savings are scraping all-time lows in negative territory where it's been the last three years:

Quelle Surprise! QE Zombifies Economies - Yves Smith - Nobody has wanted to heed the lesson of post bubble Japan until way too late. Early in the crisis, the Japanese took the uncharacteristic step of telling American policy makers loudly that Japan had made a big mistake in how they handled theirs. They stressed that the most important step was cleaning up the banks. Then the IMF had the bad fortune to release a study of 124 banking crises on the heel of the Lehman and AIG meltdowns, which meant its findings were ignored, since the finance officialdom was too busy trying to deal with the wreckage to process new information. But it too came squarely down on the side of making banks take their medicine: Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance. Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery. Of course, the caveat to these findings is that a counterfactual to the crisis resolution cannot be observed and therefore it is difficult to speculate how a crisis would unfold in absence of such policies.

Obama Re-Election Makes Market More Confident of Fed Policy - President Barack Obama‘s re-election has made markets more confident that the Federal Reserve will continue on its current path. With Obama winning a second term, the odds are higher that any leadership change at the central bank will follow in Chairman Ben Bernanke‘s footsteps. The path of Fed policy now seems clearer to the market, as evidenced in the fed-funds futures market. November 2014 fed-funds futures now price in no chance of an interest-rate increase by then, compared with a 24% chance priced in at Tuesday settlement. The central bank has said it plans to keep rates near zero at least until mid-2015. But Bernanke’s current term ends in 2014, and some had speculated that a Romney administration would have appointed a Fed chairman who would push for higher rates sooner. Further evidence that markets expect low rates for a longer period came from the eurodollar futures market. Long-dated eurodollar futures are up today. The December 2014 contract recently priced in a rate 0.17 percentage point above the rate priced into the December 2013 contract. That is down from 0.21 percentage point Tuesday, suggesting there are expectations for short-term rates to increase at a slower pace.

Federal Reserve Liquidity Facilities Gross $22 Billion for U.S. Taxpayers - NY Fed - During the 2007-09 crisis, the Federal Reserve took many measures to mitigate disruptions in financial markets, including the introduction or expansion of liquidity facilities. Many studies have found that the Fed’s lending via the facilities helped stabilize financial markets. In addition, because the Fed’s loans were well collateralized and generally priced at a premium to the cost of funds, they had another, less widely noted benefit: they made money for U.S. taxpayers. In this post, I bring information together from various sources and time periods to show that the facilities generated $21.7 billion in interest and fee income.  

'Managing a Liquidity Trap: Monetary and Fiscal Policy' - I like Stephen Williamson a lot better when he puts on his academic cap. I learned something from this: Managing a Liquidity Trap: Monetary and Fiscal Policy. I disagree with him about the value of forward guidance, though I wouldn't bet the recovery on this one mechanism, but it's a nice discussion of the underlying issues.  I was surprised to see this reference to fiscal policy: I've come to think of the standard New Keynesian framework as a model of fiscal policy. The basic sticky price (or sticky wage) inefficiency comes from relative price distortions. Particularly given the zero lower bound on the nominal interest rate, monetary policy is the wrong vehicle for addressing the problem. Indeed, in Werning's model we can always get an efficient allocation with appropriately-set consumption taxes (see Correia et al., for example). I don't think the New Keynesians have captured what monetary policy is about. For some reason, I thought he was adamantly opposed to fiscal policy interventions. But I think I'm missing something here -- perhaps he is discussing what this particular model says, or what NK models say more generally, rather than what he believes and endorses. After all, he's not a fan of the NK framework. In any case, in addition to whatever help monetary policy can provide, as just noted in the previous post I agree that fiscal policy has an important role to play in helping the economy recover.

Nudging Inflation Expectations: An Experiment - NY Fed - Managing consumers’ inflation expectations is of critical importance to central banks in the conduct of monetary policy. But managing inflation expectations requires more than just monitoring expectations; it also requires an understanding of how these expectations are formed. In this post, we present results from a new study that investigates how individual consumers use selected information on food prices in forming their inflation expectations. While the provision of this information leads individuals to meaningfully revise expectations of their own-basket inflation rate, we find there is little impact on expectations of overall inflation.

Fed’s Williams Doesn’t See Inflation Threat - In a speech defending the Federal Reserve‘s efforts to stimulate the economy in recent years, a central-bank official said inflation isn’t a threat, and described how monetary policy easing can lower the dollar. “Inflation has been very low during this period of unconventional policies, and it remains so,” Federal Reserve Bank of San Francisco President John Williams said Monday. He added, “the public’s inflation expectations remain well anchored,” and said “we are not seeing signs of rising inflation on the horizon.” Mr. Williams is a voting member of the monetary-policy-setting Federal Open Market Committee. His comments came from the text of a speech prepared for delivery before a gathering at the University of California, Irvine. The bulk of his formal remarks were devoted to describing and quantifying the effect of a host of unconventional policies the Fed has pursued since it cut short-term interest rates essentially to 0% at the end of 2008.

Three reasons for extremely low swap spreads - US swap spreads continue to decline, as the 5y spread hovers below 10bp. A rate swaps is basically a stream of floating (3m LIBOR) vs. fixed payments. The level at which fixed payments are set (the swap rate) is therefore the market's projection of future LIBOR. This decline in spread is the market's expectation that future LIBOR to treasury spreads will be lower. Three factors are contributing to this decline:
1. With the ECB backstop to the Eurozone sovereigns in place, the perceived risks to global banks have subsided. Improved health of the global financial system means lower cost of funding for banks, which should (loosely) translate into lower LIBOR to treasury (TED) spread in the future - thus lower swap spread.
2. As LIBOR converges to CD rates (see discussion), which have generally been lower, the market is pricing in lower overall LIBOR levels in the future (reducing swap spreads).
3. The Fed has been taking duration out of the market, first via Twist (see discussion on how Twist reduced duration) and now also with MBS purchases (see discussion). With mortgage refinancing accelerating, MBS durations decline. When fixed income investors hedge against rate risk, they usually want to pay fixed and receive floating on a rate swap. But as the need to hedge fixed income portfolios declines (because portfolios have lower durations) so does the demand to pay fixed - which reduces swap rates and spreads.

Treasury Yields Update: Heading Lower? -  I've updated the charts below through Thursday's close.  The 10-year note closed today at 1.62, which is 26 basis points off its interim high of 1.88, also set the day after QE3 was announced. The historic closing low was 1.43 on July 25th. Many market analysts have speculated that the rise in yields from the July low was the opening move in an epic reversal of the multi-decade trend toward lower yields from stagflation era, when the 10-year peaked above 15 percent (more here).Perhaps it's too soon to make that call. If the post-election selloff in equities continues, the 10-year yield could certainly revisit the levels of late July. Japan is an example (admittedly an extreme one) of a developed nation with its own currency that has experienced a relentless demand for government bonds, as this chart illustrates. Currently Japan's 10-year yield is around 0.75, less than half that if its US counterpart.As for mortgage rates, the latest Freddie Mac weekly update, out today, shows the 30-year fixed at 3.40%, four basis points above its historic low set the first week in October. Here is a snapshot of selected yields and the 30-year fixed mortgage one week after the Fed announced its latest round of Quantitative Easing.

Q4:2012 U.S. GDP Nowcast Update | 11.5.2012 - Will the rebuilding in the Northeast in the wake of Hurricane Sandy’s destruction juice the economy’s modest growth trend? It’s too early to know, but the possibility can’t be dismissed. For now, it’s time to establish a baseline of nowcasts for Q4:2012 GDP. The official estimate is scheduled for release via the Bureau of Economic Analysis in late-February, and so there's a long road ahead in terms of economic updates. The journey starts here: The current average of our five econometric-based nowcasts anticipates real annualized Q4 growth of 1.7%, or down slightly from Q3's official 2.0% estimate. It's still early, of course, and so there's limited data for developing a robust estimate for Q4. But as the numbers roll in, we'll update the nowcasts and monitor the changes. The key issue to watch is how the nowcasts evolve—are they rising, falling, or holding steady? The trend changes will tell us quite a lot about what to expect for the government's initial estimate of Q4 GDP that's due to hit the streets next February. For now, here's where we stand in terms of The Capital Spectator's econometric nowcasts, along with two estimates from other sources for perspective:

Gauging Hurricane Sandy's impact on the US economy - Estimates of economic damage from Hurricane Sandy are now ranging between $30 - $50bn. This is clearly a large number. LA Times: - Estimates of the economic losses caused by Hurricane Sandy earlier this week reached $50 billion as experts assessed the costs of severe property damage, shut-down subways and power outages.  On Thursday, Eqecat Inc. said it expects storm-related losses to fall between $30 billion and $50 billion. Of that, $10 billion to $20 billion will be insured, according to the firm, which calculates estimates for insurers.  Earlier this week, Eqecat had said that damages could reach $20 billion, with up to $10 billion in insured losses. But as terrible as this event was, in terms of economic damage it is still expected to be considerably below that of Katrina, which adjusted for inflation came in at $145 bn. The question now is: what will be Sandy's impact on the US economy? Based on historical experiences, the answer is not entirely obvious. JPMorgan's recent report attempts to answer it. Their view is that "Hurricane Sandy may initially depress economic activity, then support it over time as rebuilding commences". In the near-term the hurricane-impacted high frequency data and seasonal adjustments may be off for a couple of months. Longer term however, the impact on the overall economy should be minimal. The chart below shows the monthly GDP after three major hurricane events. Although we may see some weakness within the first month or two, the economy seems to be stable six months out.

The Perfect Economic Storm - The destruction from Hurricane Sandy will negatively impact fourth quarter economic growth. Most of us have heard by now that not addressing the fiscal cliff will throw the United States back into recession. The CBO has warned and warned again. Similar to the trifecta of three separate weather events combining to create Frankenstorm, we have economic and political events colliding to do the same. Economic forecasters are tallying up the damage from Hurricane Sandy and currently estimates are coming in at $50 billion. We expect Hurricane Sandy economic impact figures to rise. By comparison, Hurricane Katrina's economic devastation was eventually estimated to be $250 billion, with property damage alone estimated at $108 billion. Katrina hit on August 29, 2005. Q3 is July through September. Below is GDP for the time around the coming of Katrina. National real GDP went from 3.2% to 2.1% from Q3 to Q4 2005. GDP does vary normally between quarters and there are many other factors which contribute to economic growth. Yet, the gulf states contribution to national GDP are minimal. Louisiana and Mississippi together are only 2.2% of national GDP. The eastern seaboard's economic contributions, on the other hand, are substantial. New York alone was 7.7% of national GDP in 2010 and New Jersey, 3.4%. Below is a graph of the state of Louisiana's GDP, annually. We see a dramatic growth rate drop after Katrina hit.

Data Notes Part 2: A Bit of Sandy Economics and Net Vs. Gross -The damage from Sandy, both to peoples’ lives and the economy, keeps mounting as each day reveals how long it’s taking to get back to normal. By definition, this increases the economic costs of the crisis, which can be thought of as having two basic parts: costs that are sunk forever and costs that will be made up. More on that in a moment, but first, here’s a chart of hurricane costs as a share of GDP covering the past few decades. The preliminary estimate of Sandy, by GS Research, is $30 billion, or about 0.2% of GDP, placing it in the top five. I think that’s low and so I added a bar of $50 billion, or 0.3% of GDP.  In the case of a storm, they’re vacations that won’t be taken, nights out for dinner and a movie lost forever, conferences that were cancelled and won’t be rescheduled. Of course, other economic activities are simply postponed, and insurance typically covers about half the damage from these types of storms. So some of what you see in the economic indicators after these large storms are results that dip below recent trends for a few months and then go above recent trends, balancing out on average. And then, of course, there’s the rebuilding, and that’s where net versus gross comes in. Rebuilding stuff that was damaged or destroyed adds to GDP, because of the “G”—it’s gross domestic product, and so it doesn’t net out either standard depreciation—capital consumption, meaning the wear and tear on machinery and other goods that make up our capital stock—or the destruction from hurricanes. For that, you have to turn to net national product, which in some ways is a more revealing measure of the nation’s wealth than GDP, because it represents what’s actually available for consumption and investment.

Hurricane Sandy: Impact on "Near-Term Economic Activity" - The economic data has already shown some impact from Hurricane Sandy, and we will see more over the next couple of months. As an example, auto sales were down in the Northeast at the end of October, home listings were down in New York and New Jersey in early November, and this morning the MBA reported mortgage applications were down sharply in those states. Goldman Sachs analysts Sven Jari Stehn and Shuyan Wu tried to quantify the short term impact: The Effect of Hurricane Sandy on Near-Term Economic Activity

1. Employment dips and rebounds ... Both nonfarm payrolls and household employment typically fall one month after landfall and then rebound in the following two months. Our estimates suggest that the hit of Hurricane Sandy on November employment might be around 20,000 with a rebound in December and January. ...
2. claims rise and fall slowly. Initial jobless claims typically rise over the first three weeks after landfall before gradually falling back over the subsequent two months. Our analysis suggests that Hurricane Sandy might push initial jobless claims up by around 14,000 in the week ended November 17 and that it might take until late December for the distortion to disappear entirely from the claims report.
3. Small effects on housing and manufacturing. ... we find that housing starts tend to rise only by a few thousand units in the aftermath of storms as rebuilding of damaged houses begins. Regional manufacturing surveys typically weaken following hurricanes, but the effect is small. Our results would suggest that manufacturing surveys in the affected states—the Empire and Philadelphia Fed indexes—might weaken temporarily by a point or two in December due to Hurricane Sandy, but this is likely to be hard to distinguish from statistical noise.

USA Recession Odds: 100%? - Here’s an interesting new data point that the St Louis Fed has put together to calculate recession probabilities:“Recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. “What’s interesting about this index is the current reading.  At 20%, the index is at a level that has ALWAYS been followed by a recession.  As you can see below, the index has never approached 20% without a subsequent recession.  All 6 recessions since 1967 have coincided with 20%+ readings in the US Recession Probabilities index.  Interestingly, I still don’t see recession in my internal indicators.  Those indicators have been right for a long time now (in the face of some very public recession predictions by reputable people).  So I am afraid when my internal indicators point to “no recession” when an indicator like this clearly puts that opinion in the “this time is different” category….

Debunking the 100% Recession Chart - This chart is making the rounds, confirmation bias for those who are convinced that below-trend growth equals a recession. There are several leading sources pointing to the chart and suggesting that it implies a 100% chance of a recession.  There are so many things wrong with this that I hardly no where to begin.  Here is the commentary from non-economist talk-show guy Lance Roberts:"As stated above, each time this indicator has signaled the probability of a recession at 20%, or higher, the economy has either been in, or was about to be in, a recession. However, while the indicator is currently at a level that is indicative of a recession, along with a host of other economic indicators confirming the same (LEI Coincident to Lagging Ratio, ADS, GDI, Final Sales, STA Economic Composite, etc.), the NBER will wait to date the recession until the data revisions are in. Historically, as shown in the table below, the amount of time between the recession probability indicator hitting 20% and the NBER confirming the start of the recession has been on average about eight months. However, since the turn of the century that lag has moved to roughly 11.5 months." Try this.  Look at the chart above and pretend that we were going back to the future in 2005.   You could have drawn the line at 15% and said everything that Lance says now.  You would have been completely wrong!

The Recession Probability Chart - One of the most frequent questions I receive via email is: "Is another recession starting?"  There are quite a few people who have been calling a recession recently (ECRI has called several recessions since August 2011 or so).  They still have time on their most recent calls, but their earlier calls were wrong. Part of the problem in forecasting right now is the sluggish recovery has ups and downs, and each down looks like the start of a recession to some models. There is a recession probability chart from the St Louis Fed making the rounds today. The chart shows that the odds of a recession have increased recently. Here is the chart from FRED at the St Louis Fed: "This recession probabilities series from University of Oregon economist Jeremy Piger is a monthly measure of the probability of recession in the United States obtained from a dynamic-factor Markov-switching model applied to 4 monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales." However there are reasons this shouldn't be interpreted as indicating a new recession. Jeff Miller at a Dash of Insight does the heavy lifting: Debunking the 100% Recession Chart. Jeff actually read the underlying papers - and contacted the authors. Please read his post for more.

Beware Of Zombie Recession Forecasts - With the election behind us and the fiscal cliff approaching, recession forecasting is in full swing again, and so it's time once more to roll out the standard caveat—not all predictions are created equal. In fact, quite a lot of the opinions are of poor quality, largely because one or more of the following applies: 1) the predictions are driven by emotion; 2) the analysis relies on cherry-picking the data; 3) the analyst is generally misreading and abusing the economic signals and models; 4) the analysis is overly focused on recent data that's probably infected with short-term/seasonal distortion; 5) the analyst has another agenda to promote that conflicts with objective macro analysis.  For example, some pundits claim that there's a clean, direct link between the business cycle and policy debates in Washington related to decisions that may or may not happen in the future. For example, Steve Forbes predicted yesterday that "we will have a recession." Yes, that's a reliable forecast--now and forever. There's always another recession lurking. Timing, however, is a complicating factor. That's a reminder that we must consider the source--the model--for any recession prediction.  On that score, Forbes' analysis looks wobbly: "Raising taxes on capital, raising taxes on small businesses, which we will likely get now, particularly since the Republicans did so badly in the Senate races, that is going to pose a real burden." Sounds plausible, in a warm and fuzzy way. But if you spend any time analyzing the business cycle, you'll quickly discover that the link between macro fluctuations and tax rates in the short-to-medium term is clear as mud. As a tool for deciding if recession risk is high or low, rising or falling, this approach is worse than useless. If it were otherwise, your first source for predicting recessions would be listening to debates in Congress and press conferences at the White House. Good luck with that.

Fitch Sees Risk of U.S. Recession on Fiscal Cliff Concern - The U.S. risks entering a recession that will hurt economic growth worldwide should policy makers fail to avoid the so-called fiscal cliff of automatic tax increases and spending cuts next year, Fitch Ratings said. “We think that will tip the U.S. back into recession,” Fitch Managing Director Ed Parker said in an interview in Istanbul yesterday. “This should be a wholly avoidable, unnecessary recession.” U.S. stocks have tumbled, sending the Standard & Poor’s 500 Index to its biggest two-day drop in a year, after U.S. President Barack Obama’s re-election, as concern deepened that lawmakers will be unable to reach a budget compromise to avoid more than $600 billion in spending cuts and tax increases. The Congressional Budget Office reiterated that a failure to strike a deal would lead to a recession in the first half of 2013. Fitch, which rates the U.S. AAA, its highest investment grade status, on Nov. 7 warned that the U.S. may be downgraded next year unless lawmakers avoid automatic tax boosts and budget cuts and raise the debt ceiling, while Moody’s Investors Service said it will wait to see the economic impact should the nation experience a fiscal shock. S&P stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political wrangling over the debt ceiling.

Trade Makes Third Quarter Look Better - A better than expected trade report is causing economists to bolster their view of third quarter economic growth. The U.S. trade deficit in September unexpectedly contracted 5.1% to $41.55 billion — the lowest level since the end of 2010, the Commerce Department said Thursday. The August deficit was revised down to $43.79 billion from $44.22 billion. The data suggests that the deficit acted as less of a drag on the economy than initially reported last month. The trade gap subtracted about 0.2 percentage point from the government’s first reading of 2.0% third quarter growth.

Third Quarter GDP Looking Better, but May Be at Expense of Fourth Quarter - Initially viewed as another lackluster period, the third quarter could turn out to be among the most robust economic advances of the current recovery. After surprisingly positive reports on wholesalers’ inventories and the trade deficit this week, some economists are now forecasting that the gross domestic product increased at better than a 3.0% rate during the third quarter. The government initially pegged it as a 2.0% gain, but will use the latest data to revise the figure later this month. Economic growth has only twice topped a 3.0% rate since the recovery began thirteen quarters ago. The economy hasn’t grown at better than a 3.0% clip for a full year since 2005. J.P. Morgan Chase raised its estimate of third quarter growth to 3.2% from 2.8% Friday after a Commerce Department report showed that wholesale inventories increased 1.1% in September — far exceeding expectations — and August inventory growth was revised up. “We are raising our tracking estimate…because wholesale inventories were stronger than what had been assumed” by the government in its advance report, said economist Daniel Silver. Initially, the government saw the change in inventories was a 0.1 percentage point drag on overall growth, but data released since indicates that the change should now contribute 0.6 of a percentage point to the GDP gain, he said.

Treasury Yields/Mortgage Rate Update - I've updated the charts below through Friday's close. The S&P 500 is 3.52% off its interim high set on September 14th, the day after QE3 was announced. The 10-year note closed the week at 1.75, which is 13 basis points off its interim high of 1.88, also set the day after QE3 was announced. The historic closing low was 1.43 on July 25th. The latest Freddie Mac weekly update shows the 30-year fixed at 3.39%, three basis points above its historic low set the first week in October. Here is a snapshot of selected yields and the 30-year fixed mortgage one week after the Fed announced its latest round of Quantitative Easing. The first chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed's website for the FFR. Now let's see the 10-year against the S&P 500 with some notes on Fed intervention. For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.

TAGP expiration will put downward pressure on short-term yields - In 2008 many businesses in the US became concerned that the various transaction accounts they use to conduct business could be at risk due to banks failing.  In order to reassure frightened corporate America, the FDIC implemented the Transaction Account Guarantee Program (TAGP), which provided unlimited government guarantees for non-interest-bearing transaction accounts such as deposits earmarked for payroll. This was all part of the Temporary Liquidity Guarantee Program (TLGP) meant to restore confidence in the shaky financial system. At the end of 2012 however, this unlimited FDIC guarantee program is set to expire, affecting some $1.4 trillion of deposits. According to a recent survey (see attached paper from Western Asset Management), two out of five depositors in these accounts will reallocate cash elsewhere once the accounts are no longer guaranteed. The money will go into either interest bearing accounts, short term securities such as CP or short-term treasuries, or money market funds (and money market funds will be forced to buy short term securities). Given an already significant shortage of money market products out there - a problem that has been worsening since the financial crisis (see this post from 2009) - this will put downward pressure on rates (including short-term IG corporate paper). Even in a normal year demand for short-term securities increases at year-end (see discussion), but with TAGP expiration we may see more negative yields in short-term treasuries and incredibly tight CP spreads.

An MMT Fiscal Responsibility Narrative: Some Truths - Many MMT posts and other writings on fiscal responsibility, including my own, focus on the myths of neoliberalism, pointing out why they are myths and developing an alternative MMT perspective in some detail. Off  hand, and I may have forgotten something, I couldn’t think of a brief positive MMT narrative containing primarily the truths, rather than the myths. So, here’s my version.

  • – The US Government can’t involuntarily run out of fiat money because it has the constitutional authority to create it without limit. Congress constrains and regulates this ability; but its existence is still a stubborn fact!
  • – In addition to taxing and borrowing money and, most importantly, the Government has an unlimited capacity to create it. When it taxes and borrows, it removes it from the private sector. When it creates it, over and above what it taxes or borrows, it adds it to the private sector.
  • –The Treasury can keep borrowing money if we want it to. There’s no limit on the Government credit card except the one imposed arbitrarily by Congress.
  • – Bond markets don’t control US interest rates; the Federal Reserve Bank does by exercising its authority to meet its target interest rates. Bond vigilantes have no power against the Fed. If they fight against its interest rate targets; then they “die.”
  • – The bond markets will most probably buy US debt for the foreseeable future; but if they don’t, then the US won’t be forced into insolvency; because the Government can always create the money needed to meet US obligations.
  • – We’re obligated to pay all US debts as they come due. Nevertheless, our national debt cannot be a burden for our grandchildren; since we have an unlimited credit card to incur new debt at interest rates of our choosing, or, alternatively can create all the money we need to pay off debt subject to the limit, without incurring any more debt; unless they wish to make it so by stupidly taxing more than they spend.
  • – Since the US Government has no limits on its authority to create/spend money other than self-imposed ones, neither the level of the national debt, nor the debt-to-GDP ratio can affect the Government’s capacity to spend Congressional Appropriations at all.
  • – The Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes! So, their supply of dollars is always limited; while the Government’s supply is a matter of its decisions alone.

Explain the disease to help US citizens - Today, the US private sector is saving a staggering 8 per cent of gross domestic product – at zero interest rates, when households and businesses would ordinarily be borrowing and spending money. But the US is not alone: in Ireland and Japan, the private sector is saving 9 per cent of GDP; in Spain it is saving 7 per cent of GDP; and in the UK, 5 per cent. Interest rates are at record lows in all these countries. This is the result of the bursting of debt-financed housing bubbles, which left the private sector with huge debt overhangs – notably the underwater mortgages – giving it no choice but to pay down debt or increase savings, even at zero interest rates. However, if someone is saving money or paying down debt, someone else must be borrowing and spending that money to keep the economy going. In a normal world, it is the role of interest rates to ensure all saved funds are borrowed and spent, with interest rates rising when there are too many borrowers and falling when there are too few. But when the private sector as a whole is saving money or paying down debt at zero interest rates, the banks cannot lend the repaid debt or newly deposited savings because interest rates cannot go any lower. This means that, if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933. Those with a debt overhang will not increase their borrowing at any interest rate; nor will there be many lenders, when the lenders themselves have financial problems. This shift from maximising profit to minimising debt explains why near-zero interest rates in the US and EU since 2008 and in Japan since 1995 have failed to produce the expected recoveries in these economies. With monetary policy largely ineffective and the private sector forced to repair its balance sheet, the only way to avoid a deflationary spiral is for the government to borrow and spend the unborrowed savings in the private sector.

The coming debt battle - James Galbraith - In the tense run-up to Hurricane Sandy, I clicked on one of those headlines that appears on the right side of the screen: “Civilization May Not Survive This, Economist Says.”Once there, I knew I’d been had.  It was about … the public debt. It cited one Lawrence Kotlikoff of Boston University, one of America’s most talented artificers, who “estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.” Compared to that, what’s a thousand mile-wide hurricane? That the looming debt and deficit crisis is fake is something that, by now, even the most dim member of Congress must know.  The combination of hysterical rhetoric, small armies of lobbyists and pundits, and the proliferation of billionaire-backed front groups with names like the “Committee for a Responsible Federal Budget” is not a novelty in Washington. It happens whenever Big Money wants something badly enough. Big Money has been gunning for Social Security, Medicare and Medicaid for decades – since the beginning of Social Security in 1935. The motives are partly financial: As one scholar once put it to me, the payroll tax is the “Mississippi of cash flows.” Anything that diverts part of it into private funds and insurance premiums is a meal ticket for the elite of the predator state. And the campaign is also partly political. The fact is, Social Security, Medicare and Medicaid are the main way ordinary Americans connect to their federal government, except in wars and disasters.  They have made a vast change in family life, unburdening the young of their parents and ensuring that every working person contributes whether they have parents, dependents, survivors or disabled of their own to look after. These programs do this work seamlessly, for next to nothing; their managers earn civil service salaries and the checks arrive on time. For the private competition, this is intolerable; the model is a threat to free markets and must be destroyed.

US austerity? US 'fiscal cliff' would trigger cuts of up to 5.1% GDP - As US public debt is about to rise over the limit of $16.39 trillion, analysts warn of the drastic damage it could create. Should the debt limit remain unchanged, the US economy will have to suffer austerity measures worth around $804.5 billion. The debt held by the public skyrocketed to about 102% of the US GDP in 3Q 2012. The ratio was higher only once in the US economic history – in 1945 when it reached 113% of GDP.Meanwhile, a new so-called “debt ceiling”, that was last raised by Congress in January 2012 to $16.394trln, seems to be not high enough, as the figures show that the room for further borrowing is becoming increasingly narrower. Earlier this week the US Treasury said the country was set to hit the debt limit by the end of the year. Meanwhile the Treasury has continued to unveil borrowing plans that include massive bond issues, which will inevitably drive the US economy deeper into debt. If the US Congress does not raise the debt ceiling in the next few months, it would result in an “onset of austerity measures worth 5.1% of American GDP,” or $804.5bn, Margaret Bogenrief from ACM Partners told Business RT.

Going over the fiscal cliff -- The "fiscal cliff" refers to a broad set of tax increases and spending cuts that under current U.S. law will take effect in January. A recent assessment by Bank of America Merrill Lynch estimates the tax increases in 2012 could come to $470 B and spending cuts another $250 B, for a combined fiscal shock of $720 B, or 4.6% of GDP. A fiscal contraction of this size in an economy as weak as the United States would likely be enough to send the country back into a recession. Since that's not an outcome either party wants to see, my assumption has been that somehow Congress and the President will find a way to avoid it. Some respected analysts have suggested to me that there is one political reason that our leaders might prefer to go over the cliff and then try to back our way up. The advantage is one of framing-- once we've gone over the cliff, their position can be described relative to the new status quo, namely, every politician can claim to be in favor of tax cuts, but with the Democrats opposing "new tax cuts for the wealthy." If we were to drive over the cliff before trying to back up, one of the logistically cumbersome changes to undo involves the alternative minimum tax, since the changes here concern taxes owed on income earned in calendar year 2012. Business Week explains: the number of households facing the alternative tax would increase to 32.9 million from 4.4 million, according to the Internal Revenue Service. That's an average unanticipated tax increase of about $2,800. The effect from the AMT, as the parallel tax is known, would be immediate in early 2013 because Congress hasn't addressed the change for tax year 2012, and taxpayers start filing returns in January. A retroactive AMT change is much more cumbersome than retroactive changes in the 2013 income tax rates, which can be handled through paycheck-withholding adjustments

Fiscal cliff looms over campaign climax - Some of the largest US asset managers and pension funds issued an urgent warning over America's looming budget crisis, underlining concern in the markets of a damaging political stand-off in the event of a narrow election victory for Barack Obama. Even as Mr Obama and Mitt Romney made their last pitches to voters, the investors called on Congress to do a deal to avert the "fiscal cliff", $600bn in spending cuts and tax rises set to take effect on January 1 if changes to the law are not agreed. Such fiscal austerity could push the economy into a recession next year, the Congressional Budget Office and the Federal Reserve have warned. "America is facing an urgent crisis, barely discussed during the fall's election campaign," said the group of investors led by BlackRock and joined by pension systems from Florida, Utah, Texas and Illinois, in full-page advertisements placed in leading US newspapers on Monday. "Every day we go without a resolution to the fiscal cliff will erode confidence," said Larry Fink, head of BlackRock which oversees $3.6tn for investors. He said US companies held $1.7tn in cash, "a huge reservoir of money standing by to be put back into the economy" if confidence improves, if there was a fix that is seen as "tangible and credible".

U.S. Vows to Avoid Falling Over Fiscal Cliff Amid G-20 Warning -- The U.S. gave an election-eve commitment to “carefully calibrate” its budget retrenchment amid global warnings that a rush of austerity would harm the weak world economy. As Americans prepared to choose a president, Group of 20 finance chiefs said after talks yesterday in Mexico City that the U.S. pledged to avoid a “sharp fiscal contraction” in 2013. That’s when $607 billion of automatic tax increases and spending cuts are set to take effect unless lawmakers act. “Time is of the essence and significant policy uncertainty in Washington must be addressed,” International Monetary Fund Managing Director Christine Lagarde told reporters. “It will be important for the U.S. to address quickly the so-called fiscal cliff.” The push for U.S. action took center stage at the G-20 meeting during which finance ministers also agreed to dilute their two-year-old budget-cutting goals. Their new vow, to ensure the “pace of fiscal consolidation is appropriate to support recovery,” highlights increased concern that government belt-tightening would threaten an expansion the G-20 labeled modest. The statement “reflects how the consensus has become less austere,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “Previously, austerity was thought best, but markets don’t seem to believe that now and politicians are recognizing they have to be realistic over what can be achieved.”

A Sober Wake-Up Call The Morning After - President Obama was re-elected yesterday, and we wish him well. But the news is already ancient, given the pressing demands of defusing the fiscal cliff threat--a deep round of tax hikes and spending cuts slated to start in January if politicians don't intervene. Failure isn't an option here, given the dire effects these cuts and tax hikes could inflict on the still-struggling economy. Unfortunately, that's the likely scenario if politics as usual prevails in the weeks ahead. It's hard to imagine anything else at the moment, given the rancorous, hyper-partisan atmosphere that's defined the Beltway bunch for the past year. Maybe the sour mood will evaporate now that Obama has won a fairly decisive victory in the Electoral College—303 votes for Obama vs. Romney's 206, with 270 needed to clinch the deal. Maybe, but don't count on it. There are several factors that will impede a quick solution to the fiscal troubles that loom, starting with the fact that the U.S. government remains divided: A Democrat in the White House and a Democrat-controlled Senate paired with a Republican-dominated House of Representatives. In other words, nothing much changed yesterday in terms of the balance of power in Washington, and so the potential for political dysfunction is as strong as ever. It's an open question if a lame duck Congress will work with the President to resolve the fiscal cliff risk that threatens to push the economy into recession. The same question can and should be posed from the perspective of 1600 Pennsylvania Avenue: Can the President work with a lame duck Congress? We're about to find out, and the stakes couldn't be higher.

Re-elected Obama would push quickly for fiscal deal -party aides - If President Barack Obama wins re-election, he's expected to move quickly, perhaps within a day, to renew his bid for a bipartisan deal to avert a "fiscal cliff" that threatens to push the United States into recession, top Senate Democratic aides said on Monday. A victorious Obama could reach out to Republicans as early as Wednesday and pledge that, with the election decided, it's time to find common ground to deal with the year-end expiration of Bush-era tax cuts and the launch of automatic spending cuts that would suck $600 billion out of the economy in 2013. "He wants to get the process started immediately," one aide said. "We could move quickly," another aide said, explaining that the basic ingredients of any deal - increased tax revenues coupled with cuts in entitlement programs - have been debated thoroughly for the past two years. "Everyone knows what needs to be done," he said. Two Democratic aides said White House officials have discussed the matter with top Senate Democrats, though it remains unclear exactly how a re-elected Obama would proceed.

Fitch: U.S. must fix fiscal cliff to keep AAA - President Barack Obama won't enjoy a fiscal honeymoon after winning re-election, with pressure on U.S. officials to resolve the so-called fiscal cliff and other issues in order to maintain the country's AAA credit rating, Fitch Ratings said Wednesday. "The economic policy challenge facing the president is to put in place a credible deficit-reduction plan necessary to underpin economic recovery and confidence in the full faith and credit of the [United States]. Resolution of these fiscal policy choices would likely result in the U.S. retaining its AAA status from Fitch," the firm said. Failure to avoid the fiscal cliff -- a combination of tax hikes and spending cuts that will come into effect on Jan. 1 unless politicians reach a budget deal -- and raise the country's debt ceiling in a timely manner would likely result in a downgrade in 2013, said Fitch, which has a negative outlook on the U.S. credit rating. Rival firm Standard & Poor's last year stripped the U.S. of its AAA rating on debt worries

Election Results: Budget Debate Got More Difficult - There's no doubt in my mind that the election results mean that the budget debate just got much, much more difficult. If you were wondering/hoping/praying that a deal would be more likely after the election than it was before, you will be very disappointed.

‘Fiscal cliff’ clock starts in earnest as election fades to background -  President Obama returns to Washington from the campaign trail Wednesday to face an epic year-end battle over taxes and spending that could ultimately tame the national debt and advance his ambitions for a second term. The president, who won reelection late Tuesday, must now confront the “fiscal cliff,” nearly $500 billion in automatic tax hikes and spending cuts set to take effect in January that could throw the nation back into recession.If Obama can engineer a compromise to avert the cliff with the freshly reelected Republican House, he could set the stage for progress on other second-term priorities, including immigration reform, climate change and investments in education and manufacturing. Such a compromise could also infuse fresh energy into an economic recovery that has suffered from uncertainty over the future of federal budget policies. “Getting a deal on long-term fiscal soundness is paramount to move forward and to see the economy really keep improving,” said Bill Daley, Obama’s former chief of staff. It will also “give confidence that the political system can address a major issue.”

Back to Work, Obama Is Greeted by Looming Crisis : Newly re-elected, President Obama moved quickly on Wednesday to open negotiations with Congressional Republican leaders over the main unfinished business of his term — a major deficit-reduction deal to avert a looming fiscal crisis — as he began preparing for a second term that will include significant cabinet changes. Mr. Obama, while still at home in Chicago at midday, called Speaker John A. Boehner in what was described as a brief and cordial exchange on the need to reach some budget compromise in the lame-duck session of Congress starting next week. Later at the Capitol, Mr. Boehner publicly responded before assembled reporters with his most explicit and conciliatory offer to date on Republicans’ willingness to raise tax revenues, but not top rates, together with a spending cut package. “Mr. President, this is your moment,” said Mr. Boehner, a day after Congressional Republicans suffered election losses but kept their House majority. “We’re ready to be led — not as Democrats or Republicans, but as Americans. We want you to lead, not as a liberal or a conservative, but as president of the United States of America.” His statement came a few hours after Senator Harry Reid, leader of a Democratic Senate majority that made unexpected gains, extended his own olive branch to the opposition. While saying that Democrats would not be pushed around, Mr. Reid, a former boxer, added, “It’s better to dance than to fight.”

What does President Obama’s re-election mean for the ‘fiscal cliff?’ - With the end of the 2012 election, policymakers’ focus will pivot to the so-called “fiscal cliff” of legislated spending reductions and expiring tax cuts scheduled for 2013, which are projected to induce a recession if they materialize. So what does President Barack Obama’s re-election imply for navigating the “fiscal cliff,” both in terms of his budgetary proposals’ economic impacts and their political viability? The “fiscal cliff” exposes that the pace of deficit reduction must be moderated to sustain economic recovery. “Cliff,” however, is a terrible metaphor because it implies a false dichotomy; we prefer “obstacle course” as the numerous separable policies should be weighed on their merits. A recent paper I coauthored with my colleague Josh Bivens concluded that the upper-income Bush-era tax cuts and recent estate tax cuts fail any reasonable cost-benefit analysis and should expire; these policies are the least supportive of jobs of all fiscal obstacle course components. Expiration of remaining stimulus measures—notably the payroll tax cut and emergency unemployment benefits—and looming spending cuts from last summer’s debt ceiling deal actually pose the gravest economic drags. And temporary stimulus could easily offset small economic headwinds from raising taxes. The president’s most recent budget request actually adheres closely to this framework.  On net, the president’s budget would increase the budget deficit for 2013 relative to the “current policy” baseline in which most expiring provisions are assumed to continue, which is important because this baseline includes sizable fiscal contraction that should be moderated (notably, the payroll tax cut and emergency unemployment benefits are assumed to expire). Increased government investment and spending would boost employment by about 1.1 million jobs in 2013, as we estimated in another recent paper. This amounts to substantially moderating the pace of deficit reduction for 2013.

Obama's Next Economy: Why He Must Take This Opportunity to Reframe the Economic Debate - Robert Reich - When the applause among Democrats and recriminations among Republicans begin to quiet down — probably within the next few days — the President will have to make some big decisions. The biggest is on the economy. His victory and the pending “fiscal cliff” give him an opportunity to recast the economic debate. Our central challenge, he should say, is not to reduce the budget deficit. It’s to create more good jobs, grow the economy, and widen the circle of prosperity. The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable. But if economic growth slows – as it will, if taxes are raised on the middle class and if government spending is reduced when unemployment is still high – the deficit becomes larger in proportion. That’s the austerity trap Europe finds itself in. We don’t want to go there. This is why January’s so-called “fiscal cliff” — $600 billion in automatic spending cuts and tax increases – is so dangerous. It’s too much deficit reduction, too soon. Tax increases on the middle class would reduce their spending just when the economy needs that spending in order to keep growing, and cuts in government’s own spending would make the problem worse. If we go over the fiscal cliff, we’re in another recession. Don’t just take my word for it. That’s also the view of the Congressional Budget Office and most private economic forecasters. The way to ensure continued growth is to continue the President’s payroll tax cut and extend the Bush tax cuts for income under $250,000, and continue government spending.

Greenspan: U.S. Must Embrace Fiscal Responsibility - Former U.S. Federal Reserve Chairman Alan Greenspan said Wednesday the U.S. needs to return to fiscal responsibility, and that “all the easy answers have already been tried.” Speaking with Guillermo Ortiz, formerly Mexico’s central bank president but now a chairman of Mexican bankGrupo Financiero Banorte, Mr. Greenspan said the U.S. needs to increase taxes, but more importantly it needs to cut spending. In a discussion held before Banorte board members and clients, Mr. Greenspan described the current situation in the U.S. as “scary,” saying members of Congress are reluctant to “reach across the aisle” to clinch bipartisan deals. The large amount of cash that corporations and banks appear to be hoarding reflects a lack of confidence and uncertainty about the future, he said. In the case of banks, they will continue to hold onto large amounts of cash until they see better opportunities in the market to lend it out, the former Fed Chairman said. Greenspan had kind words for his successor, Ben Bernanke, calling him a “capable economist.”

Waiting for the bond vigilantes - Nick Rowe --- Paul Krugman is right if he is talking about a small attack by the bond vigilantes. It's a good thing, because it increases Aggregate Demand, which is what the US economy needs. But too much of a good thing will be a bad thing.A large attack by the bond vigilantes would be a bad thing, because it would increase Aggregate Demand too much. That would force the Fed to increase interest rates a lot, and that would force the US government to raise taxes and/or cut spending to cover the increased costs of servicing the debt.  If the bond vigilantes suspected that the US government could not or would not raise taxes and/or cut spending to cover the increased cost of servicing the debt, the bond vigilantes would all attack en masse. If the debt were small, the amount by which taxes would need to be raised and/or spending cut to cover the increased debt service costs would be small too, and it could easily be done. But if the debt were large, the amount by which taxes would need to be raised and/or spending cut to cover the increased debt service costs would be large too, and it could not easily be done.

Economists Worry About Fiscal Cliff Resolution - Economists at Wall Street’s biggest banks are warning that a resolution of the year-end “fiscal cliff” situation remains elusive despite the outcome of elections Tuesday. Forecasters are worried that since the levers of government are in essentially the same hands as before the election, lawmakers may be hardening themselves against any form of compromise to deal with a threat many economist say could bring a new recession.The clock is ticking: At year end, broad-based Bush-era tax cuts are set to expire at the same time a series of drastic government spending cuts are set to kick in automatically. Lawmakers generally acknowledge something does, in fact, need to be done, but that hasn’t made a solution any easier.The central problem is the lack of change. President Barack Obama was reelected. Democrats retained control of the Senate, while Republicans held on to the House of Representatives. The fiscal cliff can only be resolved if lawmakers work together.“Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier,” 

Business Groups: President Must Use Mandate to Face Down Fiscal Cliff - Business organizations said Wednesday Barack Obama‘s re-election gives him a mandate to quickly address the pending fiscal cliff and work for deficit reduction and tax reform. The groups, however, stressed the two goals shouldn’t both be tackled in the next few months. “There isn’t much time,” said John Engler, president of the Business Roundtable, referring to the lame-duck session of Congress. “At minimum you have to get the fiscal cliff under control” by extending existing tax rules through 2013 and avoiding steep cuts to military spending and other government budgets. Mr. Engler said any type of “grand bargain” should be put off until next year to avoid the risk that Congress ends up gridlocked in an attempt to enact wider reforms before mid-January. “The history of these sessions is pretty dismal,” he said on a conference call with reporters. “If you want big dramatic changes to tax policy, you do that as part of the grand bargain.” For example, if Democrats insist of raising taxes on the wealthiest Americans as part of a fiscal-cliff deal, a compromise could fall apart. “A tax increase on that group is not going to solve fiscal-cliff or long-term deficit issues,” said Greg Casey, president of the Business Industry Political Action Committee. “It’d be nice if there was a cease fire until we understand what the larger proposals will be.”

What Is the Fiscal Cliff? - Unless the law is changed, or Congress and the president find another way to trim the deficit, on Jan. 1 the following spending cuts and tax changes will automatically kick in. Click the image for full-size graphic.

IMF Tells G-20: ‘Temporary’ U.S. Fiscal Cliff a ‘Medium-Probability Event’ -- International Monetary Fund officials warned global financial leaders this week they believe there is a “medium probability” the U.S. government will fail to reach a deal preventing large spending cuts and tax increases from taking effect in the new year, a package of measures known as the “fiscal cliff.” The IMF has previously warned that failure to reach an agreement on the $700 billion package–roughly 4.5% of gross domestic product–would push the country into recession. But the warning in a report given to financial leaders from the Group of 20 industrial and developing nations meeting this week is the first time fund officials have estimated the odds of the feared event materializing. Fund staff said the severity of the economic effects partly depends on the duration of the cliff.

IMF urges permanent fix to U.S. 'fiscal cliff' - The International Monetary Fund on Thursday urged the United States to quickly reach an agreement on a permanent fix to avoid automatic tax hikes and spending cuts early next year, saying a stop-gap solution could be harmful to the global economy. In a report prepared for the Group of 20 finance ministers' meeting in Mexico on November 4-5 and published on Thursday, the IMF warned that the euro zone crisis and the threat of a political impasse in Washington over the looming fiscal cliff posed the biggest risks to the world economy. The IMF has estimated that the tax increases and spending cuts amount to $700 billion in 2013. Unless avoided, this could contract U.S. gross domestic product by around 4.5 percent. "A last-minute deal that relies on suboptimal fixes or largely 'kicks the can down the road' may ultimately prove harmful," the IMF said in the report.

The Fiscal Cliff: International Implications - Most of the discussion has focused on the domestic repercussions of going off the fiscal cliff (or as my former colleague Chad Stone calls it, the “fiscal slope”). I think it important to remember that, as the single largest economy, policy in the US has profound implications for economic developments overseas. This is particularly true with the eurozone still in a fragile state, and China growing (relatively) slowly. Jim’s post yesterday tabulated the numerical components of the fiscal cliff. Goldman Sachs has used its own tabulation to estimate the impact on GDP growth over 2013 (SAAR), shown in Figure 1.  Note that one difference between the BofA and GS calculations involves the size of the Bush tax cuts. BofA indicates $180 bn, while GS indicates $192. The consequential piece of information is that $56 billion of the $192 bn is associated with high income tax cuts. Retaining the lower tax cuts for incomes less the $250K means the fiscal cliff would be reduced by $136 bn. Nonetheless, with interest rates at zero, contractionary fiscal policy is likely to have large (negative) effects.

Tail risks lurk in the shadows. Fiscal cliff is out in the open. - Merrill conducts a periodic survey of US institutional money managers. One area the survey focuses on is a set of questions on the so-called "tail risks", the less probable but potentially devastating events that negatively impact financial asset valuations. Here are the survey results from September and October of this year. The US fiscal cliff is clearly on people's minds and is quickly becoming the dominant concern in the financial community. If this survey were conducted today, the percentage of participants who would view the upcoming budget cuts and tax increases as the main risk to their portfolios would increase sharply. In fact, based on Google Trends, the public's concerns about the US fiscal cliff have spiked recently.But once certain risks become this widely "respected", they can no longer be called "tail risks". In fact as we saw in today's equity markets, these risks are already being priced into the markets.  Tail risks are usually those events that are not fully priced, risks that are ignored, sometimes leading to formations of asset bubbles. What would be an example of such a risk these days? One potential candidate may be some of the US bond markets, for example credit (see discussion on corporate credit). Below is the famous CS Risk Appetite Index shown together with its US Credit Risk Appetite sub-index. US credit risk appetite is approaching what CS refers to as the "euphoria" level.

New CBO report on "Fiscal Cliff" -Note: My baseline forecast assumes a compromise on the fiscal slope (more of a "slope" than a "cliff", and January 1st is not a drop dead date). My current guess is an agreement will be reached AFTER January 1st - so that the Bush tax cuts can expire and certain politicians can claim they didn't vote to raise taxes. I expect the relief from the Alternative Minimum Tax (AMT) will be extended, the tax cuts for low to middle income families will be reenacted, and that most, but not all, of the defense spending cuts will be reversed (aka "sequestration"). However I think the payroll tax cut will probably not be extended, and tax rates on high income earners will increase a few percentage points to the Clinton era levels.   It wasn't worth spending much time on this before the election, but now the details will be important.  As the CBO notes, a policy mistake could lead to economic contraction (a new recession), but I think some reasonable agreement is likely. From the Congressional Budget Office: CBO Releases a Report on the Economic Effects of Policies Contributing to Fiscal Tightening in 2013 Significant tax increases and spending cuts are slated to take effect in January 2013, sharply reducing the federal budget deficit and causing, by CBO’s estimates, a decline in the nation’s economic output and an increase in unemployment. What would be the economic effects of eliminating various components of that fiscal tightening—or what some term the fiscal cliff?

CBO blog | CBO Releases a Report on the Economic Effects of Policies Contributing to Fiscal Tightening in 2013 - Significant tax increases and spending cuts are slated to take effect in January 2013, sharply reducing the federal budget deficit and causing, by CBO’s estimates, a decline in the nation’s economic output and an increase in unemployment. What would be the economic effects of eliminating various components of that fiscal tightening—or what some term the fiscal cliff?  To answer that question, today CBO released a report—Economic Effects of Policies Contributing to Fiscal Tightening in 2013. This report provides additional details about the agency’s estimates—originally released in its August report An Update to the Budget and Economic Outlook: Fiscal Years 2012–2022—of the economic effects of reducing fiscal tightening.  As CBO projected in August, the sharp reduction in the deficit will cause the economy to contract but will also put federal debt on a path more likely to be sustainable over time. If certain scheduled tax increases and spending cuts would not take effect and current tax and spending policies were instead continued, the economy would grow in the short term, but the government’s debt would continue to increase.

Economic Effects of Policies Contributing to Fiscal Tightening in 2013 - CBO  - Substantial changes to tax and spending policies are scheduled to take effect in January 2013, significantly reducing the federal budget deficit. According to CBO’s projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013. After next year, by the agency’s estimates, economic growth will pick up, and the labor market will strengthen, returning output to its potential level (reflecting a high rate of use of labor and capital) and shrinking the unemployment rate to 5.5 percent by 2018.  Output would be greater and unemployment lower in the next few years if some or all of the fiscal tightening scheduled under current law—sometimes called the fiscal cliff—was removed. However, CBO expects that even if all of the fiscal tightening was eliminated, the economy would remain below its potential and the unemployment rate would remain higher than usual for some time. Moreover, if the fiscal tightening was removed and the policies that are currently in effect were kept in place indefinitely, a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates) and would eventually reduce the nation’s output and income below what would occur if the fiscal tightening was allowed to take place as currently set by law.

Counterparties: Cliff Notes - The fiscal cliff (née taxmageddon) has been looming for months — yet, as Binyamin Appelbaum says, it never got any real traction during the campaign. But now that the campaign is over, the issue is everywhere. After all, if Congress doesn’t act, we’re headed straight for another recession, thanks to a mix of automatic spending cuts and expiring tax cuts. (For background, see our previous posts. The WSJ has a simple visualization of what’s in the fiscal cliff; Tracy Alloway flags a handy calendar, which includes when the debt limit will likely be reached). It’s an old topic, but there are brand-new trial balloons! In a statement the NYT called  ”conciliatory”, Speaker of the House John Boehner said his party would now be open to “new revenues” in exchange for entitlement cuts and/or tax reform. This may mean that Obama may be finally making progress in what Joshua Green calls the president’s long “battle for revenue”. In the suddenly more pleasant world of post-election politicking there may even be something like common ground: Grep Ip and Peter Orszag both say that there might be short-term solutions which eases the economic pain of the fiscal cliff while giving Congress time to wrangle over the really hard budget decisions. (This is also known, in some circles, as “kicking the can down the road”.) The CBO today released a broad guide to three basic debt-reduction scenarios, while the Center on Budget and Policy Priorities has another approach: aim a bit lower. Instead of obsessing over coming up with the “almost mythical” $4 trillion in cuts suggested by proposals like the Simpson-Bowles plan, why not cut half that and call it a day? A deficit reduction package that size, the CBPP’s Richard Kogan writes, would stabilize our debt over the next decade and buy crucial time to evaluate how to properly cut health care costs — a question we’re only beginning to answer.

CBO on "Ultimate Can Kicking" -The Congressional Budget Office is out with a very well timed report on what the hell should be done with debt, deficits, taxes and the economy. There is a lot of information in the reports.. (link), (link)   I doubt that too many of the folks in Congress will bother to read it. I looked through it; I think the following chart is the one the deciders in D.C. will focus on: Lots of policy options are measured in the chart. Think like a politician, and go to the bottom line. What set of proposals has the biggest bang? My summary from the CBO chart:

  • -Totally junk the scheduled spending cuts for the military.
  • -Do away with all of the mandatory non-defense cuts (sequestration).
  • -Don’t do anything with taxes. Roll over everything for a couple of more years.
  • -Extend the 2% payroll tax break for two years.

If we kick the can down the road for a few more years, what do we get? The deep thinkers have come up with numbers that look pretty attractive. The CBO thinks that significant benefits could be realized as soon as September 30, 2013.

Kick the Can, Please - As Dimitri Papadimitriou recently observed, the overwhelming push for austerity in the United States is partly driven by the sense that deficit reduction simply cannot wait: Many in Washington and the media are convinced that the recovery is well underway, and if spending cuts and tax increases are delayed for even a year it will be too late to tame inflation and tighten fiscal policy on a soaring economy. The urgency rests on unfounded optimism. We still have a very long way to go before the economy is anywhere near healthy enough to heat up. The GDP is now, and has long been, far below trend. Here’s how Papadimitriou and Greg Hannsgen illustrate the point in a recent policy brief: It is rather odd to be concerned about deficit reduction coming “too late” (i.e. that the black line will rise above the pink line), given how far we are from the historical growth trend.  As Papadimitriou and Hannsgen put it:  “Based on the present state of the economy, any notion that implementing better policy would be mostly a matter of precise timing is patently absurd.  The gap between recent real GDP growth and the historical trend is so large that the danger of overshooting the trend is hard to imagine.”*

Debt Ceiling Complicates a Tax Shift - — Come January, should Congress fail to act, the United States will face more than immense tax increases and spending cuts. It will also run out of room to finance its large running deficits. The Treasury Department expects the country to hit its debt ceiling, a legal limit on the amount the government is allowed to borrow, close to the end of the year. That would give Congress only a matter of weeks to raise the ceiling, now about $16.4 trillion, before sending financial markets into a panic. Congressional leaders have made clear that the debt ceiling will be part of the intense negotiations over the so-called fiscal cliff, with many members unwilling to raise the ceiling without a broader deal. That has raised financial analysts’ worries of a financial market panic over the ceiling in addition to the slow bleed of the tax increases and spending cuts. Congressional action is required to raise the debt limit. The Treasury can jostle payments for a few months. But expenses will eventually overwhelm revenue, putting the administration in the position of choosing which bills to pay. It might stop paying soldiers, for instance, or sending Social Security payments.

Will Obama take us over the fiscal cliff and then keep us there? - So here’s a question for the people who know more about this stuff than I do (i.e., everyone): Doesn’t Obama have good reasons not only to lead us over the fiscal cliff, but also to keep us there? That is, not negotiate any kind of deal with the Republicans, neither before nor after January 1? Unless you assume Obama doesn’t want cuts to entitlements — which I don’t assume; I believe he’s an austerian of Reactionary Keynesianism — think about what he gets if he allows the sequester to go through: slightly higher tax rates, cuts to entitlements, and cuts to defense. Those seems like classic New Democrat/Clintonite goals. I recognize it would put the economy in danger of recession, but Obama’s not up for reelection and modern Democratic presidents have shown little interest in the fate of congressional Democrats, particularly at mid-term election time, and in party-building more generally. So, I ask, not rhetorically: will Obama take us over the cliff and then keep us there?

Finding compromise - President Obama won a second term in office yesterday, receiving 50.3% of the popular vote But the Republicans held control of the House of Representatives and Americans remain deeply divided. Historically, the party in control of the White House loses some congressional seats in the midterm elections. That means that any legislation passed into law over the next two years, and likely the next four years, is going to have to be agreed to by both a Democratic President and a Republican House. Perhaps the Democrats and Republicans will face up to the fact that, for better or worse, we're stuck rowing the same boat together for the foreseeable future, so it's time to strike a Grand Compromise setting the United States' long-run fiscal house in order. Any objective observer can see that this calls for both tax increases and entitlement reform. Perhaps some leaders on both sides will emerge from the embers left by the election wars to carry such a vision into action. But based on what I have seen from the key players so far, I personally am not expecting to see that happen. Another idea is to try to break the problem into smaller pieces. Can we at least identify a few very limited measures that we could all agree on?Let's start with the fiscal cliff. (Please!) How about submitting legislation tomorrow for a one-year extension of the current patch for the Alternative Minimum Tax, and vote the AMT patch up or down as a stand-alone proposition? Next maybe try a one-year extension of the existing payroll tax levels, again yes-no all by itself. If we could just agree on those two items, it would take $300 B out of the $720 B shock referred to as January's fiscal cliff.

Fiscal Cliff: Reality Show or Morality Play? - The gruesome package of spending cuts and tax increases scheduled for December 31 was dubbed the "Fiscal Cliff' by Federal Reserve Chairman Ben Bernanke. It's apparent why the phrase caught on. Less understandable is the urge to jump into equally dangerous policy options.  Virtually all of Washington is unhappy with the prospect of the measures. For months there've been reports of informal meetings to create a fix. But the austerity-worshipping ethos that underlies the plan is firmly entrenched, and some version of it will be enacted. Because of the wounds that extreme austerity will inflict, the Levy Institute is predicting -- and we're hardly alone -- that we're headed for another recession in 2013.  All the evidence confirms that austerity programs have been a counterproductive disaster in Europe. That hasn't persuaded fiscal conservatives to adapt their ideology to reality. They continue to point to the inevitability of a Greek or Portuguese-style meltdown in the United States unless we immediately put government on a no-calorie diet and extract higher tax payments from those least able to afford them. This is despite the understanding by economists, including the most orthodox, that our federal control of the dollar puts us in a fundamentally different position than that of countries yoked to the euro. What we should be watching instead is the sorry mess in the United Kingdom. It's a more relevant comparison because, like the United States, the UK controls its own money; it stuck with the pound and never adopted the euro.

First Step In The Budget Debate: GOP Has To Have A Discussion With Itself - Here's the situation:

  • 1. At some point very soon -- probably around noon today eastern time -- the mood will change as the House GOP realizes that it is the last bastion when it comes to taxes and spending.
  • 2. The tea party wing of the party has demonstrated quite convincingly that it has the ability in primaries both to nominate its preferred candidates and to put fear in the hearts of those Republicans that defy its wishes by (1) supporting higher revenues, (2) working with Democrats and (3) compromising with the White House.
  • 3. The question is what will the GOP now decide is more important when it comes to budget issues: ideological purity and winning primaries or compromising and having a better chance at winning general elections. The choice may seem obvious to those on the outside but it's not to those inside the GOP.
  • 4. This discussion has to take place almost immediately within the House Republican caucus. Given the closeness of the fiscal cliff, it has to decide within the next 10 days whether it wants to continue to oppose any kind of budget deal or is willing to reach an accommodation.
  • 5. The discussion also has to be between the House and Senate Republicans. The House GOP can't walk the plank on taxes and spending until it knows for sure that Senate Republicans -- who still have the numbers needed to filibuster -- will support what they do. Anything less than a unified effort could be a political disaster for the GOP.

Boehner Clearly Fears For His Job As Speaker - I've been saying for a while that House Speaker John Boehner (OH) has to be worried about a challenge from the right wing of his own party for speaker in the next Congress. As the story below from Roll Call (subscription needed) shows, he's already running hard. John Boehner: A Republican House Means No Tax Rate Hikes Speaker John Boehner drew a firm line on taxes tonight, saying that Republicans’ retention of the House majority is a sign the public does not want a tax rate hike. With CNN and NBC projecting that the GOP will retain the House majority, Boehner and National Republican Congressional Committee Chairman Pete Sessions (Texas) took the stage at the GOP’s victory party in Washington, D.C., to cheer on the crowd. “The American people want solutions, and tonight, they’ve responded by renewing our majority,” the Ohio Republican said. “With this vote, the American people have also made clear that there is no mandate for raising tax rates.”

Republicans Signal Openness to Deficit Deal Negotiations - Congressional Republicans are offering a deficit-reduction solution to newly re-elected President Barack Obama: Let’s negotiate in good faith and all agree on our pre-election proposal.  House Speaker John Boehner, who returned to the role of party standard-bearer following Republican presidential nominee Mitt Romney’s election loss, told reporters yesterday that Republicans are “willing to accept new revenue under the right conditions.” He cited ideas Democrats already have rejected: restructuring entitlement programs and relying on revenue generated by economic growth from a tax-code overhaul.  Boehner is avoiding breaking with Republican positions without specifying what concessions he might make in negotiations with Obama, “They’re choosing their words carefully so as to preserve their options,” said Brill, a former aide to Republicans on the House Ways and Means Committee. “He can’t be coming out today and saying something that will be perceived as a reversal or contrary to some long-held views.”

Boehner Would Accept New Revenue Under ’Right Conditions’ - U.S. House Speaker John Boehner said Republicans would be willing to agree to new revenue from a tax system that would generate faster economic growth and be accompanied by changes to entitlement programs. Speaking to reporters in Washington a day after President Barack Obama’s re-election, Boehner of Ohio said all sides are “closer than many think” to being able to revise the U.S. tax code. The parties remain divided on what the top tax rate should be and on whether fresh revenue should come from tax increases or only from economic growth. “We’re willing to accept new revenue under the right conditions,” Boehner said in a speech that sounded conciliatory and didn’t alter the Republican position on tax policy. Boehner’s comments marked the start of political positioning and negotiations over what to do about the so-called fiscal cliff of $607 billion in combined tax increases and spending cuts. Lawmakers in both parties say they want to avoid the recession-causing cliff, though each side is warning that it’s the other party’s intransigence that must end.

Boehner May Have More Leverage over Tea Partiers - Robert Reich  - “If there’s a mandate in yesterday’s results,” said House Speaker John Boehner on Wednesday, “it’s a mandate to find a way for us to work together.” Republicans, he said, were willing to accept “new revenue under the right conditions,” to get a bipartisan agreement over the budget. We’ve heard this before. The Speaker came close to agreeing to an increase in tax revenues in his talks with the President in the summer of 2011, but relented when Tea Partiers in the House made a ruckus. But Tea Partiers may be more amenable to an agreement now that the electorate has signaled it doesn’t especially like what the Tea Party has been up to. Of the sixty incumbent members of the House’s Tea Party Caucus, 47 were reelected, while 6 lost big, two ended up in races far too close for comfort, and one is still hanging by a thread (the rest either retired or sought higher office). Overall, those are bad odds for House incumbents.

Obamacare on the negotiating table - From today’s POLITICO Pulse:* BOEHNER WANTS OBAMACARE COMPONENTS ON THE NEGOTIATING TABLE - Any moves to chip away at the law during fiscal cliff negotiations could have a game-changing effect on coverage rates, the law’s impact on the deficit, premiums and small business costs. Whether Senate Democrats would permit changes to the health law as part of a larger bargain is unclear, but House Speaker John Boehner also admitted that the law is likely here to stay. It’s both a concession and a statement of the obvious: The numbers just aren’t there for Republicans to eliminate the law. “I think there are parts of the healthcare law that are going to be very difficult to implement, and very expensive. And [at] the time when we’re trying to find a way to create a path toward a balanced budget everything has to be on the table,” Boehner told ABC News. “There certainly may be parts of it that we believe need to be changed. We may do that. No decisions at this point.” I bet most people read this and think that Obamacare can only be used to decrease the deficit if its expenditures are raided, e.g., reducing the subsidies for coverage expansion. However, it could also be used as the basis for increased revenue. One such way is to accelerate or otherwise modify the Cadillac tax so that the employer-sponsored health insurance subsidy is more swiftly or more completely reversed. If you can find any health (or more general) economist who wouldn’t favor that, let me know.My broader point here is that Obamacare is a mix of spending, revenue, and cuts (most prominently to Medicare). If and when it hits the negotiating table will all of those parts be in play or just the parts that Speaker Boehner doesn’t like?

Election Winners Must Choose Between Fiscal Calamity and Compromise | The Concord Coalition: If the country is on an unsustainable fiscal path, which it is, and if continued partisan bickering will not solve this problem, which it won’t, and if divided government has been re-elected, which it has, then the only choices are calamity or compromise. The Concord Coalition urges compromise. That must begin immediately as the two parties negotiate a responsible alternative to the “fiscal cliff” – a combination of tax increases and spending cuts that will hit with such suddenness that it could throw the still-fragile economy back into recession. But they can’t just kick the can down the road -- again. The year-end fiscal cliff is bad, but eventually we will need the longer-term deficit reduction produced by the policies comprising the fiscal cliff. It just needs to be phased-in in a more rational way as proposed by the bipartisan Simpson-Bowles and Domenici-Rivlin recommendations. The key is to agree on a process for dealing with the serious and structural imbalance between spending and taxes that, if left on autopilot, will damage the economy, stress the social safety net, diminish our world leadership and leave future generations saddled with a debt burden they did not create and cannot afford. Solutions will be impossible if both parties retreat to their partisan corners and stubbornly insist that compromise is only something for the other side to do and that any calamity is only the other side’s fault. It’s long past time to stop such unrealistic nonsense.

Boehner Opens Grand Bargain Negotiations by Proposing the Romney Plan - I touched on this yesterday, but let’s take a closer look at John Boehner’s opening offer on revenue, designed to avoid the fiscal slope (it’s not a cliff). I think it will become familiar to you if you look at the exact language. For the purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue under the right conditions. What matters is where the increase revenue comes from and what type of reform comes with it. Does the increased revenue come from government taking a larger share of what the American people earn through higher taxe rates? Or does it come as a byproduct of growing our economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes and lower rates for all? And at the same time we’re reforming the tax code, are we supporting growth by taking concrete steps to put our country’s entitlement programs on a sounder financial footing or are we just going to continue to duck the matter of entitlements, thus the root of the problem? So Boehner is calling for an across the board rate cut, paid for by (and actually with a revenue gain from) closing loopholes and deductions. All the while, he wants to “reform” entitlements to reduce the cost to government.  Now where have I heard that before? Oh yeah, it’s the Mitt Romney platform. The one defeated at the polls. Boehner’s opening bid is just the Romney tax plan, made even more ludicrous by the notion that you can increase revenue with it. Romney was widely mocked during the election for trying to make a large rate cut revenue-neutral; here Boehner wants to add to the fantasy world. He also alludes to the idea that lowering tax rates will increase economic growth and therefore tax receipts. This is precisely the claim that was debunked by the Congressional Research Service study of 65 years of tax rates, which Republicans found so dissonant and offensive, they got the study torpedoed.

Transcript of Obama’s Remarks on the Economy, Deficit - The White House transcript of President Obama's remarks Friday afternoon on the economy and the deficit.

Washington Starts To Dance Away from the Fiscal Cliff - So the dance begins. President Obama, House Speaker John Boehner (R-OH), and various other lawmakers are starting to lay down their markers as they look to back away from the fiscal cliff. Based on their public words, at least, the parties remain far apart. Yet there are signs that both sides are looking for a deal.  Boehner says revenues are on the table as part of a long-term budget agreement, though higher tax rates for high-income households are not. Obama says he willing to compromise on nearly all elements of his own deficit reduction plan, with one exception. He will “not accept” a package  that is “not balanced.” And balanced, to the president, means tax increases on the wealthy as well as spending cuts. But note: Tax increases come in many forms, not just higher rates.  First, though, there is the matter of the cliff. Obama has called on House Republicans to pass a bill approved by the Senate last July that would extend for one year most of the 2001-2009 tax cuts, except for high-income households. Waving his pen in a televised speech this afternoon, Obama promised he’d sign that measure right away. He should put the pen back in his pocket. The GOP controlled House isn’t going to pass the Senate bill—at least not now, and not without some quid pro quo from the Democrats on spending.

‘Sad and Depressed’ CEOs See No Light at End of Partisan Impasse -  Business leaders, who generally didn’t support President Barack Obama’s policies in the past four years or his re-election bid, weren’t in a more-gracious mood after the results were in. Today’s decline in the U.S. stock markets, the biggest since June, didn’t help.Andrew Puzder, chief executive officer of Hardee’s burger chain owner CKE Inc., said he was “sad and depressed” after Republican Mitt Romney’s defeat and expects the economy “to stay bad with the possibility of being horrific.” Aetna Inc. (AET) CEO Officer Mark Bertolini said the insurer may freeze hiring or cut jobs if Obama and Republicans don’t avoid next year’s so- called fiscal cliff of tax increases and spending cuts. Captains of industry called on Obama to temper partisan bickering in Washington, without providing, for now, much of an example. On Twitter, real estate developer and former presidential candidate Donald Trump said the U.S. is headed for “serious and unprecedented trouble.” “This election is a total sham and travesty,” Trump, who opposed Obama, said in another Twitter post.

Pete Peterson and the Deficit Hawks Teach Lawmakers Deep Fiscal Irresponsibility - We have come to accept in the Orwellian world of mass communication and media spin that pressure groups and political organizations name themselves in ways that contradict their actual mission.  We have become cynical about truth and about good intentions, trusting only after long observation certain political actors and then only reservedly.  There is now such an alphabet soup of organizations in Washington, a veritable smorgasbord of lobbyists that only political junkies and Washington insiders will know every acronym and player. However there is a constellation of particularly influential groupings in Washington that should be known by every American for what they are and what they are not. These groups form a powerful hub at the center of the fiscal austerity campaign.  Purveying an economics based on political pose and hunch, these groups have relied on the deep pockets of Wall Street billionaire Pete Peterson and others from the financial industry to fund their activities involving sometimes massive lobbying, publicity, and astroturf “grassroots” activism.  Utilizing strategies reminiscent of the mid-20th Century American Communist Party, Peterson’s overall tactic has been to found and/or fund a number of front organizations to create the illusion of a broad consensus arrayed in favor of his personal views, which are shared for the most part by a wealthy few within the financial and political elites.  These views in turn are extremely unpopular with the electorate, particularly as regards cutting or partially privatizing universal social programs like Social Security and Medicare.

Wall Street urges Obama to commit the Great Betrayal - William K. Black - Wall Street’s leading “false flag” group, the Third Way, has responded to the warnings that Robert Kuttner, AFL-CIO President Trumka, and I have made that if President Obama is re-elected our immediate task will be to prevent the Great Betrayal – the adoption of self-destructive austerity programs and the opening wedge of the effort to unravel the safety net (including Social Security, Medicare, and Medicaid). Romney favors the same betrayal, but it would be political suicide for a Republican national leader to lead the attack on the nation’s most popular programs.  Huge majorities of Americans oppose cuts in the safety nets.  A majority of Republicans oppose such cuts and Democrats overwhelmingly oppose the cuts. The American people love the safety net because they know it is essential to a humane America.  They know that it has transformed the nation.  Before Social Security, older Americans were frequently reduced to poverty and dangerously inadequate health care that made the remainder of their lives dangerous and miserable.  The safety net does not cover only the elderly and the sick.  My father, for example, died when I (the eldest of three children) was 19 and a sophomore at the University of Michigan.  Even though in-state tuition was inexpensive in those days I would have had to drop out of school.  Survivors’ benefits allowed me to obtain a superb education and pay back the nation with service and decades of greater taxes because education increased y income.  Food stamps and unemployment insurance frequently provide the temporary support that prevent tragedy and allow Americans to obtain useful education and jobs.  The safety net has made America a nation we are proud of and a nation that makes it possible for Americans to recover from hard times and tragedy and to on to lead lives that are vastly more productive and enjoyable.

Pressure Increases for a Grand Bargain Without Any Policy Rationale - Chuck Schumer, obviously running point for Senate Democrats on fiscal slope negotiations, claims that a chastened GOP will be willing to deal. But the only party who has made any concessions on a deal has been Chuck Schumer, floating an extension of current tax rates for upper-income earners, accompanying a limit on deductions. He went further this morning: “The election, what did it say,” he continued. “You elected a Republican House, and what was their watch-word: cut spending. You elected a Democratic Senate and a handsome victory for President Obama. What was our platform? The wealthy should pay a little bit more and there should be new revenues. Just marry the two. The trick will be if Speaker Boehner’s instincts to preserve the Republican Party and preserve the nation in a certain sense, will prevail over the hard right. He needs some help.” Schumer said in return, Democrats would be willing to negotiate changes on matters close to their party, such as Medicare and Medicaid, and indicated Obama might say as much in an address from the East Room of the White House on Friday. So Republicans get the same tax rates, and Democrats… no wait, Republicans ALSO get spending cuts (from a discretionary baseline that’s the lowest in 60 years) and unspecified “changes” to Medicare and Medicaid. This is a deal?

Let’s Not Make a Deal, by Paul Krugman - So President Obama has to make a decision, almost immediately, about how to deal with continuing Republican obstruction. How far should he go in accommodating the G.O.P.’s demands?  My answer is, not far at all. Mr. Obama should ... hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory. ... Why? Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy... So they are, in effect, threatening to tank the economy unless their demands are met.  Well, this has to stop — unless we want hostage-taking, the threat of making the nation ungovernable, to become a standard part of our political process.  So what should he do? Just say no, and go over the cliff if necessary.

Deficit Hawks Down -- Please - Paul Krugman  - One big question looking forward is whether Obama will once again turn to the Beltway-insider deficit hawks for alleged wisdom. Let’s hope not. For one thing, the election offered confirmation of something that was actually pretty obvious: some of the most self-righteous deficit hawks are actually much more concerned with using deficits as an excuse to dismantle the social safety net than with, you know, reducing deficits. Notably, David Walker decided, a week before the election, to endorse Mitt Romney — even though Romney had proposed a $5 trillion tax cut to be offset by loophole closing he declined to specify, not to mention an increase in defense spending the Pentagon said it didn’t need. Yet despite what should have been a major discrediting of the whole deficit-hawk establishment, the word is that Wall Street is pushing for Obama to appoint Erskine Bowles as Treasury Secretary. Erskine Bowles? The man who, charged with producing a deficit-reduction plan, decided that a key feature of this plan should be … cuts in marginal tax rates on high incomes? The man who warned, in dire terms, of a looming fiscal crisis, with soaring US borrowing costs, within two years — almost two years ago? Just for the record, here’s how it’s going:

Fiscal cliff diving - It has been more than a month since I last posted.  With statements Wednesday by Speaker Boehner and today by President Obama about the upcoming “fiscal cliff,” this seems as good a time as any to dive back in.  This initial post will assume a fairly high amount of baseline knowledge.  I may return to the basics in later posts (as I said I would do a while back). I will describe and interpret both leaders’ statements, then offer a little analysis of the two positions together. I need to emphasize that at this early stage, anyone’s interpretations and predictions are highly speculative. I am doing little more than making educated guesses; then again, so is everyone else. Both leaders deserve credit for making serious and fairly detailed policy speeches. Both are contributing significantly to the public debate by laying out their views and arguments for all to see. Public policy would be sufficiently improved if we had more serious public discussion like this.

The single best graph on what’s driving our deficits - Ezra Klein - From the Congressional Budget Office’s hot new white paper,“Options for Deficit Reduction“: That’s all of the federal government’s spending in three graphs. The top graph is health care, including Medicare, Medicaid and the Affordable Care Act. The middle graph is Social Security. And then there’s literally everything else: Defense, education, infrastructure, food safety, R&D, farm subsidies, the FBI, etc. What these three charts tell you is simple: It’s all about health care. Spending on Social Security is expected to rise, but not particularly quickly. Spending on everything else is actually falling. It’s health care that contains most all of our future deficit problems. And the situation is even worse than it looks on this graph: Private health spending is racing upwards even faster than public health spending, so the problem the federal government is showing in its budget projections is mirrored on the budgets of every family and business that purchases health insurance. These graphs are built atop what’s called “the current policy” baseline. The current policy baseline assumes nothing changes. We don’t pass any new laws. We don’t follow through on the hard parts — like the cost controls in the Affordable Care Act — of any of the laws we’ve already passed. We don’t raise taxes. That won’t work for very long. Page 9 of the report includes this remarkable statistic: If we just continue on the way we’re going, then “spending for Social Security, Medicare, other major health programs, defense, and interest payments” will “nearly equal all of the government’s revenues in 2020 and would exceed them from 2022 onward — leaving no revenues to cover any other federal activities, such as income security programs, retirement benefits for federal civilian and military employees, transportation, research, education, law enforcement, and many other programs.”

Options for the Deficit from CBO - The Congressional Budget Office has just published a report called "Choices for Deficit Reduction." To me, the bottom line is that coming to grips with the U.S. fiscal situation in the medium run is going to require going outside everyone's current comfort zone. To set the stage, here are the CBO projections for the debt/GDP ratio in the next couple of decades. As I've discussed before on this blog (for example, here), the CBO is required by law to calculate a "baseline scenario" which projects the debt under current law. The difficulty with this approach is that current law can incorporate all kinds of future spending cuts or tax increases that aren't actually going to happen when the time comes. Thus, the CBO also calculates an "alternative fiscal scenario," which is based on four assumptions:

  • "That all expiring tax provisions (other than the recent reduction in the payroll tax for Social Security), including tax provisions that expired at the end of December 2011, are extended;
  • That the parameters of the alternative minimum tax (AMT) are indexed to increase with inflation after 2011 (starting from the 2011 exemption amount);
  • That Medicare’s payment rates for physicians’ services are held constant at their current level; and 
  • That provisions of the Budget Control Act of 2011that established automatic enforcement procedures designed to reduce discretionary and mandatory spending beginning in January 2013 do not go into effect, although the law’s original caps on discretionary appropriations remain in place."

Fed Budgetary Experts Demolish CBO Health Cost Model, the Lynchpin of Budget Hysteria - Yves Smith - A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” (hat tip nathan) by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Bear in mind that this model is THE driver of virtually all forecasts of future budget deficits.  This paper, although written in typically anodyne economese, is devastating in the range and nature of its criticisms. And the reason this assessment should be taken seriously, independent of the importance of the issues it raises, is that the authors are uniquely qualified to make this critique. Follette is chief of the Fed’s fiscal analysis section. Sheiner, a fellow member of that group, has worked for both the Treasury and the Council of Economic Advisers previously. In other words, the sort of analysis they have made here is the core of what they do on a daily basis. The argument made by the opponents of the plans to cut Social Security and Medicare generally take this form: concerns about Social Security are greatly exaggerated. They are based on long-term forecasts, which are notoriously inaccurate in outlying years. The most commonly cited, by the Trustees of the Social Security system, projects the exahustion of the famous trust fund in 2033. As several analysts have observed, if Social Security really has a problem, we’ll know it in plenty of time; there’s no need to do anything immediately.  By contrast, conventional wisdom is that Medicare does have a long term cost predicament, but the problem is not demographic, but that of the steep rise of health care costs in general.

Peter Orszag of Bank Welfare Queen Citigroup is Selling Catfood Futures Hard - Yves Smith - The Obama victory was less than 24 hours old when the Rubinite faction of the Democratic party was out full bore selling “reforming” Social Security as the adult solution to the coming budget impasse, giving it higher priority than any other measure on the table while simultaneously admitting that this is not even a pressing (let alone real) problem. And the worse is that this snakeoil salesmanship, which comes from former OMB director, now Citigrgoup vice chairman of corporate and investment banking Peter Orszag, is almost certainly an Obama trial balloon. It’s no secret that Obama has long viewed cutting, whoops, “reforming” Social Security and Medicare, as one of his fondest goals. He made that clear shortly before he was inaugurated, in a dinner with conservatives hosted by George Will. He even volunteered in the debates that he and Romney were on the same page as far as these programs were concerned. So it’s reasonable to view Orszag as fronting for the Administration. Orszag’s Bloomberg piece is simply putrid. It starts out praising Obama for discipline during his campaign and insisting he need to show discipline on the budget front. But this is already a rhetorical bait and switch.  The first mention of discipline referred to the President’s team choosing to put in long hours to meet their objectives. By contrast, the discipline Orszag wants to see happen on the budget front is sort you inflict on children, animals, and submissives in S&M (actually worse than that, since submissives at least get off on being hurt). But Obama is into that: “I want fiscal restraint and order.”

The GOP's extortion demands: cut Social Security or we'll shoot the country in the foot - The GOP created the fiscal cliff beginning with the "temporary" tax cuts passed in 2001, 2003 and 2004 under the Bush administration, all as purportedly temporary provisions with sunset dates.  They hoped that the passage of the tax cuts would, as generally happens when people have more of something they like, lead people to demand making all of the cuts permanent.  The result would be a huge tax decrease for the wealthiest taxpayers, and a rather insignificant tax decrease for most Americans. In many ways, their strategy worked.  Most Americans forget that they didn't think they really had to have a cut in income taxes back in 2001, and they don't want to pay more taxes than they are paying now, even a little bit more.   And the Great Recession means that for many Americans who are suffering deep financial injury still because of the housing and jobs crisis, every tax dollar saved is a step back to normalcy. But the tax cuts pushed by the GOP joined together with the tremendous costs of the preemptive wars pushed by the GOP to create a veritable snowballing deficit.  Under Bush, we went from surplus in year one, to huge deficits the rest of the time (with much of the impact of the deficit hidden by the purportedly temporary nature of the provisions and the annual passage of an AMT patch that didn't have to be included in the calculation of the deficit until the particular patch was passed).  Those two huge drivers of the deficit were treated by the GOP at the time as inconsequential, as GOP stars claimed that "deficits don't matter."  See Dick Cheney to Congressional Republicans: "Reagan proved that deficits don't matter").

If the Deficit Disappeared, Where Would the Deficit Hawks Find Work? | CEPR Blog: That doesn't seem likely at the moment, but there would be some real justice in this story. After all, the deficit hawks have used the deep pockets of their backers and their connections with prominent politicians and media figures to completely misrepresent the reality about the deficit. The story of near-term deficit, as every real budget wonk knows, is the story of a collapsed economy. When the economy weakens, tax collections fall and payments for programs like unemployment insurance and food stamps rise. In addition, we also had explicit counter-cyclical policies, like the stimulus and the payroll tax cut, that were designed to boost the economy but also added to the deficit.As can be seen, the deficit in 2007 was a modest 1.2 percent of GDP. An amount that can be sustained literally forever. Deficits were projected to remain low, until the scheduled ending of the Bush tax cuts in 2011 pushed the budget into surplus in fiscal 2012. The reason that we didn't follow this path was the economic plunge that followed the collapse of the housing bubble. There were no big new permanent government programs or tax cuts pushing up the deficit in the last four years. It was the economic collapse pure and simple. The implication of this graph is that if we fix the economy we fix the deficit, end of story.

Lame Duck Congress Has Lots of Work to Do Even Without Fiscal Slope - Among the many other reasons not to engage in a grand bargain during the lame duck session is that Congress actually needs to get busy with other matters. For a variety of reasons, mainly that they’re not good at their job, Congress left a multitude of items on the table for the lame duck, many of which must pass aside from the fiscal slope measures like the Bush tax cuts, the sequester, unemployment insurance, the payroll tax cut and the alternative minimum tax patch. The Hill rounds some of them up. There’s more. The farm bill has already expired, and if nothing is done by the end of the year disruptive changes to farm programs would take effect (must avoid disaster). The FISA Amendments Act, which expands warrantless surveillance, expires at the end of the year without Senate action (good). A new defense authorization bill, which has passed annually for the last 50 years, is overdue (good). Congress didn’t get a cybersecurity bill done in the last session (good). The Violence Against Women Act has expired (must avoid disaster). There are a few other possible measures that aren’t very likely to happen, like stopping the EU from charging US airlines for global warming emissions, allowing tariff increases on countries branded currency manipulators, legalizing online poker, granting permanent normal trade relations with Russia, normalizing online sales tax regimes, and more. But perhaps the most important lame duck session item at this point is an immediate aid bill for those suffering from Hurricane Sandy. We need an Atlantic Coast restoration bill that actually goes further than replenishing FEMA budgets. This could be tied to infrastructure spending, which Democrats support. But fixing the coasts is much more critical in the near term than fixing the debt. Unless you like inundated subway systems and flooded streets and homes without power for a week or more in the most population-dense region of the country as a regular occurrence.

Are Low-Income Programs Enlarging the Nation’s Long-Term Fiscal Problem? - Several conservative analysts and some journalists lately have cited figures showing substantial growth in recent years in the cost of federal programs for low-income Americans. ... These figures can create the mistaken impression that growth in low-income programs is a major contributor to the nation’s long-term fiscal problems.In reality, virtually all of the recent growth in spending for low-income programs is due to two factors: the economic downturn and rising costs throughout the U.S. health care system, which affect costs for private-sector care as much as for Medicaid and other government health care programs.  The first cause — increased spending on safety net programs because of the recession — is temporary. Congressional Budget Office (CBO) projections show that federal spending on low-income programs other than health care has already started to decline and will fall substantially as a percent of gross domestic product (GDP) as the economy recovers. By the end of the decade, it will fall below its average level as a percent of GDP over the prior 40 years, from 1972 to 2011. (See Figure 1.) Since these programs are not rising as a percent of GDP, they do not contribute to our long-term fiscal problems. ...The above figures include expenditures for both mandatory (entitlement) and discretionary (annually appropriated) programs. ...

The Marines Have Landed: The Role of Government - The cries for assistance from desperate families and elderly in the flood ravaged areas of the Rockaways and Staten Island could not be met by the already overwhelmed New York City responders and volunteers, and so the Marines have now stepped in to pump basements with their sophisticated equipment and provide other relief. Likewise, New York City did not possess the ability to get the flooded subway tunnels pumped out in a reasonable amount of time – leaving the danger that the salt water would further eat away at the electrical systems. The Army Corps of Engineers stepped in with high tech equipment they used during Hurricane Katrina in New Orleans and had the job completed within a few days. People whose homes collapsed like crumpled match-sticks under a tidal surge as high in some places as 14.8 feet, are receiving help from the Federal Emergency Management Agency (FEMA), which is providing up to two weeks of free rent in hotels or apartments until a more formal housing plan for the newly homeless can be arranged. FEMA has already approved $158 million in disaster assistance. The Department of Defense, through FEMA, has provided millions of gallons of gasoline and diesel; millions of ready to eat meals; dozens of electrical generators; and sophisticated storm relief equipment. The U.S. Transportation Command delivered 61 power restoration vehicles and 65 technical personnel from March Air Reserve Base in California to the New York area and another 63 power restoration vehicles and 132 technical personnel from Phoenix, Arizona to help restore electricity in the tri-state area. This is just a small measure of the multitude of ways the Federal government has demonstrated over the past week why we pay Federal income taxes and why those who want to turn over critical services to private enterprise to manage for profit are dangerous to our safety, our future and our way of life in America.

Republicans Censor What They Can't Refute - On Sept. 14, the nonpartisan Congressional Research Service published a report, one of hundreds it puts out every year, titled “Taxes and the Economy: An Economic Analysis of Top Tax Rates Since 1945.” Although the C.R.S. reports are not released directly to the public, they tend to leak out within days. The New York Times posted this one on the Economix blog on Sept. 15 because of its provocative conclusions. In essence, the report, written by the economist Thomas L. Hungerford, who has a Ph.D. in economics from the University of Michigan, concluded that changes in the top statutory tax rate and the rate on capital gains had no discernible effect on economic growth in the period since 1945. It noted that the top rate was over 90 percent in the 1940s and 1950s, 70 percent in the 1960s and 1970s, 50 percent during most of the 1980s and has been below 40 percent ever since.These changes were correlated with various measures of saving, investment, productivity and gross domestic product growth. No relationship could be found. Intuitively, everyone knows this is true. The 1950s are today considered almost an idyllic era, economically, in which most families could prosper with only a single breadwinner. The top tax rate was well above today’s top rate of 35 percent in the 1960s and during Ronald Reagan’s administration, two periods of exceptional growth. And, as I often note, growth increased after Bill Clinton raised the top rate to 39.6 percent in 1993 from 31 percent, contrary to every Republican’s expectations, and growth has been stagnant since George W. Bush reduced the top rate to 35 percent in 2003, as well as slashing the tax rate on capital gains and dividends to 15 percent. Republicans assured us that these measures would lead to rapid growth. They did not.

More on Tax Rates and Growth - In his Daily Economist post this week, Bruce Bartlett writes about a September study on taxes and economic growth by Thomas Hungerford for the nonpartisan Congressional Research Service. Mr. Hungerford’s conclusion that changes in the top statutory tax rate and the capital gains rate had no discernible effect on growth was at odds with a central tenet of conservative economic theory, and the study was withdrawn after Congressional Republicans raised concerns about methodology and wording. Mr. Bartlett notes that an earlier report on the topic for the research service, by Jane G. Gravelle and Donald J. Marples in December 2011, laid a foundation upon which Mr. Hungerford built. Distinguishing between tax rate cuts intended as short-term stimulus measures and those intended as the basis for long-term growth, the 2011 study says that in the long run, “a review of statistical evidence suggests that both labor supply and savings and investment are relatively insensitive to tax rates.”

Ideology Over Reality, Editorial, NY Times: In a brazen example of putting ideology ahead of reality, Senate Republicans seem to have pressured the Congressional Research Service to withdraw a report debunking conservative economic orthodoxy. Cutting tax rates at the top appears “to have little or no relation to the size of the economic pie,” the report said. “However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.” So charging the rich lower tax rates doesn’t promote economic growth; it merely increases economic inequality. The CRS is a highly respected, independent agency that prepares reports for members of Congress and routinely issues findings that disappoint or even irritate their clients, who usually just grin and bear it, or at least bear it. But Congressional Republicans seem to think that the CRS should function like Pravda. In recent months, Republicans have been on a paranoid tear. They attacked the private and equally authoritative Tax Policy Center because it bothered to analyze Mitt Romney’s tax plan and found that it’s pretty much impossible to cut taxes by 20 percent without increasing the deficit. And they claimed there was a conspiracy at the Bureau of Labor Statistics when it reported last month that the unemployment rate had dipped below 8 percent.

The phony fiscal cliff: expect tax cuts extended and spending cuts postponed | Grover Norquist - So, we have all the pieces on the chess board largely as they stood after the 2010 Republican landslide that was created by popular opposition to Obama and his agenda: Obama in White House; GOP in control of the House; Democratic majority in the Senate. Much the same as last week. But now, Obama is a lame duck – gone in four years – and the Democrats' hope that the 2010 election would be a tide that would recede has been crushed. (The Republican hope that they would build on 2010 by winning the Senate majority and the presidency is delayed at least two and four years, respectively.) Short story: Obama cannot get any legislation passed that the Republican House does not vote for. The Republican House cannot enact any legislation the Democratic-controlled Senate does not vote for and Obama does not sign into law. Stalemate on many issues. This ruins many possible newspaper columns and shortens otherwise endless chat shows. But for the chattering classes, there is the fiscal cliff. If either Congress or the president fail to change the law, on 1 January 2013 two things happen: first, there is a collection of tax cuts that will end; together, this immediately raises taxes by $500bn each year, or $5tn over the next decade. The "death tax" rises to 55%, the $500 per child tax credit disappears; the bottom rate of income tax jumps from 10% to 15%, and the top marginal tax rate on individuals would jump to 39.5%. The Alternative Minimum Tax would move from hitting 4 million Americans to whacking more than 30 million families.

Obama Vows Veto for Full Extension of Bush Tax Cuts - In an interview tonight with New Orleans CBS affiliate WWLTV, President Obama vowed to veto any bill that extends the Bush-era tax cuts “across the board,” including for individuals earning more than $200,000 and families above $250,000. “What if Congress were to extend them for everyone across the board, including the wealthy? Would you veto it?” asks WWLTV reporter Karen Swenson. “I would veto it,” Obama said. “Here’s why: What I’m proposing is that we give a tax break — that we make sure that taxes don’t go up — on 98 percent of Americans. Ninety-eight percent. But to extend tax breaks for that top 2 percent of wealthiest Americans would cost us $1 trillion over the next decade. Now at a time when we’re trying to bring down our deficit, to give me a tax break or Warren Buffet a tax break that costs a trillion dollars and 80 percent of that would go to people who make a million dollars or more, that would mean that we’d have to cut something — so a trillion dollars would be cut out of student loan programs for kids going to college, for projects that take care of our veterans, projects that benefit our seniors.

Obama Says Vote Validates His Efforts on Taxes - — President Obama said Friday that he would insist that tax increases on affluent Americans be part of any agreement to avoid a year-end fiscal crisis, setting up a possible confrontation with Congressional Republicans who say they will oppose a rise in tax rates for the rich.In his first remarks from the White House since his re-election, Mr. Obama made it clear that he believed his victory had validated his relentless campaign call for wealthier Americans to pay more and that he expected Republicans to heed that message. “I just want to point out this was a central question during the election,” he said in brief remarks in the East Room. “It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach.” Mr. Obama said he had invited Congressional leaders to the White House next week to begin talks as they return for a lame-duck session of Congress. He said he was willing to make some concessions as long as the final fiscal bargain was properly balanced between new tax revenue and spending cuts. “I’m not wedded to every detail of my plan,” Mr. Obama said. “I’m open to compromise.”

Obama Victory Leads Wealthy to Make Quick Pre-2013 Moves - The race is on for wealthy Americans to save on taxes before Jan. 1. President Barack Obama’s re-election means his administration will push to let tax cuts enacted during the George W. Bush era expire for high earners, as scheduled, at year-end. Obama wants to increase the top federal income tax rate to 39.6 percent from 35 percent, boost rates on long-term capital gains to as much as 23.8 percent, and shrink exemptions from estate-and-gift taxes. “If you have to put a movie title on what’s going to happen from now until the end of the year it would be: ‘The Fast and the Furious,’” “The wise, smart people are preparing themselves for a sunset of the Bush tax cuts.” Wealthy investors have about a month and a half to examine their investment gains and losses left over from previous years, as well as to consider ways to move income into 2012 and transfer assets to heirs, Saccacio said. Now is the time to start running the calculations, he said. “Acceleration of investment income is clear,” . “If anyone was planning on realizing a gain in the next two to three years on either securities or real estate, there’s a considerable amount of money to be saved.”

How to Raise Tax Revenue from the Rich without Increasing Tax Rates - According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we would raise $749 billion in tax revenue over ten years.  Moreover, according to the TPC's distribution table, 96.2 percent of the extra revenue would come from the top quintile, with 79.9 percent from the top one percent. This may be the germ of a possible deal between President Obama and Speaker Boehner: The speaker agrees to this tax hike if the president agrees to some fundamental reform of the entitlements, such as gradually but significantly raising the age of eligibility for Social Security and Medicare.

Not Just Tax Increases, but ANY Deficit Reduction Will Cost Jobs - The Washington Post ran an incredibly confusing piece on the ending of the Bush tax cuts which was highly favorable to those wanting to keep the tax breaks for the rich. First, the piece repeatedly uses the term "fiscal cliff," which implies that there is some ledge that the country will hurtle over at the end of the year. This metaphor is completely wrong. The impact of letting the tax cuts expire on January 1 is in fact minor. There will only be a substantial impact if the higher tax rates are left in place as written through much of the year.The piece also presents comments from an aide to House Speaker John Boehner about the impact of higher tax rates on jobs without any explanation. Boehner is quoted as saying: "'The hard truth, which even the president’s advisers must know, is that raising those tax rates will have a major effect on small businesses and cost hundreds of thousands of jobs,' said Boehner spokesman Kevin Smith. 'In this troubled economy, it’s hard to see how anyone in a post-election scenario could be for that.'" In the middle of a steep recession, any measure that reduces the deficit will cost jobs. That is because it will reduce demand. If anyone wants to see a lower deficit in 2013 (certainly the Post does), then they want to throw people out of work. This is sort of like pulling the trigger on a gun pointed at someone's head. Presumably this is not done unless the desire is to see the person dead.

The High Income Rate Increases Don’t Lose Jobs - In comments on the fiscal cliff this morning, Speaker Boehner referenced a study by Ernst & Young allegedly finding that the expiration of the upper-income Bush tax cuts would lead to the loss of 700,000 jobs. No, it wouldn’t.  I went through why not a while ago, as this outlier result kept coming up during the election.  Basically, they failed to model the actual proposal…when they did, it was a net job creator: More importantly, they’re not simulating the right policies.  The White House responded to this point: “The study fallaciously assumes that the tax cuts are used to finance additional spending, ignoring the benefits of what the President actually proposed which was to use the revenue as part of a balanced plan to reduce the deficit and stabilize the debt. The President has proposed to let the high-income tax cuts expire and use the resulting $1 trillion in savings (over 10 years) as part of a balanced plan to reduce deficits and debt and put the nation on a sustainable fiscal course…But rather than modeling the President’s proposal to reduce the deficit, the headline numbers in the study explicitly assume that the revenue would be used entirely to finance additional spending.  In fact, the study explicitly states, “Using the additional revenue to reduce the deficit is not modeled.”  [Source:  footnote on page 3]”

No Economic Basis for Holding Middle-Class Tax Cuts Hostage to Tax Cuts for Wealthy - Extending most expiring tax cuts other than President Bush’s high-income tax cuts would boost gross domestic product (GDP) by a significant 1.3 percent next year, a new Congressional Budget Office (CBO) report finds, while extending the high-income tax cuts would do very little to support the recovery, boosting GDP by just 0.1 percent (see chart).This timely report shows that holding a one-year extension of the Bush middle-class tax cuts hostage to an extension of tax cuts on incomes over $250,000 (for married couples filing jointly), as House Republicans have done, creates dangerous economic risks with little economic upside. The Senate passed a bill earlier this year to extend the middle-income tax cuts — as well as Alternative Minimum Tax relief and 2009 Recovery Act improvements to refundable credits for low- and moderate-income working families — for 2013, when the economy is expected to remain weak.  But House Republicans have said that they won’t extend those tax cuts unless Congress also extends the high-income tax cuts, which they say are critical to the recovery.  The CBO report makes clear that there is no economic justification for this approach.

Apple paid only 2% corporation tax outside US - Apple paid less than 2% corporation tax on its profits outside the US, its filing with US regulators has shown. The company paid $713m (£445m) in the year to 29 September on foreign pre-tax profits of $36.8bn, a rate of 1.9%. It is the latest company to be identified as paying low rates of overseas tax, following Starbucks, Facebook and Google in recent weeks. It has not been suggested that any of their tax avoidance schemes are illegal. All of the companies pay considerable amounts of other taxes in the UK, such as National Insurance, and raise large sums of VAT. Apple's figures for foreign tax appear on page 61 of its form 10-K filing with the US Securities and Exchange Commission (SEC). The form is used to summarise the performance of public companies. It had paid a rate of 2.5% the previous year.

Wall Street's Bad Investment Decision - Paul Krugman - There are many lists now circulating of the biggest winners and losers from the election; oddly, however, none of the lists I’ve seen mentions just how bad this result is for Wall Street’s Masters of the Universe. The story, as you may recall, is that the financial industry — having brought both itself and the rest of the world to the edge of disaster — was bailed out by taxpayers. Yet far from being grateful, top financial types were furious at Obama for occasionally hinting that some of them might have misbehaved a bit. And investment bankers — who normally lean Democratic — went overwhelmingly to the other side, pouring cash into Mitt Romney’s coffers in the no doubt correct expectation that a Romney administration would dismantle financial reform and treat their wealth with the adulation they believe to be their birthright. But Romney lost and Obama won. The limits of their power have been cruelly exposed, and the reelected president now owes them nothing. Did I mention that Elizabeth Warren is going to the Senate — a Senate that will be substantially more progressive and less Wall Street friendly than before? Bad move, guys.

Aftermath Of A Crisis - Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics. First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment. Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system.

One Safety Net That Needs to Shrink - ELECTION Day is upon us, and neither President Obama nor Mitt Romney has really addressed one of the nation’s most pressing economic issues: the risk that one day taxpayers might have to bail out swashbuckling financial institutions again. Granted, the economic pain many are feeling now — the snail’s pace recovery, the stubbornly high unemployment — is foremost in voters’ minds. But given all we’ve gone through after the last binge in the financial industry, failing to confront the too-big-to-fail question is a serious oversight. Many Americans probably think the Dodd-Frank financial reform law will protect taxpayers from future bailouts. Wrong. In fact, Dodd-Frank actually widened the federal safety net for big institutions. Under that law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits. At the same time, those eight may avoid Dodd-Frank measures that govern how we’re supposed to wind down institutions that get into trouble. In other words, these lucky eight got the best of both worlds: access to the Fed’s money and no penalty for failure.

Why are we bailing out the banks? – Part Four – What happens now? - In part one of this series I suggested that the simple reason we were bailing out the banks and simultaneously cutting public spending was because, If the banks were to be wound up it is their [the wealthiest 10%'s] credit/debt backed ‘money and the assets held in it, which would burn to ash….So the simple reason our rulers insist on bailing out the banks is that by doing so the wealthy and the powerful are simply bailing out themselves and guaranteeing the continuation of a system which suits them perfectly. In part two I argued that while the simple selfishness answer is true there are also theoretical justifications (albeit flawed ones) for the bail and cut policy. The two aspects of their policy ‘bail and cut’, they will insist are not contradictory at all. Simply put, they will say they are loosening or increasing the  money supply (QE) in order to invest in growth (classic Keynesian) while simultaneously cutting those expenditures which they feel do not generate growth and which are in fact ‘drains’ on productivity – in their view any ‘public’ expenditure (Classic Free-market). Growth, for them, equals the free-market/private sector, while drains on growth equal government, public spending….Basically – Private Debt good, Public Debt bad. In part three I suggested that the official policy with its armature of ideological justifications and soundbite explanations was today’s Big Lie and looked at how and why Big Lies work. In this last part, having looked at the origin and ideological justifications for the ‘bail the banks and cut everything else’ policy, I want to look at where the policy goes now. Because I believe the policies of the last four years have brought us to a critical and unstable juncture.

Matt Taibbi: Obama's Wall Street Reforms Likely To Be Lame Again In Second Term: The Obama administration in its first four years didn't take a hard line on Wall Street reform, and that probably won't change, according to Rolling Stone writer and infamous Wall Street hater Matt Taibbi. The administration might "keep sitting on their ass," Taibbi told The Huffington Post in a phone interview late Wednesday. Taibbi said he believes that the president could have won in a landslide if only he'd called the financial industry to account for the mistakes that brought on the mortgage meltdown, financial crisis and recession. "They kept the status quo," Taibbi said. "The bailouts and policies were totally continuous with Bush's." Those affected by the foreclosure crisis, which many blame on Wall Street, would have been more likely to vote for a president who went straight for the institutions that threw the housing market and economy into a tailspin, Taibbi said. "They could have said, 'Look, this segment of society really abandoned all of America economically, and we're going to take your side, and we're going to clean this up, and we're going to make this better,'" Taibbi said. "They didn't do that."Obama signed the Dodd-Frank financial reform bill into law in 2010, after leaving it mostly to Congress to hash out the details. Dodd-Frank includes many regulations that bother Wall Street -- such as requiring big banks to carry more capital and (mostly) banning proprietary trading. But critics say the 848-page law is full of potential loopholes and does not address the true causes of the financial crisis.

Battle Plan Shifts on Dodd-Frank - Many bankers and investors who supported Mitt Romney hoped the Republican's election would pave the way for a paring back of the 2010 Dodd-Frank financial overhaul. But while President Barack Obama's victory means the law will stand, the finance industry could yet trim some parts of the law because changes now are politically less risky for the administration and Democrats in Congress. He predicted that small changes will move through Congress in the next couple of years. Wall Street also has won some victories in court and may redouble its legal challenges now that a legislative rollback has been ruled out. More lawsuits are likely, particularly against the Securities and Exchange Commission and the Commodity Futures Trading Commission, where federal courts already have thrown out two rules spawned by the law. Business groups have argued successfully in recent cases to overturn SEC rules that regulators failed to properly analyze the costs of their regulations, and the court has been receptive to such arguments.

The False Dodd Frank Narrative on Bank Profits (No, Honey, Obama Did Not Shrink the Banks) - Yves Smith - In the final hours of the 2012 Presidential campaign, Obama backers have been trumpeting the case for their candidate, and like most electioneering, some of the claims don’t stand up well to scrutiny, particularly regarding the impact of regulations on big financial firm profits.  The normally astute Gillian Tett leads the way by looking at the dramatic headcount cuts and restructuring at UBS, which is largely exiting fixed income, a core business for global banks (note she is not doing this out of fealty to Obama, but some Democratic party stalwarts, such as Paul Krugman and Mike Konczal, have made strong claims regarding the impact of Dodd Frank. So we’ll deal with Tett’s argument first). She sees it as a harbinger for the City, and by extension, Wall Street, and bizarrely blames UBS’s action on “those half-formed Basel, Dodd-Frank and Volcker rules.”  The fact is UBS has been in the crosshairs of its primary regulator, the Swiss National Bank, for some time. Its actions indeed appear to have been major contributors to UBS’s downsizing, but were separate and apart from, and more important for this discussion, more draconian, than any of the other pending rules she cites. Separately, investment banking businesses (securities trading and businesses that have long been aligned, such as mergers & acquisition) are very cyclical. Past downturns that were less severe than the global financial crisis have bitten major Wall Street firms badly. Now that these former stand-alone businesses are mingled in with the broader “banking” industry, which includes the more stable retail banking and asset management businesses, the extreme cyclicality of the trading engine has been missed in the analysis of industry dynamics by casual observers. That’s particularly unfortunate, since it allows banking industry incumbents to peddle their self-serving narrative, that the fall in their profits is due to nasty government interference, as opposed to blowing up their customers en masse and having fewer parties left to fleece

The False Dodd-Frank Narrative: Occupy Wall Street Attacks Huge Hot Money Loophole in the Law - Proponents of Dodd-Frank have an incentive to argue the law is a tough crack-down on Wall Street. It’s a core part of Barack Obama’s narrative, that he bailed out the banks, but then did what FDR did in the 1930s with a series of tight regulations. One of the most egregious problems in the crisis were money market funds, which were large pools of money that funded the unstable repo market in the shadow banking system. Money market funds function effectively as uninsured bank accounts. And like uninsured bank accounts, they are prone to massive de facto bank runs, or withdrawals. There were two obvious solutions to this. One, treat them as bank accounts and force them to be insured and regulated. Two, treat them as non-bank securities and let their Net Asset Value (or NAV) float as the price of stocks or bonds do. Both of these would get rid of the risk of another bank run.Of course, our bureaucratic elites did neither. SEC Chairman Mary Schapiro could not get a 3-2 majority on the commission to deal with this extremely basic and obvious problem. It’s a supreme embarrassment, and a possible reason Schapiro is leaving the SEC. It is so embarrassing that Tim Geithner is half-heartedly trying to get the giant committee of financial regulators – the Financial Stability Oversight Committee, or FSOC – to force movement on the issue. The way Geithner is doing it is by getting regulators to meet with the industry players like Blackrock behind closed doors first, and then solicit comment letters from the public after the regulations are effectively written. It doesn’t help his case that the rumors are thick he’s headed to Blackrock in a few months after his term as Treasury Secretary ends. Occupy the SEC, Occupy Wall Street Alternative Banking, and a few others (such as Yves) have signed this letter preemptively describing the kinds of changes necessary to the money market industry, and preemptively warning Schapiro and Geithner that their ruse is obvious. This letter is direct and well argued. I hope you’ll take a few minutes and read the full text.  OWS Money Market Comment Letter

USA: History’s Largest Free Port for Financial Freebooters? - The term “freebooter,” derived from the Dutch vrijbuiter, means one who openly steals property.  Today, a federal appeals court may determine if the United States has become the largest such free port for swindlers in modern history. At issue is the Supreme Court’s controversial 2010 decision (Morrison v. National Australia Bank), that provides immunity from investor accountability to off-shore shysters preying on Americans as well as on-shore fraudsters plundering foreigners as long as the fraudulent transactions take place outside the USA or involve securities listed overseas. Many experts believe Morrison also provides immunity from SEC civil and federal criminal actions. With Morrison, the Supreme Court “cavalierly overturned 40 years of precedent,” says former SEC commissioner and Brooklyn Law professor Robert S. Karmel. She says there was no compelling reason for the Supreme Court to even hear the case and onlyu did so to “further its campaign to limit [investor fraud] class actions to the extent possible”

Don’t let the lame duck session undercut necessary financial oversight - The election results signaled that the implementation of essential financial regulations can go forward, increasing the likelihood of stable and sustained economic growth. Yet despite this fresh indication of support for curbing the excesses of Wall Street (including the  election of Elizabeth Warren, the most powerful consumer advocate in the country and an insightful critic of the financial industry), the lame duck Congress may, under the public radar, act in a contrary fashion. There is some momentum to move forward legislation that would severely hamper financial regulators, over objections by leading regulators at the federal and state level, and without appropriate due diligence about the bill’s effects. Specifically, one would hope and expect the lame duck Senate to do nothing to compromise the authority of independent agencies like the SEC and the Consumer Financial Protection Bureau as they implement the Dodd-Frank reforms of Wall Street and the financial sector. Nonetheless, as New York Times editorial writer Teresa Tritch warns, the Senate Homeland Security and Government Affairs Committee might quickly take up and approve legislation to diminish the independence of these important agencies and many others, including the Consumer Product Safety Commission and the National Labor Relations Board.  The legislation in question, S. 3468, the Independent Agency Regulatory Analysis Act, would compel every independent agency to submit its regulatory proposals to the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget. This would give the political appointee who heads the office in this and future administrations the ability to delay or block agency rules which the White House finds politically inconvenient, thus subverting the purpose of having made the agencies independent in the first place.

A good paper on shadow banking, finally - Finally here is an easy to follow, comprehensive, well researched, and unbiased paper from FRBNY (Tobias Adrian and Adam Ashcraft) on the so-called shadow banking. A few comments:
I. This chart from the paper shows the breakdown of the "traditional" vs. the "shadow" banking market sizes. It is important to point out the precise definition of traditional banking sources of funds.  Traditional Intermediation [sources of funding] refers to net interbank liabilities [banks borrowing from each other] plus checkable and savings deposits of depository institutions plus reserves of life insurance companies and pensions plus [unsecuritized] corporate debt.  Note that a big chunk of shadow banking is comprised of the GSE (Fannie Mae, Freddie Mac), something the mainstream media often misses. Also this does not include government sponsored student loans, which many would classify as shadow banking (and could become a serious issue at some point).
II. The authors may have overemphasized the complexity of the securitization process with the 7 steps (chart below). Yes, in the few years leading up to the financial crisis, with CDO squared, etc., one could potentially count this many steps. But those days are over. Modern securitization usually involves only the first three steps. For example, in CLOs one has the following:

  1. Banks lend to corporations and syndicate those loans.
  2. The CLO manager uses a "warehouse line" to purchase some large portion of the loans needed for the CLO.
  3. A permanent entity is set up, which issues the liabilities (tranches) and buys the loans out of the warehouse. It than uses excess cash from issuing the tranches to buy more loans in the market.

HSBC investigating claims of criminal account holders: HSBC bank says it is looking into allegations that criminals have used offshore accounts at its Jersey operation for money laundering. The bank issued a statement after the Daily Telegraph newspaper said it was at the centre of a major investigation by HM Revenue and Customs (HMRC). HSBC said it was investigating "an alleged loss of certain client data in Jersey as a matter of urgency". HMRC said it had "received the data and we are studying it". "We receive information from a very wide range of sources which we use to ensure the tax rules are being respected," the tax authority said. In a statement, HSBC said: "Clamping down on those who try to cheat the system through evading taxes and over-claiming benefits is a top priority for us, and we value the information we receive from the public and business community." Owning an offshore bank account is not illegal. But it is illegal to hide the interest which has accrued on the sums held, and to avoid paying tax on that interest to HMRC.

Stock certificates feared damaged by Sandy - Trillions of dollars worth of stock certificates and other paper securities that were stored in a vault in lower Manhattan may have suffered water damage from Superstorm Sandy. The Depository Trust & Clearing Corp., an industry-run clearing house for Wall Street, said the contents of its vault "are likely damaged," after its building at 55 Water Street "sustained significant water damage" from the storm that battered New York City's financial district earlier this week. The vault contains certificates registered to Cede & Co., a subsidiary of DTCC, as well as "custody certificates" in sealed envelopes that belong to clients. The DTCC provides "custody and asset servicing" for more than 3.6 million securities worth an estimated $36.5 trillion, according to its website. "At this point, it is premature to make an accurate assessment as to the full impact of the water damage nor would it be helpful to project on what specific actions need to be taken with respect to our vault," said DTCC Chief Executive Michael Bodson in a statement. "We are aggressively working on this situation to minimize disruption to our clients and will provide additional updates as more information becomes available."

Did Hurricane Sandy Cause $36.5 Trillion In Damage? -  First of all: the answer to the title question is, as far as I can see: no. But it's almost certainly a whole lot more than the $50 billion reported today, and that $36.5 trillion amount doesn’t come from thin air; it appears in a number of news articles about Sandy. All in all, the story raises a few more questions, allows you to play with a bunch of numbers, and leaves you puzzled, amazed and at times easily bewildered. Here’s how: One of many things flooded by hurricane Sandy last week was a bank vault below 55 Water Street in Lower Manhattan. At first glance nowhere near the most interesting news coming out of the storm aftermath, since it doesn't involve human lives lost, or people losing their homes. Still, given the potential amount of damage in dollar terms, it does warrant a second look. The vault in question belongs to the Depository Trust & Clearing Corporation or DTCC, a clearing house for Wall Street firms, owned by Wall Street firms. On its own website , the DTCC describes itself like this: DTCC, through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.DTCC's depository provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$36.5 trillion. In 2010, DTCC settled nearly US$1.66 quadrillion in securities transactions.

Corporate Savings: Dead Money  - Companies in search of a culprit may want to glance in the mirror. Firms are trimming their budgets for everything from technology-consulting services to semiconductor equipment in the face of what Sir Martin Sorrell of WPP, a British advertising and marketing giant, calls four “grey swans” (unlike black swans, people know about grey ones). The four worries unnerving business are: the euro-zone crisis; upheaval in the Middle East; a possible recession in China; and America’s economic health and “fiscal cliff”—the combination of tax increases and spending cuts scheduled to occur at the end of this year. Business leaders and conservative critics cite that cash mountain as proof that meddlesome federal regulations and America’s high corporate-tax rate is locking up cash and depressing investment. But that cannot explain why the same phenomenon prevails worldwide. Japanese companies’ liquid assets have soared by around 75% since 2007, to $2.8 trillion, according to ISI Group, a broker. Cash stockpiles have continued to grow in Britain and Canada, too, to the immense frustration of policymakers there. “Dead money” is how Mark Carney, the Bank of Canada’s governor, has described the nearly $300 billion in cash Canadian companies now hold, 25% more than in 2008. Mr Carney admonished them to “put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.”

The economics of enormity - The Economist - HOW big is too big? America's firms are growing in size and while there have been huge firms stretching back to Standard Oil the fact that so many firms are so big is a new phenomenon. This week's Free exchange print article—Land of the corporate giants—takes a look at the implications of the megafirm era. As many of the names towards the top of the list (Exon Mobil, ConocoPhillips) suggest, lots of the growth at the very top is due to mergers. In some cases this is a good thing because bigger firms can be more efficient when they exploit economies of scale. But evidence suggests that scale economies are starting to wear thin. That's a concern given that many mergers are justified on the basis of cost efficiencies (see Waddling forward, also in this week's newspaper, for example). Even more worryingly, other studies suggest that some companies are bulking up for entirely the wrong reasons. Bigger isn’t always better. Read the article here.

Bankruptcy Filings declined 14% in Fiscal 2012 - From the US Court: Bankruptcy Filings Down in Fiscal Year 2012 - Bankruptcy cases filed in federal courts for fiscal year 2012, the 12-month period ending September 30, 2012, totaled 1,261,140, down 14 percent from the 1,467,221 bankruptcy cases filed in FY 2011, according to statistics released today by the Administrative Office of the U.S. Courts....For the 12-month period ending September 30, 2012, business bankruptcy filings—those where the debtor is a corporation or partnership, or the debt is predominantly related to the operation of a business—totaled 42,008, down 16 percent from the 49,895 business filings reported in the 12-month period ending September 30, 2011. Non-business bankruptcy filings totaled 1,219,132, down 14 percent from the 1,417,326 non-business bankruptcy filings in September 2011. The number of filings for the quarter ending Sept 2012 were the lowest since 2008.

Daniel Schwarcz on the Lack of Transparency in Insurance Consumer Protection - Back in July of 2011, we were fortunately to have Dan Schwarcz guest blog for us. He has another article to report on, entitled Transparently Opaque: Understanding the Lack of Transparency in Insurance Consumer Protection, available here. His core argument is that state insurance regulation systematically rejects transparency-based consumer protection strategies in favor of either no regulation at all, or substantive regulation.  As a result, (i) insurance policies do not come along with summary disclosures; (ii) policy forms are not available online; (iii) consumer claims information is not publicly available; (iv) data on the availability of property insurance for low income or minority communities is not collected or made publicly available; (v) the price of life insurance is not reflected in a summary metric like the APR; (vi) consumers are actively shielded from information about the existence or extent of guarantee fund protection; and (vii) regulatory accounting information is only publicly available for exorbitant fees.   In all of these cases, he argues, analogous regulatory issues at the federal level -- ranging from consumer credit products to health insurance to retail securities products -- promote robust transparency to both consumers/investors and the market more generally.

The Big Swipe - Consumers swipe millions of debit and credit cards every day in electronic transactions for which merchants are charged a small but significant fee. The results add up to one big swipe for a financial services industry that profits from both market power and political influence. Main Street retailers are trying hard to change that, pushing back against Wall Street dominance. The Durbin amendment of the Dodd-Frank financial regulation bill was intended to lower the interchange fees that banks collect on debit card purchases. These fees were considerably higher than in other countries, and far exceeded the actual cost, estimated by the Federal Reserve Bank at about 4 cents per transaction. Most retail businesses stood to gain from lower fees, and rallied in favor of the amendment, helping swing some Republican votes in Congress. The proposed fee reduction met especially fierce opposition from large banks (smaller banks, with assets under $10 billion, were exempt), but was finalized last fall. Average debit card fees fell from about 44 cents to about 24 cents per swipe, though banks responded by charging more for small transactions, such as parking meter swipes and coffee purchases, that had previously cost far less than average.  A year later, the Electronic Payments Coalition, a group that includes Bank of America, Visa and MasterCard Worldwide claims that retailers ranging from big-box stores to gas stations are enjoying a windfall from the legislation rather than passing on price savings to consumers. They remain strongly opposed to the Durbin amendment. But the Merchants Payments Coalition, a group that represents many small and big businesses through their retail associations, contends that both consumers and retailers have benefited. This coalition calls for improved regulation of both debit and credit card swipe fees.

Unofficial Problem Bank list declines to 861 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Nov 2, 2012. (table is sortable by assets, state, etc.)  Changes and comments from surferdude808:  Failures and unassisted mergers led to several changes to the Unofficial Problem Bank List this week. In all, there were four removals and one addition, which leave the list at 861 institutions with assets of $328.4 billion. A year ago, the list held 983 institutions with assets of $406.3 billion...

Fed’s Duke Proposes Separate Community Bank Mortgage Loan Rules - Policymakers should consider establishing separate mortgage lending rules for community banks, Federal Reserve governor Elizabeth Duke said Friday. The burden of regulations appears to be reaching the point that it is discouraging community banks from offering mortgage loans, Ms. Duke said in prepared remarks Friday at a Community Bankers Symposium in Chicago. Because community banks play a significant role in the mortgage market, this suggests community banks may need their own set of rules to keep them engaged in lending, she said. “I am convinced that the best course for policymakers would be to abandon efforts for a one-size-fits-all approach to mortgage lending,” she said. “Such a regime should still establish appropriate safeguards to protect consumers, but it should do so in a way that recognizes the characteristics of community bank lending.”

Did the Housing Boom Affect Mortgage Choices? - FRBSF Economic Letter - Rapid house price appreciation during the housing boom significantly influenced homebuyer selection of adjustable-rate mortgages over fixed-rate mortgages. In markets with high house price appreciation, house price gains directly influenced mortgage choice. But in markets with less appreciation, price gains did not influence borrower choices between adjustable or fixed-rate mortgages. In addition, the influence of fundamental drivers of mortgage choice, such as mortgage interest rate margins, tended to be muted in markets with high price appreciation.

Higher risk mortgage loans accompanied overheated housing markets - FRBSF just published an interesting paper called "Did the Housing Boom Affect Mortgage Choices?" (Fred Furlong and Yelena Takhtamanova). The results suggest that adjustable rate mortgages (ARMs), which carry a higher risk to the borrower, were more prevalent for periods/areas of booming housing markets. This effect is visible across the borrower credit spectrum, although the lower FICO score borrowers seemed more willing to take ARMs risk in a booming market than those with a higher score.Furthermore, rising mortgage interest rates for ARMs did not deter borrowers from using adjustable mortgages in hot housing markets. That was not the case in low housing appreciation situations. Of course increases in fixed rate mortgage (FRM) rates also pushed more people into using ARMs. But the variable that had the largest impact on the percentage of people using the more risky mortgages was the pace of housing appreciation. This provides some empirical evidence for the pervasive culture of "don't worry, you'll refinance or sell if/when rates go up" in overheated housing markets. Rapid house price appreciation created an atmosphere of buying the most house for the least initial monthly payments..

Bank of America doubles repurchase risk exposure - Bank of America doubled exposure to unresolved mortgage-buyback risk in the first nine months of the year as more putback claims surfaced. The mega bank said its notional repurchase risk on unresolved reps and warrants stood at $25.5 billion on Sept. 30, up from $12.6 billion last December. This risk exposure relates to the unpaid principal balance of affected loans, said Jerry Dubrowski, a spokesperson for BofA. The bank's true loss exposure is likely to be lower than the $25 billion estimate when accounting for loan collateral, underlying mortgage insurance and the potential for settlement, Dubrowski said. BofA holds $16 billion in reserves to cover repurchase risk, but Dubrowski estimates another $6 billion in potential buyback risk — a figure that is beyond today's loss reserves. "It could be less than that," Dubrowski asserted in an interview with HousingWire, but there are several factors creating uncertainty. BofA's ongoing dispute with Fannie Mae over who is responsible for handling loans in accordance with GSE guidelines continues to clog the drain of putback claims, Dubrowski added. This alone may be pushing the company's risk exposure higher since the dispute process is keeping both parties in limbo. Those particular buyback requests are essentially on hold until Fannie and BofA can work out their differences on certain loans originated from 2005 to 2007.

Lawler: Table of Short Sales and Foreclosures for Selected Cities in September - Economist Tom Lawler sent me this today with this note: "I found a few more realtor reports on distressed sales shares for the third quarter." Previous comments: A couple of clear patterns have developed:
1) There has been a shift from foreclosures to short sales. Foreclosures are down and short sales are up in most areas. For two cities, Las Vegas and Reno, short sales are now three times foreclosures, although that is related to the new foreclosure rules in Nevada. Both Phoenix and Sacramento had over twice as many short sales as foreclosures. A year ago, there were many more foreclosures than short sales in most areas. Minneapolis is an exception with more foreclosures than short sales.
2) The overall percent of distressed sales (combined foreclosures and short sales) are down year-over-year almost everywhere. Chicago is essentially unchanged from a year ago.
And previously from Lawler: Note that the distressed sales shares in the below table are based on MLS data, and often based on certain “fields” or comments in the MLS files, and some have questioned the accuracy of the data. Some MLS/associations only report on overall “distressed” sales.

Foreclosures Drawing Cash as 401K Returns Sag  - David and Michelle Haisley from Fort Wayne, Indiana, weren’t happy with the performance of their retirement funds, so they made another investment -- a foreclosed home for $27,000. As the housing market recovers from the worst bust since the Great Depression, neophyte investors like the Haisleys are following the lead of private-equity firms like Blackstone Group LP, investing in properties they can pick up cheaply, rent and sell when values rise enough. Home prices rose 4.6 percent from a year earlier in August, the biggest gain since the end of the real estate boom in 2006, according to a CoreLogic Inc. index. “The typical small-size mom-and-pop investor has two or three properties, looking at it as an income supplement with the possibility of being able to sell at some point when prices rise enough for them,” said Lawrence Yun, chief economist of the National Association of Realtors. Stock Wary Investors are becoming more comfortable with real estate after the six-year housing slump, which brought prices down nationwide by 35 percent, according to the S&P/Case-Shiller index. Many remain skeptical of stocks, even as the Standard & Poor’s 500 index has more than doubled since falling to a 12- year low in March 2009.

LPS: Mortgage Delinquency Rates increased in September - LPS released their Mortgage Monitor report for September today. According to LPS, 7.40% of mortgages were delinquent in September, up from 6.87% in August, and down from 7.72% in September 2011.  LPS reports that 3.87% of mortgages were in the foreclosure process, down from 4.04% in August, and down from 4.18% in September 2011.  This gives a total of 11.27% delinquent or in foreclosure. It breaks down as:
• 2,170,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,530,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,940,000 loans in foreclosure process.
For a total of ​​5,640,000 loans delinquent or in foreclosure in August. This is up from 5,450,000 last month, and down from 6,130,000 in September 2011. This following graph shows the total delinquent and in-foreclosure rates since 1995. The total delinquency rate has generally been trending down, although there was a pretty sharp increase in September.   A normal rate is probably in the 4% to 5% range, so there is a long ways to go. The in-foreclosure rate was at 3.87%. There are still a large number of loans in this category (about 1.9 million), but it appears this is starting to decline.  The second graph (slide 18 from LPS) shows the number of delinquencies by stage. From LPS:  The September Mortgage Monitor report released by Lender Processing Services looked at the significant month-over-month increase in the nation’s delinquency rates – up 7.7 percent from August, and representing the largest monthly increase since 2008. “Despite the monthly jump, delinquencies are down 30 percent from their January 2010 peak, and our analysis revealed some interesting factors related to the spike.

Foreclosure Starts Reach 2007 Levels, LPS Explains Rise in Delinquencies - In September, the nation’s delinquency rate suddenly spiked 7.7 percent from August, according to data from Lender Processing Services. The data provider explained the surge in its recent Mortgage Monitor report for September. For one, first time delinquencies increased by about 200,000 from the month before as more borrowers rolled into 30-day delinquency status. Re-default rates for modified loans did not seem to impact delinquencies. LPS also noted payment and transactional activity was down month-over-month in September. For example, foreclosure starts (-21 percent), foreclosure sales (-18 percent), delinquent cures (-25 percent), and prepayment rates (-13 percent) all decreased. Cure counts for delinquencies one or two months past due saw an especially sharp drop month-over-month. Herb Blecher, LPS Applied Analytics SVP, pointed to the bigger picture revealed in September’s data. “September’s increase in the delinquency rate was indeed significant, but the overall trend is still one of improvement,” Blecher said. “Despite the monthly jump, delinquencies are down 30 percent from their January 2010 peak, and our analysis revealed some interesting factors related to the spike. Of course, one month’s data does not indicate a trend. We will be monitoring these factors over the coming months to see how the situation develops.” Delinquencies were still down 4.2 percent yearly, and serious delinquencies (90-plus days) fell 8.1 percent yearly. Foreclosure starts, which numbered about 159,000, hit their lowest level since September 2007 and were down 27.9 percent yearly.

Fannie, Freddie, FHA REO inventory declines in Q3 - First, from Fannie Mae: Fannie Mae Reports Net Income of $1.8 Billion for Third Quarter 2012 Fannie Mae today reported net income of $1.8 billion in the third quarter of 2012, compared with a net loss of $5.1 billion in the third quarter of 2011. For the first nine months of 2012, the company has reported $9.7 billion in net income. Lower credit-related expenses resulting from an increase in actual and expected home prices, higher sales prices on the company’s real-estate owned (“REO”) properties, and a decline in fair value losses contributed to the continued improvement in the company’s financial results. Here are some more details from the Fannie Mae's SEC filing 10-Q: Credit losses decreased in the third quarter and first nine months of 2012 compared with the third quarter and first nine months of 2011 primarily due to: (1) improved actual home prices and sales prices of our REO properties resulting from strong demand in markets with limited REO supply; and (2) lower volume of REO acquisitions due to the slow pace of foreclosures. The decrease in credit losses was partially offset by a decrease in amounts collected by us as a result of repurchase requests in the third quarter and first nine months of 2012 compared with the third quarter and first nine months of 2011. This graph shows the REO inventory for Fannie, Freddie and the FHA. This was the seventh straight quarterly decline in the "F's" REO inventory, and total "F" REO was down 12% from a year ago.  This is only a portion of the total REO. There is also REO for private-label MBS, FDIC-insured institutions, VA and more. REO has been declining for those categories too.

Lawler: REO inventory of "the F's" and PLS - Yesterday 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 PLS (private label securities).  Note that the FHA data was for August. From Tom Lawler:  Here is a chart showing some history of SF REO holdings of Fannie, Freddie, FHA, and private-label securities (from Barclays Capital). Note that FHA has not yet released its report to the FHA commissioner for September (everything there may be focused on the FY 2012 Actuarial Review due out next week, which could be a doozy!), and the number for the end of Q3/2012 (38,187) is actually the August inventory number. More from CR: When the FDIC's Q3 quaterly banking profile is released in a couple of weeks, I'm sure Tom will add an estimate for REO at FDIC-insured institutions. This is not all REO: In addition to the FDIC-insured institution REO, this excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other categories. REO inventories have declined over the last year. This was a combination of more sales and fewer acquisitions.

Was That It For This Round Of The "Housing Recovery"? - In the seven weeks since Bernanke unleashed monetary policy hell on the world, much has been made of the 'housing recovery' and how his policy will help sustain this boomlet. Unfortunately, facts being those annoying things that they are, this is absolutely not the case. Aside from a one week knee-jerk ramp in refinancings - no doubt driven by every mortgage broker in the country dialing-for-dollars on the basis that Ben's-got-your-back - mortgage applications have fallen for five weeks in a row... We presume this merely means we need another moar unlimited QE - which given the fiscal cliff fiasco, is as likely as not. In fact, the next round of housing weakness, which is due imminently now that Obama has been reelected, will serve as the alibi the Fed needs to continue the unsterilized portion of Operation Twist 2 set to expire at the end of the year, and which as we explained, will mean that starting January 1, the Fed will monetize $85 billion/month in TSYs and MBS instead of just $40 billion in MBS.

Trulia: Asking House Prices increased in October - Press Release: Trulia Reports October Asking Prices Rise 2.9% Year-over-Year, But Rents Rise Faster at 5.1% In October, asking prices rose 0.7% month-over-month, for a 2.9% year-over-year increase – the biggest yearly gain in the Trulia Price Monitor to date. More than two thirds of large metros – 69 out of 100 – had year-over-year price increases. The month-over-month and quarter-over-quarter price increases are larger when foreclosures are included than when they’re excluded – which means foreclosure prices are now rising faster than prices on non-distressed homes....Rents Up 5.1% Year-over-Year – and Rising Even in Markets Where Prices are Falling. Rents have increased year-over-year in 24 of the 25 largest rental markets – all except Las Vegas. Rents are rising alongside big price gains in Oakland, Denver, and San Francisco; people looking for a home in these markets will find bargains disappearing whether they’re looking to rent or own. But rents are also rising sharply in Chicago and Philadelphia, despite falling for-sale prices.

CoreLogic: House Price Index declined seasonally in September, Up 5.0% Year-over-year -  This CoreLogic House Price Index report is for September. The recent Case-Shiller index release was for August. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic® September Home Price Index Rises 5 Percent Year-Over-Year Home prices nationwide, including distressed sales, increased on a year-over-year basis by 5 percent in September 2012 compared to September 2011. This change represents the biggest increase since July 2006 and the seventh consecutive increase in home prices nationally on a year-over-year basis. On a month-over-month basis, including distressed sales, home prices decreased by 0.3 percent in September 2012 compared to August 2012.This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was down 0.3% in September, and is up 5.0% over the last year.  The index is off 26.9% from the peak - and is up 9.7% from the post-bubble low set in February (the index is NSA, so some of the increase is seasonal). The second graph is from CoreLogic. The year-over-year comparison has been positive for seven consecutive months suggesting house prices bottomed earlier this year on a national basis (the bump in 2010 was related to the tax credit).

Measure of U.S. Home Prices Most in 6 Years — A measure of U.S. home prices jumped 5 percent in September compared with a year ago, the largest year-over-year increase since July 2006. The gain reported by CoreLogic offered more evidence of a sustainable housing recovery. The real estate data provider also said Tuesday that prices declined 0.3 percent in September from August, the first drop after six straight increases. The monthly figures are not seasonally adjusted. CoreLogic says the monthly decline reflects the end of the summer home-buying season and not a softening in the housing recovery. Steady price increases should give the housing market more momentum when home sales pick up in the spring. Rising prices encourage more homeowners to sell their homes and entice would-be buyers to purchase homes before prices rise further. Other measures have also shown healthy gains in home prices over the past year. The Standard & Poor’s/Case Shiller 20-city index rose 2 percent in August compared with a year ago, a faster pace than the previous month. The price gains in the past year reported by CoreLogic were widespread. Prices have risen in all but seven states. And they declined in only 18 out of 100 large cities that are tracked by the index. Some of the biggest increases were in states that suffered the worst from the housing bust. Home prices in Arizona jumped 18.7 percent in the past year, the most of any state. Home prices in Idaho rose 13.1 percent, the second largest. Nevada’s home values rose 11 percent.

Household Formation Starts to Climb -- Storms in a high-density area like the Northeast Corridor can disrupt the overall housing market. I don’t really know why there would be an expectation of a big bounce-back. The winter is a slow time for housing generally. One thing that would definitely boost the market, either for single-family homes or renters, is an increase in household formation. Americans are setting up house at the fastest rate in more than six years, an indication that recession anxiety, which prompted adult children to move in with their parents and single people to postpone marriage, is starting to ease. The nation added 1.15 million households in the 12 months that ended in September, according to the most recent Census Bureau data. That is a significant rise from the past four years when an average of 650,000 households were formed annually. While what economists call “household formation” is running a little lower than the average 1.25 million added annually during the boom years, the latest data nevertheless represent an important shift. Rising household formation, which is tied to employment growth, means more students are finding jobs when they leave college, more adult children are leaving their parents’ homes and more couples feel confident enough about the future to tie the knot. It could also mean that immigration is picking up.

Some positive news for US housing - Recent data continues to favor the US housing market. Here are three data points.
1. Household formation has picked up pace in Q3 to 1.2 million. It seems family formation has stabilized from the weak growth trend in the past few years (see discussion; the US Census should have more details in January).
2. Homeowner vacancies showed a sharp decline in the third quarter.
3. REIS reported that the ratio of mortgage payments (based on the median house price) to apartment rents is at 0.63 - near record lows.
We could be looking at a surge in housing starts in 2013, potentially leading to a nice rise in construction payrolls (according to some estimates we could see over 250K new resi construction jobs plus all the jobs created in supporting industries).

Movin' Out - Almost exactly a year ago I wrote an article about how tortoise-slow growth in household formation was hurting the economy. Unemployed new high school and college graduates were staying with their parents rather than moving into homes of their own, thereby depriving the economy of all the spending and hiring that goes along with setting up new digs. Under normal circumstances, each time a household is formed it adds about $145,000 to output that year as the spending ripples through the economy, according to an estimate last year from Mark Zandi, chief economist at Moody’s Analytics. Over the last year, though, household formation has been picking up. Here’s a look at the change in the number of households in the United States in a given month compared to the same month a year earlier:

Americans Upbeat on Prospects for Home Prices - Americans continue to show growing confidence that home prices will increase over the next 12 months, offering another sign of a slow but steady housing recovery, according to Fannie Mae’s monthly national-housing survey. The mortgage-finance company said its poll of 1,001 Americans showed that consumers expect home prices to increase an average of 1.7% over the next year. The share who expect a decline in home prices dropped to 10%, the lowest level since the survey’s inception in June 2010. The percentage of respondents who believe mortgage rates will go up climbed four percentage points to 37%, following a steep drop in September. Meanwhile, 50% of the respondents believe home-rental prices will rise in the next year, a three-percentage-point increase from the prior month and the highest level since the survey began.

Home Price Trends–Recent and Since their Peak - I’m still cogitating on election outcomes and will have more to say soon, but for now, just a quick look at the slowly but I think surely recovering housing sector. The two figures below convey a few important points.  First, home prices are rising steadily, about 5% over the past year, according to CoreLogic.  Second, both non-distressed and distressed sales have been rising (distressed sales are short sales and foreclosed properties; not shown in figure, but their yr/yr prices have been up each month since March, up 4.6%, Sept12/Sept11).  The distressed sales are still about 20% of the total so their positive movements are a big deal here. Third, these prices are coming off a very low base.  The bar chart shows home price changes in various metro areas both from one year ago and from their peak.  In Phoenix, for example, single family home prices are up more than a fifth compared to a year ago, but remain about 43% below their 2006 peak.So, yes, like much else in our economy, things are improving, but they’ve got a ways to go.  Of course, one essential caveat to that conclusion in the housing space: the peak was inflated by a massive and terribly destructive bubble, so getting back there is not, by any means, a goal.

NAHB: Builder Confidence in the 55+ Housing Market Increases in Q3 - This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008, so all readings are very low. From the NAHB: Builder Confidence in the 55+ Housing Market Continues to Improve in the Third Quarter Builder confidence in the 55+ housing market for single-family homes showed significant improvement in the third quarter of 2012 compared to the same period a year ago, according to the National Association of Home Builders' (NAHB) latest 55+ Housing Market Index (HMI) released today. The index more than tripled year over year from a level of 12 to 36, which is the highest third-quarter reading since the inception of the index in 2008. .The 55+ multifamily condo HMI had a significant increase of 13 points to 23, which is the highest third-quarter reading since the inception of the index in 2008; however, condos remain the weakest segment of the 55+ housing market. All 55+ multifamily HMI components increased considerably compared to a year ago as present sales rose 13 points to 22, expected sales for the next six months jumped 19 points to 29 and traffic of prospective buyers climbed 11 points to 22.This graph shows the NAHB 55+ HMI through Q3 2012. All of the readings are very low for this index, but there has been a fairly sharp increase over the last year.This is going to be a key demographic for household formation over the next couple of decades - if the baby boomers can sell their current homes!

MBA: Hurricane Sandy Leads to Decrease in Mortgage Applications - From the MBA: Storm Leads to Decrease in Mortgage Applications The Refinance Index ... decreased 5 percent from the previous week. The Refinance Index has declined for five straight weeks and is at its lowest level since the end of August. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier.  “Last week’s storm had a significant impact on application volumes on the East Coast,” “Applications fell more than 60 percent compared to the prior week in New Jersey, almost 50 percent in New York and nearly 40 percent in Connecticut. Other East Coast states also saw declines over the week, while many states in other parts of the country had increases in application volumes.” The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.61 percent from 3.65 percent, with points increasing to 0.45 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

Housing: Inventory down sharply in early November, Impacted by Hurricane Sandy - Here is another update using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year. According to the for (54 metro areas), inventory is off 26.8% compared to the same week last year. However Hurricane Sandy clearly played a role; inventory in New York was off 55% week-over-week, Philadelphia off 66%, and Newark off 25%. But even after adjusting for the areas impacted by Hurricane Sandy, overall inventory is down 22% year-over-year and probably at the lowest level since the early '00s. This graph shows the NAR estimate of existing home inventory through September (left axis) and the HousingTracker data for the 54 metro areas through early November.  Since the NAR released their revisions for sales and inventory last year, the NAR and HousingTracker inventory numbers have tracked pretty well.  On a seasonal basis, housing inventory usually bottoms in December and January and then increases through the summer.  The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker. HousingTracker reported that the early November listings, for the 54 metro areas, declined 26.8% from the same period last year.

Post-Sandy Construction Hiring May Get Boost - Hiring in the long-depressed U.S. construction industry will get a boost from the rebuilding that will follow Superstorm Sandy. Those jobs, in turn, could raise economic growth, analysts say. The modest lift to the economy is expected to come in the first months of 2013. Construction firms, contractors and local governments will hire to rebuild or renovate homes, buildings, roads and bridges that were damaged or destroyed. “This is going to be a net positive, particularly in the mid-Atlantic,” Sandy inflicted up to $50 billion in estimated losses from property damage, lost business and additional living costs. The damage was concentrated near the coastlines of New Jersey and New York City. Construction jobs are especially vital to the economy. Pay is higher than average: At $25.86, average hourly pay tops the average of $23.58 for all U.S. private-sector jobs — and is far above the averages for areas like retail ($16.43) and leisure and hospitality, which includes restaurants and hotel jobs ($13.35).

Hurricane Sandy May Give Boost to Auto Industry - The auto industry could see a boost from consumers who delayed purchases or need to replace vehicles once life returns to normal for those affected by Hurricane Sandy, according to a recent report from car-shopping website The expected jump in demand will add more sales volume to the Mid-Atlantic and Northeast region, which accounts for an estimated 20% of all new-car sales in the U.S. and is an important area for the auto industry, Edmunds added. Edmunds Chief Economist Lacey Plache noted that there were about a half-million damaged vehicles during Hurricane Katrina in 2005, which affected a much less populated area than New York and New Jersey which were hit by Hurricane Sandy.“Sandy’s impact may well be higher, but even if 100,000 damaged vehicles are replaced by the end of the year it could boost auto sales three to four percent for the quarter, and that has a positive effect on the economy overall,” Dr. Plache said. Edmunds also noted that hurricane victims who are forced back into the market should find good conditions for buying a new car. The average new-car purchase was financed at a 4.1% annual percentage rate in September, the second-lowest monthly average since Edmunds started keeping records in 2002.

Deep Impact: Sandy’s Big Effects on Car Sales Now — and for Months to Come - Floods, falling trees, and the disruption of what’s normally a hot end-of-the-month period for car dealerships will all affect auto sales going forward. So will new Sandy-related incentives from car manufacturers.  Ford, GM, and Toyota have all announced new programs to help Hurricane Sandy victims (and simultaneously boost sales), according to InsideLine. Ford and GM are offering $500 discounts, while Toyota has launched an initiative in which customers can get payment extensions and lease-deferred payments on their vehicles. The three automakers are following in the footsteps of Nissan, which on November 1 started offering employee pricing and discounted financing to Sandy victims. As it turns out, Nissan appears to be especially in need of some help selling cars. The automaker sold 79,685 new vehicles last month, down 3.2% compared to October of last year. Some of the decline is being attributed to the Superstorm that walloped the Northeast, reports the Tennessean: Nissan Division vice president Al Castignetti said October “ended on a down note” due to disruptions caused by Hurricane Sandy. Nissan has more than 225 dealers in the Northeast, its strongest performing region.

Weekly Gasoline Update: Prices Fall Further - Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data. Gasoline prices at the pump fell for the fourth consecutive week. Rounded to the penny, the average for Regular dropped 8 cents and Premium 7 cents. Regular is up 26 and Premium 30 cents from their interim weekly lows in the December 19, 2011 EIA report. As I write this, shows only Hawaii and Alaska with the average price of gasoline above $4, down from three states last week. New York and California are the only two states with prices above $3.90.

Gasoline Prices down 30 cents over last month - From the SacBee: Gas prices decline sharply in October, trend may continue through end of the year  "Gas prices at the end of October were dropping at the fastest speeds in nearly four years," said Beth Mosher, director of public affairs for AAA Chicago. "If this trend continues, motorists could be paying less than last year to fill up their cars." Assuming a smooth restart to production following Hurricane Sandy, AAA predicts that gas prices will continue to drop through the end of the year. ... The Northeast is a significant gasoline consumer and not a major producer, so it is expected that the decline in demand from people not driving will outweigh any disruption in gasoline production. Gasoline prices in California have fallen sharply following the recent spike due to refinery issues, and most areas are now under $4 per gallon. Brent crude is now down to $105.33 per barrel. Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.47 per gallon. That is about 3 cents below the current level according to

Gas Prices Take a Huge Post-Sandy Plunge - Amid epically long lines at gas stations and pervasive fear and panic among drivers in areas hit hard by Hurricane Sandy, entrepreneurs have jumped into action. Ads on Craigslist reveal that a black market for gas has emerged, with opportunists offering gallons of regular at $8, $10, even $25 apiece—sometimes with delivery included. (How nice.)  Nonetheless, around the country, and even in states affected by Sandy, another trend has arisen, with gas prices dropping dramatically pretty much everywhere. According to Reuters, gas prices nationally decreased nearly 21¢ over the two-week span ending November 2. That’s the steepest dip measured since 2008, when demand for gasoline plummeted amid the onset of the Great Recession. The black market notwithstanding, gas prices remain relatively low in New York and New Jersey – averaging $3.96 and $3.61, respectively, as of Monday per the AAA Fuel Gauge Report. Elsewhere around the country, prices have been falling sharply. The average in California has hit $3.98, after going up to $4.67 as recently as early October. As of Saturday, reports the Sacramento Bee, the average in the metropolitan area was $3.82, representing a decline of 18¢ in a week and 55¢ in a month.

U.S. Consumer Credit Rose More Than Forecast in September - Businessweek: Consumer credit in the U.S. increased in September for a second month, led by a pickup in borrowing for education and automobiles. The $11.4 billion gain followed a revised $18.4 billion jump in August, Federal Reserve figures showed today in Washington. The median forecast of 34 economists surveyed by Bloomberg called for a $10.2 billion increase in September. Improving labor and housing markets may be giving households enough confidence to take on more debt as they finance purchases that account for about 70 percent of the economy. Auto sales in September that were the strongest in more than four years showed some Americans took advantage of cheaper borrowing costs. “It’s pretty clear that consumer confidence has risen,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “I think what’s really driving that improvement in consumer confidence is that average Americans are seeing the value of their homes now recover somewhat or rebound somewhat after four or five years of steady declines.”

Consumer Credit Increases 5.0% on Student Debt for September 2012 - The Federal Reserve's consumer credit report for September 2012 shows a 5.0% annualized monthly increase in consumer credit, once again driven by student loans. Revolving credit declined, -4.1%, and non-revolving credit increased 9.2 %. For Q3, consumer credit increased 4.0% annualized, with revolving credit declining -1.5% and non-revolving increasing 6.5% for the third quarter.  Revolving credit are things like credit cards and non-revolving are things like auto loans and student loans. Mortgages, home equity loans and other loans associated with real estate are not included in this report.  Overall consumer credit increased $11.4 billion dollars to $2.74 trillion, seasonally adjusted. Revolving credit decreased -$2.9 billion while non-revolving increased 14.3 billion from August.  The report gives percent changes in simple annualized rates, also known as a continuously compounded annualized rate of change. Consumer credit contractions correlate to recessions. The consumer credit report does not include charge offs and delinquencies. Credit card charge-offs declined 4.11% in September and the delinquency rate increased by 2.39%.  Below is total consumer credit.  Student loans continue to roar. Federal government non-revolving credit, which includes student loans increased another $13.8 billion to $509.5 billion, not seasonally adjusted. When removing student loans from the not seasonally adjusted data, we have a consumer credit increase of only $900 million by institution type. The federal government started making 100% of guaranteed student loans in July 2010. People went more into debt, clearly, to pay for the soaring, absurdly high, educational costs. Below is the not seasonally adjusted ballooning non-revolving credit held by the Federal Government.

In September Uncle Sam Continued To Hand Out Car And Student Loans Like A Drunken Sailor - Following one of the highest monthly jumps in consumer credit in August, the September data showed that following the drop in household savings to a multi-year low, consumers naturally retrenched, and had no choice but to pay down debt. As the just released G.19 confirmed, in September, households once again reduced their credit card debt, which declined by $2.9 billion to $852 billion. This was the fourth such decline in six months, confirming that at the discretionary level where banks have supervision over borrowings, the consumer is still nowhere near willing to relever. Where, there was leverage, a lot of it, was once again in the government sector, which funded $13.8 billion of the total $14.6 billion rise in NSA credit, and where non-revolving credit: read loans for Government Motors, at least those that have not been record channel stuffed (as reported previously) and Federal Student Loans, which are now over $1 trillion, rose by $14.3 billion in one month. Of course, the difference between revolving and non-revolving credit is that while banks expect the former to be paid off eventually, Uncle Sam has no such illusions on any low APR debt it hands out to anyone who asks for it (and if the proceeds from student loans are used to purchase iPads, so be it).

More student loans boost consumer credit $11.4 billion -- Americans took out more student and auto loans in September to boost consumer borrowing to a record level. But they cut back on credit card borrowing, a sign many remain cautious about taking on high-interest debt. Total consumer borrowing rose $11.4 billion in September compared with August, the Federal Reserve said Wednesday. Total consumer debt outstanding, which excludes mortgages and other housing-related borrowing, stands at $2.74 trillion -- the highest level on record. The increase was driven entirely by a category that consists mostly of student and auto loans. Borrowing in that category increased $14.3 billion. Credit card borrowing fell $2.9 billion, the third drop in four months. Most of the gains appeared to be in student lending, which could reflect the start of the academic year. Loans held by the federal government, which are mostly student loans, increased $13.8 billion. The figures for specific categories of loans are not seasonally adjusted. Americans have become more confident about the economy and are spending more. New car sales and sales at retail stores rose by healthy amounts in September. But with unemployment high and the economy weak, many consumers are reluctant to build up credit card debt, which typically carries steeper interest rates than other loans. Credit card usage has fallen sharply since the 2008 credit crisis. Four years ago, Americans had $1.03 trillion in credit card debt, an all-time high. In September, that figure was 17.1 percent lower.

Total consumer debt rises to record $2.74 trillion - Americans took out more student and auto loans in September to boost consumer borrowing to a record level. But they cut back on credit-card borrowing. The Federal Reserve said total consumer borrowing rose $11.4 billion in September compared with August. Total consumer debt outstanding, which excludes mortgages, stands at $2.74 trillion — the highest level on record. The increase occurred entirely in a category that consists mostly of student and auto loans. Borrowing in that category increased $14.3 billion.

Vital Signs Chart: Americans’ Credit-Card Debt Shrinks - Americans cut back on their credit-card use in September. Revolving credit, which includes credit-card debt, dropped a seasonally adjusted $2.9 billion, or 4.1%, from August to $852 billion. Yet overall consumer borrowing rose by $11.4 billion, or 5%, to $2.74 trillion, driven by student loans and auto loans. That suggests consumers are growing more confident about big-ticket buys.

Retail: Seasonal Hiring vs. Retail Sales - First, here is the NRF forecast for this year: NRF, Expect Solid Growth This Holiday Season Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase 4.1 percent to $586.1 billion. NRF’s 2012 holiday forecast is higher than the 10-year average holiday sales increase of 3.5 percent. Actual holiday sales in 2011 grew 5.6 percent. “Variables including an upcoming presidential election, confusion surrounding the ‘fiscal cliff’ and concern relating to future economic growth could all combine to affect consumers’ spending plans, but overall we are optimistic that retailers promotions will hit the right chord with holiday shoppers.” Note: NRF defines retail sales as including discounters, department stores, grocery stores, and specialty stores, and exclude sales at automotive dealers, gas stations, and restaurants. Last year the NRF forecast sales to increase 2.8%. At the beginning of November 2011, I posted that that forecast seemed way too low based on seasonal hiring (the NRF related their forecast at the beginning of October). In fact retail sales increased 5.6% last year in November and December.This graph shows the historical net retail jobs added for October, November and December by year. Retailers hired 130.1 thousand workers (NSA) net in October. This is slightly below the numbers in 2003 through 2006 and about the same as in 2011. Note: this is NSA (Not Seasonally Adjusted). The scatter graph is for the years 1993 through 2011 and compares October retail hiring with the real increase (inflation adjusted) for retail sales (Q4 over previous Q4). In general October hiring is a pretty good indicator of seasonal sales. R-square is 0.72 for this small sample. Note: This uses retail sales in Q4, and excludes autos, gasoline and restaurants.

U.S. Retailers Expect Best Holiday Season Since 2007 - Leading U.S. retailers expect a 3.7% increase in holiday same-store sales, according to a new survey by BDO USA. “While we haven’t returned to pre-recession levels of optimism, retailers are gearing up for what looks to be a promising holiday season,” said Doug Hart, partner in the retail and consumer product practice at BDO. “Still, consumers have more choices than ever, and retailers are looking to avoid showrooming by curating a mix of exclusive and top-selling products to get consumers in their door or on their site.” BDO said despite uncertainty about how the presidential election will affect the economy and consumer spending, the expected increase marks the survey’s most optimistic forecast since 2007, when marketing heads projected a 5% increase in same-store sales.

A Storm-Battered Supply Chain Threatens Holiday Shopping - The economic effects of Hurricane Sandy are reverberating beyond areas hit by the storm as businesses warn customers of delays, try to get merchandise out of closed ports and face canceled orders.  In addition to shutting down shipping terminals and submerging warehouses, the storm also tangled up deliveries because of downed power lines, closed roads and scarce gasoline in parts of New York and New Jersey. The supply chain is backing up at a crucial time, just as retailers normally bring their final shipments into stores for the holiday shopping season, which retailers depend on for annual profitability. “Things are slowing down,” said Chris Merritt, vice president for retail supply chain solutions at the trucking company Ryder. “This whole part of the supply chain is clogged up.”

Retail-Sales Index Posts Sandy-Related Dip - The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index edged down 0.2% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis, reflecting the aftermath of Hurricane Sandy. “Up along the East Coast, Hurricane Sandy’s wrath was felt as power outages and storm damage forced consumers in doors,” said ICSC Chief Economist Michael Niemira. “Retail sales in the coming week should experience some improvement as consumers and retailers begin to get back to normal shopping patterns and recover from Sandy’s aftermath. ICSC expects November industry sales will increase 4.5% to 5.5%, excluding drug stores.

Sandy's impact already visible in sales data; some effects may be longer lasting - Store sales in the US dipped on a YoY basis last week as we see the first effects of Hurricane Sandy on high frequency economic data. The effect is expected to be temporary however. Econoday: - Hurricane Sandy kept consumers indoors during the November 3 week but made for only a modest 0.2 percent decline in ICSC-Goldman's same-store sales index. But the year-on-year rate shows more effect, at plus 1.4 percent which is down almost in half from the prior week and is the lowest rate since June. But ICSC-Goldman sees a snap-back in the November 10 week as both consumers and retailers begin to resume normal shopping patterns and recover from Sandy's aftermath.Despite expectations of a quick recovery in sales, the aftermath of this storm may linger for some time. A number of retail businesses in the North East are still struggling, which means that certain areas may take longer to recover.  WWD: - Days after the storm devastated New York City and much of New Jersey, many storeowners were still struggling to get back to business, as massive power outages, major store and office closures and shipping delays crippled the region. Moreover, disruptions in the supply chain may impact sales outside the areas hit by the storm. The Ledger: - In addition to shutting down shipping terminals and submerging warehouses, the storm also tangled up deliveries because of downed power lines, closed roads and scarce gasoline in parts of New York and New Jersey.

SpendingPulse: Sandy knocks off nearly 20 percent of retail sales in Mid-Atlantic region - Superstorm Sandy knocked off nearly $4 billion of retail sales last week in the hard-hit Mid-Atlantic and Northeast region, nearly 20 percent of the usual total, according to a figures released Tuesday by a retail data service. MasterCard Advisors’ SpendingPulse says Tuesday that the region, which accounts for about 24 percent of retail sales nationwide, typically generates $18.7 billion in sales for the week ended Saturday. But revenue came in at about $15 billion. The figures exclude auto sales.“This was a significant negative event for the region,” said Michael McNamara, vice president of research and analysis for SpendingPulse, which monitors all types of spending, including cash. That dragged down the nationwide sales total for the week ended Saturday. Nationwide, retailers typically generates $78 billion in sales for that particular week, but McNamara, estimates the total ended up being about $74 billion. New York, New Jersey and Connecticut were among the states that operated below normal retail capacity. For example, New York operated about 79 percent of retail capacity. Typically, New York accounts for anywhere from 7.5 percent to 8 percent of U.S. sales, but last week the state accounted for about 6.3 percent.

Preliminary November Consumer Sentiment increases to 84.9 - Click on graph for larger image. The preliminary Reuters / University of Michigan consumer sentiment index for November increased to 84.9 from the October reading of 82.6. This was the highest level since July 2007 - before the recession started. This was above the consensus forecast of 83.1. Overall sentiment is still somewhat weak - probably due to a combination of the high unemployment rate and the sluggish economy - but consumer sentiment has been improving recently.However - remember - that sharp decline in sentiment in August 2011 was due to the threat of default and the debt ceiling debate. Hopefully we will not see that again early next year before the fiscal slope is resolved.

Michigan Consumer Sentiment: Highest Level Since July 2007 - The University of Michigan Consumer Sentiment preliminary number for November came in at 84.9, well above the November final of 82.6. Today's number handily beat the consensus of 83.0. This is the highest sentiment level since July 2007. It will be particularly interesting to see if November final will confirm the improvement in the mood of the consumer. See the chart below for a long-term perspective on this widely watched index. Prior to the last recession, the sentiment index had been trending upward since its inception in 1978, so I 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. The first thing I noticed in today's update of this chart is that sentiment has finally moved fractionally above the regression, and the regression has essentially become a flat line. I'll probably retire the trendline after this update. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is only 1% below the average reading (arithmetic mean), but it is 1% above the geometric mean, and virtually spot on regression line in the chart above. The current index level is at the 42nd percentile of the 419 monthly data points in this series.

Consumer Sentiment Back on Track, by Tim Duy: The preliminary Reuters/University of Michigan consumer sentiment number for November rose to its highest level since 2007. Does this foreshadow a faster pace of consumer spending? I think it is too early make such predictions. Remember, sentiment has been rising since the middle of 2011, but consumer spending has sagged. So far this year, consumer sentiment has mostly played a game of catch-up.In the middle of 2010, real household spending diverged from consumer sentiment. This year, the two series re-converged: Consumer sentiment so far has simply returned to levels consistent with the pace of spending. Further gains, however, would be consistent with faster spending. Something to keep an eye on as an upside risk in 2013.

Explainer: Did That $6 Billion in Campaign Spending At Least Help the Economy? -  After each election, the media tends to brood over a predictable set of issues, like the small mindedness of campaign policy proposals to the nastiness of negative advertising. Another bugaboo of the pious punditry is the magnitude of campaign spending, which reached $6 billion in 2012, according to the Center for Responsive Politics — beating the next most expensive contest by $700 million. It probably depends on your political persuasion whether or not you believe that this infusion of cash is corrupting the political process. But another question on many minds when they see these figures is, “What effect does this spending have on the economy?” Joy-Ann Reid, managing editor of and MSNBC contributor thinks that Super-PAC-fueled spending must be having a stimulative effect, saying on Thursday: “The conservatives Super PACs have proved that economic stimulus actually does work. When you pump money into the economy – I mean, I think these television station groups did tremendously well with this spending. Printers and people who design direct mail. So, ironically enough, their spending probably actually boosted the economy slightly . . . It was a mini-stimulus.”

Trade Deficit declined in September to $41.5 Billion - The Department of Commerce reported: Total September exports of $187.0 billion and imports of $228.5 billion resulted in a goods and services deficit of $41.5 billion, down from $43.8 billion in August, revised. September exports were $5.6 billion more than August exports of $181.4 billion. September imports were $3.4 billion more than August imports of $225.2 billion.The trade deficit was smaller than the consensus forecast of $45.4 billion. The first graph shows the monthly U.S. exports and imports in dollars through September 2012.Both exports and imports increased in September. Exports are at a new high. Exports are 13% above the pre-recession peak and up 3.5% compared to September 2011; imports are 1% below the pre-recession peak, and up about 1.5% compared to September 2011.  The second graph shows the U.S. trade deficit, with and without petroleum, through September.  The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil averaged $98.88 in September, up from $94.36 per barrel in August. The trade deficit with China increased to $29.1 billion in September, up from $28.0 billion in September 2011. Most of the trade deficit is due to oil and China.  The trade deficit with the euro area was $7.6 billion in August, up from $6.4 billion in August 2011.

Trade Deficit Declines by -5.1% for September 2012 - The U.S. September 2012 monthly trade deficit declined by -5.1%, or -$2.25 billion. August's trade deficit was revised down by -$427 million, which gives a 3.1% monthly increase instead of the originally reported 4.1%. While the press touts the lowest monthly trade deficit since December 2010, the reality is September gives the second largest China trade deficit in history. To make matters more dramatic, the record $29.4 billion China monthly trade deficit was set just two months ago. September's exports increased $5.6 billion, or 3.1%. Imports increased by $3.4 billion, or 1.5%.The three month moving average gives a trade deficit of $42.6 billion and a change of -$119 million, or 0.3%. The U.S.-China goods trade deficit alone was, $29.1 billion, or 50.2% of the total goods trade deficit and this ratio includes oil, our largest commodity import. The year to date tally of the goods trade deficit with China is $232.18 billion, or 42.0% of the entire goods trade deficit to date. In September 2011, the China goods trade deficit up to that time was $217.43 billion and 39.3% of the total goods trade deficit. This is a year to date increase of 6.8% in the goods trade deficit with China in comparison to 2011. We're well on our way to have an over $300 billion trade deficit with China for 2012, which would be a new record. China's never ending import barrage is highly cyclical as one can see in the below graph of the not seasonally adjusted trade deficit with China and why we compare to this time last year in order to try to remove seasonality.

Analysis: Strong Exports; Imports Suggest Domestic Demand - Wells Fargo Global Economist Jay Bryson talks with Jim Chesko about a report showing that the U.S. trade deficit unexpectedly narrowed in September to the lowest level since the end of 2010 as exports rebounded to record levels.

American Oil Boom Shrinks Trade Deficit - America’s oil boom is pumping up exports and driving down the trade deficit. The U.S. trade gap narrowed by $2.3 billion in September, to $41.5 billion, the Commerce Department said Thursday. Oil accounted for more than three quarters of the change, with a $2.2 billion surge in oil exports easily offsetting a small increase in imports. The one-month change doesn’t mean much — the deficit could widen again when October figures are released next month. But the longer-run trend is unmistakable: The U.S. is importing less oil and exporting more. The U.S. spent $32.8 billion on oil imports in September and sold $11.2 billion in oil — virtually all of it in the form of gasoline, diesel and other so-called petroleum products — to customers in other countries, for a trade deficit of $21.7 billion. A year ago, that deficit stood at $26.3 billion. Adjusting for inflation, the deficit has shrunk by nearly 40% over the past five years. What’s going on? Lower demand is part of the story. U.S. oil consumption rose steadily in the 1990s and early 2000s, hitting 20.8 million barrels per days in 2005. But demand leveled off in the mid-2000s due to improved fuel efficiency, changed driving habits and increased consumption of ethanol, then plunged at the end of the decade due to the recession. Consumption bottomed out at 18.8 million barrels per day in 2009, and has hardly rebounded from there. The major driver, however, is supply. U.S. oil production has risen more than 20% over the past five years, reversing two decades of decline. Drilling techniques that first revolutionized the natural-gas industry have now unlocked vast new oil fields in North Dakota, Texas and perhaps even Ohio.

Trade Deficit - Increase In Exports To Be Short Lived - The U.S. trade balance in September improved, largely on petroleum, with a rebound in exports.  This was good news for a single economic data point and it sent mainstream economists to mistakenly begin boosting third quarter GDP estimates to 2.9% from the 1st estimate of 2.0% that we saw last month. The important point is that the trend of exports, and imports, has been negative as the recession in Europe, and slowdown in China, have reduced end demand. There are a numer of reasons that the recent positive boosts to the trade deficit data are more likely temporary in nature and will be revised away in the months ahead.  "Regardless of when the NBER officially announces the start date of the next recession - the damage will have already been done to investors."

Vital Signs Chart: Exports Flourishing - America’s exports flourished in September amid strong demand from overseas. Exports rose a seasonally adjusted 3.1% from August to $187 billion and were 3.5% above their September 2011 level. The rise, which was the first since June, is likely to boost the economy’s growth rate during the third quarter. Nations across the globe snapped up U.S. goods, including China, Germany and South Africa.

U.S. Service Firms Grow More Slowly in October — U.S. service companies grew at a slightly slower pace in October than September because of a decline in new orders. But a measure of employment rose, indicating services firms hired more. The Institute for Supply Management said Monday that its index of non-manufacturing activity fell to 54.2. That’s down from a six-month high of 55.1 in September. Any reading above 50 indicates expansion. The report measures growth in a broad range of businesses from retail and construction companies to health care and financial services firms. The industries covered employ about 90 percent of the work force. October’s reading matches the 12-month average for the index. The industries reporting the fastest growth were agriculture, construction, management of companies, and finance and insurance.

Service-Sector Expansion Slows -- The U.S. nonmanufacturing sector expanded at a slower rate in October, according to data released Monday by the Institute for Supply Management. The ISM’s nonmanufacturing purchasing managers index fell to 54.2, from 55.1 in September. Forecasters surveyed by Dow Jones Newswires had expected last month’s PMI to slip to 54.5. Readings above 50 indicate activity is expanding. While it covers the month just ended, the ISM survey looks dated because Hurricane Sandy has changed the economic outlook, especially for the Northeast

ISM Non-Manufacturing Business Report: Growth Slows - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 54.2 percent, signaling slower growth after three months of faster growth. The consensus was for 55.0 percent. Here is the report summary: The NMI™ registered 54.2 percent in October, 0.9 percentage point lower than the 55.1 percent registered in September. This indicates continued growth this month at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.4 percent, which is 4.5 percentage points lower than the 59.9 percent reported in September, reflecting growth for the 39th consecutive month. The New Orders Index decreased by 2.9 percentage points to 54.8 percent. The Employment Index increased by 3.8 percentage points to 54.9 percent, indicating growth in employment for the third consecutive month. The Prices Index decreased 2.5 percentage points to 65.6 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI™, 13 non-manufacturing industries reported growth in October. The majority of the respondents' comments reflect a positive but guarded outlook on business conditions and the economy.

ISM Services Index For October Points To Continued Growth - Today’s update of the ISM Non-Manufacturing (Services) Index for October corroborates the upbeat news from its manufacturing counterpart. In short, the economy continues to grow, or so these two widely watched indicators from the Institute for Supply Management suggest. The expansion is still well short of strong growth, but it's hard to make the argument that the economy is in danger of shrinking any time soon. Although the ISM Services Index slipped a bit to 54.2 last month from 55.1 in September, it’s still well above 50—a sign that the services sector overall is still expanding. That's no trivial point for the dominant slice of commercial activity in the U.S. Any reading above 50 equates with growth. On that note, the ISM indexes for new orders and employment indexes in services also remain well above 50.

Service ISM Posts First Miss And Decline In 3 Months, Employment Index At Highest Since March - Moments ago the Non-manufacturing ISM came out, and in keeping with the theme of Baffle with BS, started last night when the China HSBC services PMI dropped even as the Manufacturing PMI from last week signaled the start of a "new recovery" or something (just don't look at the Baltic Dry, and definitely don't look at the endless barrage of reverse repos proving the PBOC will not engage in wholesale easing), it printed the first miss and decline in three month, coming at 54.2 on expectations of a 54.5 print and down from 55.1 previously. What is troubling is that while otherwise an economic miss such as this one would have been sufficient to ramp the bizarro marke, today it has merely sent ES to fresh intraday lows. Perhaps the reason is that unlike last week's Manufacturing ISM, whose headline was good but internals were not, this time it is the other way around with New Orders down but Employment rising from 51.1 to 54.9, the highest since March. Does this meant the Fed will prematurely end QEternity? Of course not, but the market appears to be shooting first, as usual, and asking questions later.

ISM Non-Manufacturing Index decreases in October - The October ISM Non-manufacturing index was at 54.2%, down from 55.1% in September. The employment index increased in October to 54.9%, up from 51.1% in September. From the Institute for Supply Management: October 2012 Non-Manufacturing ISM Report On Business®  "The NMI™ registered 54.2 percent in October, 0.9 percentage point lower than the 55.1 percent registered in September. This indicates continued growth this month at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.4 percent, which is 4.5 percentage points lower than the 59.9 percent reported in September, reflecting growth for the 39th consecutive month. The New Orders Index decreased by 2.9 percentage points to 54.8 percent. The Employment Index increased by 3.8 percentage points to 54.9 percent, indicating growth in employment for the third consecutive month. The Prices Index decreased 2.5 percentage points to 65.6 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI™, 13 non-manufacturing industries reported growth in October. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 54.9% and indicates slower expansion in October than in September. The internals were mixed with the employment index up, but new orders down.

Vital Signs Chart: Services Hiring Picks Up - Hiring is picking up in America’s service sector. An index of employment in nonmanufacturing industries, which account for most U.S jobs, rose to 54.9 last month, from 51.1 in September. That is the highest level since March. Readings over 50 indicate expansion. A broader measure of service-sector activity, however, slipped slightly to 54.2, from 55.1, suggesting continued, but slower, growth.

Our dangerous illusion of tech progress - Now that Barack Obama has been re-elected US president, every fantastic campaign promise will collide with the reality of the global economy. Mitt Romney made different promises but would have faced the same dead end. Although the election appeared to offer a choice of futures, both candidates were silent about the bright future gone missing: the age of scientific ingenuity we once expected to solve our problems. During the past 40 years the world has willingly retreated from a culture of risk and exploration towards one of safety and regulation. We have discarded a century of can-do ambition built on rapid advances in technology and replaced it with a cautiousness far too satisfied with incremental improvements. The 2008 crisis lingers. But its main cause goes back more than three decades to the depressed rate of technological progress since the 1970s. If we want to escape not just today’s crisis but the whole post-1970 era of bubbles, busts and wage stagnation, our only option is to accelerate technological innovation. Many investors practise a fake form of long-term thinking. Portfolio managers see the returns of the 20th century and project those far into the future. Tomorrow’s retirees are betting their fortunes on the success rates of yesterday’s companies. But the vast wealth registered by modern capital markets came from technological feats that cannot be repeated. If nobody takes the risk to invent products that produce new industries and new profits, then analysing historical returns from the 20th century will be no better guide to our future than researching crop yields from the 10th century. Without innovation, faith in the stock market is a kind of cargo cult.

Payroll Growth Shows U.S. Labor Market Healing - American employers hired more workers than forecast in October while an influx of people joining the labor force pushed the jobless rate higher, according to the last job market report before the presidential election.  Payrolls expanded by 171,000 workers following a 148,000 gain in September that was bigger than first estimated, figures from the Labor Department showed yesterday. October’s increase exceeded the highest forecast in a Bloomberg survey with a median projection of 125,000. Unemployment rose to 7.9 percent.  The broad-based job gains -- from positions at car dealers and hospitals to factories and construction sites -- indicate consumers will likely spend more freely, shoring up the three- year expansion in the face of a global economic slowdown and political gridlock in Washington over taxes and spending.

Unemployment Ticks Up—And That's a Good Thing: The economy gained 171,000 jobs in October, according to the Bureau of Labor Statistics. The previous two months’ job gains were also revised upward, with the BLS now estimating that an additional 50,000 jobs were created in August and 34,000 in September. With the revisions, we finally have more jobs than in early 2009, when the economy was in full collapse and President Obama took office. Job growth is important, but what might be even more exciting news is that the unemployment rate went from 7.8 percent to 7.9 percent. Wait—isn’t unemployment the number we want to go down immediately? Unemployment is a measure of people looking for work. As people are unemployed for longer periods of time, they become discouraged and give up on trying to find a job. When they do this, they are no longer counted as unemployed, which leads to an artificial decline in the unemployment rate—it’s not that the economy has added jobs; it’s that there are fewer people looking for them. The BLS tracks the flow of people between those outside the labor force and unemployment, and found a jump in those moving into unemployment through this path. Rather than indicating a weaker economy, this rise in unemployment is a sign that the labor force is gaining strength—enough so that it is now starting to bring people who had dropped out back into the labor force. Though we can’t see the specifics, it looks like people are starting to try and find employment again.

Job Creation Under Barack Obama: Less Than Meets The Eye? - In the aftermath of yesterday's better than expected jobs number there have been many analyses in the media on both sides of the aisle, either attacking or defending Obama's track record in creating jobs. All have come up with arguments which according to their authors, are solid and defensible. There is one analysis, however, which is missing, and that is a follow up of what we showed yesterday in "Chart Of The Day: America's Geriatric Work F(a)rce."  In it we demonstrated the very much "under the radar" schism of America's workforce since the NBER-defined official end of the recession in June 2009 into the "haves", or those above 55, who have been able to get a job since the end of the recession, and the "have nots", or all those in the labor force who have not been able to find a job. So how does this data look when extended to the beginning of Obama's term, or the 46 full months starting with his inauguration in January 2009, and continuing through the latest, October 2012 data point. The chart is presented below; you decide.

The Scariest Jobs Chart, Private Sector Edition - The recovery is real, but it's still really far from the recovery we need. That's been the consistent message of the past three years, with consistent job growth that hasn't been near enough to end our jobs crisis much before the end of the decade. But that might be changing. Now, there have certainly been plenty of false starts before, but this time might really be different. Housing is finally showing signs of life and austerity is mostly over. In October, this added up to 255,000 new jobs, including revisions to past months, and that despite us shedding 13,000 more public sector jobs. The self-inflicted economic wound that is firing cops and teachers has added a degree of difficulty to our already daunting jobs crisis, but that degree of difficulty is disappearing. As Binyamin Appelbaum of the New York Times points out, government jobs fell by 97,000 in 2009; 230,000 in 2010; 258,000 in 2011; before turning positive to the tune of 20,000 more jobs in 2012. Consider that government employment increased by 259,000 during the Reagan recovery of 1983-84 and by 316,000 during the post-tech bubble recovery of 2002-04. In other words, our disappointing recovery isn't as disappointing if just look at the private sector, though only quite. I took this chart from Bill McBride of Calculated Risk -- the one Joe Weisenthal of Business Insider calls "the scariest jobs chart ever" -- and I subtracted out government jobs. That leaves us with a picture of how far the private sector has fallen during every postwar recession and how long it's taken to get back to its pre-recession peak. The depressing reality is our private sector jobs hole is still deeper than it ever was during half of all other recessions, even after the past three years of recovery.

Gallup Unemployment Measure on a Downward Tear - Gallup is arguably the most significant monitor of the US labor market. They have an insanely massive sample – the daily number is really a 30 day moving average of 30K interviews; conduct interviews every day and offer the seasonally unadjusted figures. Here is their look and their take on their own numbers Seasonally unadjusted unemployment of 7.0% is the lowest Gallup has recorded since it began collecting unemployment data in January 2010. It is also more than a full point and a half improvement over the October 2011 rate, when unadjusted unemployment was 8.4%. The size of the workforce, which can influence employment rates, was little changed, at 68.3%, from 68.2% in September. To make things easier they averaged by months. Here is the daily series.  I like Year-over-Year changes as they not only smooth out seasonal variation but noise in general. Though, of course, recent breaks in the trend will be muted.

Chart of the Day: The Power of the Right-Wing Echo Chamber -- Via John Sides, here's a fascinating little data point about the power of the conservative echo chamber. A couple of days ago Brian Schaffner wrote a post about a UMass poll he conducted across several days in early October. One of the questions was whether unemployment had increased or decreased over the past year. The correct answer, of course, is that it had decreased: at the time the poll was conducted, unemployment over the previous twelve months had declined from 9.1 percent to 8.1 percent.As you'd expect, liberals were more likely to answer this question correctly since it jibes with their political preferences. Interestingly, though, the poll was taken over the period October 2-8, and right in the middle of that week the unemployment figures for September were released. As you'll recall, unemployment dropped sharply in that report, down to 7.8 percent, and the fact that this was part of a longer-term trend was widely reported.Everyone saw this news, and polling on October 5 showed a sharp increase in the number of people who knew that unemployment was down. But here's the interesting thing: among liberals and independents, the number getting the answer right stayed higher over the next several days. Apparently the news sunk in. But among conservatives, the number getting the answer right started to decline immediately. Within three days, as the chart below shows, they were answering the question exactly the same as they had before the unemployment report came out

Vital Signs Chart: Better Outlook for Construction Jobs - U.S. construction firms are hiring. The number of construction jobs rose by 17,000 to a seasonally adjusted 5.54 million in October, marking the fifth consecutive month of gains. Still, employment is far below the prerecession level of 7.5 million jobs. Construction is expected to continue to pick up as demand for housing improves and Sandy-affected communities rebuild.

Mish on Capital Account: Jobs, Real Wages, Income Distribution, Fiscal Stimulus - On Friday, I once again had the pleasure of being on Capital Account, live television with Lauren Lyster. I believe you can pick up the show on Comcast but it is not available on ATT U-verse, at least in my area. We discussed the latest jobs report, real wages, Keynesian stimulus, income distribution, taxes, and other topics. I come in at about the 3:00 mark, but the first few minutes of Lauren are entertaining as usual.Link if video does not play: What Happens When Jobs Rise But Leave Wages And Living Standards Behind? Here are a couple of charts from my Friday Jobs report (see Nonfarm Payrolls +171,000, Unemployment Rate 7.9%; Good All Around Numbers), that we discussed in the video.

Real Hourly Wages and Hours Worked: Doing the Math: I've continued to ponder the October employment data released on Friday. Today I want to look more closely at two key numbers in the monthly employment report: Average Hourly Earnings and Average Weekly Hours. The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006. Let's look at the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence. First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward.But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. As we see, the difference is amazing.The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let's add another data series to the mix: Average Hours Per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended.

Update: Further Discussion on Labor Force Participation Rate - Last month I wrote Understanding the Decline in the Participation Rate. As a follow on, I wrote: Further Discussion on Labor Force Participation Rate. Here is a repeat with some added data, graphs and commentary. Definitions from the BLS: If you look at the first graph below, the total of the Blue, Red, and light brown areas is the Civilian noninstitutional population.There are some bumps in the total area - usually when there is a decennial census. These are due to changes in population controls. Note that the Blue area collapsed in 2008 and early 2009, and started increasing in 2010. This shows the increase in employment over the last few years. Over the last few years, the red area (unemployment) has been decreasing. However the combined area, the civilian labor force, has not increased much - even though the civilian noninstitutional population has been increasing. Some people argue that this evidence of a large number of people who left the labor force because of the weak labor market - and that the actual unemployment rate should be much higher than 7.9%. However, as I noted last month, some decrease in the labor force participation rate was expected, and it appears most of the decline in the participation rate can be explained by demographic shifts. The second graph is similar to the first graph, but breaks the data down by a few more categories. Some of this data is only available since January 1994. The light blue area is part time for economic reasons. "These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job." Some of the dark blue workers are working part time too, but that is by choice. The dark blue and light blue add to dark blue in the previous graph.

BLS: Job Openings "essentially unchanged" in September, Up year-over-year - From the BLS: Job Openings and Labor Turnover Summary The number of job openings in September was 3.6 million, essentially unchanged from August. ...The level of total nonfarm job openings in September was up from 2.4 million at the end of the recession in June 2009. ...In September, the quits rate was little changed for total nonfarm, total private, and government. The number of quits was 2.0 million in September compared to 1.8 million at the end of the recession in June 2009.  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 series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for September, the most recent employment report was for August. Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  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 decreased in September to 3.561 million, down slightly from 3.661 million in August. The number of job openings (yellow) has generally been trending up, and openings are only up about 2% year-over-year compared to September 2011.  Quits decreased in September, and quits are down slightly year-over-year. These are voluntary separations.

JOLTS - There were 3.4 People Looking for a Job for each Position Available in September 2012 - The BLS September JOLTS report, or Job Openings and Labor Turnover Survey shows there are 3.4* official unemployed per job opening. Opportunities, actual hires and layoffs were all down, showing a stagnant, dead pool job market. While openings decreased by -2.7%, actual hires declined by -5.7%. There were 3,561 million job openings for September, a -2.7% decrease from the previous month of 3,661,000. Openings are still way below pre-recession levels of 4.7 million. Job openings have increased 63% from their August 2009 Mariana Trench trough, yet real hiring is a distant memory and has only increased 14% from June 2009. There were 1.8 persons per job opening at the start of the recession, December 2007. Below is the graph of official unemployed, 12.088 million, per job opening.  This report confirms our conclusion on September's bizarre employed numbers. Simply put, less people quit or lost their jobs in September.  Job openings are all types of jobs, temporary, part-time, seasonal and full-time. Hires are U.S. citizens, permanent residents, illegal workers and foreign guest workers. If one takes the official broader definition of unemployment, or U-6, the ratio becomes 6.5** unemployed people per each job opening. The September U-6 unemployment rate was 14.7%. Below is the graph of number of unemployed, using the broader U-6 unemployment definition, per job opening.

Weak Hiring, Fewer Quits Make for Sluggish Job Market - Maybe it’s the election. Maybe it’s the fiscal cliff. Maybe it’s the still-sluggish recovery. But whatever the reason, both employers and employees appear to be growing more cautious. Companies hired fewer new workers in September than in August, and posted fewer new job openings. Workers lucky enough to have jobs, meanwhile, decided to stay put—fewer Americans quit their jobs in September than in any month since last November. Those are the key takeaways from the Labor Department’s latest Job Openings and Labor Turnover Summary. The monthly report, known as JOLTS, gets less attention than the high-profile jobs report, largely because it lags a month further behind. But by tracking hiring, firing and other job moves in more detail, JOLTS can provide valuable insights into the inner workings of the labor market.

Weekly Initial Unemployment Claims decline to 355,000 - The DOL reports: In the week ending November 3, the advance figure for seasonally adjusted initial claims was 355,000, a decrease of 8,000 from the previous week's unrevised figure of 363,000. The 4-week moving average was 370,500, an increase of 3,250 from the previous week's unrevised average of 367,250. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since January 2000.The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 370,500. This is about 7,000 above the cycle low for the 4-week average of 363,000 in March. Weekly claims were lower than the consensus forecast of 370,000. And here is a long term graph of weekly claims:

New Filings For Jobless Benefits Continue To Decline -- Jobless claims dropped again last week, offering more evidence for thinking that the October pop in new filings for unemployment benefits wasn’t a statistical harbinger of cyclical doom after all. Once again the lesson is clear for poking through this data set: remain wary of the latest update and instead focus on the longer-term trend. By that standard, the numbers suggest that modest healing in the labor market continues, a trend that's been in force for most of the past 18 months. New claims fell 8,000 last week to a seasonally adjusted 355,000. That’s near the lowest level since the recession ended in mid-2009.  A stronger signal that the labor market is still moving forward, if only moderately: unadjusted claims tumbled last week by nearly 12% vs. the same week a year ago. As the chart below shows, that pace of decline is in line with the trend that’s prevailed for more than a year, save for the occasional interruption. As such, the year-over-year trend in the claims numbers before seasonal adjustment tells us that nothing much has changed, and that’s a good thing. In sum: fewer workers are applying for unemployment benefits as the weeks and months pass. No explanation required for why that's more than a trivial plus.

Weekly U.S. Jobless Claims Fall to 355K Last Week - The number of people seeking unemployment benefits last week fell by 8,000 to a seasonally adjusted 355,000, a possible sign of a healing job market. But officials cautioned that the figures were distorted by Superstorm Sandy. Applications declined in one state because its unemployment office lost power during the storm and wasn’t able to receive applications, a department spokesman said. The spokesman wouldn’t identify the state. The storm also pushed up applications in other states because those temporarily out of work sought benefits. The Labor Department says that the four-week average of applications, a less volatile measure, rose 3,250 to 370,500. If sustained, the decline in applications would be a good sign. Still, the storm could affect the figures for up to three to four weeks, the spokesman said.

Weekly Unemployment Claims at 355K, Better Than the Consensus 370K - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 355,000 new claims number was an 8,000 decrease from the previous week. The less volatile and closely watched four-week moving average, which is a better indicator of the recent trend, is at 370,500, up 3,250 from last week. Here is the official statement from the Department of Labor: In the week ending November 3, the advance figure for seasonally adjusted initial claims was 355,000, a decrease of 8,000 from the previous week's unrevised figure of 363,000. The 4-week moving average was 370,500, an increase of 3,250 from the previous week's unrevised average of 367,250.  The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending October 27, a decrease of 0.1 percentage point from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 27 was 3,127,000, a decrease of 135,000 from the preceding week's revised level of 3,262,000. The 4-week moving average was 3,227,750, a decrease of 38,500 from the preceding week's revised average of 3,266,250.  Here is a close look at the data over the past few years (with a callout for 2012), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

Another Jobless Claims Report, Another Reason To Wonder - Did Hurricane Sandy distort last week's jobless claims data? Possibly. One argument is that the storm kept people away from the unemployment offices and so last week's decline in new filings for unemployment benefits dispensed an artificially low number. "Extreme weather can hold down filings initially, with people initially preoccupied," says Jim O'Sullivan, chief U.S. economist at High Frequency Economics. "Claims are likely to be boosted in the next few weeks by hurricane-related job losses." It's a reasonable point, but it seems that there's always a new reason to dismiss the fall in claims. The reality is that new filings for jobless benefits have been trending lower for well over a year. It could be all over next week, but it's premature to say that the jig is up, even in the wake of one of the worst hurricanes in decades.  “When you see bad weather, there’s usually a drop in claims, and then you typically see a rebound in the next few weeks,” observes Scott Brown, chief economist at Raymond James & Associates. “Underneath the surface, job destruction has been trending very low. Layoffs aren’t the problem -- it’s the relatively weak pace of job creation.”That's a fair point as well, and probably closer to the truth. But the potential for Sandy-related blowback can't be ruled out. "You'll undoubtedly get a spike in unemployment claims that has not hit yet; it did not hit in the numbers ... because everybody was still in the midst of the aftermath of the storm, but, you know, expect the next several weeks to show a significant spike," predicts Liz Ann Sonders, Charles Schwab's chief investment strategist.

Knowledge does not guard against conspiracy theories -When the September jobs report showed that unemployment had dropped to an unexpectedly low 7.8%, former General Electric CEO Jack Welch helped launch a new conspiracy theory when he tweeted: "Unbelievable jobs numbers..these Chicago guys will do anything..can't debate so change numbers." Even though the unemployment statistics are produced by the respected and politically insulated Bureau of Labor Statistics, Welch's theory was disseminated by numerous conservative pundits and amplified by a wave of irresponsible media coverage. As we approach Election Day, it's worth taking a look back and assessing the damage. To assess the prevalence of conspiracy theory beliefs about manipulation of the unemployment data, I contributed several questions to a YouGov poll conducted October 27-29, 2012 (margin of error: +/- 4.6%; topline data and sample demographics here). The poll was conducted before the October unemployment figures were released last Friday and thus reflects public beliefs about the September unemployment data approximately three weeks after its release on October 5. I first asked survey respondents how accurate they believe the 7.8% unemployment figure is on a five-point scale from "Extremely accurate" to "Not at all accurate." The median response was the middle category of "Somewhat accurate," which may reflect skepticism about the way unemployment figures are calculated or a general distrust of government. However, there was a steep partisan gradient in mean responses by party. When we separate Democrats (including independents who lean Democrat), Republicans (including leaners), and true independents, we find that independents and especially Republicans are far less likely than Democrats to believe that the unemployment statistics are accurate (click graphics for larger versions):

It's the Machines, Stupid - Mark Thoma draws my attention today to a paper by Henry Siu and Nir Jaimovich that tries to explain why recent recessions have prominently featured jobless recoveries. They break down jobs into three categories: non-routine cognitive jobs, non-routine manual jobs, and routine jobs. What they show is two things: So why is this happening? Siu and Jaimovich conclude that it's the machines, stupid: Automation and the adoption of computing technology is leading to the decline of middle-wage jobs of many stripes, both blue-collar jobs in production and maintenance occupations and white-collar jobs in office and administrative support. It is affecting both male- and female-dominated professions and it is happening broadly across industries — manufacturing, wholesale and retail trade, financial services, and even public administration.

  • Most of the job losses during the past three recessions have come from the ranks of occupations coded as routine.
  • And unlike previous recessions, these jobs don't come back during the subsequent recoveries. The chart below shows the permanence of these job losses in the aftermath of our last three recessions.

Building Small: In Many Industries, Economies of Size Is Shifting to Economies of Numbers - For decades, "bigger is better" has been the conventional path to efficiency in industries ranging from transportation to power generation. Food once grown on small family plots now comes overwhelmingly from factory farms. Vessels that carried 2,000 tons of cargo have been replaced by modern container ships that routinely move 150,000 tons. But now, new research shows, we are on the cusp of a radical shift from building big to building small -- a change that has profound implications for both established and emerging industries.Rather than relying on custom-built, large-scale units of production -- e.g. massive thermal power plants -- industries can benefit from a shift to small, modular, mass-produced units that can be deployed in a single location or distributed across many locations -- e.g. photovoltaic (PV) panels mounted on utility poles. This alternative approach to infrastructure design offers new possibilities for reducing costs and improving service, the researchers found.The authors identify three driving forces underlying this shift. First, new computing, sensor, and communication technologies make high degrees of automation possible at a very low cost, largely eliminating the labor savings from large units. Second, mass production of many small, standardized units can achieve capital cost savings comparable to or even greater than those achievable through large unit scale. And third, small-unit scale technology provides significant flexibility -- a benefit that has been largely ignored in the race toward ever-increasing scale and one which can significantly reduce both investment and operating costs.

Why the U.S. Has a Worse Youth Employment Problem Than Europe - The latest unemployment statistics released this week on both sides of the Atlantic show that the number of jobless is continuing to rise in Europe far above the rate in the U.S., and the picture is especially bleak for young Europeans under the age of 25. In the 27 E.U. nations as a whole, the youth unemployment rate rose to 22.8% in September, up from 21.7% the previous year. In Greece and Spain, that proportion is over 50%. In the U.S., meanwhile, the unemployment rate was essentially unchanged in October, at 7.9%, the Bureau of Labor Statistics announced Nov. 2. And the U.S. rate of unemployment among young people under 25 was 16%.But such statistics are rather misleading because they don’t tell the whole story. They don’t include the millions of youngsters who are not in the labor market because they are continuing with their education or are engaged in training programs. If you take those young people into account, the picture is still grim everywhere, but the U.S. actually comes off as having a worse youth unemployment problem than Europe.

The High Unemployment Rate and its Social Cost-Becker - The Bureau of Labor Statistics (BLS) on Friday released its report on employment and unemployment in October. Although greeted by most of the media as signaling pretty good news, it is “good” only in the sense that the labor market did not get any worse. Employment and unemployment remain very far from full employment levels fully 4 years after the financial crisis erupted in September 2008, and 3 years after the Great Recession officially ended (as defined by the NBER). In fact, this is the slowest recovery from a recession during the past half century in both employment and unemployment.  The unemployment rate remains stuck at slightly below 8%, and about 12 million men and women remain unemployed. Over 8.3 million persons still are employed part time because their hours were cut or they could not find a full-time job. Another 2.4 million persons are only marginally attached to the labor force, but are not counted as unemployed because they had not searched for work in the four weeks prior to the survey. The major explanation for the very sluggish labor market is the slow recovery of GDP from the depths of the recession. When GDP is growing slowly-this growth has averaged about 2% during past 8 quarters- one can hardly expect employment to be growing rapidly or unemployment to be receding at a fast pace. In fact, the relation between GDP growth in the recovery from a recession and and the decline in unemployment is called Okun’s Law, named after the economist Arthur Okun who discovered this empirical regularity. One version of this law states that there is a 1% percentage point decrease in the unemployment rate for every 2% increase in GDP away from recession levels.

The Problem of the Long-Term Unemployed-- It is straightforward to enumerate bad effects of being unemployed for a long time, such as erosion of skills, loss of contacts, and reluctance of employers to hire a person who has been unemployed for a long time (this is because employers often use a person’s having been unemployed for a long time as a signal of lack of commitment to or fitness for employment). But it is difficult to make a precise estimate of the gravity of the problem. For one thing, there is no nonarbitrary definition of “long term.” Is it six months? (Many women are out of the work force for longer because they have young children, yet do find jobs when they return, albeit often at a lower wage than if they had remained in the labor force continuously.) A year? One would have to know the average rate at which job skills erode, contacts diminish, or potential employers’ suspicions grow, to be able to determine the economically meaningful cut off. And even if this hurdle could be surmounted, it is unclear who actually is “unemployed” and who simply has left the work force (retired early, become a housewife or house husband and thus substituted household production for paid work, become disabled, or interrupted work to go to college or to a professional school). The number of people who are unemployed in the Bureau of Labor Statistics sense—not employed at present, but looking for work—understates the number of long-term unemployed, because some of the long-term unemployed have become discouraged, ceased looking for work, and thus are no longer counted as unemployed. No one knows for sure how many such discouraged workers there are, but the Bureau of Labor Statistics estimates that there currently are 800,000 id rgwn. This actually is rather few relative to the 5 million long-term unemployed, that is, unemployed who are still looking for work.

Is job creation on Obama’s second-term agenda? - The American public has repeatedly indicated that the health of the economy is their biggest concern. An Associated Press election-day exit poll found that 59 percent of voters considered the economy to be the most important issue facing the country while only 15 percent considered the deficit to be the number one issue. And when voters say “the economy” they mean jobs and the rising cost of living. President Obama’s re-election depended significantly on America’s growing numbers of racial and ethnic minorities. For these groups too, the economy is the number one issue. An October CNN poll found that 44 percent of Latinos considered the economy to be the most important issue. Only 6 percent mentioned the deficit. Immigration reform ranked second at 14 percent. A survey of black voters in battleground states also found that jobs and wages were top issues for blacks. Americans of all races agree that restoring the American economy to a condition where it is strongly creating jobs and producing rising incomes is the most important issue facing the country. Surprisingly, President Obama seems to have left this out of his second term priorities. In his victory speech, Obama stated: And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together: reducing our deficit; reforming our tax code; fixing our immigration system; freeing ourselves from foreign oil.

Explosion in Uncovered Employment During the Recovery - Covered employment is the set of working employees that have unemployment benefits.  Self-employed persons such as myself have to pay into state unemployment insurance programs but we are ineligible to receive benefits (we are not covered).  Similarly, people selling trinkets on Ebay as well as those involved in multi-level marketing schemes and calling it their only job are not covered either. Covered employment was one of the topics that came up in my November 2 interview on Capital Account with Lauren Lyster.  (video)In the interview I noted that covered employment has crashed and reader Tim Wallace frequently sends me charts to prove it. Here are the latest charts from Tim. I added data points to Tim's chart. Let's do the math. According to the BLS, the economy added 4,951,000 since January 2009. In the same timeframe, uncovered employment rose by 6,573,468! The difference is 1,622,468. Got that?  133% of the jobs created since January 2009 are not covered. Employment rose by less than 5 million while uncovered employment rose by over 6.5 million.

Mulligan talks his book - Replying to my criticism of his NY Times column, Mulligan suggests that I should have read his book. Perhaps so, but the column is presented as a critique of Krugman’s book, not a plug for Mulligan’s, and I responded in that light. His latest post mentions a couple of points where he draws on the book, but for the moment I’m going to continue to rely on data published elsewhere. Mulligan responds to my points in reverse order, which makes sense, because his response to my central point is by far his weakest. The big difficulty for an explanation of post-2008 unemployment based on US welfare policies (unemployment insurance and food stamps) is that many other countries with radically different labor markets and policy responses experienced a big and sustained increase in unemployment at exactly the same time, following the global financial crisis of late 2008. In particular, lots of countries introduced austerity policies involving sharp cuts in the kinds of benefits Mulligan is criticising. Mulligan’s response to this evidence is handwaving. First he says that I haven’t calculated the implied changes in marginal tax rates, although its pretty obvious that most of them will be reductions.

'The Scapegoats of Racism and Immigration' - Is Robert Reich correct? The biggest challenge ahead isn’t just to get jobs back. They’re coming back. It’s to raise the wages of most Americans. This isn’t a new challenge. The median wage has been flat for three decades, when you adjust for inflation. Since 2000 it’s been dropping.  Some of the biggest wage losses over the last several decades have been among white men who haven’t attended college. And, not coincidentally, they’re the ones who have been abandoning the Democrats in droves. Three decades ago, non-college white men were solidly Democratic. Many of them were unionized. They had jobs that delivered good middle-class incomes. But over the last three decades they stopped believing the Democratic Party could deliver good jobs at decent wages. Republicans have offered white non-college males the scapegoats of racism and immigration — blaming, directly or indirectly, blacks and Latinos — and the solace of right-wing evangelical Christianity. Absent any bold leadership from Democrats, these have been enough.

The You're-on-Your-Own Society - The logical corollary of “You’re on your own” is “You’re your own damn fault.” Americans in general are keen on seeing social problems in terms of individual weakness—look at how we demonize fat people, as if the reason so many are overweight is just a lack of willpower. But that mindset is particularly part of the right-wing DNA. After all, if you can hold people solely responsible for their problems, you can ignore them, deprive them, even hate them. Rape victims, women with unwanted pregnancies, poor people (get a job!), drug users, children who commit crimes, people who have been imprudent or out of line in any way, have only themselves to blame. Nicholas Kristof wrote a New York Times column a few weeks ago about his friend Scott, who had a midlife crisis, quit his job to read books and play poker, didn’t buy health insurance even after he went back to work because it was too expensive, and, partly to save money but also because he was busy and had no wife to nudge him, postponed seeing the doctor about disturbing symptoms that proved to be caused by advanced prostate cancer. Kristof’s point was that we all make mistakes, and that good public policy takes that into account. In a follow-up column that noted Scott’s death, Kristof wrote that he was “taken aback by how many readers were savagely unsympathetic. ‘Your friend made a foolish choice, and actions have consequences,’ one reader said in a Twitter message.” Yes, actions have consequences, and that’s why we need society to protect us from our folly, ignorance and bad judgment—our own and one another’s. Sooner or later, everybody takes risks that turn out poorly. Some people have unprotected sex, cross against the light, drive too fast, ride a motorcycle without a helmet in Connecticut (where for some crazy reason that is legal), don’t wear a seat belt, drink too much, send money in response to e-mails from Nigerian princes, don’t vaccinate their kids. Some people refused to evacuate during Sandy—should relief workers deny them a hot meal and a blanket?

Why America Is No Longer the Land of Opportunity - We Americans praise the idea of equal opportunity, cling to it as part of our birthright. But we refuse to do what’s necessary to create equal opportunity. Much worse, we refuse to even talk about it. That’s true even though we’ve no problem having the conversation in other contexts; it’s only taboo in public policy. I’m talking about redistributing wealth. Our nation’s wealth is grotesquely concentrated, and many Americans’ standard of living has fallen. Everyone understands enough that grouping Americans into the 99% versus the 1% has intuitive resonance. Americans no longer raise their economic status in their lifetimes.And yet the idea that anyone, no matter how low or distant her birth, can still grow up to be as wealthy as Mitt Romney or Bill Clinton is political dogma that cannot be questioned. We refuse to acknowledge our feudal economic reality like religious zealots who reject physics, astronomy, geology, chemistry, and biology  to believe a fallacy their faith demands, the idea that the Earth is only a few thousand years old.As long as we blindly repeat the mantra that ‘America is the Land of Opportunity, America is the Land of Opportunity, America is the Land of Opportunity’ with the closed-eyed hope of Dorothy clicking her ruby slippers, America will remain the opposite: a place where the rich grow ever richer and the rest of us suffer more.

Net Wealth Shock in US, by Net Worth Percentile - Via Amir Sufi on Twitter (@profsufi): Net Wealth Shock in US, by Net Worth Percentile  [click on figure to enlarge]

  • For poor and median households, Great Recession wipes wipes out 20 years of net worth accumulation
  • For the rich, only small decline


Heather Boushey on Inequality and Growth - It is now a well-known fact that the United States has the highest levels of inequality among developed countries. Increasingly, the economics profession is questioning how this affects our economy, not only in terms of what it means for those at the bottom of the income distribution, but in terms of how high inequality affects economic growth and stability.The New York Times recently published a thoughtful piece on the relationship of rising U.S. inequality to long-term economic growth. In the wake of that article, they published a Room for Debate online forum on this topic and Scott Winship, a scholar a the Brooking’s Institution was among those participating. Mr. Winship cites our report on the topic to discuss what he argues is inadequate evidence linking inequality and growth. We are grateful that Mr. Winship acknowledges CAP's central role in this debate, but grossly mischaracterizes our conclusions. The quote he pulled from our report gives the false impression that our research supports the conclusionthat inequality is not a problem for economic growth. Our argument is that we need to look specifically at the channels through which inequality affects economic growth, specifically in the U.S. context. For example, there is evidence that documents how the rich don’t spend as much of their income as the non-rich. If inequality keeps rising and the rich pull in a larger and larger share of national income, this stunts demand, the lifeblood of the economy. Another mechanism is through entrepreneurship, which is often portrayed as the dynamic force in a capitalist economy. Yet, most entrepreneurs come from the middle class. The middle class provides both the economic security and access to education and credit that entrepreneursneed.

What kind of inequality matters most? - Not too long ago, during the 1980s, inequality was an unspeakable word in many a policy circle. The bitter ideological battle between the West and the Soviet Union played a part in this. Ronald Reagan and Margaret Thatcher vowed to defend freedom against totalitarianism and to disregard the “politics of envy”. Income inequality in developed countries rose substantially in those years yet the consensus among policymakers was something like: “inequality doesn’t really matter, as long as all boats are lifted. In fact, it creates incentives and promotes growth”. This situation started to change in the early 1990s– the Soviet Union had collapsed years before and Fukuyama had proclaimed the “end of history” or the victory of Western democracy. The ideological enemy disappeared. Moreover, an increase in computer power and major improvements in data –especially data collection at the household level – allowed researchers to study the changes in income inequality. Academics started thinking again on the negative effects of inequality: ideas on the role of elite capture, tax rules and investment were developed if not fully endorsed. The policy debate, however, was lagging. The economic growth-centric view eschewing inequality remained strong at least until 2000. The role of globalization and growth in inequality was hotly contested. The debate turned ferocious. Those arguing that “growth is good for the poor” – and there were plenty- claimed that income inequality was not relevant as long as the poor benefited. For instance, Ravallion and Chen from the World Bank defined “pro-poor growth” as  as “growth that reduces poverty”  regardless of what happened to the incomes of the rich.

Asian-Americans destroy the "maker/taker" narrative - Since the election, I've been reading The Corner, the group blog of the National Review, a publication which probably still represents the intellectual forefront of the conservative movement. I've seen some very intelligent and thoughtful discussion there, and also some absolute head-in-the-sand denialist comfort-food. But one thing I don't see anyone challenging is the master narrative of modern American conservatism: the "maker/taker" story. The "maker/taker" story is exactly the "47 percent" story that Mitt Romney told at that fund-raiser. It's the idea that the Democrats' core constituency is a bunch of lazy and/or untalented "takers" who want to use the government to steal from the hard-working "makers". Here's The Corner's David French summing up the ideaFirst, each of Obama’s core constituencies (single women, African-Americans, and Latinos) is seriously — and disproportionately — economically disadvantaged compared to the classic paradigm of the white, college-educated Republican voter. The rates of poverty and near-poverty among these groups are much greater, thus causing a critical mass of both populations to suffer — even if they’re technically middle class — from a greater degree of economic insecurity...Ideologically and historically they are pre-disposed towards statism as the means of alleviating economic insecurity and distress. As you can see, the "maker/taker" narrative has a strong ethnic angle; the "takers" are supposed to be mostly minorities and single women. White men and their wives produce things; blacks, Hispanics, and sluts single women live on the dole.

Minimum Wage to $9.50? $9.80? $10? - During the 2008 campaign, President Obama promised to raise the minimum wage to $9.50/hour by 2011. This pledge was made at a time when the economic slowdown was already underway: the recession started in December 2007. The pledge was also made at a time when an increase in the minimum wage was already underway: in May 2007, President Bush has signed into law an increase in the minimum wage, to rise in several stages from $5.15 to $7.25 in July 2009. Last summer, some Democratic Congressmen tried to push the issue a bit. In June, 17 House Democrats signed on as co-sponsors of a bill authored by Rep. Jesse Jackson Jr. of Illinois for an immediate rise in the minimum wage to $10/hour--and then to index it to inflation in the future. In July, over 100 Democrats in the House of Representatives signed on as co-sponsors of a bill authored by Rep. George Miller of California to raise the federal minimum wage to $9.80/hour over the next three years--and then to index it to inflation after that point. But while raising the minimum wage was a hot issue in the years before Bush signed the most recent increases into law, these calls for a still-higher minimum wage got little attention.  For background, here are a couple of graphs about the U.S. minimum wage. The first graph shows the nominal minimum wage over time, and also the real minimum wage adjusted to 2011 dollars. In real terms, the increase in the minimum wage from 2007 to 2009 didn't quite get it back to the peak levels of the late 1960s, but did return it to the levels of the early 1960s and most of the 1970s--as well as above the levels that prevailed during much of the 1980s and 1990s. The second graph shows the minimum wage as a share of the median wage for several countries, using OECD data. The U.S. has the lowest ratio of minimum wage/median wage--and given the greater inequality of the U.S. income distribution, the U.S. ratio would look lower still if compared to average wages.

Yes, Unions Need Reinventing - My recent guest-post on changing the NLRA received some pushback that I would like to address.  Before getting into specific points I would like to reiterate that my argument is based on a conclusion that is supported by the academic literature: a shift from a domestic economy to a global economy has played a significant role in the decline of unionization.  Because union membership under the NLRA cannot withstand the external pressure of a globalized economy it appears the NLRA has failed in the long run.  The argument that the NLRA has failed is not a novel point I am making, rather it is supported by labor academics from various perspectives.  How to change the NLRA going forward to remedy this failure, however, is a topic open for debate. To quickly summarize my last post, I’m proposing that a repeal of the sections of the NLRA that require mandatory good faith bargaining and exclusive representation, which both limit employer and employee rights, would increase worker voice.  These sections of the NLRA limit not only the employers ability to access the labor market, but also the employees ability to negotiate on his or her own behalf with the employer.  Repealing both of these sections would make unions subject to market pressure, and align their incentives more closely with employers and all employees.

Useless Liberal Intellectuals - Once upon a time, there was an alliance between liberal intellectuals and workers. It was an important part of the political structure that led to the New Deal. A generation of intellectuals were strongly influenced by Marxist analysis of capitalism, and were motivated by the damage inflicted on the working class through horrifying labor conditions, speculation in farm commodities, and repeated financial crises. They played an important role in pushing Franklin Delano Roosevelt to enact strong laws and strong regulatory structures for the financial sector and for businesses in other sectors. After WWII, left intellectuals lost interest in capitalism as an object of academic study, and worse, promulgated theories that led to our current deadlock.

Almost 40pc of payday loans used to buy food  - Consumer rights group Which? has called for a clampdown on "irresponsible lending" as it emerged that almost 40pc of payday loans are taken out to buy basics such as food. Almost half of payday loan customers struggle to meet repayments and a third took credit knowing they could not repay it, according to a report from the consumer watchdog. The credit, which often comes at interest rates as high as 4,214pc, is used to pay regular household bills by 32pc of those who take them out, and rent by a fifth. Almost a third of those surveyed said that they had been hassled by debt collection agencies in the last year after using the lenders. Which? executive director, Richard Lloyd, said: "It's shocking that half of all people taking out payday loans have been unable to pay the money back and it's a depressing sign of the times that almost a third were hassled by debt collectors in the past year and one in five said they had been hit with unexpected charges. "Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by. That's when they're hit by excessive penalty charges and roll over fees.

The landscape of decay and renewal - AS YOU pull out of Washington's Union Station on a north-bound train, you glide through a thicket of construction cranes erecting new offices and residential buildings. The view couldn't be more different some 45 minutes later, as one passes block after block of decaying rowhouses in Baltimore's inner-city neighbourhoods. Indeed, for much of the journey to New York, the main view on offer is one of industrial decline—like the sad slogan "Trenton makes, the world takes", dating from 1935, visible on a bridge over the Delaware River in Trenton, New Jersey—that is the residue of an old American economy. And then one approaches New York City, where cranes again dominate the skyline, building, among other things, a soaring skyscraper that will be home to just tens of billionaires. In an interesting piece at the New York Times, Adam Davidson explores this geography between Washington and New York, chronicling some of the stories of those left behind by today's economy. His framing of the changing geography of the northeastern corridor is a little problematic, however. He writes: [F]or most of the 180 or so years of the train line’s existence, the endpoints of this journey — New York and D.C. — were subordinate to the roaring engines of productivity in between. The real value in America was created in Newark’s machine shops and tanneries, Trenton’s rubber and metal plants, Chester’s shipyard, Baltimore’s steel mills... This model was flipped inside out as Wall Street and D.C. became central drivers, not secondary supports, of the nation’s economy. Now, on its route between them, the train passes directly through or near 8 of the 10 richest counties in the United States, but all of this wealth is concentrated near the endpoints of the journey...

Why You Should Be Worried About the Size of the Public Sector - Last month, numbers from the Bureau of Labor Statistics suggested that the years-long decline in public employment had finally halted, but Friday’s BLS report revealed that we moved back into negative territory in October:  the public sector as a whole (federal, state, and local) shrank by 13,000 jobs.  This should serve as another reminder that a significant part of this jobs crisis is self-inflicted.  There is a lot of policy work that needs to be done to help bring the economy back to full employment, but one of the baby steps the government can take in dealing with the crisis is this:  stop firing so many people. Here’s Floyd Norris back in August, writing about a fact that has received far too little attention in our civic dialogue: Employment in state and local government peaked at a seasonally adjusted 19.8 million workers in August 2008. Since then, the total is down by 697,000, or 3.5 percent. Since World War II, the only comparable decline was in 1950 and 1951, when payrolls fell by 3.7 percent. The recession left state and local governments, where most government jobs are located, in a very real budget bind, leading to a rate of layoffs unprecedented in over half a century.  While the federal government also saw its revenues drop precipitously when the recession hit, unlike states and municipalities, it is currently under no economic constraint to balance its budget. The Recovery Act (ARRA) provided some aid to states and municipalities to help cover their budget shortfalls, but it was clearly insufficient, and now that the American Jobs Act (which featured further aid to states) has disappeared from the public radar there is little reason to believe that more help is on the horizon.  In fact, despite all the fiscal space the federal government has at its disposal, a large(r) dose of federal austerity is scheduled for 2013 that will do even more damage to public payrolls (here’s one estimate of the damage from the Congressional Research Service).

From Coast-To-Coast, Voters Reject Anti-Tax Hysteria - American voters last night, while re-electing President Obama and keeping the Senate and the House with their current parties, largely rejected the anti-tax extremism that has seized the right. In addition to re-electing Obama, who had promised to let the Bush tax cuts for the richest 2 percent of Americans to expire, voters rejected several anti-tax ballot questions. Here’s a rundown:

    • – 60 Percent of Americans favor tax hikes: According to exit polls, six out of ten Americans believe that taxes need to go up, while “only about a third of voters said taxes should not be increased at all.” One in seven said that taxes need to go up on all Americans.
    • – Florida rejects Amendment 3: Amendment 3, which would have limited public spending and revenue collection via a flawed formula, while requiring supermajorities to override the limits, was easily defeated. The amendment needed 60 percent approval to take effect, but received just 42 percent of the vote.
    • – Supermajority requirement crushed in Michigan: A proposal to implement a requirement that tax increases receive a supermajority vote in the state legislature was rejected by a vote of 69 percent to 31 percent.
    • – California approves $6 billion tax increase: California approved both an increase in the sales tax and a tax increase on those making more than $250,000 per year, with the money hopefully preventing cuts to the state’s university system. California, of course, has been the epicenter of nonsensical anti-tax ballot questions for decades.
    • – Oregon rejects estate tax cut: Oregon voters defeated a ballot measure that would have eliminated the state’s estate tax, which is levied on inheritances of more than $1 million.

Puerto Ricans opt for statehood in referendum - — A slim majority of Puerto Ricans sought to change their ties with the United States and become the 51st U.S. state in a non-binding referendum that would require final approval from Congress. The two-part referendum asked whether the island wanted to change its 114-year relationship with the United States. Nearly 54 percent, or 922,374 people, sought to change it, while 46 percent, or 786,749 people, favored the status quo. Ninety-six percent of 1,643 precincts were reporting as of early Wednesday. The second question asked voters to choose from three options, with statehood by far the favorite, garnering 61 percent. Sovereign free association, which would have allowed for more autonomy, received 33 percent, while independence got 5 percent. President Barack Obama earlier expressed support for the referendum and pledged to respect the will of the people in the event of a clear majority. It is unclear whether U.S. Congress will debate the referendum results or if Obama will consider the results to be a clear enough majority.

Stockton, California: ‘This economy is garbage’ - In some towns, visitors are warned to keep an eye on their stuff, or to watch out late at night. In the Californian city of Stockton, the anxiety is more precise – and it kicks in early. "Take care downtown after 5pm," one local person told me. "Don't hang out too long." A few hours later, I saw what she meant. Almost as soon as the offices shut, the city centre empties. Then the sun goes down and a different cast takes to the streets: the homeless, the drug dealers, and clusters of young men patrolling up and down on bicycles. Stockton ranks among America's 10 most dangerous cities, and everyone here seems to operate under a self-imposed curfew. The commuter admits she doesn't dare go to the cinema after 8pm; the father expects his 18-year-old daughter home by 10 – "and she totally gets why." Others prefer not to go out at all. All give the same reason: the spiralling number of violent crimes. Last weekend, the city notched up its 60th murder of the year, up from 24 for all of 2008. At just under 300,000 residents, this river port has about the same population as a London borough. Imagine a couple of your neighbours getting killed every week, and you'll understand why almost all the conversations here touch on a recent homicide.

Sewage Backups Mean $1 Trillion Bill for Leaking U.S. Pipes - Century-old water pipes backed up in a storm in Washington D.C.’s Bloomingdale section, sending water and sewage cascading into basements. When it happened twice more in nine days last summer, a torrent of complaints flowed. “Citizens are rightly frustrated and upset about sewer backups,” said George Hawkins, the District’s Water and Sewer Authority general manager. “The challenge we face is that the engineering fix is monumental. It runs back into the issue that we have a significant bill we have to figure out how to fund.” While the sewage backups aren’t as destructive as Hurricane Sandy, such breakdowns highlight leaky systems in cash-strapped U.S. cities that are boosting rates to fund long-delayed fixes. At least $1 trillion is needed for water infrastructure by 2035, tripling some home bills, according to an American Water Works Association study. That may benefit such companies as pump supplier Xylem Inc. (XYL) and flow-controls maker Pentair Ltd. State and local governments are weighing the costs of water-system upgrades against a need to repair crumbling bridges and roads as lower tax receipts curb spending. Rising water bills to replace municipal pipes, some pre-dating the Civil War and made of cast iron and wood, don’t sit well with customers seeing more water system failures, Hawkins said in an interview.

Sandy outages hit food stamp recipients - Losing powering, like so many millions in the Northeast did when Sandy hit, creates some basic problems. No lights. No heat, sometimes. No stoves. Also, no money. Cash machines and credit cards swipers weren't working. Neither were were electronic benefit transfer (EBT) cards, which hurt a lot of food stamp users. "All the stores were closed," says Ozzie Hernandez, one of the shoppers at Stop 1 Food. "The electricity was out. People were not able to use their EBT cards or really didn't have any type of access to food." That was the case for many of 1.8 million New Yorkers who use food stamps, says Kevin Concannon, undersecretary for food nutrition and consumer services at the U.S. Department of Agriculture, which runs the food stamp program. "Around 50 percent of the authorized stores that could process food stamps were either shut down or their power was shut down," he says. Concannon says food stamp recipients in New York will get half of their October benefits reimbursed, and the department has also set up a backup payment system to use when the power goes out. Farmers' markets helped fill in for darkened or shuttered supermarkets. They were able to take EBT cards the day after the storm thanks to handheld, battery-powers card scanners.

NJ's Aging Infrastructure No Match for Superstorm - Even before Hurricane Sandy slammed into the state, New Jersey faced mind-boggling upgrade costs to modernize its aging infrastructure: from drinking water facilities, to mass transit, to structurally deficient bridges — among other pressing projects. In the aftermath of the worst storm ever to hit New Jersey, those challenges have become even more daunting, especially given the dire fiscal straits Gov. Chris Christie and the Legislature are expected to once again find themselves in next year. “The question is how much damage is there to the road infrastructure network and transit infrastructure network?’’ asked Philip Beachem, president of the New Jersey Alliance for Action, a group that typically lobbies for funds to rebuild the state’s transportation infrastructure. “How bad is it?’’ Plenty bad, judging from early assessments. Bridges washed out at the Jersey Shore; broken natural gas pipelines burst into flame, burning down houses; and malfunctioning wastewater treatment plants spilled raw sewage into waterways when they lost power. A week after the storm came ashore, officials were still assessing the damage. This includes determining just how badly the state’s public rail transit system fared. “There are serious power, track, and signal problems along the Northeast corridor,’’ Christie said.

Battered NJ Agonizes over Whether to Rebuild Shore - In its tear of destruction, the megastorm Sandy left parts of New Jersey's beloved shore in tatters, sweeping away beaches, homes, boardwalks and amusement parks. The devastation left the state a blank canvas to redevelop its prized vacation towns. But environmentalists and shoreline planners urged the state to think about how — and if — to redevelop the shoreline as it faces an even greater threat of extreme weather. "The next 50 to 100 years are going to be very different than what we've seen in the past 50 years," said S. Jeffress Williams, a scientist emeritus at the U.S. Geological Survey's Woods Hole Science Center in Massachusetts. The sea level is rising fast, and destructive storms are occurring more frequently, said Williams, who expects things to get even worse. He and other shoreline advocates say the state should consider how to protect coastal areas from furious storms when they rebuild it, such as relocating homes and businesses farther from the shore, building more seawalls and keeping sand dunes high. How to rebuild after the disaster is becoming an issue even as New Jersey assesses its damage.

Storm Raises Costs of Shoring Up Coastal Communities - For more than a century, for good or ill, New Jersey has led the nation in coastal development. Many of the barrier islands along its coast have long been lined by rock jetties, concrete sea walls or other protective armor. Most of its coastal communities have beaches only because engineers periodically replenish them with sand pumped from offshore.Now much of that sand is gone. Though reports are still preliminary, coastal researchers say that when Hurricane Sandy came ashore, it washed enormous quantities of sand off beaches and into the streets — or even all the way across barrier islands into the bays behind them. But even as these towns clamor for sand, scientists are warning that rising seas will make maintaining artificial beaches prohibitively expensive or simply impossible. Even some advocates of artificial beach nourishment now urge new approaches to the issue, especially in New Jersey. The practice has long been controversial. Opponents of beach nourishment argue that undeveloped beaches deal well with storms. Their sands shift; barrier islands may even migrate toward the mainland. But the beach itself survives, because buildings and roads do not pin it down. By contrast, replenishment projects often wash away far sooner than expected. The critics say the best answer to coastal storms is to move people and buildings away from the water, a tactic some call strategic retreat.

Sandy: The October Surprise Comes in a Perfect Storm - The attorney general for the state of New York said Monday he had "zero tolerance" for inflating costs for essential items like gasoline in the wake of Hurricane Sandy. The state, as are those up and down the eastern U.S. coast, is struggling with recovery efforts after a so-called superstorm descended on the region last week.  For 2012, it seems, the October surprise emerged as a perfect storm. "Our office has zero tolerance for price gouging," said Attorney General Eric Schneiderman in a statement Monday. "We are actively investigating hundreds of complaints we've received from consumers of businesses preying on victims of Hurricane Sandy, and will do everything we can to stop unscrupulous individuals from taking advantage of New Yorkers trying to rebuild their lives." Motor group AAA reports parts of the east coast hardest hit by Sandy are paying more for gasoline than most of the rest of the country. In New York City, consumers Monday were paying $4.06 for a gallon of regular unleaded gasoline, compared to a national average of $3.47. The U.S. Environmental Protection Agency last week waived parts of the Clean Air Act to ensure east coast residents have ample supplies of gasoline. The Defense Department, meanwhile, was working to get generators to retail gasoline stations that are still without power from the storm. By Monday morning, the Energy Department said there were more than 1.3 million customers without power, a week after Sandy hit.U.S. President Barack Obama, in a statement, said he found there was a "severe energy supply interruption" because of the storm. National home heating oil reserves were released from a Connecticut storage facility for the first time and the Energy Department said certain laws were suspended so that foreign vessels could ship petroleum products from the Gulf of Mexico to ports along the northeast coast. Some refineries in New Jersey, however, remained closed Monday, extended gasoline shortages into a second week.

Fractured Recovery Nearly a Week After Hurricane Sandy - The patchy recovery from Hurricane Sandy exposed a fractured region on Saturday. The lights flickered on in Manhattan neighborhoods that had been dark for days, and New York’s subways rumbled and screeched through East River tunnels again.But in shorefront stretches of Staten Island and Queens that were all but demolished, and in broad sections of New Jersey and Long Island, gasoline was still almost impossible to come by, electricity was still lacking, temperatures were dropping and worried homeowners wondered when help would finally arrive. Drivers in New Jersey faced 1970s-style gasoline rationing imposed by Gov. Chris Christie, while in New York, Gov. Andrew M. Cuomo said that the Defense Department would distribute free fuel from five mobile stations. But that effort backfired when too many people showed up. It was a weekend of contrasts. Crowds streamed into city parks that reopened on a blindingly bright Saturday morning, while people who had been displaced by the storm said help was not coming fast enough and the desperation was growing.

In 2009, Engineers Detailed Storm Surge Threat to New York City - As the authorities examine how they can protect New York City from extreme weather events like Hurricane Sandy, one of the nation’s most influential groups of engineers is pointing out that more than three years ago, it presented detailed warnings that a devastating storm surge in the region was all but inevitable.The warnings were voiced at a seminar in New York City convened by the American Society of Civil Engineers, whose findings are so respected that they are often written into building codes around the world. Corporate, academic and government engineers at the meeting presented computer simulations of the storm-surge threat and detailed engineering designs of measures to counter it. Officials from the city’s Office of Emergency Management and the United States Army Corps of Engineers took part in the seminar, serving on review panels or giving talks. Participants in the 2009 seminar called on officials to seriously consider whether to install surge barriers or tide gates in New York Harbor to protect the city. Their views are contained in 300 pages of technical papers, historical studies and engineering designs from the seminar, copies of which the society provided to The New York Times. Any effort to install such barriers would be extremely costly and take many years to carry out.

Sandy forces New York to consider all options in effort to make city safe - The devastation wrought by Sandy is forcing New Yorkers to consider a whole host of measures – from fortress-like flood barriers to offering a buy-out to people living in flood-prone areas – to make the city safe from future storms. "We are vulnerable," the state's governor, Andrew Cuomo, told reporters this week. "Anyone who thinks there is not a dramatic change in weather patterns is deny reality. We have a new reality and old systems." New York, with its 520 miles of coastline, is second only to New Orleans in the US for the numbers of people living within 4ft of the high tide mark, or about 200,000 people. There is also valuable property at risk – and those risks will only grow. As New Yorkers discovered this week, subways, power lines, and other infrastructure are also at risk from storm surges and flooding. And time is running out to find a solution. Flooding during Sandy even exceeded the disaster scenarios envisaged in a 2011 New York state government designed to help authorities plan for future climate change. "The impacts we saw in the last couple of days were actually impacts we did not think we would see until the 2080s, such as the flooding in lower Manhattan, and in Long Island, the vulnerability of subway tubes and some of the airports," said Art DeGaetano, a Cornell University professor and director of the north-east regional climate centre, who was one of the authors of the report

After Sandy, disaster response needs not less government, but better "Where's the real help? Where's the government?" I was asked that question by Kenyatta Hutchinson, a young man whose family – wife and children, including an infant – has been displaced by Hurricane Sandy in the Rockaways, a narrow strip of land in southern Queens, New York. His entire apartment was flooded, and though he was happy to see the volunteers dotting the neighborhood, distributing food, blankets and diapers, he also felt angry and abandoned. This is a sentiment I've heard echoed many times over the last few days. President Obama's approval rating has risen based on his handling of the storm, with some 67% of registered voters approving of his response. It's not clear exactly what those people are basing that approval on, other than that the aftermath of Sandy is not the obvious travesty that Hurricane Katrina was. The devastation of New Orleans in 2005 was perhaps the biggest turning-point in George W Bush's presidency: the moment when average Americans realized there was nothing "compassionate" about this conservative, and that cutting back federal programs (or appointing the former head of the Arabian Horse Association to run Fema) had resulted in a very real cost of human suffering. Compared to this, of course, Obama's response looks serious, presidential. But on the ground, people are suffering still. The successes of Occupy Wall Street's mutual aid-based disaster relief have by now been well-documented (I wrote about them for Jacobin Magazine), and community groups like the one I traveled the Rockaways with Monday, New York Communities for Change, have ably turned their community-organizing chops to assessing the needs of the most-affected communities – which, no surprise, are largely communities of color.  But more, much more, is still needed. In public housing towers in the Rockaways – as Nick Pinto, and John and Molly Knefel reported – residents are trapped in top-floor apartments without working elevators. The response from the Red Cross and National Guard has been to arrive, deposit goods and leave the residents, including elderly and disabled, to get heavy packages up many flights of stairs. In Arverne, where I was, residents told me about packages being dumped off the backs of trucks into the middle of the street.

Where FEMA Fell Short, Occupy Sandy Was There - - After its encampment in Zuccotti Park, which changed the public discourse about economic inequality and introduced the nation to the trope of the 1 percent, the Occupy movement has wandered in a desert of more intellectual, less visible projects, like farming, fighting debt and theorizing on banking. While several nouns have been occupied — from summer camp to health care — it is only with Hurricane Sandy that the times have conspired to deliver an event that fully calls upon the movement’s talents and caters to its strengths. Maligned for months for its purported ineffectiveness, Occupy Wall Street has managed through its storm-related efforts not only to renew the impromptu passions of Zuccotti, but also to tap into an unfulfilled desire among the residents of the city to assist in the recovery. This altruistic urge was initially unmet by larger, more established charity groups, which seemed slow to deliver aid and turned away potential volunteers in droves during the early days of the disaster.  In the past two weeks, Occupy Sandy has set up distribution sites at a pair of Brooklyn churches where hundreds of New Yorkers muster daily to cook hot meals for the afflicted and to sort through a medieval marketplace of donated blankets, clothes and food. There is an Occupy motor pool of borrowed cars and pickup trucks that ferries volunteers to ravaged areas. An Occupy weatherman sits at his computer and issues regular forecasts. Occupy construction teams and medical committees have been formed.

Housing Nightmare Looms In Wake Of Storm - New York City officials said on Sunday that they faced the daunting challenge of finding homes for as many as 40,000 people who were left homeless after the devastation of last week’s storm, a situation that the city’s mayor, Michael R. Bloomberg, compared to New Orleans’s after Hurricane Katrina.  The mayor said that the 40,000 figure was the worst possible case given by the Department of Housing and Urban Development, and that a more realistic assessment was 20,000 people — most of them residents of public housing. Even in the best possible case, he said, the task will be formidable.  “We don’t have a lot of empty housing in this city,” Mr. Bloomberg said at a news conference on Sunday. “We are not going to let anybody go sleeping in the streets or go without blankets, but it’s a challenge, and we’re working on that as fast as we can.”  It is a task shared throughout the region, as officials in New York, New Jersey and Connecticut struggle to meet the demands of those whose homes have been left uninhabitable. In some cases, the solution may be a familiar, if unwelcome sight: the trailers provided by the Federal Emergency Management Agency after Hurricane Katrina.

Susan Crawford: The Two Key Investments to Build Back Better Post-Sandy: Last week, Hurricane Sandy hit the world's media capital -- and because of that, it's likely we'll hold focus on longterm infrastructure problems for at least a day or so. What disempowered New Yorkers most wanted during the storm, in addition to safety and electricity, was a way to communicate. My suggestion: Prioritize rebooting communications infrastructure for New York City and its environs at the same time that we think seriously about water barriers and other infrastructural needs. Our communications problems boil down to two central issues: Lack of capacity and lack of a safety net. Capacity first. Even before the storm, communications capacity in New York City was hardly at first-world levels. Calls drop because we need connections that can easily handle all the data we throw at them. Just the last bit of a wireless communication is over the air; 95 percent of its journey is over a wire. If you've got dark fiber to every home and business (as in Stockholm), and cell towers covering smaller areas are everywhere they can be, calls don't drop and business transactions run smoother. Getting fiber everywhere requires lowering the cost of capital for wholesale, independent providers who can loosen Verizon's deathgrip on wires in New York City. The net result would be lower prices, greater choices, higher capacity and a globally relevant access network for New York. Then we need a safety net. Many heart-wrenching stories this week illustrate the growing inequality in basic services across the city. The richest New Yorkers lead entirely separate lives from the people who work hourly jobs to provide the services that make New York City spin. Everyone needs to have an equal capacity to communicate, just as everyone needs electricity.

Hurricane Sandy’s Lesson on Preserving Capitalism - With long gas lines and other shortages putting people on edge in the wake of Hurricane Sandy, the usual post-disaster debate over the economics and ethics of price-gouging is underway. However, while the question of whether it is okay, even desirable, for businesses to raise prices after natural disasters is certainly important, there are larger lessons that can be drawn from this debate.Economists do not like the term “price-gouging.” They believe that price increases are the best way to allocate scarce goods and services after a natural disaster and, importantly, to encourage additional supply. When people can make a large profit by supplying goods and services to a market, they will work extraordinarily hard to meet the demand.But if there is such an advantage to allowing the price system to work after an event like Hurricane Sandy, why did producers often choose to stick with pre-disaster prices? Why would they leave profits on the table by maintaining pre-disaster prices and allocating goods through other mechanisms such as first-come, first-serve until supplies run out? One answer is that price-gouging after a natural disaster is illegal in many places. But this just begs the question. Why do so many places choose to prohibit large price increases in response to disaster induced shortages? Most of the explanations economists have come up with rely upon the idea of fairness. After a natural disaster, people consider food, water, even goods like gasoline a necessity, and despite attempts by economists to explain that allowing prices to rise is best, they are sensitive to two types of inequities.

Mark Thoma on price gouging - At Fiscal Times, economist Mark Thoma discusses price gouging and fairness and capitalism.. I hoped Thoma had provided the thoughtful defense of price gouging restrictions that John Carney was looking for. Thoma didn’t really–he had a weightier topic in mind and price gouging was just a lever he used to pry open the issue. But he covers enough on price gouging to be worth taking a look at. With long gas lines and other shortages putting people on edge in the wake of Hurricane Sandy, the usual post-disaster debate over the economics and ethics of price-gouging is underway… Thoma explains the usual economist’s views: extraordinary prices can motivate extraordinary supply efforts and help allocate goods efficiently, though he omits the demand side rationing benefits usually part of this explanation. Then, allowing the efficiency gains, Thoma wonders why merchants usually don’t raise prices a lot, and why we have laws against efficient responses. Most of the explanations economists have come up with rely upon the idea of fairness. After a natural disaster, people consider food, water, even goods like gasoline a necessity, and despite attempts by economists to explain that allowing prices to rise is best, they are sensitive to two types of inequities. First, after a disaster supplies are short, shopping around may be next to impossible, and consumers do not appreciate producers exploiting short-term monopoly power. Second, people do not consider it fair when only the wealthy can get the things they need to ease their troubles. If people have to go without because of an act of god, then everyone should share in the pain. The wealthy should not be able to corner the available supplies of goods and services that are in high demand because of the disaster.

Number of the Week: Bring on the Price Gouging - $300: The price of 12 gallons of gas in one Craigslist posting, according to an Associated Press report. Sandy-related gas shortages have officials in New York and New Jersey on the lookout for price gouging, but economists suggest the regulations aimed at protecting consumers just make the problem worse. Majorities of both academic and business economists say that regulations discouraging price gouging in the wake of natural disasters are counterproductive. Most anti-gouging laws allow for some increase in prices, but they are either vague or set arbitrary limits. New Jersey defines gouging as any increase more than 10%. That means $4-a-gallon gas can’t rise by more than 40 cents. But at least that regulation is clear. New York prohibits “unconscionably excessive” prices. That just leaves businesses guessing about what constitutes gouging. Few would argue that $300 for 12 gallons of gas is a fair market price, but amid widespread shortages neither is the most recent price of $3.95 a gallon (as quoted by the U.S. Energy Information Administration for New York). The price of gas is rising more in New York state than the rest of the country, but anti-gouging laws are likely keeping it lower than market forces would.  It may seem unfair for prices for necessary goods to rise, but when panic sets in, it’s more unfair to keep prices artificially low. If all sellers can raise prices along with demand, it would keep away hoarders filling their garages with gas cans. That means that the folks who really need gas will pay a premium, but at least they will be able to get it.

How Big Oil left motorists stranded at the pumps in Superstorm Sandy — Superstorm Sandy left a trail of destruction and despair in the U.S. Northeast, but it also exposed a surprising fault line in the ability of gasoline stations to keep fuel flowing. Motorists in New York and New Jersey, desperate for gas amid constrained supply and power outages, spent hours in snaking lines waiting for a chance to hit the pumps. But those who rushed to stations bearing the names of the world’s biggest and best known oil companies were the least likely to find fuel. It came down to one critical factor: The outlets of the oil majors are franchised, while those of the regional chains are company-run and benefited from the full resources of their corporate parents.

Total Capitalism and the Downfall of America - Spiegel - The United States Army is developing a weapon that can reach -- and destroy -- any location on Earth within an hour. At the same time, power lines held up by wooden poles dangle over the streets of Brooklyn, Queens and New Jersey. Hurricane Sandy ripped them apart there and in communities across the East Coast last week, and many places remain without electricity. That's America, where high-tech options are available only to the elite, and the rest live under conditions comparable to a those of a developing nation. No country has produced more Nobel Prize winners, yet in New York City hospitals had to be evacuated during the storm because their emergency generators didn't work properly.  Anyone who sees this as a contradiction has failed to grasp the fact that America is a country of total capitalism. Its functionaries have no need of public hospitals or of a reliable power supply to private homes. The elite have their own infrastructure. Total capitalism, however, has left American society in ruins and crippled the government. America's fate is not just an accident produced by the system. It is a consequence of that system.  Germans see the US election as a battle between the good Obama and the evil Romney. But this is a mistake. Regardless of who wins the election on Tuesday, total capitalism is America's true ruler, and it has the power to destroy the country.

Hurricane Sandy: beware of America's disaster capitalists | Naomi Klein -  Less than three days after Sandy made landfall on the east coast of the United States, Iain Murray of the Competitive Enterprise Institute blamed New Yorkers' resistance to Big Box stores for the misery they were about to endure. Writing on, he explained that the city's refusal to embrace Walmart will likely make the recovery much harder: "Mom-and-pop stores simply can't do what big stores can in these circumstances," he wrote. He also warned that if the pace of reconstruction turned out to be sluggish (as it so often is) then "pro-union rules such as the Davis-Bacon Act" would be to blame, a reference to the statute that requires workers on public works projects to be paid not the minimum wage, but the prevailing wage in the region. The same day, Frank Rapoport, a lawyer representing several billion-dollar construction and real estate contractors, jumped in to suggest that many of those public works projects shouldn't be public at all. Instead, cash-strapped governments should turn to public private partnerships, known as "P3s" in the US. That means roads, bridges and tunnels being rebuilt by private companies, which, for instance, could install tolls and keep the profits. These deals aren't legal in New York or New Jersey, but Rapoport believes that can change. "There were some bridges that were washed out in New Jersey that need structural replacement, and it's going to be very expensive," he told the Nation. "And so the government may well not have the money to build it the right way. And that's when you turn to a P3."The prize for shameless disaster capitalism, however, surely goes to rightwing economist Russell S Sobel, writing in a New York Times online forum. Sobel suggested that, in hard-hit areas, Federal Emergency Management Agency (Fema) should create "free-trade zones – in which all normal regulations, licensing and taxes [are] suspended". This corporate free-for-all would, apparently, "better provide the goods and services victims need".

Underinvesting in Resilience by Michael Spence -The hurricane on America’s eastern seaboard last week (which I experienced in lower Manhattan) adds to a growing collection of extreme weather events from which lessons should be drawn. Climate experts have long argued that the frequency and magnitude of such events are increasing, and evidence of this should certainly influence precautionary steps – and cause us to review such measures regularly. There are two distinct and crucial components of disaster preparedness. The one that understandably gets the most attention is the capacity to mount a rapid and effective response. Such a capacity will always be necessary, and few doubt its importance. When it is absent or deficient, the loss of life and livelihoods can be horrific – witness Hurricane Katrina, which ravaged Haiti and New Orleans in 2005. The second component comprises investments that minimize the expected damage to the economy. This aspect of preparedness typically receives far less attention.

Storm Sandy: New York inquiry into overpricing - New York's attorney-general has launched an investigation into hundreds of complaints of prices being increased in the aftermath of storm Sandy. Eric Schneiderman said the largest number of complaints concerned increased fuel prices, but other emergency supplies were also affected. More than one million people in New Jersey and New York City are without power a week after the storm hit. The cost of the city's response to the disaster has spiralled to $85.4m. New York Comptroller John Liu said emergency contracts to repair damage included more than $30m (£18m; 23 million euros) for work on the city's beaches. A further $15m will be spent on pumping equipment and sewage plants.

After The Flood Comes The Freeze: "Tens Of Thousands Need Housing" Says Cuomo, As Nor'Easter Approaches -  First the flood, now the freeze (and the lack of fuel and gas and heating just making it much worse). And for tens of thousands of residents of New York and New Jersey this means that as many as 40,000 will need to find alternative housing, especially ahead of Wednesday when a Nor'easter formation is expected to hit the Tristate area and bring even more freezing rain and cold to the region. From Reuters: "Tens of thousands of people affected by superstorm Sandy could soon need housing as cold weather descends on the state of New York, Governor Andrew Cuomo said on Sunday. Cuomo, in a televised press conference nearly a week after the storm hit the U.S. East Coast, said the fuel shortages are improving but problems will persist for "a number of days."" Elsewhere, and also from Reuters: "Victims of superstorm Sandy on the U.S. East Coast struggled against the cold early on Sunday amid fuel shortages and power outages even as officials fretted about getting voters displaced by the storm to polling stations for Tuesday's presidential election. Overnight, near-freezing temperatures gripped the U.S. northeast. At least two more victims were found in New Jersey, one dead of hypothermia, as the overall death toll from one of worst storms in U.S. history climbed to at least 112. Fuel supplies continued to rumble toward disaster zones and electricity was slowly returning to darkened neighborhoods after a storm that hit the coast last Monday. New York Mayor Michael Bloomberg said it would be days before power is fully restored and fuel shortages end."

Mayor Bloomberg’s Response to Sandy Leaves Many New Yorkers Out in the Cold - “Are you from OEM? Or FEMA?”  “No, we’re from Brooklyn.”   That was the exchange when, after nearly six hours, the volunteer group I spent Sunday with finally managed to deliver supplies— flashlights, blankets, winter jackets, baby supplies, and pet food—to Staten Islanders who’d been rocked by Hurricane Sandy. On television, New York City is resiliently recovering from Sandy—Billionaire Mayor Michael Bloomberg even fought hard against canceling the ING marathon, giving in only when its sponsors caved. The mayor has maximized his television time with frequent updates in carefully staged settings, with members of the Obama administration standing behind him and his hypnotic sign-language interpreter Lydia Callis beside him. It's a swell sales job, part of his business-friendly, socially-liberal, post-partisan persona, that (with the help of his vast media empire), has helped him maintain his national reputation even as New Yorkers have soured on him. The mayor has brilliantly stage-managed his handling of the storm, but outside the city’s affluent precincts numerous angry residents feel abandoned by his administration as days have passed and help has remained distant.

Superstorm Sandy: Hundreds of thousands still without power - A week and a half after Superstorm Sandy slammed the coast and inflicted tens of billions of dollars in damage, hundreds of thousands of customers in New York and New Jersey are still waiting for the electricity to come back on, and lots of cold and tired people are losing patience. Some are demanding investigations of utilities they say aren't working fast enough. An angry New York Gov. Andrew Cuomo joined the calls for an investigation Thursday, ripping the utilities as unprepared and badly managed. "Privately I have used language my daughters couldn't hear," he fumed. He added: "It's unacceptable the longer it goes on because the longer it goes on, people's suffering is worse." The power companies have said they are dealing with damage unprecedented in its scope and doing the best they can. And there is no denying the magnitude of what they have done: At the peak, more than 8.5 million homes and businesses across 21 states lost power. As of Thursday, that was down to about 750,000, almost entirely in New York and New Jersey. And that's after a nor'easter overnight knocked out power to more than 200,000 customers in New York and New Jersey, erasing some of the progress made by utility crews.

Where in the World is Con Ed? - Ten days after Sandy, I am among many thousands of homeowners in the north suburbs of New York City waiting for electricity. We have experienced nothing like the hardship of battered Staten Island and the New Jersey shore. Still, this has been more than an inconvenience. The emotional and economic costs of extended displacement are mounting, and it is fair to ask: Where the heck is Con Ed? Busy, of course. So are we all. That’s not a good enough answer in light of how frequently lengthy outages are occurring here and in many other regions. The time has come rethink the nation’s entire power grid. That means big expensive upgrades, including burying the power lines. The cost is easily worth it. For many of us in the north ‘burbs, the Sandy outage has a déjà vu quality. A year ago, what’s now known as the Halloween Nor’easter dumped two feet of snow on fully leafed trees, which snapped with such frequency it sounded like someone making popcorn in the kitchen. After last year’s outage, I returned my next Con Ed bill—not with a check but an invoice. I crossed out the amount owed and penciled in the costs of going nearly a week without electricity—food spoilage, hotels, lost time at work. A few weeks later I received written instructions on how to formally appeal to Con Ed for reimbursement. That exercise included gathering a lot of receipts and filling out a lot of forms, which I did. A few weeks after that I received a formal denial for reimbursement of any part of my loss. After five days without power, did Con Ed really have to put me through the ringer before saying no?

Sandy’s Blackout-Weary Towns Left in Dark by Utilities - Residents in Tewksbury, New Jersey, haven’t seen one utility truck since Hurricane Sandy knocked out power to their town on Oct. 29, and they’re making sure Mayor Dana Desiderio knows how they feel. The Republican mayor of this affluent township of about 6,000 has had people shoving her at the post office, screaming at her at the firehouse and banging on her front door. “They feel like people have forgotten about them,” Desiderio said in a telephone interview yesterday. “All we’d like to see is one or two trucks or a few homes get power back, at least then we’d have hope.” As utilities zeroed in on the last 8 percent of customers still blacked out 10 days after Sandy struck, frustration was running deep over the slow pace of repairs and poor communication for residents and mayors facing more of the cold and dark. “I’ve tried calling eight, 10 times a day and no one’s picking up a phone,” said Jon Soldo, a resident of Huntington, New York, of his efforts to contact Long Island Power Authority. What isn’t being said, according to one former power company official, is that no one really knows when the last tree-damaged line will be repaired.

Continuing Sandy Aftermath, New Nor’Easter Underscore Complex System Fragility - Yves Smith - Here we are, a mere nine days after Sandy, and what would ordinarily be a mere “sorta bad” winter storm is doing disproportionate harm by virtue of coming so close on the heels of the hurricane. But even this storm has two characteristics which are troubling: first, high wind speeds (up to 60 MPH) which are bringing down trees in hard hit New Jersey, and unusually heavy snow for this time of year. This storm may beat snowfall records for New York City for a storm in October or November. Remember, both more extreme storms and unusual weather patterns have been predicted as results of global warming. Things are so bad in New Jersey that it’s getting hard not to feel sorry for Chris Christie, along with other residents of that battered state. From CBS: Exactly as authorities feared, the nor’easter brought down tree limbs and electrical wires, and utilities in New York and New Jersey reported that nearly 60,000 customers who lost power because of Sandy lost it all over again as a result of the nor’easter…. “I am waiting for the locusts and pestilence next,” New Jersey Gov. Chris Christie said. “We may take a setback in the next 24 hours.”…At the peak of the outages from Sandy, more than 8.5 million customers lost power. Before the nor’easter hit, that number was down to 675,000, nearly all of them in New Jersey and New York. This image comes from a photo series at Time by Eugene Richards of the devastation in Staten Island:

Cuomo: NY superstorm damage could total $33B - (AP) — Damage in New York state from Superstorm Sandy could total $33 billion when all is said and done, Gov. Andrew Cuomo said Thursday as the state began cleaning up from a nor'easter that dumped snow, brought down power lines and left hundreds of thousands of new customers in darkness. A damage forecasting firm had previously estimated that Sandy might have caused $30 billion to $50 billion in economic losses from the Carolinas to Maine, including property damage, lost business and extra living expenses. Cuomo's estimate will likely push the bill even higher. A damage estimate of even $50 billion total would make Sandy the second most expensive storm in U.S. history, right behind Hurricane Katrina. Sandy inundated parts of New York City and New Jersey with a storm surge as high as 14 feet, killed more than 100 people and left more than 8.5 million people without power at its peak. Sandy left more people in the dark than any previous storm, the Department of Energy has said, and it left drivers desperate for gas when it complicated fuel deliveries. "We are going to have to look at a ground-up redesign," Cuomo said of the power and fuel supply systems. "With power outages, you paralyze the nation, and chaos ensues." In particular, Cuomo noted New York City's problems, largely due to the surge of seawater that inundated utilities lying 15 to 20 stories below ground. "That's a brilliant engineering masterpiece, yes, but if Manhattan floods, you flood all that infrastructure," he said. "We don't even have a way to pump it out."

Cuomo estimates Sandy cost $33 billion in New York — Superstorm Sandy may have caused $33 billion in costs and lost business in New York state, Gov. Andrew Cuomo said Thursday. Cuomo unveiled the estimate at a Manhattan briefing on the state’s response to the storm. In total, the storm may have had a $50 billion impact on the northeastern states, he said. “The first cost estimate that I have seen has suggested that this storm will cost the region $50 billion in damage and economic loss,” Cuomo said. “State of New York, about $33 billion in damage and economic loss.” In addition, Sandy appears to have had a major impact on the state’s upcoming budget, Cuomo said. The storm has added at least $1 billion to the state’s deficit, which already totaled about $1 billion for the 2013-14 fiscal year, which starts April 1. “I worked for two years to close deficits, a $10 billion deficit, which was all the money in the world,” Cuomo said. “We’re looking at an additional $1 billion deficit on the state side, maybe higher after what’s happened.”

Billions on Flood Barriers Now Might Save New York City - Could a surge-protection barrier have saved New York City from much of the flood ravages of superstorm Sandy? Malcolm Bowman and other hydrologists are convinced it could have. Bowman, an oceanographer who has spent much of a 40-year career warily watching the tidal flows in and around New York Harbor, recalls a few years back being down in the construction site of Manhattan’s South Ferry subway station. “It was just a concrete box underground then,” he said in an interview. Bowman, at the time an observer in the middle of filming a documentary, looked up a long stairway leading to blue sky and asked a construction official, “Would you mind telling us how far above sea level is the entrance there at street level?” The reply was 11 feet -- an elevation designed, the official said, to withstand possible floods from a storm that occurs once in 100 years.  The South Ferry station, a $530 million jewel in New York City’s subway system at the tip of Manhattan, opened in March 2009. Superstorm Sandy, slamming into the New York metropolitan area on the evening of Oct. 29, brought a record storm surge of 13.88 feet (4.2 meters) into Battery Park, which abuts South Ferry. The station flooded floor to ceiling with briny seawater, destroying equipment and turning escalator wells and tunnels into caverns deep enough to scuba dive in.

The Aftermath of Hurricane Sandy, A Long Term View - Recently I been seeing something with my own eyes I haven't seen for thirty years, other than on a television - gas lines. With electricity out in many areas, the transportation infrastructure damaged and two refineries shut down, this should not be a surprise. And just as expected, electrical power is being brought back to darken areas, repairs are being made where needed to bring back our transportation network and the shuttered refineries are likely to be running again soon. But how many people are going to have a very difficult week or two before they can return to their homes? How many people now have no homes to which to return? How many communities - from streets to whole towns - found themselves cut off from services which might take a week or more to restore. It was only the luck of the draw that we did not experience this during the hurricane that occurred last year. Remember that hurricane spared the coastline mostly, but was devastating to upstate areas. No one can predict when another hurricane or superstorm might hit this area. But there an overwhelming scientific agreement that the once so called 100+ year storms will be occurring far more frequently in the future. Within the next decade we will see another event in this area creating a disruption similar to or greater than what Hurricane Sandy caused. In fact we may see more than one. The disruption may or may not be due to another storm. A financial collapse, like the one averted in 2008, could create the same supply line disruptions that this storm created, but throughout the nation. And it too could last for weeks, if not longer, before a new financial regime is cobbled together. And please remember that, unlike a hurricane, a financial collapse does not directly destroy anything that is real.

Hurricane Sandy and choices for the future - I live in the Netherlands, where living below sea level for many years has driven the Dutch to take flooding and storm surges very seriously. It's therefore interesting to compare the damage from the storm to the early warnings that Americans had from the Dutch and scientists. Were the Americans right to have ignored those warnings? After all... "Hurricane Sandy was a fluke, right? A storm surged from 90-mile-per-hour winds of a hurricane colliding with a northeaster, perfectly timed with a maximum full-moon high tide. The statistical likelihood of this is once in every 500 to 1,000 years."  Huh. I guess the 2010 book on my table [pp 51-52 of Book II here] is about 497 years early:  Storm surges along the eastern seaboard of the US are associated with either late summer-autumn hurricanes or extra-tropical cyclones in the winter period, so called nor'easters... the height of the hurricane surge is amplified if it coincides with the astronomical high time and additionally occurs at the time of new and full moon... hurricanes have struck the coastal New York area six times in 1900-1990, resulting in severe coastal flooding, damage and destruction of beachfront property, severe beach erosion, downed power lines, power outages and disruption of normal transportation. When I visited with Piet Dircke in Rotterdam (the center of Dutch vulnerability to floods) two years ago, we discussed the problem of flooding, and he gave me his book (free to download, by the way). He was also disappointed that New Yorkers were not interested in investing the time and money necessary for protecting their city from surges and floods. How was that possible when the CEO of New York was saying this?

New York rations gasoline as electric outages mount - New York announced gasoline rationing Thursday to address a fuel crisis sparked by superstorm Sandy, as tens of thousands more people lost electricity and officials prepared to deploy emergency mobile homes. Echoing 1970s energy shortages, America’s biggest city and financial capital was to restrict sales starting at 6:00 am (1100 GMT) Friday, Mayor Michael Bloomberg announced. He did not say when the measure would end. Cars with license plates ending in odd numbers will be allowed to fill up on odd-numbered dates. Cars with plates ending in an even number or a zero will be eligible on even-numbered days, with police deployed to enforce the rules.Officials hoped the move would cut enormous lines of increasingly desperate drivers at city gas stations, a shortage that has created a black market where unscrupulous online sellers offer fuel at more than twice the industry rate. A similar scheme was earlier implemented in neighboring New Jersey after hurricane-strength Sandy, accompanied by severe flooding, wrecked crucial infrastructure last week.

Odd-Even Gas Rationing Hits NYC; Only 25% of Stations Operational, Full Production Weeks Away; Why Rationing Won't Work; Insanity Over Price Gouging - Crain's New York Business reports Mayor calls for gas rationing in NYC Mayor Michael Bloomberg on Thursday called for gas rationing in New York City to begin Friday, saying only 25% of stations in the city were operational and that full production would not be restored for several more weeks. Vehicles with license plates ending in an even number or zero can purchase gas on even-numbered days. Vehicles ending with odd-numbered plates can buy gas on odd-numbered days. Vehicles with licenses plates ending in a letter or other character can make purchases on odd-numbered days.Commercial, emergency and paratransit vehicles, medical doctor plates and vehicles licensed by the Taxi and Limousine Commission are exempt. Precisely what good is rationing supposed to do? Whatever the theory is, it cannot possibly work.  Overall demand for gas will not drop a bit. Instead of random queuing, we will see odd-even queuing.

Students Head Back to School, While Transit Remains Hobbled - Students were told to dress warmly as they trickled back to chilly classrooms on Monday, and many trains and buses were rolling again. But a week after Hurricane Sandy wreaked havoc on the region, the return to work and school was still a challenge as the New York City area struggled to recover. Long lines at bus stops, impossibly packed trains and padlocked platforms attested to the difficulties of the first Monday commute with a public transit system still hobbled from the storm, particularly in the suburbs on Long Island and in New Jersey. Making matters worse, officials warned that persistent gas shortages would swell the number of people vying for what mass transportation was available. The morning was filled with reports of commuters left standing as suburban trains and buses filled to capacity passed them by. Many children in New York City returned to schools that had no heat, and others had to adjust to different schedules and new ways of getting to school because the places they had attended were still too damaged to open. School districts across the region also reopened, but many remained closed and were not scheduled to reopen until next Monday.

Philadelphia's school commission borrows $300 million to pay its bills - The Philadelphia School Reform Commission moved Wednesday to borrow $300 million - money it needs just to pay teachers, heat buildings, and buy books for the rest of the school year. Chairman Pedro Ramos made it clear that the SRC's back was to the wall and that the state of its finances constituted "dire circumstances" for the district. "I couldn't be more unhappy that we're in a situation where it's necessary to do a borrowing for the purposes of merely paying our bills," Ramos said. The bond sale the SRC unanimously authorized at the Wednesday special meeting comes with a hefty price tag - an additional $22 million in debt service annually for 20 years, beginning in 2014. It's the second time in a decade the district has had to borrow money to keep schools open - the last deficit financing occurred in 2002 - and officials say the school system's credit card is maxed out.

Proposition 30 wins: Gov. Jerry Brown's tax will raise $6 billion to prevent school cuts - Overcoming decades of anti-tax sentiment in California, Gov. Jerry Brown's Proposition 30 -- billed as a tax hike to rescue the state's schools -- has emerged victorious in surprisingly decisive fashion. The measure led 53.9 percent to 46.1 percent with all precincts around the state reporting results by Wednesday morning, according to the Secretary of State's Office. With some ballots left to be counted, the difference was 717,960 votes -- hardly a landslide but more than anyone expected in what was supposed to be a very tight race. Some pollsters were even leaning toward predicting a defeat for the measure in the weeks before the election. Brown declared victory in a rally just before midnight Tuesday and the opposition conceded Wednesday morning.

Californians Approve Brown Tax Plan, Averting School Cuts - With the passage of the first voter- backed statewide tax increase in eight years, Californians sent a clear signal they are tired of failing schools, gridlocked roads and the deterioration over the past decade of the state’s reputation as a standard bearer. They approved Proposition 30, 54 percent to 46 percent, taking a step away from the legacy of Proposition 13, the 1978 initiative that launched a national anti-tax revolt by capping property levies. That measure prompted cuts that reduced per- pupil school spending in California to 35th nationally from seventh and saddled the world’s ninth-largest economy with the country’s highest debt and lowest credit rating. The success of Democratic Governor Jerry Brown’s Proposition 30, averting $5.5 billion in cuts to public schools, underscored the growing importance of Latinos, Democrats and younger voters in California’s policy making and highlighted the efforts of an unlikely coalition of backers, including the state’s higher education institutions and businesses.

Direct government student loans exceed half a trillion; higher education costs out of control - The report on consumer credit from the Fed today showed another sharp increase in government financed student loans. The balance now exceeds half a trillion dollars, which is in addition to the student loans guaranteed (but not funded) by the federal government. Consumer credit is once again driven by this sector, as credit card balances actually declined. Econoday: - Another big increase in student loans drove consumer credit higher, up $11.4 billion vs August's very large revised gain of $18.4 billion. The non-revolving component, home to the student loan category, rose $14.3 billion in the month on top of August's $14.1 billion gain. Revolving credit, where credit card debt is tracked, actually fell, down $2.9 billion for the third decrease in four months. In an attempt to address the problem of rapidly rising student indebtedness, the U.S. Department of Education made it easier to repay student loans taken out from now on. WSJ: - The U.S. Department of Education last week issued the final regulations for the new, more-generous student-loan repayment program announced by the president last October. The plan, known as “Pay as You Earn,” will allow some graduates to peg their federal loan payments to 10% of their discretionary income and then have any remaining balance forgiven after 20 years. This effectively makes the taxpayer responsible for funding a larger portion of higher education costs. Clearly it is a worthy cause, except that most funds available to universities from external sources (with no strings attached) will be drawn and spent, often irrespective of the need. Unfortunately colleges often raise tuition simply because they can or because their competitors are doing it. Very few private sector enterprises enjoy (on a large scale) the benefits of products with such inelastic demand (courtesy of the US taxpayers). And items such as fuel, cigarettes, and some pharmaceuticals, which may fall into this category, are heavily taxed and/or regulated.

The Blogging Scholarship: Do you maintain a weblog and attend college? Would you like $10,000 to help pay for books, tuition, or other living costs? If so, read on.  We're giving away $10,000 this year to a college student who blogs. The Blogging Scholarship is awarded annually.  Your blog must contain unique and interesting information about you and/or things you are passionate about. No spam bloggers please!!!

  • U.S. citizen or permanent resident;
  • Currently attending full-time in post-secondary education in the United States; and
  • If you win, you must be willing to allow us to list your name and blog on this page. We want to be able to say we knew you before you became a well educated, rich, and famous blogging legend.
Applications were taken starting October 28, 2012 and the submission deadline is  November 13, 2012. Please see the link at the top for details.

Facing $18.5 billion gap, day of reckoning looms for Louisiana's retirement systems - Eighteen-and-a-half billion dollars. That's how much Louisiana taxpayers will have to come up with over the next 17 years to make up the gap between what the state's four retirement systems have, and what they owe state employees. It's an economic and political liability that's been decades in the making, and one that will eventually have to be confronted. The state Constitution requires that the steadily growing debt be paid off by 2029. Annual payments to chip away at the mounting deficit -- which are supposed to be made in full -- are often trimmed back by legislators loath to make cuts elsewhere. For five years leading up to 2010, Louisiana did not pay its full way three times, according to a recent study by the Pew Center on the States. That year, the full payment was supposed to be $1.6 billion. Instead, the state paid $1.3 billion. Each time that happens, the deficit grows. Officials with the Louisiana State Employees' Retirement System, which represents about a third of the state's pension liability, claim the state is actually "following a prescribed payment plan to satisfy its debt." That plan is back-loaded in later years, making the eventual moment of reckoning yet more daunting.

Funded Status of U.S. Corporate Pensions Declines to 73.6 Percent, According to BNY Mellon -- Falling interest rates and a pause in the 2012 U.S. equities rally contributed to a 1.4 percentage-point decline in the funded status of the typical U.S. corporate pension plan in October, according to BNY Mellon. For the year through October 31, the funded status has declined 1.7 percentage points to 73.6 percent, according to the BNY Mellon Pension Summary Report for October 2012. Assets for the typical plan fell 0.7 percent as the equities rally in international markets failed to offset the decline in U.S. markets, BNY Mellon said. Liabilities for the typical plan increased 1.1 percent as the Aa corporate discount rate declined six basis points to 3.72 percent, BNY Mellon said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities. "October appears to have been a lacklustre month as investors await the election results," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the BNY Mellon Investment Strategy and Solutions Group. "Investors preferred corporate bonds over Treasuries, which drove liabilities higher even as Treasury yields rose."

Why Retirees Can’t Absorb a Tax Hike - We already have a massive retirement savings shortfall in America. Our pension system is sinking and boomers on average are projected to have just 44% of the income they will need in retirement to maintain their lifestyles. The weak economy has taken a toll on our ability to save. From a retirement perspective, the last thing we need is higher tax rates. Yet higher rates are almost certainly coming. The George W. Bush tax cuts of 2001-2003 are set to expire at the end of this year—a large part of the so-called fiscal cliff, which would also restore payroll taxes to higher levels and end other tax breaks. President Obama has signaled a willingness to let some of this come to pass. Mitt Romney would like to extend the Bush tax cuts for everyone. More than half of boomers say that if their federal income tax burden rises they will be less likely to save, according to a recent survey by the Insured Retirement Institute and Welfel Research. The top marginal income tax rate for individuals is set to jump to 39.6% from 35% if the Bush tax cuts expire.

Attacks on Social Security Are Attacks on Today’s Youth, The Seniors of 2050 and Beyond - Read no further if you believe that Social Security’s benefits for you future senior citizens of 2050 are going to be too generous. Read no further if you are convinced that because a subgroup of you affluent seniors in 2050 might live long and healthy lives, that everyone who is fifty years old or younger today should have their benefits cut, and their retirement age raised another two years to 69, and those changes made permanent for all future generations. Read no further if you think retirement, survivors’ and disability benefits for those entering the workforce this year should be cut 36%. (See the chart below, from the Center on Budget and Policy Priorities:) Please watch this PSA describing the financial stability and integrity of the Social Security system. This PSA was created for young people to see, to encourage them, to empower them, to help them to understand that Social Security is there to provide them with earned benefits in a system of social insurance, which is built to last for the foreseeable future. The video is called Social Security: Just the Facts. When politicians declared war on Social Security in the President’s Commission and later in the deficit ceiling negotiations, no one really believed they would do it. But there has always been a corporate push to destroy Social Security. Since 1935. And it has fallen on those living today, young and old to defend Social Security against those who would again try to weaken Social Security and then, destroy it.

Reid Says “We’re Not Going to Mess With Social Security” - Peter Orszag’s column today, which I highlighted earlier, says that a deficit deal should include Social Security changes even while admitting they have nothing to do with the deficit. It’s worth pointing out that the Senate leadership is right now making a lot of statements that will be difficult to walk back on this matter, should Orszag’s old boss in the White House go along with his plan. Harry Reid, for example, said brusquely “We’re not going to mess with Social Security.” Chuck Schumer agreed with him, though his comment included a heavy amount of wiggle room. “I agree with Leader Reid. Social Security — even when Simpson-Bowles included it in their package, they didn’t add it to deficit reduction, because any changes you make in Social Security that bring in revenue stay in the Social Security system,” Schumer said during a breakfast meeting with reporters. “So I think that while Social Security has to be reformed and saved, the need is less immediate than with Medicare and Medicaid. And I think it is better to treat the two separately.” “Has to be reformed and saved” is a bit unnerving, considering that the normal course of operations for Social Security is safe for 25 years, under current actuarial estimations. In addition, the AARP, a group that caused much dismay last year when they appeared to waver on social insurance programs, has definitively warned against any changes, particularly from something like chained CPI

Social Security & Medicare Lifetime Benefits - How much will you pay in Social Security and Medicare taxes over your lifetime? And how much can you expect to get back in benefits? It depends on whether you’re married, when you retire, and how much you’ve earned over a lifetime. I recently published with Caleb Quakenbush “Social Security and Medicare Taxes and Benefits Over a Lifetime: 2012 Update” which updates previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The “lifetime value of taxes” is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The “lifetime value of benefits” represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. Values assume a 2 percent real discount rate and all amounts are presented in constant 2012 dollars. While no major changes in Social Security or Medicare law have occurred since the last update, these estimates reflect alternative assumptions provided by the Center for Medicare and Medicaid Services (CMS) actuaries that lawmakers will cancel a draconian scheduled cut in Medicare payment rates to physicians and other scheduled spending reductions. The result is significantly higher projected lifetime Medicare benefits than current law assumptions would indicate.Below is a sample table from the brief, for a two-earner couple both earning Social Security’s average wage measure. This set of calculations assumes that workers retire at age 65.

Rochester, N.Y.: Kodak cutting health benefits for 56,000 retirees - Kodak is seeking to eliminate health benefits for 56,000 retired workers. Last month, the company, which is operating under bankruptcy protection, asked the bankruptcy court approval to offload retiree health benefits in an effort to shed the $1.2 billion worker benefit. The company had hearing a last week to consider the proposal and a decision could be made at any time. This action will affect 56,000 retirees, dependents and survivors. All those who are not eligible for Medicare will lose their health benefits and everyone will lose vision, life insurance and other benefits. This was not an unexpected move. Many companies utilize bankruptcy as a means to abolish pension benefits for retired workers. The company has discontinued manufacturing its line of printers and also announced the related layoff of 200 workers at the end of September. This brings the number of layoffs to 755 in the past three months and 2,700 since the beginning of the year. The company will cut another 1,000 workers by the end of the year.

FEMA has 9,106 disaster assistance employees. Only 770 get federal health insurance - The disaster assistance employee started her year in the Northeast, living in a hotel room while helping communities there recover from flooding from Hurricane Irene. She then moved south, to work on Hurricane Ike damage, and plans to drive her car up north soon, to assist with Hurricane Sandy. In between, she also spent $48,000 on a jaw surgery. All of it was out-of-pocket: As a disaster assistance employee with the Federal Emergency Management Agency, she does not qualify for federal health benefits. “I’ve been through tornadoes I’ve been through ice storms where there are five inches of snow on the power lines and the power goes out,” the FEMA employee says (she asked to remain anonymous, as she fears losing her job if identified. “I worked on Joplin debris for six months. I was exposed to asbestos there daily. There are a lot of hazards being on the ground.” FEMA has 9,981 disaster assistance employees, according to a Government Accountability Office report released this year. That same report estimated that the reservists make up about 57 percent of the agency’s total workers. As temporary employees of the government, they do not qualify for health benefits.

Restaurants to Mitigate Health Care Costs by Cutting Hours - “What we’re seeing is that this health care law puts unique challenges on chain restaurants,” said Rob Green, executive director of the National Council of Chain Restaurants. “The law will have cost implications on a lot of different business sectors, but restaurants and retail are in the bull’s eye.” Specifically, two parts of the PPACA may raise costs for restaurant chains: The definition of full-time employees as those who work 30 or more hours per week, rather than the traditional 37-40 hours per week, and the fact that the law applies to any business with more than 50 employees — a number some say will discourage franchise growth. Orlando-based Darden Restaurants Inc., which operates more than 2,000 restaurants under the Olive Garden, Red Lobster, LongHorn Steakhouse and other brands, is currently testing limiting some employees to 29.5-hour work weeks in some markets. “This is just a test,” said Rich Jeffers, the casual-dining company’s director of media relations and communications. “This is something we’re trying at some locations…we’re trying to figure out the optimal mix [of employees] for our restaurants.” Currently, about 75 percent of Darden’s employees are part time and 25 percent are full time, he said. “We’re looking at it now instead of waiting until the eleventh hour,” he noted, adding that Darden had not made any decisions based on the analysis.

Increase Seen in U.S. Suicide Rate Since Recession - The rate of suicide in the United States rose sharply during the first few years since the start of the recession, a new analysis has found. In the report, which appeared Sunday on the Web site of The Lancet, a medical journal, researchers found that the rate between 2008 and 2010 increased four times faster than it did in the eight years before the recession. The rate had been increasing by an average of 0.12 deaths per 100,000 people from 1999 through 2007. In 2008, the rate began increasing by an average of 0.51 deaths per 100,000 people a year. Without the increase in the rate, the total deaths from suicide each year in the United States would have been lower by about 1,500, the study said. The finding was not unexpected. Suicide rates often spike during economic downturns, and recent studies of rates in Greece, Spain and Italy have found similar trends. The new study is the first to analyze the rate of change in the United States state by state, using suicide and unemployment data through 2010.

Why Suicides Are More Common in Richer Neighborhoods - Happiness is directly related to how much money we make. We’ve known that for a while. So it shouldn’t be surprising that our earnings also correlate with suicide rates. A new paper from the San Francisco Federal Reserve shows that, all else being equal, suicide risks are higher in wealthier neighborhoods, a morbid demonstration of the folly of trying to “keep up with the Joneses.”

Questioning Health Care Cost/Budget Fearmongering: Consumer Revolt Against Prescription Drug Costs Already Underway - Yves Smith - As we discussed last weekend, two Federal Reserve Board economists shot gaping holes the CBO’s health care cost increase assumptions in CBO’s long term fiscal forecasts. As technical as this sounds, these long-term cost increase assumptions are the big driver of the much ballyhooed deficit explosion. And as the Fed economists’ paper discussed in considerable detail, the CBO’s assumptions on the rate of increase look indefensibly aggressive, which in turn means the hysteria about entitlements eating the economy deserves far more scrutiny than it is getting.  Some evidence on the pressures against health care cost trees growing to the sky comes in a new post by Wolf Richter. If you aren’t on the pharma beat, it may be news to you that drug companies are in a funk these days, and it isn’t simply that they haven’t yet found a big new blockbuster category. It it that consumers, even those who have health insurance, are revolting against drug companies either by using fewer drugs (!) or using more generics. Bluntly, consumers are so financially stressed that many are cutting back on prescription drug use. Some of this may be wise (I’ve seen too many doctors hand out drugs like candy, for instance, prescribing antibiotics for winter flus, or prescribing pain meds for dental work, when I’ve found in the few instances I actually needed relief, frequent doses of aspirin or ibuprofen work as well as Vicodin, and are less nasty) but some of it clearly is taking a real health risk. And of course, this is partly due to the aggressive way drug companies have kept putting through price increases; I’ve been amazed at the rises on pretty garden variety stuff that I take from time to time. And on the other end of the spectrum, Sanofi has caved on extortionate pricing on one of its cancer drugs, dropping its +$11,000 a month pricing by 50% after top cancer hospital Sloan Kettering said it would not prescribe it due to its high cost.

Obamacare is here to stay? - Sam Baker in the Hill yesterday: President Obama’s reelection, and an expanded Democratic majority in the Senate, dealt the final blow to Republicans’ hope for repealing the Affordable Care Act. And though conservatives still say the law will be a disaster once it’s fully implemented, they’re finally acknowledging that it will, in fact, be fully implemented. “Repeal of the whole thing, I just don’t see now how that’s possible,” said Grace-Marie Turner, president of the Galen Institute, a conservative healthcare think tank. The Wall Street Journal’s conservative editorial page also admitted defeat Wednesday. With Obama in the White House for another four years, the healthcare law “will spread like termites in the national economy,” the paper wrote. Austin, I, and a number of others said this yesterday, but even I’m surprised to see it confirmed so quickly on the right. I’m curious to see if this means that there will be no more “repeal” bills in the House. It would make me extremely happy to see us turn to productive discussions on how to make the law better. David Frum offers some suggestions.

Obamacare stands. Now states need to make it work.: President Obama’s reelection means that his signature legislative accomplishment, the Affordable Care Act, will fully come into effect. That’s what we know for sure. We know a lot less, however, about how that happens. The federal government has never tried to expand private insurance coverage to 30 million Americans, and it will now need cooperation from some very uncooperative states. The health-care law’s requirement to purchase insurance — and insurance subsidies for millions of Americans — both roll out Jan. 1, 2014. The laundry list of what needs to happen between now and then is pretty massive. States have to decide whether to set up a health insurance exchange, the marketplace where individuals will shop for health insurance benefits. If they decide against it, the federal government will take over the task. States must also decide whether they will participate in the Medicaid expansion and extend coverage to all residents under 133 percent of the federal poverty line (about $14,893 for an individual). They also have to figure out who, exactly, earns below that line — a huge technical challenge that requires coordination between federal and state computer systems that don’t usually talk to each other.

Boehner: "Obamacare is law of the land" - Top Republican lawmaker John Boehner said on Thursday he would not make it his mission to repeal the Obama administration's healthcare reform law following the re-election of President Barack Obama. "The election changes that," Boehner, speaker of the U.S. House of Representatives, told ABC news anchor Diane Sawyer when asked if repealing the law was "still your mission." "It's pretty clear that the president was re-elected," Boehner added. "Obamacare is the law of the land." Under Boehner's leadership, the House tried repeatedly to repeal the healthcare law, the signature domestic measure of Obama's first term. While a few provisions were eliminated or changed, Senate Democrats blocked outright termination of the law. Boehner added that parts of the law were going to be difficult to implement and that everything had to be on the table as lawmakers try to create a path to a balanced budget.

Conflict-of-interest concerns raised as Obama races to implement health reform - The Obama administration is relying heavily on outside contractors to implement a core component of healthcare reform as it races to set up a federal health insurance marketplace before 2014. The fast-approaching deadline gives the administration little time to scrutinize private-sector partners for conflicts of interest. The purchase of one of these contractors, Quality Software Services, Inc. (QSSI), by UnitedHealth Group, a major healthcare conglomerate, has sparked concerns about a potentially uneven playing field. QSSI, a Maryland-based contractor, in January won a large contract to build a federal data services hub to help run the complex federal health insurance exchange. It will be working with several other contractors, including CGI Federal, Inc., to create the technological architecture for the exchange. The quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.

Health Care Thoughts: Reform Status According to Really Smart People - So after two days in rooms full of top notch front line experts, and two nights sleeping on a couch in a hospital waiting room, I offer a list of key take-aways.. This is reporting only, not advocacy. Some of my opinions may vary (not much). I avoid the nitty-grittiest of operational details. So..... The amount and complexity of work to be done in the next 24 months is crushing and impossible - expect delays or sloppy rollouts. Scale is everything, small providers will get crushed. Impacts on rural health care uncertain, so... Consolidation and integration is the critical path. Some bad outcomes likely. The Obama administration is incapable of producing regulations and guidance papers on time (in Washington a little late is considered on time). Providers are preparing cuts both permenant and "cliff" cuts. The amount and complexity of IT work through the system is staggering. Data is the new currency of health care. Setting up the exchanges is a massive and messy task, even in the enthusiastic states. Letting the feds install "plug-and-play" may become a good option for many states. Some large public companies are seriously considering dropping health insurance and paying the penalty (stunned me). No decisions yet known.

China Diabetes Triples Creating $3.2 Billion Drug Market - Beijing doctor Li Guangwei sees China’s struggle with 90 million diabetes sufferers daily. Among the standing-room-only crowd waiting outside his clinic door are patients with slurred speech, mismatched clothes and aggression. These are the ones with low blood-sugar, a condition that can make people appear drunk and is often caused by too much of the hormone insulin, said Li, head of Fuwai Hospital’s diabetes unit. More than half of China’s diabetics have inadequate blood- glucose control, a 2011 study of 140,000 patients showed. Prevalence of Type 2 diabetes, a disease linked to inactivity and excess calories, has more than tripled in China over the past decade, fueling 20 percent-a-year growth in drug sales and straining health services. It’s also stoking need for newer, costlier medications from Merck & Co. (MRK), Novo Nordisk A/S (NOVOB) and Sanofi that help avoid blood-sugar spikes and complications such as heart attack and stroke. “If we can choose drugs with little or no risk to more effectively treat patients, we can stop using older drugs that raise insulin levels and can cause hypoglycemia,” said Li, using the medical term for low-blood sugar that sometimes causes his patients to become delirious and to pick fights. “It impairs brain function and there’s no way to stop it until we get the blood sugar back to normal.”

Alarm Over India’s Dengue Fever Epidemic - An epidemic of dengue fever in India is fostering a growing sense of alarm even as government officials here have publicly refused to acknowledge the scope of a problem that experts say is threatening hundreds of millions of people, not just in India but around the world.India has become the focal point for a mosquito-borne plague that is sweeping the globe. Reported in just a handful of countries in the 1950s, dengue (pronounced DEN-gay) is now endemic in half the world’s nations. “The global dengue problem is far worse than most people know, and it keeps getting worse,” said Dr. Raman Velayudhan, the World Health Organization’s lead dengue coordinator. The tropical disease, though life-threatening for a tiny fraction of those infected, can be extremely painful. Growing numbers of Western tourists are returning from warm-weather vacations with the disease, which has reached the shores of the United States and Europe. Last month, health officials in Miami announced a case of locally acquired dengue infection. Here in India’s capital, where areas of standing water contribute to the epidemic’s growth, hospitals are overrun and feverish patients are sharing beds and languishing in hallways.

India looks likely to harvest bumper wheat crop in 2013 (Reuters) - India looks likely to harvest a bumper crop of wheat in 2013, its sixth in a row to exceed demand, after late monsoon rains replenished soil moisture, strengthening prospects for exports from the world's second-biggest producer for a second year. Annual monsoon rains picked up near the end of the four-month after a slow start in June, prompting Farm Minister Sharad Pawar to exhort farmers to plant winter-sown crops, such as wheat, early to cash in on good soil texture. Farmers took Pawar's advice and have planted wheat on 3 percent to 5 percent of the normal acreage, which should rise to 40 percent to 60 percent by Nov. 20, slightly ahead of the usual pace, Indu Sharma, chief of the state-run Directorate of Wheat Research, told Reuters. "If temperatures do not rise abruptly in end-February and early-March, we are heading for a harvest almost as big as last year," she said. India, also the world's biggest consumer of the grain after China, produced a record 93.90 million tonnes in 2012 for an annual increase of 8 percent. Demand amounts to about 76 million tonnes a year. Inventories have swelled after repeated bumper harvests, largely because of higher prices the government assures to farmers, driving the state-run Food Corp of India to store grain in the open. Stung by criticism over its inability to protect wheat stockpiles from rot and decay, the government lifted a four-year old ban on exports in September 2011 before allowing exports from state-run warehouses as well.

Chinese wheat imports - Surge in Chinese wheat imports to set a trend: Chinese wheat imports look set to trounce market expectations for 2012-13, putting extra upward pressure on world prices, Rabobank cautioned, after data showing a near-tripling in buy-ins. China imported 524,156 tonnes of wheat last month, a rise of 196% on September last year, customs officials said.The figure took above 1.0m tonnes the country's purchases for the first three months of 2012-13. And, with a further 295,000 tonnes already known ordered from Canada this month, means China's imports are already approaching the 1.5m tonnes that the US Department of Agriculture, whose data set market benchmarks, has factored in for the whole season.'Not priced in yet'The September number was also slightly above forecasts from Rabobank, which sees China importing 3.6m tonnes of wheat in 2012-13, which would be the highest total in eight years.

Typhoon No Bar to Third Record Chinese Corn Harvest - Chinese farmers are reaping a third record corn harvest even after a typhoon wiped out some of the crop, easing demand for imports at a time when the U.S. drought is driving sales from the biggest exporter to a four-decade low. The harvest rose 3.6 percent to 199.74 million metric tons, according to a survey of farmers in China’s seven biggest producing provinces by Geneva-based SGS SA (SGSN) for Bloomberg. The country’s stockpiles last month were at a nine-year high, and the U.S. Department of Agriculture expects a 64 percent drop in imports. The agency will raise its estimate for U.S. reserves by 2.4 percent when it reports Nov. 9, the average of 29 analyst estimates compiled by Bloomberg shows.

Mandated Corn Ethanol’s Ripple Effect on Global Commodity Prices and Food Security - Kay McDonald - Stanford University’s Center on Food Security and Environment presented a talk by Rosamond Naylor titled “Biofuels: the Changing Nature of Agricultural Demand”. This presentation was quite thorough in explaining how mandated biofuels policies are changing the economics and world demand of food commodities. Thank you to Walter Falcon for allowing me to use slides from this presentation in this post in which I am highlighting some of the key points from the presentation and adding quite a few of my own.  If you wish to watch the video presentation go here.. Mandating the use of biofuels changes the whole agricultural commodity structure. Mandates mean that the quantity of key agricultural commodities demanded is no longer responsive to price, a term referred to as inelastic demand. Such demand leads to larger price swings during supply shocks like the one we’ve just experienced with the drought that occurred this summer here in the U.S.

Farm Credit System Liquidity and Access to a Lender of Last Resort | Brookings Institution: This report was researched and written at the behest of the Farm Credit System Insurance Corporation (FCSIC) in order to evaluate the liquidity of the Farm Credit System (FCS), analyze the FCS’s vulnerability in the event of a broad financial market shutdown, and look at the policy aspects of a lender of last resort in such a circumstance. In the following sections the authors detail the structure of the FCS, provide background on how the FCS, other Government Sponsored Enterprises (GSE) and Federal insurance agencies weathered the 2008 crisis, compare these entities’ access to a lender of last resort, and finally provide analysis and recommendations on the state of FCS’s liquidity and options for securing a backstop in the event of a market shutdown.

Did Farmers of the Past Know More Than We Do? - A couple years ago, I saw a small field of oats growing in northwest Iowa — a 40-acre patch in a sea of genetically modified corn and soybeans. It was an unusual sight. I asked my cousins, who still farm what my dad always called the “home place,” whether someone had added oats to the rotation of crops being planted. The answer was no. The purpose of that patch of oats was manure mitigation. The waste that had been sprayed on that field came from a hog confinement operation, and oats were the only crop that would put such concentrated, nearly toxic manure to nutritional use and do it quickly. Oats used to be a common sight all over the Midwest. They were often sown with alfalfa as a “nurse crop” to provide some cover for alfalfa seedlings back when alfalfa was also a common sight. Until about 30 years ago, you could find all sorts of crops growing on Iowa farms, and livestock. Since then two things have happened. All the animals have moved indoors, into crowded confinement operations. And the number of crops has dwindled to exactly two: corn and soybeans.

The importance of water - A short video worth watching:

'Water summit' in drought-hit South East: Politicians, farmers and water industry leaders will attend a "water summit" to look at supply issues after drought hit south-east England earlier this year. The event is being run by the Farming and Rural Issues Group for the South East which represents farmers, growers and other land-based organisations. Chairman of the group Andrew Colquhoun said parts of the region had the same rainfall as Beirut. He said water security was fundamental to increased farming production. 'More dry winters' "We want to ensure that farmers and growers in the region have access to a fair share of water resources and enjoy equal status with other users, given their vital role as producers," he said. A business group supporting the event, The Country Land and Business Association (CLA), said farmers and growers were increasingly worried about long-term availability of water at an economic price in a region facing increased urban demand for water and more dry winters.

Water supply ‘at weather’s mercy’ - BBC - A new report blames the government for leaving the UK's water resources at the mercy of the weather. The document from 16 leading environmental organisations says it took the wettest ever summer to avert serious drought. It warns that another series of dry winters would put Britain back on drought alert. The government said its draft Water Bill would build resilience into the UK's water infrastructure. The Blueprint for Water report measures the Government's performance against 10 steps to sustainable water by 2015. It applauds ministers' commitment to tackle unsustainable abstraction from rivers and wetlands, extend the use of metering at a fair price and develop a catchment-based approach to managing the water environment. But it says ministers are still failing to produce a long-term, sustainable approach which works with our natural water systems. The groups want much more use of moors, marshes and plants to store and clean rain water, instead of allowing it to run straight into rivers and thus increase the risk of flooding. This would help tackle droughts as well as floods.

Video | Killing Bees: Are Government and Industry Responsible? | Link TV: Honey bees, the essential pollinators of many major US crops, have been dying off in massive numbers since 2006. This threatens the American agricultural system and the one in twelve American jobs that depends on it. There is growing evidence that a new class of pesticides -- nerve toxins called neonicotinoids, which are used on most US crops including almost all corn -- may be toxic to bees. The Environmental Protection Agency allowed neonicotinoids on the market without adequate tests to determine their toxicity to bees. Environmentalists want neonicotinoids banned until needed safety tests are done. While the US government is slow to act and neonicotinoid sales reap billions for the chemical industry, bees continue to die. Earth Focus reports.

Mountain Pine Beetle Epidemic - The mountain pine beetle is a species of bark beetle native to the forests of western North America from Mexico to central British Columbia. It has a hard black exoskeleton, and measures about 5 mm, about the size of a grain of rice. Mountain pine beetles inhabit ponderosa, Scotch and limber pine trees. Normally, these insects play an important role in the life of a forest, attacking old or weakened trees, and speeding development of a younger forest. A new University of Colorado Boulder study shows for the first time that episodes of reduced precipitation in the southern Rocky Mountains, especially during the 2001-02 drought, greatly accelerated development of the mountain pine beetle epidemic. While the 2001-02 drought in the West played a key role in pushing the pine beetle outbreak into a true regional epidemic, the outbreak continued to gain ground even after temperature and precipitation levels returned to levels nearer the long-term averages, said Chapman of CU-Boulder’s geography department. The beetles continued to decimate lodgepole pine forests by moving into wetter and higher elevations and into less susceptible tree stands -- those with smaller diameter lodgepoles sharing space with other tree species. "In recent years some researchers have thought the pine beetle outbreak in the southern Rocky Mountains might have started in one place and spread from there," said Chapman. "What we found was that the mountain pine beetle outbreak originated in many locations. The idea that the outbreak spread from multiple places, then coalesced and continued spreading, really highlights the importance of the broad-scale drivers of the pine beetle epidemic like climate and drought."

Climate change could hit crops far worse than thought - The impact of climate change on key food crops in Africa and South Asia may be much worse than previously estimated — with reductions of up to 40 percent by the 2080s — according to a study, which synthesised results from related studies published over the last 20 years. It also identified "major gaps in climate change impact knowledge" for certain crops and regions, such as central Africa. Such lack of knowledge could hamper effective adaptation policy decisions, it warns. The study projects an eight per cent average decrease for all crop yields — and this figure increases to 40 per cent in worst-case scenarios. In Africa, the most significant yield reductions are predicted for maize, millet, sorghum and wheat, while in South Asia, maize and sorghum will be hardest hit. The study looked at more than 1,140 publications that have projected the impact of climate change on eight key food and commodity crops (rice, wheat, maize, sorghum, millet, cassava, yam, and sugarcane) that together account for more than 80 per cent of total crop production in the two regions, and then analysed 52 of those studies in depth. The strength of evidence on how severe the impact will be differed for different crops and regions. In Africa, just six out of 162 observations from the scientific publications analysed were about rice, yam and sugarcane, despite these accounting for almost a third of Africa's cropped area. The study says that that the development of new crop varieties and uptake of new technologies — the most costly adaptation options — are likely to bring the most benefits.

Climate Change Threatening Global Coffee Production - The journal Plos One has published the results of a study conducted by Royal Botanic Gardens and Coffee Forest Forum found that climate change threatening global coffee production. As the second most traded commodity in the world, coffee – particularly Wild Arabica and Robusta varieties – is greatly affected by carbon emission. Researchers developed crop models and used time intervals to predict crop production. They concluded that Addis Ababa, Ethiopia, where Wild Arabica is currently grown, production would be reduced at a decrease of 65% by 2080 in a best case scenario. In a worst case scenario, reduction would be reduced at a massive 99.7% decrease by 2080. These predictions do not include factors like rapid deforestation, pests, disease, bird population shifts, and flowering schedules in regions where crops are grown will only worsen the affects of climate change.  Lead researcher Aaron Davis from the royal Botanic Gardens offered to the journal: “The extinction of Arabica coffee is a startling and worrying prospect. However, the objective of the study was not to provide scaremonger predictions for the demise of Arabica in the wild. The scale of the predictions is certainly cause for concern, but should be seen more as a baseline, from which we can more fully assess what actions are required.”

The Drought Of 2012 - WaPo slide show

A Closer Look: Sandy Swamps Eastern U.S. But Drought Persists Almost Everywhere Else: The mark of man-made climate change is weather extremes. And that’s what we’re seeing in America this week. On the one hand, we had Frankenstorm Sandy inundating the East, with 12.55 inches of rain in Easton, Maryland, 11.91 inches in Wildwood, NJ — and a “crippling amount of heavy, wet snow”:

34.0 in. – Gatlinburg, Tenn.
33.0 in. – Clayton, W. Va.
29.0 in. – Redhouse, Md.
24.0 in. – Norton, Va.

On the other hand, the overwhelming majority of the rest of the country is in drought, especially the Great Plains. The U.S. Department of Agriculture reports the drought is still slamming farmers and ranchers: Hay in drought dipped to 62 percent, down two percentage points from a week ago and down seven points from the Sept. 25 peak. Cattle in drought also fell two percentage points to 69 percent, and is down seven points from Sept. 25. Winter wheat in drought decreased for the sixth consecutive week, although drought still covers nearly two-thirds (65 percent) of the production area.

Stunning NASA Visualizations: Sandy vs. Katrina - Hurricane Sandy, which mademade landfall near Atlantic City on Oct. 29, brought tropical storm force winds to a vast area that stretched nearly 1,000 miles across. The size of the storm enabled it to drive a record high storm surge into the New Jersey coast, New York City, and parts of Connecticut and Rhode Island. At The Battery in Lower Manhattan, the water reached a record 13.88 feet aabove the average low tide, which included a 9.23-foot storm surge. At the time of landfall, Sandy was completing its transition from a purely tropical system, fed by warm ocean waters, to what is known as an extratropical cyclone — a low-pressure area fueled by temperature contrasts between warm and cool air masses. The transition stretched Sandy into more of a comma shape than a round shape, bringing the storm's impacts to a broader area than a typical hurricane. NASA put together two visualizations to show how Hurricane Sandy — which is likely to go down in history as one of the costliest hurricanes to strike the U.S. — compared to the storm that currently occupies the top spot on that list, Hurricane Katrina.

Sandy a galvanizing moment for climate change? -  One Sunday afternoon in 1969 the filthy, oil-coated Cuyahoga River in Ohio caught fire and quickly became a potent symbol of industrial pollution, helping galvanize public opinion and set the stage for passage of national environmental laws the following decade. The combination of Hurricane Sandy and New York Mayor Michael Bloomberg's announcement that he was endorsing President Obama largely because of Obama's actions on global warming could do the same thing for climate change, say scientists and political observers. "This may be that sort of Cuyahoga River moment for climate change," said Michael Mann, a leading climate scientist and Penn State University professor. "It has galvanized attention to this issue and the role that climate change may be playing with regard to the intensification of extreme weather." PHOTOS: Super storm Sandy Coming on the heels of this summer's crop-withering drought in the Midwest and destructive wildfires in the West, Sandy provided a glimpse of what scientists say the nation can expect with global warming. Even before surging floodwaters choked Manhattan subway tunnels and left parts of the Jersey Shore in shambles, public acceptance of climate change was growing. More than half of Americans now believe that climate change caused by human activity is occurring, and 58% say they are "somewhat" or "very worried" about it, according to a September poll by the Yale Project on Climate Change Communication.

What Sandy Is Teaching New York City That 9/11 Didn’t -- Eleven years, one month, three weeks and five days ago I stood on West Street in southern Manhattan and watched many hundreds of people murdered, as a gray avalanche of concrete, glass and steel poured forth from a disintegrating tower to the street below. The 9/11 attacks changed everything, for all time, and we all felt it instantaneously. Superstorm Sandy delivers a message first heard on Sept. 11, 2001: New York, as a proxy for the United States, is unprepared for anticipated 21st century threats. The storm is different. Sandy elicits no moral shock of war, no blinding national insult, "no unified, unifying, Pearl Harbor sort of purple American fury," as a columnist put it in Time magazine after 9/11. Instead we're up against something much more elusive, an enemy we're much more poorly equipped to deal with than sleeper terrorist cells: the Earth. "No one seems to care about the upcoming attack on the World Trade Center site," wrote Harvard psychology professor Daniel Gilbert in a provocatively titled 2006 Los Angeles Times op-ed. "Why? Because it won't involve villains with box cutters. Instead, it will involve melting ice sheets that swell the oceans and turn that particular block of lower Manhattan into an aquarium."

A storm of stupidity? Sandy, evidence and climate change - So what effect will Sandy have on public opinion?  On the one hand, the deniers will likely double down and their claims will become ever more discordant with the reality on this planet. Their denial will continue even if palm trees grow in Alaska and if storms such as Sandy — or far worse — have become commonplace. On the other hand, the vast majority of people who are not in the clutches of a self-destructive ideology will likely wake up and smell the science. Even before Sandy, a recent Pew poll (PDF) revealed that acceptance of climate change among the American public rebounded by 10 percentage points in the last few years. There is every reason to expect that Sandy will accelerate this trend towards acceptance of the dramatic changes our planet is undergoing. Much research has shown that people’s attitude towards climate change depends on specific events and anecdotal evidence. For example, people are more likely to endorse the science on a hot day than on a cool day, all other things being equal. Even a seemingly trivial stimulus such as a dead plant in an office can enhance people’s acceptance of the science (three dead plants are even better). This human tendency to focus on scientifically irrelevant anecdotes rather than on data can be unfortunate, especially because it lends itself to exploitation by propagandists who haul out every cool day in Wagga Wagga as “evidence” that climate change is a hoax.

Yes, Climate Change Contributed To Superstorm Sandy - As Hurricane Sandy battered the East Coast last week, meteorologists and climate scientists were repeatedly asked to explain what role climate change played in amplifying the storm. We did our best to answer: We know that a warming climate puts more energy into storms, including hurricanes, loading them with more rainfall and the stronger winds pushing more of a storm surge. That makes flooding more likely. We also know that storm surge now rides higher on sea levels that have risen over the last century due to global warming, amplifying losses where the surge strikes. On the stretch of the Atlantic Coast that spans from Norfolk to Boston, sea levels have been rising four times faster than the global average. Overall, we know that climate change has stacked the deck so that this kind of event happens more frequently. That answer, however, prompts a deeper, more unsettling question that many want to know: is climate change worsening some recent extreme weather events like super storm Sandy? The short answer is yes. Climate scientists broadly agree that the extreme weather we’ve seen over the past few years is exactly what we’d expect to see in a changing climate. And it’s not just Sandy; we’re on track to have the hottest year in more than a century of record-keeping in the continental United States, the country has suffered one of the most crippling droughts in history, as well as one of the worst wildfire years in history.We’ll probably never know the exact point when the weather stopped being entirely natural. But we should consider Sandy—and other recent extreme weather events – an early taste of a climate-changed world, and a grim preview of the even worse to come, particularly if we continue to pump more carbon pollution from smokestacks and tailpipes up into the atmosphere.

Politico: Did climate change contribute to Sandy? Yes - We know that a warming climate puts more energy into storms, including hurricanes, loading them with more rainfall and the stronger winds pushing more of a storm surge. That makes flooding more likely. We also know that storm surge now rides higher on sea levels that have risen over the last century due to global warming, amplifying losses where the surge strikes. On the stretch of the Atlantic Coast that spans from Norfolk to Boston, sea levels have been rising four times faster than the global average. Overall, we know that climate change has stacked the deck so that this kind of event happens more frequently. That answer, however, prompts a deeper, more unsettling question that many want to know: is climate change worsening some recent extreme weather events like super storm Sandy? The short answer is yes. Climate scientists broadly agree that the extreme weather we’ve seen over the past few years is exactly what we’d expect to see in a changing climate. And it’s not just Sandy; we’re on track to have the hottest year in more than a century of record-keeping in the continental United States, the country has suffered one of the most crippling droughts in history, as well as one of the worst wildfire years in history. Last year, when Hurricane Irene hit the United States, meteorologists called it “unprecedented,” yet Sandy has already outpaced the damage from Irene. We’ll probably never know the exact point when the weather stopped being entirely natural. But we should consider Sandy—and other recent extreme weather events – an early taste of a climate-changed world, and a grim preview of the even worse to come, particularly if we continue to pump more carbon pollution from smokestacks and tailpipes up into the atmosphere.

Global warming systemically caused Hurricane Sandy - Yes, global warming systemically caused Hurricane Sandy — and the Midwest droughts and the fires in Colorado and Texas, as well as other extreme weather disasters around the world. Let’s say it out loud, it was causation, systemic causation. Systemic causation is familiar. Smoking is a systemic cause of lung cancer. HIV is a systemic cause of AIDS. Working in coal mines is a systemic cause of black lung disease. Driving while drunk is a systemic cause of auto accidents. Sex without contraception is a systemic cause of unwanted pregnancies. There is a difference between systemic and direct causation. Punching someone in the nose is direct causation. Throwing a rock through a window is direct causation. Picking up a glass of water and taking a drink is direct causation. Slicing bread is direct causation. Stealing your wallet is direct causation. Any application of force to something or someone that always produces an immediate change to that thing or person is direct causation. When causation is direct, the word cause is unproblematic. Systemic causation, because it is less obvious, is more important to understand. A systemic cause may be one of a number of multiple causes. It may require some special conditions. It may be indirect, working through a network of more direct causes. It may be probabilistic, occurring with a significantly high probability. It may require a feedback mechanism. In general, causation in ecosystems, biological systems, economic systems, and social systems tends not to be direct, but is no less causal. And because it is not direct causation, it requires all the greater attention if it is to be understood and its negative effects controlled. Above all, it requires a name: systemic causation. Global warming systemically caused the huge and ferocious Hurricane Sandy. And consequently, it systemically caused all the loss of life, material damage, and economic loss of Hurricane Sandy. Global warming heated the water of the Gulf and Mexico and the Atlantic Ocean, resulting in greatly increased energy and water vapor in the air above the water. When that happens, extremely energetic and wet storms occur more frequently and ferociously. These systemic effects of global warming came together to produce the ferocity and magnitude of Hurricane Sandy.

Sandy Ends the Silence - Sandy was a blunt reminder that the technical term for people affected by climate change is people. It’s an environmental issue, a security issue and, yes, an economic issue, as Sandy-stranded urbanites and drought-stricken farmers have learned the hard way. The oceans are expected to rise at least another foot (30 cm) by 2100 and will rise much more if the world can’t make a quick transition from fossil fuels. That has all kinds of disastrous implications for coastal communities and food supplies and wildlife and human life. But as Al Gore says, if denial ain’t just a river in Egypt, despair ain’t just a tire in the trunk. Activists have been so busy warning about climate science and griping about climate silence that they’ve ignored the tremendous climate progress the U.S. has made under Obama. His strict new fuel-efficiency rules for cars and trucks should reduce carbon emissions by 6 billion metric tons by 2025, which would be like wiping out an entire year’s worth of emissions. His stimulus bill poured an astonishing $90 billion into clean energy, doubling wind power, increasing solar power 1,000%, greening factories and government buildings and more than 1 million homes and jump-starting a smart grid and electric vehicles and blue-sky research into the planet-saving technologies of tomorrow. U.S. emissions are now falling even though the economy is growing.

Obama Wins Reelection, Now Must Become A Climate Hawk To Avoid Dust-Bin Of History, Dust Bowl For America - Obama’s legacy — and indeed the legacy of all 21st century presidents, starting with George W. Bush — will be determined primarily by whether we avert catastrophic climate change. If we don’t, then Obama — indeed, all of us — will be seen as failures, and rightfully so. As a new PricewaterhouseCoopers report makes clear, anything other than aggressive efforts to slash carbon pollution starting ASAP likely means 7°F  to 11°F warming globally. That would cause substantially higher warming over most of the U.S. and leave much of the “breakbasket of the world” in Dust Bowl conditions much worse than this nation has ever known (see “We’re Already Topping Dust Bowl Temperatures — Imagine What’ll Happen If We Fail To Stop 10°F Warming“). By the end of the third decade of this century, all of American life — politics, international relations, our homes, our jobs, our industries, the kind of cars we drive, our diet — will be forever transformed by the climate and energy challenge. Obama is the first president to articulate in stark terms both the why and how of the sustainable clean energy vision. In April 2009, he said, “The choice we face is not between saving our environment and saving our economy. The choice we face is between prosperity and decline.” In October 2009, he said at MIT, “There are those who will suggest that moving toward clean energy will destroy our economy — when it’s the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs.”

Climate change, not the national debt, is the legacy we should care about | Dean Baker - Imagine if in response to Japan attacking Pearl Harbor in December of 1941, our political leaders had debated the best way to deal with the deficits from war spending projected for 1960. This is pretty much the way in which Washington works these days. The political leadership, including the Washington press corps and punditry, were already intently ignoring the economic downturn that is still wreaking havoc on the lives of tens of millions of people across the country. Now, in the wake of the destruction from Hurricane Sandy, they will intensify their efforts to ignore global warming. After all, they want the country to focus on the debt – an issue that no one other than the elites views as a problem. The reality, of course, is straightforward. The large deficits of recent years are due to the economic downturn caused by the collapse of the housing bubble. If the economy were back near its pre-recession level of unemployment, then the deficits would be close to 1% of GDP, a level that could be sustained indefinitely. But the deficit scare-mongers are not interested in numbers and economics; they want to gut key government programs – most importantly, social security and Medicare. That is why they are pushing the fear stories about the debt and deficit. This is the rationale for the Campaign to "Fix" the Debt, a collection of 80 CEOs ostensibly focused on getting the budget in order. What is perhaps most infuriating about this crew is the claim that their efforts are somehow designed to benefit our children and grandchildren. This is bizarre for a number of reasons.

NOW Obama’s Going to do Good Stuff! (Michael Pollan version) - Here’s a good test of liberal Obama-worship, a prediction by Michael Pollan: “I think we will stop subsidizing biofuels very soon, perhaps right after the election.” Obama, of course, has been aggressively pro-ethanol so far. Pollan’s a typical case. He spent eight Bush years calling for bottom-up food relocalization and warning against technocratic control of our food, including faith in the central government. As soon as Obama came along, Pollan performed a 180 degree flip-flop. Suddenly the future of the food movement depended on begging elites for Better Policy. This included support for the Food Control Act, whereby Pollan mystically believes that giving far more power to the Monsanto-adjunct FDA will, by magic, make it less pro-Monsanto. Someone with common sense might be forgiven for suspecting that it’ll merely help the FDA further Big Ag’s interest even more aggressively, but then we’re not initiates of the liberal cargo cult.

Obama hints at new drive on climate change: US President Barack Obama has hinted he will make another push to fight climate change after cruising to a new term, but his room for maneuver will be limited even with a new focus after megastorm Sandy. Obama, whose hopes for a law restricting carbon emissions blamed for rising temperatures died in the Senate during his first term, alluded to climate change at his victory rally after the issue's near absence during the campaign. "We want our children to live in an America that isn't burdened by debt, that isn't weakened by inequality, that isn't threatened by the destructive power of a warming planet," Obama told cheering supporters in Chicago. Listing areas on which "we've got more work to do," Obama said he hoped the United States would work on "freeing ourselves from foreign oil."

Barack Obama stokes expectations of climate change action in second term -Barack Obama's invocation of "the destructive power of a warming planet" in his victory speech has stoked expectation that he will act on climate change in his second term. Environmental campaigners are already mobilising to hold the president to that promise. They argued Obama's re-election, amid the devastation of superstorm Sandy, was a clear mandate for action on climate change, in stark contrast to Mitt Romney, who turned sea-level rise into a laugh line in the biggest speech of his political career. Campaigners put Obama on immediate notice, calling an 18 November demonstration at the White House to demand he scrap the controversial Keystone XL pipeline. "In the wake of hurricane Sandy, as the warmest year in American history draws to a close, as the disastrous drought lingers on in the midwest, everyone is looking for ways to make a real difference in the fight to slow climate change," said an open letter from and the Sierra Club. But a strategic decision by the White House in 2009 to downplay climate change, and Obama's avoidance of the issue during the campaign, makes it tricky for the president to now claim that he was elected to act on the issue.

Global Warming Is A GLOBAL Problem - I want to talk to the denizens of Planet Stupid today, but I especially want to talk to the astonishingly dumb and parochial citizens of the United States of America. I am sure I have their attention  All the world over, politics runs human affairs, often intruding into issues which are not political in nature. Anthropogenic climate change, or global warming as it is more often called, is one such issue. As with so many things, the prevalence of politics in human affairs, even those which are not political, is doubly true in the United States.  Ever since "superstorm" Sandy pummelled New Jersey and New York City, our changing climate has been in the news, which means of course that the warming issue has been politicized. Despite the reluctance of Hopey-Changey and the Bane Capitalist to say anything about it, story after story has appeared in the mainstream media talking up the storm and the climate. The Los Angeles Times story Sandy a galvanizing moment for climate change? is typical.  So I am here today to tell these exceedingly dumb, navel-gazing Americans that it is called GLOBAL warming because it is a GLOBAL problem. In 2011, the current estimate says that 34 billion tons of CO2 was released into the atmosphere as a result of human activity on this planet. Of that total, 29 percent of the carbon emanated from busy smokestacks and other sources in the People's Republic of China. Only 16 per cent of the carbon was released here in the Greatest Country On Earth. Are you listening, "Wild Bill" McKibben? How about you, Mayor Bloomberg? And Penn State climate researcher Michael Mann, who says Sandy has "galvanized attention" on the issue, are you listening? I assume all these people know where the People's Republic of China is, and (roughly) how many human beings live there. So why don't the three of you, and another hundred Americans I could easily name, people like the New Yorker's Elizabeth Kolbert, get on a jumbo jet, fly over to The People's Republic of China—make sure you emit some carbon dioxide as you do so—and tell those Chinese miscreants that what a majority of Americans think is the only thing that really matters when it comes to GLOBAL warming?

Future warming likely to be on high side of climate projections, analysis finds: Climate model projections showing a greater rise in global temperature are likely to prove more accurate than those showing a lesser rise, according to a new analysis by scientists at the National Center for Atmospheric Research (NCAR). The findings, published in this week's issue of Science, could provide a breakthrough in the longstanding quest to narrow the range of global warming expected in coming decades and beyond. NCAR scientists John Fasullo and Kevin Trenberth, who co-authored the study, reached their conclusions by analyzing how well sophisticated climate models reproduce observed relative humidity in the tropics and subtropics. The climate models that most accurately captured these complex moisture processes and associated clouds, which have a major influence on global climate, were also the ones that showed the greatest amounts of warming as society emits more greenhouse gas into the atmosphere. ----- The world's major global climate models, numbering more than two dozen, are all based on long-established physical laws known to guide the atmosphere. However, because these relationships are challenging to translate into software, each model differs slightly in its portrayal of global climate. In particular, some processes, such as those associated with clouds, are too small to be represented properly. The most common benchmark for comparing model projections is equilibrium climate sensitivity (ECS), or the amount of warming that eventually occurs in a model when carbon dioxide is doubled over preindustrial values. At current rates of global emission, that doubling will occur well before 2100.

Temperatures may rise 6c by 2100, says study - The world is destined for dangerous climate change this century – with global temperatures possibly rising by as much as 6C – because of the failure of governments to find alternatives to fossil fuels, a report by a group of economists has concluded. It will now be almost impossible to keep the increase in global average temperatures up to 2100 within the 2C target that scientists believe might avert dangerous and unpredictable climate change, according to a study by the accountancy giant PricewaterhouseCoopers (PwC).An analysis of how fast the major world economies are reducing their emissions of carbon dioxide from fossil fuels suggests that it may already be too late to stay within the 2C target of the UN's Intergovernmental Panel on Climate Change, it found. To keep within the 2C target, the global economy would have to reach a "decarbonisation" rate of at least 5.1 per cent a year for the next 39 years. This has not happened since records began at the end of the Second World War

Study: We're Headed To 11°F Warming And Even 7°F Requires 'Nearly Quadrupling The Current Rate Of Decarbonisation' - A new report by PricewaterhouseCoopers finds humanity has its foot on the accelerator as we head toward a cliff. The only hope is very rapid deployment of  carbon-free technology starting ASAP. The title of the PWC report is sobering, “Too late for two degrees?” So is its main conclusion: Our Low Carbon Economy Index evaluates the rate of decarbonisation of the global economy that is needed to limit warming to 2oC. This report shows that global carbon intensity decreased between 2000 and 2011 by around 0.8% a year. In 2011, carbon intensity decreased by 0.7%. The global economy now needs to cut carbon intensity by 5.1% every year from now to 2050. Keeping to the 2oC carbon budget will require sustained and unprecedented reductions over four decades. Governments’ ambitions to limit warming to 2oC appear highly unrealistic. Here are two more conclusions that can kill — or maybe cause — a hangover: We have passed a critical threshold – not once since 1950 has the world achieved that rate of decarbonisation in a single year, but the task now confronting us is to achieve it for 39 consecutive years…. Even to have a reasonable prospect of getting to a 4°C scenario would imply nearly quadrupling the current rate of decarbonisation.

Why Is Six Degrees Centigrade Unlikely? - In a Reuter's article I cited in A Note On Economic Growth And Carbon Emissions, IEA economist Fatih Birol is quoted as following. "When I look at this [CO2 emissions] data the trend is perfectly in line with a temperature increase of 6 degrees Celsius (by 2050), which would have devastating consequences for the planet," Fatih Birol, IEA's chief economist told Reuters. Note the parenthetical "by 2050". I left that quote out of my own post because I thought, well, that's ridiculous. There's no way we will get 6° Celsius (C, centrigrade, = 11° fahrenheit) of surface warming by 2050, or even by 2100 for that matter, as I shall explain below. It turned out that the "by 2050" insertion by the ignorant Reuters reporter was indeed a mistake, as the ever-alert climate activist Joe Romm took some pains to explain. Birol meant that we are on a course to get 6°C of surface warming by 2100. In so far as there is no climate scenario too dire for Joe to endorse, Romm includes this IEA WEO chart to "prove" it. If one accepts this view, which has considerable empirical and theoretical support, and is accord with common sense, then the question of whether 6°C of surface warming is possible is equivalent to asking whether it is possible for human populations and economies to grow without limit long enough to put all that CO2 into the atmosphere. Another way to frame the question is to ask: are current global growth rates sustainable for the next 70, 80 or 90 years?

Warmer still: Extreme climate predictions appear most accurate, report says - Climate scientists agree the Earth will be hotter by the end of the century, but their simulations don’t agree on how much. Now a study suggests the gloomier predictions may be closer to the mark. “Warming is likely to be on the high side of the projections,” said John Fasullo of the National Center for Atmospheric Research in Boulder, Colo., a co-author of the report, which was based on satellite measurements of the atmosphere.That means the world could be in for a devastating increase of about eight degrees Fahrenheit by 2100, resulting in drastically higher seas, disappearing coastlines and more severe droughts, floods and other destructive weather.

North Carolina Sea Level Rise Accelerating, Researchers Report: This summer the North Carolina Senate passed a bill banning researchers from reporting predicted increases in the rate of sea level rise. But the ocean, unbound by legislation, is rising anyway — and in North Carolina this rise is accelerating, researchers reported here yesterday (Nov. 6) at the annual meeting of the Geological Society of America. On the coast of North Carolina and at other so-called "hotspots" along the U.S. East Coast,, sea levels are rising about three times more quickly on average than they are globally, researchers reported during a session devoted to sea level rise. That's the fastest rise in the world. "What we're seeing here is unique," said Asbury Sallenger, an oceanographer at the U.S. Geological Survey in St. Petersburg, Fla. The accelerating rise And this rise is accelerating, said Tal Ezer, a researcher at Old Dominion University in Norfolk, Va. His colleague, Larry Atkinson, said computer models suggest that if this acceleration continues at the same pace, the rise along the East Coast — from North Carolina to Massachusetts — could be 5.3 feet (1.6 meters) by 2100. Sea levels on this stretch of land have climbed as much as 1.5 inches (3.7 centimeters) per decade since 1980, while globally they've risen up to 0.4 inches (1.0 cm) per decade, according to a study by Sallenger published in June.

San Francisco, Bay Area and Sacramento Valley – Sea Level Rise Map - The map below shows areas of San Francisco, the Bay Area and the Sacramento Valley that would be flooded at various stages of sea level rise. You can select a value of sea level rise using the dropdown box in the upper left corner of the map. The navigation buttons can be used to zoom in/out and pan across the map. The map clearly shows that a sea level rise of only a few meters would inundate hundreds of square miles of land. San Francisco Bay and San Pablo Bay would enlarge, covering industry, residences and infrastructure. More surprising would be the enormous area of flooding that would occur in the Sacramento Valley. Hundreds of square miles would be underwater there and the intrusion of this salt water would have major environmental impacts. This map is not a carefully surveyed and extremely accurate presentation. It is intended to provide a visual impression of which geographic areas might be flooded if global warming and climate change continue unabated.

Researchers Quantify Greenhouse Gases From Melting Arctic Permafrost: 'Potential To Alter The Planet Is Very Real' - Scientists with the U.S. Geological Survey say they’ve quantified the amount of greenhouse gases that could be released into the atmosphere as Arctic permafrost starts to melt. “This study quantifies the impact on Earth’s two most important chemical cycles, carbon and nitrogen, from thawing of permafrost under future climate warming scenarios,” said USGS Director Marcia McNutt. “While the permafrost of the polar latitudes may seem distant and disconnected from the daily activities of most of us, its potential to alter the planet’s habitability when destabilized is very real.” As much as 44 billion tons of nitrogen and 850 billion tons of carbon could be released into the environment as the region begins to thaw over the next century. This nitrogen and carbon are likely to impact ecosystems, the atmosphere, and water resources including rivers and lakes. For context, this is roughly the amount of carbon stored in the atmosphere today. The release of carbon and nitrogen in permafrost could exacerbate the warming phenomenon and will impact water systems on land and offshore according to USGS scientists and their domestic and international collaborators. The previously unpublished nitrogen figure is useful for scientists who are making climate predictions with computer climate models, while the carbon estimate is consistent and gives more credence to other scientific studies with similar carbon estimates.

Cooling gases must fall to curb global warming (Reuters) - F-gases, used in refrigeration and linked with high levels of global warming, need to be cut substantially by 2030, Europe's climate boss said on Tuesday. She added that she would be pushing for a global plan on cutting fluorinated gases at U.N. climate change talks in Doha beginning later this month. "F-gases should be two-thirds reduced from today's levels by 2030," Climate Commissioner Connie Hedegaard told an audience representing the refrigeration industry. "If F-gases contribute less, other sectors will have to do more," she added, referring to the EU's non-binding goal to cut greenhouse gas emissions by between 80-95 percent by the middle of the century. It also has a binding 2020 target to achieve a 20 percent emissions reduction. F-gases refer to a group of fluorinated greenhouse gases, which are used in air conditioning, for instance, in cars, as well as in domestic, supermarket and industrial refrigeration. Some two decades after international action led to the phase-out of ozone-depleting chlorofluorocarbons (CFCs), the European Union is pushing to eliminate a new generation of F-gas chemicals. The gases were introduced as an solution that was easily acceptable to industry, since the production chain to make them was similar to CFCs. But their global warming potential, thousands of times more damaging than carbon dioxide, has led the European Union to push to ban them in favor of natural non-synthetic alternatives, such as ammonia or CO2, which has high cooling properties when used in refrigeration.

Human Carbon Emissions Seen by Researchers Holding Back Ice Age - Human emissions of fossil carbon into the atmosphere and the resulting increase in temperatures may be holding off the next ice age, according to research from Sweden’s University of Gothenburg. “We are probably entering a new ice age right now,” Lars Franzen, a professor of physical geography at the university, was cited as saying in an online statement today. “However, we’re not noticing it due to the effects of carbon dioxide.” Franzen and three other researchers calculated how much of Sweden might be covered by peat lands during an interglacial, the period between two ice ages. Peat absorbs carbon from the atmosphere, and the study found that the country’s carbon-sink potential could increase six- to 10-fold, which theoretically might cause a drop in temperatures. Increased felling of woodlands and expansion of agricultural land, combined with early industrialization, probably halted the so-called Little Ice Age from the 16th to the 18th century, slowing down or even reversing a cooling trend, according to the researchers. “It’s certainly possible that mankind’s various activities contributed towards extending our ice age interval by keeping carbon dioxide levels high enough,” Franzen said. “Without the human impact, the inevitable progression toward an ice age would have continued.” The earth experienced at least 30 periods of ice age in the past 3 million years, according to the university. There were no emissions of fossil carbon in earlier interglacial periods, and carbon sequestration in peat lands may have been one of the main reasons why ice age conditions occurred, according to Franzen.

Wind tax credit backers ramp up campaign to greet Congress -  Advocates of expiring tax credits for wind power projects will greet next week’s return of Congress with a multi-front campaign for extension of the incentives in the lame-duck session. A bipartisan group of governors, under the umbrella of the 28-member Governors’ Wind Coalition, will hold a Tuesday press conference calling for an extension of the production tax credit that’s scheduled to expire at year’s end. Iowa Gov. Terry Branstad (R) and Oregon Gov. John Kitzhaber (D) will be at the Capitol Hill event, while Colorado Gov. John Hickenlooper (D) and perhaps Kansas Gov. Sam Brownback will join by phone, an advisory states. Separately, the Sierra Club has blanketed a Capitol Hill metro station with ads in advance of a multiday “wind week” campaign next week to promote extension of the credits. “Wind power makes clean energy, good jobs and better future. Don’t blow it,” some of the ads state, showing images of people working on wind projects. The ads, shown here, will run for a month.

Watchdog inspectors divided on fault activity at Oi nuclear plant site - The government's nuclear industry watchdog on Nov. 2 inspected a geological fault line at the site of the Oi nuclear power plant in Fukui Prefecture, which some experts suspect could open up in a future earthquake.The fault in question, called the "F-6 fracture zone," cuts across the Oi plant site in a north-south direction between the No. 2 and No. 3 reactors.The Nuclear Regulation Authority has not offered an opinion on the possible risk as members of the survey team remained divided on the issue. It is set to meet Nov. 4 to discuss the matter further after Kunihiko Shimazaki, the agency's deputy chairman, conducts his own assessment. "Requesting additional surveys is one option," he said. Experts have expressed concern that slippage of an active fault near the Oi plant could induce movement along the F-6 fracture zone, with catastrophic results.

4 on Japan nuclear plant safety team received utility and industry money - The Washington Post: Four members of a Japanese government team that sets atomic reactor safety standards received funding from utility companies or nuclear manufacturers, raising questions about their neutrality in the wake of last year’s tsunami-triggered disaster.The Nuclear Regulation Authority said Friday that Nagoya University Professor Akio Yamamoto received 27.14 million yen ($339,000) over the past three years for research on reactors. That included 6.28 million yen ($79,000) from a subsidiary of Tokyo Electric Power Co., the utility that runs the Fukushima Dai-ichi nuclear plant that suffered meltdowns last year.The authority said three others on the six-member standards team received industry funding. Getting such money is not illegal, but could call the neutrality of the team into question, since the industry would benefit from laxer standards.

Mining Companies Swarm to Finland’s Far North - Anglo American (AA), one of the world's biggest mining companies, went treasure hunting in Finnish Lapland, 120 kilometers north of the Polar Circle. And deep below the marshlands of Viiankiaapa are nickel deposits that AA has hailed as the find of the century. Karppinen's childhood paradise has now become a symbol of the rush for precious metals and minerals that has overcome the entire country. Foreign mining companies are flocking to Finland to mine its treasures. Here, in some of the oldest rock formations in Europe, lie reserves of valuable raw materials, with geologists describing the ore deposits as among the richest in the world. Hoping for new jobs and investment, the Finnish government is welcoming prospectors, identifying and mapping the deposits and generously granting data and mining rights at cheap prices, even in sensitive areas. Gold, nickel and uranium hunters are even reaching into tourist and conservation areas in the country. Some 40 companies are now carrying out hundreds of exploration projects across the country. The town of Sodankylä in Lapland is essentially surrounded by mining claims with several mines already in operation -- and their tailings seeping toxins into surrounding lakes and rivers.

Bureaucracy could Kill the U.S. Shale Gas Industry - On May 11, 2012, the US Bureau of Land Management (BLM) published proposed regulations governing "Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Lands." BLM is a latecomer to this party. Its belated meddling lacks practical or economic justification. Instead, the proposed BLM rule would drive oil and gas developers off federal and tribal lands. Complying with the rules is too complicated and costly. Producers can realize a much faster and much better return on their capital investment by developing oil and gas reserves on adjoining private lands. Federal and tribal lands hold large reserves of oil and natural gas. At a time when the United States desperately needs to move toward, not away from, energy independence, it makes no sense to let bureaucratic meddling effectively place these valuable domestic reserves out of reach. The problems with BLM's approach are myriad. First, a central, federal, one-size-fits-all approach does not work. The reserves that the oil and gas industry wants to access using hydraulic fracturing occur in areas with different geographic, topographic, hydrological, population, precipitation and umpteen other characteristics. The oil and gas deposits are found at different depths; the water table is at different depths. The surface and subsurface vary dramatically, ranging from the Marcellus Shale Formation in the Northeast to the San Juan Basin in the Southwest. States and tribes have long ago stepped up to the plate with sensible regulations suitable to their individual conditions. They are way ahead of BLM.

Shell’s Attempt To Get Drilling Equipment Out Of Arctic Before Winter Underscores Challenges In The Region - A season full of setbacks in Shell’s quest to drill for oil in the Arctic Ocean isn’t over yet.  More than a week after preparatory drilling operations ended for the season, the company is struggling to get all of its equipment out of the Beaufort Sea as winter ice encroaches.  As Popular Mechanics reports, as of Tuesday night, the company’s Kulluk rig was still moored in the Beaufort Sea where temperatures have dropped below zero. While the conditions don’t pose any immediate danger, they underscore the immense challenge of operating in the severe and unpredictable Arctic.  Due to the extremely harsh winter conditions and lack of a major port facility in the region, Shell’s rigs and support vessels must begin the 1,000-mile journey back to Dutch Harbor before the route becomes too ice-choked to traverse.  As the Popular Mechanics reporter on board the rig describes, just unmooring the Kulluk has proven to be a logistical nightmare:

Calgary-based company plans first U.S. oil sands project - The oil sands are coming to the United States. And this time they don’t need U.S. State Department approval or presidential permits, as a Canadian company has secured approval by the state of Utah to produce bitumen within its own arid lands. Calgary-based U.S. Oil Sands Inc. plans to produce 2,000 barrels per day by 2014 on its PR Spring Oil Sands Project, a $30-million operation, which it aims to scale up to 50,000 bpd within 10 years. “Our current plan is to proceed with the construction of the first phase next year — our first full year of operations. We expect to be in full production in 2014,” Cameron Todd, chief executive of the company, said in an interview. “This will be the first-ever oil sands extraction project commercially built in the United States.” Utah is presumed to have anywhere between 6.1 billion and 19 billion barrels of oil sands reserves and the TSX Venture-listed company has acquired 32,000 acres of land in the Uinta Basin — the largest oil sands holding in the state.

Sandy rattles links in US petrol supply chain - A worker blocks the forecourt of a New Jersey Exxon station with orange cones, yelling “no gas!” to drivers desperately prowling the highway. Sights like this have become common since superstorm Sandy hit the US east coast last week, knocking out petrol supplies. Except for one detail: this service station is across the road from the biggest fuel terminal in New York harbour.Bulk terminals contain plenty of fuel, but stations have been running dry after Sandy damaged docks, tanks, pumps and power lines across the region. The situation puts a spotlight on the harbour’s status as the hub of the global petroleum products market and raises new questions about security of energy supplies… “It is a very critical node for the east coast physical market, for the financial market and for the international market,” says Antoine Halff, head of the oil markets division at the International Energy Agency, the western countries’ oil watchdog. “The price in New York resonates across the world.” The harbour is the meeting place for petrol delivered by pipeline from the Gulf of Mexico, by tanker from countries as far away as India and from nearby refineries… Sandy exposed the vulnerabilities of this decentralised supply network, shaking futures on the New York Mercantile Exchange. As November-delivered gasoline last traded October 31, prices briefly surged by as much as 7.7 per cent. And traders say a handful of physical cargoes have in the past week traded at an almost 10 per cent premium to the prevailing price in the futures market, emphasising the scale of the disruption in the harbour. The US government on Wednesday released data showing how hard Sandy hit: East coast refined product imports fell 63 per cent last week… The Exxon station across from the biggest terminal, known as IMTT in the city of Bayonne, was operating on an electric generator before turning away cars on Tuesday. The nearby Phillips 66’s refinery in Linden, New Jersey, splashed by salt water, will take weeks to return to normal.

Burning Picassos for heat: Why we need to electrify transportation - An oil executive once observed that burning oil for energy is like burning Picassos for heat. Oil is extraordinarily valuable as the basis for so many products we use every day that the thought of simply burning it ought to be unthinkable. So versatile are oil molecules that they can be transformed into substances that serve as clothing, medicines, building materials, carpet, skin care products, sporting goods, agricultural chemicals, perfumes, and myriad other products. Increasingly, when we make oil-based products for homes and businesses, we are finding ways to reuse those products or recycle the materials they are made from (think: recyclable plastics). But, burning oil is always a one-time, irreversible act that leaves nothing of value behind and produces greenhouse gases and pollutants that harm us. And yet, because oil remains the most cost-effective and widely available source of liquid fuels, we are hooked on it for transportation with little prospect of substitutes on the scale we would require--unless we consider electricity. It is worth remembering that electricity was a strong contender for powering automobiles at the beginning of the last century and that it ran the trolleys of the era (and still runs many today). Electricity was actually preferred over gasoline for powering cars at the time, especially cars that were used exclusively for local trips. Battery exchange was already available as a quick way to "charge" a car. But improvements in the internal combustion engine and the increasing availability and affordability of gasoline led to the extinction of the electric car no later than the 1930s.

Oil Prices - It's been a while since we've caught up with oil prices - latest graph above showing both the Brent and the WTI spot prices since 2005.  Prices slid in early 2012, presumably mainly on Eurozone fears, but then rebounded as it became clear that the ECB was willing to do a lot to ensure that peripheral debt markets wouldn't spin too far out of control. Now markets have been trending down again since mid September.  The stock market has been doing the same thing: suggesting that the issue is fears of economic weakness, rather than anything specific to oil markets.  Here the drivers are likely to be slowing of China's growth, the upcoming "fiscal cliff" in the US, and poorish earnings reports from public companies.

A Slowdown At The Tar Sands? Things are heating up at the tar sands of Alberta. The re-election of Barack Obama is interpreted as a hopeful sign that swift approval of the Keystone XL Pipeline will follow. After all, it is in the National Interest. Canadian energy companies led by TransCanada Corp. (TRP) and Suncor Energy Inc. will likely benefit from the re-election of U.S. President Barack Obama, who analysts say will approve TransCanada’s Keystone XL pipeline.  More pipelines, including the 1,661-mile (2,673-kilometer) link from Alberta’s oil sands to refineries on the U.S. Gulf coast, will be needed as North American oil and natural gas output is estimated to surge 73 percent in the next 20 years.  Say what? A 73% surge in the next twenty years?  That additonal 27 million barrels-per-day comes from the feverish but vivid imaginaton of one Edward L. Morse, Citigroup's global head of commodities research. So I ask you, dear reader, to consider the source of that astonishing estimate.

Non-OPEC oil supply outages remain above year-ago level - EIA - The volume of unplanned oil production disruptions among countries not in the Organization of the Petroleum Exporting Countries (OPEC) is one of several key measurements of global oil supply security. Unplanned non-OPEC oil supply outages during the first 10 months of this year were almost twice the amount experienced in the last three months of 2011.  Global surplus capacity, another key metric of global oil supply security, currently remains relatively tight by historical standards, and is estimated at 2.0 million barrels per day (bbl/d) in October. (The estimate for global surplus capacity does not include additional capacity that may be available in Iran, but which is currently offline due to the impacts of U.S. and European Union (EU) sanctions on Iran's ability to sell its oil.) Tighter global surplus capacity, coupled with an elevated volume of non-OPEC supply disruptions, has placed upward price pressure this year on Brent crude, a benchmark for the global oil price. Conflict, tariff disputes, worker strikes, natural disasters, and maintenance-related problems were some of the prominent issues that caused several countries to reduce or shut in oil production in 2012 (see chart). As a result, unplanned non-OPEC oil supply outages during the first 10 months of this year averaged almost twice the level of disruptions experienced during the last three months of 2011, which is more representative of historical norms.

OPEC: Oil up slightly in October - The OPEC monthly oil market report is out and provides our first preliminary look at October liquid fuel production.  They show it as being up about 1mbd from a depressed September value.  Overall, supply continues to look flat across 2012 - there is no more oil being supplied in October than there was in January.  So the global economy has been growing not by using more oil, but rather by becoming more efficient with the oil it has (driven by the effects of ongoing high prices). I'll post more graphs when the IEA comes out with their data point.

Iran’s Untouchable Energy Exports - Yves here. Media reports in the US stress how tightening sanctions against Iran, particularly on banks, are increasingly isolating Iran, leading its currency to fall sharply. This article describes a key break in the cordon, that of electricity exports. But Iran’s major source of foreign exchange, its official dollar oil-related payments, via Standard Chartered, were roughly $500 million a day. The electricity trade is small relative to this total, but it is also an interesting act of defiance among American “allies”. By John Daly, chief analyst for OilPrice.  The collective effect of the trio of legislative restrictions is to impede Iranian oil and natural gas exports, the source of the majority of its foreign currency earnings until Tehran suspends its uranium enrichment activities. Iran maintains that by signing and ratifying the NPT, its Article IV permits its current nuclear activities. But while the legislation has increasingly shut off Iranian hydrocarbon exports, there is one sector of Iran’s energy industry that is flourishing – electricity exports. And this trade, lucrative as it is, stymies Washington’s efforts to squeeze Iran’s economy because, in four out of five instances, the trade is with U.S. allies. According to the U.S. government’s Energy Information Administration, “Iran is a net exporter of electric power and currently exports electricity to neighboring states including Armenia, Pakistan, Turkey, Iraq, and Afghanistan.” And exactly who are these miscreant states aiding and abetting the Iranian economy?

Brent, WTI, and ESPO? Russia's push into Asian oil markets - Russia is expanding its Asia oil delivery infrastructure through the ESPO pipeline. Historically Russia focused on supplying Europe with fuel, but that is starting to change. JPMorgan: - The first phase of the ESPO line finished at Skovorodino, delivering about 300 kbd of ESPO blend crude to the Chinese border and a further 300 kbd that was transferred to rail for onward shipment to the port of Kozmino. The pipeline operator Transneft is now set to launch the second stage of the ESPO pipeline running from Skovorodino to Kozmino port in mid-November, expanding capacity and ending the need to rail crude, likely lowering the arbitrage cost to deliver to the east. With that project, Russia also hopes that the ESPO crude will become a new benchmark for crude, similar to WTI or Brent. This is due to increased volumes expected to be achieved with the phase II ESPO pipeline reaching Vladivostok (Kozmino port). It will supply more ESPO crude to China's east coast and other Asian nations. Declines in the North Sea output may also contribute to increased use of this new benchmark for pricing crude. Voice of Russia: - Russia’s East Siberian oil may soon make it into the world crude oil price charts, becoming a new benchmark along with Brent and West Texas Intermediate, experts say. Today, the majority of oil deals on international markets are calculated from the per-barrel Brent price. But with Brent reserves on the decline, market players are beginning to eye the Siberian ESPO brand as a possible alternative.

China's coal inventories rise as power usage declines; rebound expected - Thermal coal inventories at China's power plants continue to grow. This is an important leading indicator that analysts look to in order to understand inflection points in power demand and ultimately output growth.The question of course is how to reconcile this with somewhat stronger indicators coming out of China these days. For example the official manufacturing PMI from October shows a slight expansion. But with the Markit/HSBC PMI indicating a slight contraction (see chart), the data is still mixed. According to Credit Suisse, 75% of the increases in thermal coal inventory can be attributed to continuing relative weakness in China's Industrial production growth. China's official media seems to agree with this assessment, at least through September. Xinhua - China's power consumption growth slowed further in September as factory activity and industrial output posted weaker increases amid the economic downturn.  The country's total electricity consumption grew only 2.9 percent from a year earlier to 405.1 billion kwh. The growth was 0.7 percentage point lower than that of August and 9.3 percentage points lower than that of September 2011, according to data from the National Energy Administration.

Cement Production: China and Elsewhere - This chart shows cement production in China and around the rest of the world.  Cement is essentially the active agreement in concrete, combined in roughly fixed proportions with sand and gravel.  Thus cement production is an approximate proxy for overall construction activity. China is now making more than half the world's cement and production increased by a factor of 5 from 1994 to last year.  There is evidence of a slowdown last year (though not as sharp as in 2008) and it will be interesting to see what the 2012 numbers show when they come out. Here is the same thing as a line graph:Cement production in the rest of the world peaked in 2008 and has declined slightly since the financial crisis.  Nowhere else is going through a process anything like China.

China economy: Non-manufacturing sector growth picks up - China's services sector picked up pace in October, the latest indication that its economic growth may be rebounding. The non-manufacturing purchasing managers' index (PMI) rose to 55.5 from 53.7 in September, the statistics bureau said over the weekend. Last week, China said its manufacturing activity had expanded for the first time in three months in October. The figures come as China's growth pace has hit a three-year low and ahead of a once-in-a-decade leadership change. The services sector, which includes construction, accounts for nearly 43% of China's overall economy. A PMI figure above 50 indicates expansion, a figure below 50 indicates contraction. Meanwhile, a separate survey released by HSBC indicated a slowdown in the non-manufacturing sector. The HSBC non-manufacturing PMI fell to 53.5 in October from 54.3 in September. However, HSBC's index measure does not include construction activity.

China’s Non-Manufacturing Industries Signal Rebound Ahead - China’s services industries rebounded from the slowest expansion in at least 19 months, adding to manufacturing gains that indicate the world’s second-biggest economy is recovering from a seven-quarter slowdown. The purchasing managers’ index rose to 55.5 in October from 53.7 the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Nov. 3. A separate services index released today by HSBC Holdings Plc and Markit Economics in Beijing fell to 53.5 in October from 54.3. Growth in services along with two reports last week that showed a pickup in manufacturing industries may ease pressure on China’s leaders to roll out more stimulus as they start a once- a-decade power transfer Nov. 8. The nation’s central bank said the economy is expected to maintain “steady and relatively rapid growth” as earlier government policies to support expansion take effect.

“The End of Cheap Chinese Labor” -  At the beginning of China’s economic reforms in 1978, the annual wage of a Chinese urban worker was only $1,004 in U.S. dollars…However, wages are now rising in China. In 2010, the annual wage of a Chinese urban worker reached $5,487 in U.S. dollars…China’s wages also increased faster than productivity since the late 1990s, suggesting that Chinese labor is becoming more expensive in this sense as well.China’s labor force may have already reached its peak in 2011; and China’s rural-to-urban migration will also slow down because the rural young are highly rural-to-urban migration will also slow down because the rural young are highly mobile; almost all rural youth in the 16–20 age bracket are already working off the farm.Each time I hear shouts of sweatshops, I hear louder shouts from bosses about rising wages. These are not wholly inconsistent stroies but nor are they wholly consistent. And one story has hard numbers.If there is a more important economic change for other developing countries, I don’t know it. Prepare thyselves for the migration of much manufacturing to other shores?

China 'Addicted To Credit' - Whilst the economic data shows at least some signs of an anaemic turnaround, China’s corporate results are demonstrating just how difficult things have been. During a slowdown, it is common for payments to be delayed as everyone hangs on to cash. Some companies, though, can be tempted to avoid curtailing production by offering reluctant customers much easier credit to encourage sales, the hope being that the slump will soon end and “natural” demand will pick up again. The trouble of course is that if the slowdown is prolonged, or the recovery weaker than expected, these accounts receivable (A/R) might turn “un-receivable”, and thus have to be written down as losses.  An increase in A/R is expected, but such a large increase suggests that some companies have been staying in operations through this vendor financing. In the struggling coal sector, at the end of June, accounts receivable had jumped 52.8 % for the 90 biggest coal firms. The need for a stronger turnaround is becoming more and more urgent!

    Chinese banks rush to lend in late October - Last week I noted that Chinese big 4 banks saw drop in deposits and fall in lending in the first 28 days of October. For the first 28 days, the big four banks had made RMB125 billion of loans. But then, these same four banks rushed to lend RMB100 billion in the last three days of October, according to 21st Century Business Herald. This brings the total loans from the big 4 banks for the month to RMB220 billion. Meanwhile, after seeing an RMB1.8 trillion drop in deposits, the total deposits drop was RMB1.25 trillion for the whole month, which means that deposits increased massively in the last three days of the month. At the same time, bond issuance probably has continued to play a big part in total credit growth. Despite having the Golden Week holiday, total net issuance for the month amounted to RMB222.4 billion, which was flat compared with September according to the aggregate financing data.

    China’s ‘new Manhattan’ becomes censorship capital - FT - A city run by one of China’s incoming political leaders that has billed itself as a future international financial center is instead becoming the country’s internet censorship capital. Tianjin, whose Communist party secretary Zhang Gaoli is one of the seven men most likely to get a seat on the new politburo standing committee due to be unveiled at the 18th party congress starting on Thursday, is developing a replica of Manhattan to which it aims to attract global banks. But local government officials explaining a mock-up of Yujiapu, the new district on the site of a former fishing village, last week said they did not know of any foreign bank that had committed to coming. Meanwhile, some of China’s leading internet firms are relocating their censorship operations to Tianjin as they battle soaring labor costs. Tianjin’s tale illustrates China’s rapidly changing economic landscape but also puts a question mark over the reform and economic policy credentials of the country’s incoming leaders.

    China’s economic destiny in doubt after leadership shock - The forces of reaction and economic folly threaten to prevail in China. The long political arm of Jiang Zemin has reached out from the shadows to thwart reform, with huge implications for Asia and the world. If reports from the Hong Kong press and China's blogosphere are correct, a remarkable upset has occurred on the eve of the ten-year power shift next week -- the greatest turn-over of top cadres since Mao's revolution. The South China Morning Post says the new line-up of the Politburo's Standing Committee is "packed with conservatives". The succession deal agreed over the summer has been scuppered. The 86-year Mr Jiang -- who rose to supreme leader on the bones of Muxidi and Tiananmen in 1989 -- has placed his accolytes in charge of the economy, propaganda, as well as the Shanghai party machine. The hardliners seem poised to snatch control of the seven-man Committee, tying the hands of incoming president Xi Xinping and premier Li Keqiang. If confirmed, long-term investors may have to rethink their core assumption about the future course of China. This power struggle going into the 18th Party Congress matters more in the sweep of history than the run-off two days earlier between a centrist Barack Obama or the centrist Mitt Romney, though the stage drama is less compelling

    Bluffer’s guide to China’s regime change | FT Alphaville: The REALLY easy bluffer’s guide to China’s regime change taking place over the next week: wave your hands airily and declare that nobody knows. Because at this stage nobody does know; at least, no one who does know will tell you anything. However the 18th National People’s Congress, which starts in Beijing today, is at least as important to the world economy as the US election was. So we’ve attempted to compile a guide on some of the best sources on the incredibly opaque world of Chinese politics (described as “the shark pool of shark pools” by one diplomat quoted by the FT’s David Pilling).Let’s start with the most powerful body, the Politburo Standing Committee. The PSC has nine current members but many observers have doubted whether that will remain the case with the new line-up; seven is widely seen as more likely. The PSC includes the premier and the president. The New York Times vividly describes it thus: The committee is a group of aging men with dyed hair and dark suits who make all major decisions about the economy, foreign policy and other issues. Their meetings are not publicized in the state news media. The party chief often presides, but they operate by consensus, which means decisions are generally made only when the members reach agreement. They also must solicit the input of retired members, now more than a dozen, who at times exert considerable influence, most of all Mr. Hu’s 86-year-old predecessor, Jiang Zemin.

    Can China’s New Leader Prevent an Economic Crisis? - In a very uncertain global economy, we’re finally getting some certainty from the world’s two largest economies – at least on the political front. In the U.S., the interminably long election season finally ended with the re-election of President Barack Obama. Meanwhile, halfway around the planet in Beijing, a congress of China’s Communist Party, which begins today (EDS: Thursday), is expected to finally anoint Xi Jinping as the nation’s next leader. The two political processes couldn’t be more different – one politician fought for his job on CNN, the other maneuvered behind tightly sealed doors – but the outcome of each is equally important for the global economy. What happens with growth, jobs and investment around the world will depend to a healthy degree on the decisions taken by these two men. The common perception is that one of these leaders faces a bigger economic headache than the other. Obama will have to resolve the fractious battle over how to close the government’s yawning budget deficit before the nation falls off the fiscal cliff, bring down stubborn unemployment and recharge American competitiveness. Xi, meanwhile, seems to be sitting pretty. Growth in China has slowed, but to a rate that remains the envy of the world, while Chinese industry continues its march onto the world stage. But in this case, looks can be deceiving. Sure, Obama has tremendous economic problems to resolve, but Xi’s challenge is just as daunting – perhaps more so. Obama has to dig the U.S. out from the baggage of the last financial crisis, but Xi has to undertake sweeping reforms to ensure China doesn’t fall into a crisis.

    Is the Yuan About to Replace the Dollar as the World's Reserve Currency? - Once again we are seeing articles and research papers stating the Chinese renminbi (yuan) is about to replace the dollar as the global reserve currency. Here is a working paper by Arvind Subramanian and Martin Kessler at the Peterson Institute of International Economics stating The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?. A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or  xplicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. The same authors present a case in the Financial Times article China’s currency rises in the US backyard. East Asia is now a renminbi bloc because the currencies of seven out of 10 countries in the region – including South Korea, Indonesia, Taiwan, Malaysia, Singapore and Thailand – track the renminbi more closely than the US dollar. The analysis by Subramanian and Martin Kessler is nothing but a Déjà Vu rehash of easily rebutted arguments that crop up time and time again. Three Essential Facts:

    1. China's bond markets are not big enough or deep enough for the Yuan to displace the US dollar.
    2. Contrary to what most think, having the reserve currency is a a curse more than a blessing.
    3. Neither China nor the US wants to be the global reserve currency.

    More on Currency Manipulation - In my previous post, I argued that currency manipulation is tantamount to the sterilization of foreign cash inflows triggered by the export surplus associated with an undervalued currency. Thanks to an undervalued yuan, Chinese exporters enjoy a competitive advantage in international markets, the resulting export surplus inducing an inflow of foreign cash to finance that surplus. But neither that surplus, nor the undervaluation of the yuan that underlies it, is sustainable unless the inflow of foreign cash is sterilized. Otherwise, the cash inflow, causing a corresponding increase in the Chinese money supply, would raise the Chinese price level until the competitive advantage of Chinese exporters was eroded. Sterilization, usually conceived of as open-market sales of domestic assets held by the central bank, counteracts the automatic increase in the domestic money supply and in the domestic price level caused by the exchange of domestic for foreign currency. But this argument implies (or, at least, so I argued) that sterilization is not occurring unless the central bank is running down its holdings of domestic assets to offset the increase in its holdings of foreign exchange. So I suggested that, unless the Chinese central holdings of domestic assets had been falling, it appeared that the PBC was not actually engaging in sterilization. Looking at balance sheets of the PBC since 1999, I found that 2009 was the only year in which the holdings of domestic assets by the PBC actually declined. So I tentatively concluded that there seemed to be no evidence that, despite its prodigious accumulation of foreign exchange reserves, the PBC had been sterilizing inflows 

    Japan car sales in China plunge 59.4% in October -  Sales of Japanese passenger vehicles in China slumped 59.4 percent on-year in October, a Chinese industry group said Friday, as a territorial row between the countries pummelled demand. Japanese-brand car sales in China — the world’s largest auto market — fell to 98,900 units last month, the China Association of Automobile Manufacturers said in a statement. A bitter dispute flared in mid-September after Tokyo nationalised an East China Sea island chain also claimed by Beijing, setting off huge demonstrations across China and calls for a boycott of Japanese products.

    How not to criticize Japan - I will be the first to tell you that Japan has serious problems. Chief among these, in my estimation, are A) a dysfunctional labor market, B) institutional support for unproductive companies and company divisions, C) poor corporate governance, D) a dysfunctional political system, E) underemployment of women, and F) the large national debt. Obviously these tend to reinforce each other, leading to a bad equilibrium. But the way to untie this Gordion Knot is not to simply start wringing our hands and flailing about in every direction, blaming any trend or story upon which we happen to lay our eyes. Unfortunately, this approach to Japan analysis is relatively common in the Western business press. For example, consider this article in MarketWatch. "Once a powerhouse, [Japan is] withdrawing from the world stage," the subheading laments. Here are some excerpts: “battered by deflation and a overly strong currency, the Japanese have concluded that they can’t compete with a rising China and are withdrawing into themselves.”...  Japan’s 27-year long dominance in machine-tool production came to an end two years ago. China, where production costs are 40% lower, has seized the top spot even though the Japanese emphasize that they continue to lead in quality.  Pummeled by a strong currency and two decades of deflation, Japanese companies are shifting production to China and elsewhere. Japan’s industrial core is eroding and threatened with being hollowed out...

    TEPCO Doubles Estimate for Fukushima Clean Up to $125 Billion - Tokyo Electric Power Company (TEPCO) has said admitted that the cost of cleaning up after the Fukushima disaster and paying off the compensation claims made may double from the five trillion yen it had estimated back in April, to ten trillion yen ($125 billion). The company released a statement today that said, “there is a view that we may need the same amount (again) of additional money for the decontamination of low-level radiation areas and costs of temporary facilities for storing waste.” In April the Japanese government gave TEPCO one trillion yen in exchange for a controlling stake in the company. The money was needed to prevent the company, the largest energy utility in Japan, from going under. To meet this new figure of ten trillion yen the company would need more support from the government, and that has left TEPCO’s chairman, Kazuhiko Shimokobe, very worried.

    TEPCO says Fukushima clean up, compensation may hit $125 bn - The cost of cleaning up the mess left by meltdowns at Fukushima nuclear power station and compensating those affected may double to $125 billion, AFP reports according to the plant's operator. Tokyo Electric Power Company (TEPCO) said decontamination of irradiated areas and paying people whose livelihoods or home life have been affected would cost more than the five trillion yen it had estimated in April. "There is a view that we may need the same amount (again) of additional money for the decontamination of low-level radiation areas and costs of temporary facilities for storing waste," the company said in a statement. The utility -- one of the world's biggest -- received one trillion yen of public cash in April in exchange for granting the government a controlling stake. The money was intended to prevent the company, which generates and supplies electricity to millions of people, including in and around Tokyo, from going under. But on Wednesday as they readied to present a new management plan, the company said it was looking at a bill of up to 10 trillion yen -- around two percent of Japan's gross domestic product.

    Japan Local Economies Threatened as Government Cash Dries Up - Japanese local governments are borrowing from banks to cover their outlays as a political standoff over financing legislation adds to risks for the world’s third-biggest economy. Hokkaido, the northernmost prefecture, and Wakayama, in the west, face extra interest costs after taking out loans, their finance departments say. Public works spending and subsidies for the poor are in danger as funding dries up, according to Keiji Yamada, governor of Kyoto prefecture and head of the National Governors’ Association. Disruption to spending by local authorities, which account for about two-thirds of public outlays, could further drag on an economy that is losing steam as exports and industrial production slide. With the central government at risk of running out of money this month, Shinzo Abe, the leader of the opposition Liberal Democratic Party, has signaled that he’ll allow a parliamentary debate on the contentious legislation. 

    Japanese Politicians Move to Steer Away From Fiscal Cliff - Japan’s parliament began talks on how to finance spending for the rest of this fiscal year after a months-long impasse that has left the government weeks away from running out of money. “We can’t rule out the possibility of adverse economic effects,” from any further delays, Finance Minister Koriki Jojima said today in the Diet’s lower house as debate began on issuing 38.3 trillion yen ($480 billion) in debt to cover about 40 percent of spending for the year through March. Japan’s three main parties have reached an agreement to approve the bond bill in the lower house on Nov. 15, Kyodo News reported. Prime Minister Yoshihiko Noda’s ability to spend to shore up an economy at risk of recession has been restrained by the main opposition Liberal Democratic Party’s blocking of the bond bill amid a dispute over the timing of an election. The LDP has softened its stance as regions complain of economic pain from a lack of funding and Group of 20 finance officials call for an end to the gridlock.

    Can the 'American Dream' be reversed in India?: America's Silicon Valley has always been a hub for some of the brightest and best Indian immigrants to start businesses. Now, in a reversal, more people from the US are moving to the sub-continent with their ideas. Valerie Wagoner is a smart and articulate woman. Educated at Stanford University, and a former employee at the online auction site Ebay, her credentials could get her work anywhere in the world. She chose India. Valerie quit Silicon Valley in California for Bangalore five years ago and is now at the helm of her own mobile marketing company, ZipDial. More than half of the start ups founded in Silicon valley since 2005 were begun by immigrants to America, with as many as 1 in 3 started by an Indian, according to research from the Kauffman Foundation. But now a small yet significant group of Americans are leaving their homeland for India.

    India Said to Plan 250 Billion Rupees Additional Borrowing - India’s government may consider borrowing an extra 250 billion rupees ($4.6 billion) after setting a higher budget deficit target for the year ending March 31, said two Finance Ministry officials with direct knowledge of the matter. The ministry will decide by the end of January or early February if it will raise the additional amount by selling government securities or treasury bills, the two people said, asking not to be identified as they aren’t authorized to speak on the subject. Finance Minister Palaniappan Chidambaram has vowed to cap the deficit at 5.3 percent of gross domestic product for the 12 months through March, versus an earlier target of 5.1 percent proposed by his predecessor. India plans to raise 2 trillion rupees in the second half of the fiscal year, Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi on Sept. 27, leaving the target unchanged for the whole year at 5.69 trillion rupees.

    India's Fiscal Deficit Aim Hits New Snags - India's recently revised aim of narrowing its fiscal deficit to 5.3% in the year through March faced fresh threats Wednesday, with two senior officials saying that the government's fuel subsidy bill is likely to rise by 20%. In another blow, the government was forced to cancel part of an auction of telecom bandwidth as the two companies that had expressed interest decided to pull out, citing a high base price. The government will likely pay about one trillion rupees ($18.5 billion) as compensation to state-run fuel retailers this fiscal year through March, up from 835 billion rupees the previous year, the two officials said. The payments are used to partly compensate the companies for selling fuel products at discounted prices. The government expects the discounted sales to result in the state-run fuel retailers losing total revenue of 1.6 trillion rupees this fiscal year. While the government will pick up a one trillion rupee tab, the fuel retailers and upstream companies will have to absorb the remaining 600 billion rupees.

    India’s growth could slow to 5.5% this fiscal, says PC - India’s economic growth could slow to as little as 5.5 per cent this fiscal year, Finance Minister P Chidambaram said, signalling the possibility that Asia’s third largest economy will expand at its slowest pace in a decade. “I’m looking forward to this year ending with 5.5 to 6 per cent growth, barring any unexpected shocks, and next year getting back to 7 per cent growth, and in 2014-15 getting back to 8 per cent growth,” he said in an interview on Sunday at a G20 meeting in Mexico. The last time full-year growth fell below 6 per cent was in 2002-03 when the economy expanded 4 per cent. A slump in industrial activity because of slow policy-making and the global slowdown, combined with a drought, have dragged on India’s performance this fiscal year, which ends in March 2013. Until now, the government had estimated growth this year at around 6 per cent. The International Monetary Fund last month slashed its 2012 calendar year economic growth forecast for India to 4.9 per cent from 6.1 per cent.

    How to Rob Africa: A Look into How the West Facilitates Moving Dirty Money - video - Yves Smith - Anyone who has heard of, or better yet, read Nicholas Shaxson’s book Treasure Islands knows how large and powerful the world of “offshore” finance is. The public tends to think of banks in the Switzerland or the Caymans or the Isle of Man, but these are merely the outposts of larger networks. Shaxson contends that the UK was the historical top dog in the murky world of tax avoidance but the US is now the leader.  This Aljazeera show gives a small window into the nitty gritty of how this industry helps corrupt African leaders loot their countries. The journalists show how trivial it is to find facilitators and to set up the companies that allow money to be moved across borders with the identity of the instigator well hidden.

    A gentle wind at the world's back - A global purchasing managers' index compiled by J.P. Morgan has hooked up in recent months (see the nearby chart), and if previous patterns prevail, industrial production should soon follow. Don't get carried away; this is no runaway rebound. Nonetheless, it's encouraging given the uncertainties that still hang over the global economy.  In June I laid out three serious worries hanging over investors and business: a euro breakup, a hard landing in China, and America heading over its fiscal cliff. I also noted that while the odds of avoiding any one of these were good, the the odds of avoiding all three were pretty low, about one-in-three. How can the economy be healing given that all these uncertainties remain? At the margin, the most serious threats have receded.

    • The risk of a hard landing in China may have passed. Purchasing managers' indexes compiled by both HSBC and the National Bureau of Statistics rose in October, and the new orders components of both are above the all-important 50 level for the first time in 12 and six months, respectively.
    • Europe remains in recession but the crisis is not getting worse. The Spanish government bond yield, for example, is still comfortably below 6%. This suggests that while the region's economy will remain under pressure for many more months, the risk of a disorderly breakup of the euro is off the table, at least for now.

    That brings us to America, where the fiscal cliff remains unresolved..

    G20 backs off on deficit targets, holds firm on global reforms - In the end, the world’s top financial leaders gave a little and held back on a lot. The Group of 20 biggest economies wrapped up their two-day meeting here Monday by easing deficit-reduction targets to ensure countries — such as the fiscally challenged United States and debt-crippled eurozone members — have more time to “recalibrate” their finances to promote growth. But the group said it will not back down on reforms to the global financial system, and is pushing ahead with its stated timetable for changes. “Global growth remains modest and risks remain elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States and Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets,” the G20 said in its final communiqué. “The United States will carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-term path, while avoiding a sharp fiscal contraction in 2013,” the G20 said. That is a reference to the so-called “fiscal cliff” of US$607-billion in tax increases and government spending cuts set to take effect in January

    Copyrights and free market pricing -- The New York Times points us to one anomaly in the idea of "free markets". Dean Baker (and many others) of course has championed taking a more critical look at this set of issues for years.  But most readers know that "free market" is an election slogan and a metaphorical  apocryphal story line rather than  something real for guiding either private companies or governments policies and rules.  On the other hand, that is the language used and something I hear from people in a non-critical way. Copyright and patent rights need strong government to enforce the rules, and distort "pricing" mechanisms.   Yet it does not seem to be enough to cajole people into making a list of possible exceptions and then applying the rule of  "free"...if open to exception, where does it stop?  Often the question puts people to sleep, but is part of the bread and butter of real multinational companies.  And then enforcement falls to whom?  Who votes based on such details?  Trade policy hasn't had traction for years. 

    Scandinavian countries top the list of world's most prosperous nations... but U.S. drops out of top ten for the first time | Mail Online: Norway has been crowned the most prosperous country in the world for the fifth year running. But the U.S. has dropped out of the Legatum Prosperity Index's top ten for the first time to 12th position. According to the annual survey, which benchmarks 142 countries worldwide, the UK has continued to lag, retaining its place 13th in the list.  Scandinavian countries have continued to dominate the top of the global index, which takes measurements from across eight categories: economy, education, entrepreneurship & opportunity, governance, health, personal freedom, safety & security and social capital. Norway, Denmark and Sweden are ranked first, second and third place respectively. In Europe, overall prosperity has risen, with the Netherlands, Ireland and Germany climbing the rankings into eighth, tenth and 14th position.

    Goldman's world GDP projection for 2050 - Goldman recently published their projections for GDP levels by nation 38 years into the future. This has to be a difficult forecast to make - involving assumptions that, if changed slightly, could impact the outcome materially. Nevertheless it is worth taking a look at these results. Here are some observations:
    1. BRIC nations (a term coined by Goldman some 10 years ago) dominate the world's economic output by 2050. These four countries generated close to half of the world's GDP growth in the past decade, and in spite of slower growth expectations going forward, this projection does not seem unreasonable.
    2. It is a bit surprising to see Nigeria ahead of Turkey and Egypt in front of Canada. It is also strange that Saudi Arabia did not make this list, given the nation's rapid growth. GS seems to be projecting rapid growth for some non-BRIC EMG nations such as Indonesia and Nigeria (possibly because of population growth).
    3. Projections for GDP per capita look quite different of course, with BRIC nations still lagging. It does seem strange however to see Russia's GDP per capita ahead of Italy's (currently Italy's GDP per capita is almost twice that of Russia - see chart). It's also interesting to see France ahead of Germany in the total GDP output as well as GDP per capita. Apparently the world will look very different in 38 years.

    Jobs. Jobs. Jobs. Getting the Labor Markets Working Again - iMFdirect via Olivier Blanchard - The sharp and persistent rise in unemployment in advanced economies since the 2008-09 financial crisis is a hotly debated policy issue.  Rightly so:  High persistent unemployment has major human and economic costs, from loss of morale to loss of skills.  More broadly, it seems to undermine the very fabric of society. Against this backdrop, the theme for the IMF’s 13th Jacques Polak Annual Research Conference, “Labor Markets through the Lens of the Great Recession,” could not be timelier. This year’s conference program weaves together a number of contributions by researchers both inside and outside the IMF, aiming to shed light on those labor market issues that are central to the current economic and social landscape. Peter Diamond, Nobel Prize winner in Economics and Professor of Economics at MIT, will give the keynote Mundell-Fleming lecture on the controversial issue of cyclical vs. structural unemployment. Peter will explore whether and how we can use the information contained in two widely used tools, the Beveridge curve relation between unemployment and vacancies, and the matching function, which relates hires, unemployment, and vacancies.   His contribution will help us understand both the usefulness but also the limits of these tools, and give clear indications on how we should extend our research in the future.The remainder of the program consists of 12 papers on key dimensions of labor markets and income distribution, and on the role of trade and financial globalization in labor market outcomes around the globe

    Some signs of weakness in Australia's labor markets - Today's comments from Westpac, Australia's second largest bank are a good indication that 2013 will be a challenging year for the nation's economy. In spite of strong results, the bank struck a cautious tone.  MarketWatch: - Westpac Banking Corp.'s Chief Executive Gail Kelly Monday warned of "challenging" times ahead for the Australian economy, even as the bank reported an expectation-beating rise in cash profits for fiscal 2012. To be sure, Australian economic activity remains the envy of most developed nations, as employment (5.4% unemployment rate) and retail sales remain strong. But signs of stress are developing. The economy is heavily dependent on mining (and therefore global macro fundamentals), prompting many analysts to downgrade Australia's corporate earnings growth (see story from BI). And some leading indicators on the labor markets are pointing to potential weakness going forward as well. In particular the number of job ads in the newspapers and online are continuing to decline.With inflation under control, the RBA is fully expected to cut rates (to be announced shortly), with the short-term rates ultimately moving into record low territory (see discussion).

    Employment numbers hide the fact Canada is bleeding private sector jobs - Canada may have added 1,800 jobs in October, but that number hides the fact that almost all the gains came from government and that the private sector lost more than 20,000 jobs.  The 1,800 jobs added was already a disappointment compared with the 10,000 economists had forecast. According to Statistics Canada, that left the unemployment rate unchanged at 7.4%. The six-month average for jobs gains is now 29,400, according to Reuters. But it’s a very different story when you look at the private sector and public sector separately.“Details of the report were much worse than the headline number with the private sector showing a loss of 21,000 in October, the fourth decline in six months,” said Matthieu Arseneau, senior economist with the National Bank of Canada. “Over the period, the private sector is actually showing a loss of 12,000 jobs, compared to a surge of 76,000 jobs in the public sector.”

    Alberta in the red $14-billion for pension liability, maintenance deficit - — The provincial government has a $10-billion pension liability and a $4-billion maintenance deficit on the books, and opposition critics say it has no real plan to deal with either of them. Both Conservative government and opposition MLAs grilled Alberta Finance officials about the debt burden at an all-party public accounts committee meeting Wednesday, but opposition members said later they remain unconvinced sufficient steps are being taken to address it. Wildrose MLAs slammed the Redford government for poor planning, while the NDP complained the province has wound up in a financial hole as a result of its refusal to hike royalties and corporate taxes.

    Guest Post: Is Canada's Housing Bubble 'Different'? - Canadian household debt as a percentage of income by now vastly exceeds the peak that was seen at the height of the US real estate bubble. CIBC thinks the huge amount of household debt in Canada and the beginning cracks in the housing bubble are nothing to worry about. The main reason for this benign assessment seems to be that there have been a few other credit and real estate bubbles in the world that have grown even bigger than the US one before it burst. What a relief. It is generally held that Canada's banking system is in ruddy health and not in danger from the extended credit and real estate bubble, mainly because a government-owned organization, Canadian Mortgage Housing Corp. This kind of thinking has things exactly the wrong way around. It is precisely because such a state-owned guarantor of mortgages exists that the vaunted lending standards of Canada's banks have increasingly gone out of the window as the bubble has grown.

    Forward guidance, borrowing degrees of freedom, and the inflation target horizon - This is something I do not understand very well. I'm writing this to try to help me think about it more clearly. Eight times a year, at each Fixed Announcement Date, the Bank of Canada does two things: it announces a target for the overnight rate until the next FAD; it provides some "forward guidance" about future targets for the overnight rate. That forward guidance receives as much attention as the current target. Here's a recent example from Kevin Carmichael at the Globe and Mail. A good "dumb" question to ask would be: "Why does the Bank bother with forward guidance at all?"

    1. 1. Here is one simple explanation, that doesn't really work. If you looked at just one FAD in isolation, you would say that the Bank uses forward guidance because it gives the Bank more power. By saying what it plans to do over the next year, rather than just over the next 6 weeks, the Bank can shift the whole term structure of interest rates by influencing people's expectations of its own future actions.
    2. 2. Here's a better explanation. Sure, the Bank has only one degree of freedom per FAD on average, but maybe sometimes it wants to spend two degrees of freedom at one FAD, and is willing to borrow one degree of freedom from the future and repay the loan at some future FAD by spending zero degrees of freedom. The Bank might want the extra power at some FADs much more than at other FADs. Forward guidance lets the Bank borrow extra power when it's most needed, and repay the loan when extra power is not needed.
    3. 3. Here is a quite different explanation. There is a difference between making a promise about your own future actions and making a prediction about your own future actions. Maybe forward guidance is a prediction and not a promise, and has nothing to do with borrowing degrees of freedom from the future. Markets normally work better when people can better predict the future. So by publishing its own predictions of its own future actions the Bank of Canada is helping markets work better.

    S&P ratings ruling could cost billions - Ratings agencies across the globe could be forced to pay billions of ­dollars to investors who lost money during the credit crisis after the ­Federal Court ruled that Standard & Poor’s rating of complex financial products was misleading. S&P is now expected to face similar lawsuits in the Netherlands and possibly in the United States, United Kingdom and New Zealand, and could be forced to pay compensation for losses from complex investment securities. The implications of the 1459-page decision, which is the first globally to rule on the liability of a ratings agency, may affect Moody’s and Fitch as well. The court found S&P and investment bank ABN Amro, which was bought by Royal Bank of Scotland, misled investors and breached their duty of care when they gave complex and risky products a AAA rating

    A new turn in the euro zone financial crisis - The latest figures establish that the austerity program of the “troika”—the European Union, the European Central Bank and the International Monetary Fund—has created an economic catastrophe, the like of which has not been seen since the Great Depression of the 1930s. Greek gross domestic product has fallen by a cumulative 21.5 percent since its peak in 2007 and is expected to decline by a further 4.5 percent next year. Such is the extent of the economic contraction that total government revenue from all sources will not even cover the interest rate payments on international loans. If any further “aid” is forthcoming or loan terms are extended, it will be designed to ensure the continued flow of funds to international lenders, but will not alleviate the economic situation in Greece. The Greek catastrophe is only the sharpest expression of a crisis that is spreading through the eurozone. The Italian economy moved into recession in the second half of last year. The economy is expected to contract 2.4 percent this year, with a further decline of 0.2 percent in 2013—a figure that could increase if present trends continue. Spain and Portugal, both under austerity programs, are already well down the Greek road. The Spanish banking crisis is further away from a resolution following Germany’s insistence that money from European bailout funds cannot be used to cover past debts but only to facilitate new loans. This means that last June’s commitment by eurozone ministers to end the situation where national governments are responsible for the debts incurred by their banks is a dead letter.

    Europe’s Extremism Gambit - I’ve spoken previously that apart from the economic and social fallout from the European financial crisis, the other major issue I see is the loss of political capital on both sides of the economic divide. Obvious examples are Catalonia where the economic crisis has opened long festering wounds, and Italy where the failing economy has the potential to re-introduce political uncertainty. The most extreme case, however, is surely Greece where Golden Dawn continues to rise in popularity at the expense of other parties, and there is certainly more to come as the Greek parliament votes on an additional €13.5bn in cuts against an increasingly farcical outlook. Greece now faces another three days of anti-austerity strikes which is again counter-productive to all involved. What we’ve also seen is what appears to be a loss of political will in creditor nations to support further emergency action by the ECB. This has forced Mario Draghi to front national parliaments to explain his reserve bank’s operations. The trust in the bank will certainly be tested in the coming week given what could be a major error in procedure in regards to Spain: The European Central Bank has launched an internal investigation into whether it broke its own rules and lent money to Spanish banks on terms far more generous than those offered to Irish banks. The ECB inquiry relates to the collateral received in exchange for nearly €17 billion worth of loans.Spanish banks are reported to have offered collateral that the ECB accepted as being more credit-worthy than it actually was and so offered the Spanish banks a preferential discount – effectively a cheaper loan.

    A letter from Athens - On a narrow street in the run-down Athens neighbourhood of Aghios Panteleimonas, a crowd gathers outside a barber's shop. They are nervous, and talk in whispers. The shop is closed, and the lights are off, but I'm able to peer inside, and see a shocking sight. Blood is smeared across the floor, and has collected in a large pool in the middle. I'm told that a black man stabbed the owner the previous evening, and made off with a meagre 20 euros. The robbery was followed by a wave of retaliatory violence against immigrants in the surrounding streets, according to the Greek newspaper Kathimerini, involving "150 people, including an unknown number of Golden Dawn deputies". Golden Dawn (or Chrysi Avgi as it's pronounced in Greek) is a neo-fascist movement, that, according to the latest opinion polls, is also the third most popular political party in Greece.

    Greek prime minister warns of euro exit - Greece’s prime minister is warning that the country could be forced out of the euro zone if the debt-laden country’s parliament does not approve a new round of austerity measures in a vote scheduled for Wednesday. “We must save the country from catastrophe,” Prime Minister Antonis Samaras told lawmakers from his conservative party on Sunday, according to AFP. “If we fail to stay in the euro, nothing will make sense.” Greece’s parliament is due to vote on a package of more than 13 billion euros in spending cuts, tax hikes and other reforms. Greece must approve the package and its 2013 budget to receive aid from the European Union and the International Monetary Fund. see MarketWatch Topics: Greece Samaras’s New Democracy Party and its coalition partners are expected to narrowly win approval for the package on Wednesday. The prime minister said at a party meeting that approving the cuts and tax increases would ensure that Greece stays in the euro zone. A vote on the 2013 budget is scheduled for Nov. 11.

    If You Want to Save Greece, Stop Lending It Money - The Greek rescue program is seriously derailed. By the end of this year, the economy will be a fifth smaller than it was five years ago, and the government is forecasting another 4.5 percent decline in 2013. This figure may once again prove overly optimistic. The collapse helps to explain the high drama involved this week, as the Greek government tries to drive through parliament a double dose of austerity in the teeth of recession, and the country’s international creditors worry over whether to give the country its next 31 billion euros ($40 billion) of life support, rather than let it default on debt repayments later this month and crash out of the euro. Given such a desperate situation, it’s all the more surprising that Greece continues to borrow abroad at a stunning rate. The current account deficit, a measure of external borrowing for the country as a whole, was 21 billion euros in 2011, or about 10 percent of gross domestic product. While it slowed somewhat in 2012, Greek borrowing still ran at an annualized rate of 14 billion euros in the first half of the year. The continued borrowing is often overlooked in the debates over how to rescue Greece, and it indicates that the effort to avoid default is doomed.

    Europe, Central Bank Spar Over Athens Aid  - Europe's governments and the European Central Bank are at odds about who should shoulder the financial burden of giving Greece more time to repay its loans and remain part of the euro zone. The search for a solution for Greece, whether by forgiving some of the money it owes or giving it yet more bailout loans, has come back to haunt the currency union ahead of the ECB's monthly policy meeting on Thursday. Greece faces a key Treasury-bill repayment in less than two weeks, and the money isn't there unless governments provide additional aid or the ECB agrees to lend Greek banks the money to roll over the debt.

    Greece: strike warning ahead of new austerity vote - Unions have timed a three-day general strike in Greece to coincide with two key parliamentary votes this week. Public transport workers in Athens walked off the job on Monday ahead of much wider nationwide action on Tuesday and Wednesday. Greek MPs are due to sign off on a new 13 and a half billion euro austerity package, while also agreeing new measures making it easier to hire and fire workers. Prime Minister Antonis Samaras and Socialist coalition partner Evangelos Venizelos have once again warned that Greece’s future within the eurozone depends on both plans being approved. The main opposition party Syriza has demanded ‘no’ votes in parliament and called for fresh elections.

    Greece hit by general strike on eve of key vote on spending cuts - A new 48-hour nationwide general strike began on Tuesday in Greece on the eve of a key vote in the assembly over a fresh round of harsh spending cuts requested by lenders in return of further bailout aid to stave off bankruptcy. Thousands demonstrators marched peacefully to the center of Athens and other major cities across the country, participating in the mass mobilization organized by the two main labor unions, representing most of the public and private sector workforce, ADEDY and GSEE, and Left opposition parties. As public transport was at standstill, public administration offices, banks, schools and stores shut down and hospitals run on emergency personnel, strikers gathered outside the parliament building to protest their "sentence to extreme poverty," as unionists said. Chanting anti-austerity slogans and waving banners, protesters called on deputies to vote down the new 13.5 billion euro (17.3 billion U.S. dollars) package of salary cuts and tax increases which is expected to be narrowly ratified on Wednesday night.

    Greece faces cliffhanger vote as general strike begins - Greece headed for a cliffhanger vote on austerity measures needed to keep the bailout on track as a 48-hour general strike began and European officials squabbled over the timing of a deal to unlock rescue funds. European Union Economic and Monetary Affairs Commissioner Olli Rehn, speaking at a meeting of Group of 20 finance chiefs in Mexico City, said on Monday that a deal must be made at a meeting of EU finance ministers in Brussels on Nov. 12. A European G-20 official, speaking before Rehn and on condition of anonymity, cast doubt on the prospects for that deadline, saying officials may fall short. Greece is under pressure to make more efforts to rein in its budget deficit and deregulate the economy. While German Chancellor Angela Merkel last month travelled to Greece to signal her willingness to keep Greece in the euro, the country is still struggling to hit its debt reduction targets amid a combination of Greek political resistance to more cuts and economic collapse. “We need to have a common view on how to reduce the debt burden by the 12th of November,” Rehn told reporters. “I’m confident that we will be able to reach that common view.”

    Greece to vote on austerity, protests intensify (Reuters) - Greece's coalition government hopes to overcome its own divisions and defy protesters' fury at parliament's gates on Wednesday to push through an austerity package needed to secure an injection of aid and avert bankruptcy. Prime Minister Antonis Samaras is expected to narrowly win support for the budget cuts, tax hikes and labor reforms. The smallest party in his conservative-liberal coalition oppose the measures, leaving him with a margin of just a handful of votes. Tens of thousands of union workers plan to descend on the assembly in a second day of a nationwide strike that has brought most public transport to a halt, shut schools, banks and government offices, and caused garbage to pile up on streets. Backed by the leftist opposition, unions say the measures will hit the poor and spare the wealthy, while deepening a five year recession that has wiped out a fifth of the Mediterranean country's output and driven unemployment to 25 percent. "If lawmakers vote in favor of the measures... they will have committed the biggest ever political and social crime against the country and the people," said Nikos Kioutsoukis, secretary general of the private umbrella union GSEE. "We won't let them destroy the country."

    Athens grinds to a halt - The Greek parliament will vote late Wednesday on the structural reforms and budget cuts demanded by the Troika. Reports suggest that the government will be able to get a majority. But in a last minute attempt to derail the vote, the country’s two main labour unions called a 48 hour general strike that started today. From the Kathimerini: Public transport staff have suspended services on the Athens metro, the Piraeus-Kifissia electrical railway (ISAP) and the tram on Tuesday, while bus and trolley bus drivers are set to walk off the job Tuesday and Wednesday. Service will also be halted on the national and suburban railways Tuesday and Wednesday. Disruptions are also expected at Athens International Airport on Tuesday from a three-hour stoppage by air-traffic controllers, starting at 10 a.m. Taxis begin rolling 24-hour strikes on Monday, while hospital doctors embark on a three-day walk-out through Wednesday. Lawyers across the country suspended activity for five days starting Monday, while prosecutors are extending their strike to November 18. Municipal workers protesting plans to slash over 3,000 jobs are also on strike.

    Greece gripped by 48-hour austerity strikes - Telegraph photo gallery

    More Greeks Live In Poverty Than Iranians - The number of people in Greece classified as living below the poverty line reached 2.34 million (or over 20% of their 11.3 million population). Ekathimerini reports that the Hellenic Statistical Authority (ELSTAT) has released data from 2010, the first update of this frightful data series post austerity measures. Household spending has dropped dramatically in the two years since then suggesting the current picture is considerably worse. Still, comparing apples to slightly smaller apples, CIA data shows Greece now considerably more impoverished than Iran, Bosnia and Herzegovina, Mexico, and the West Bank. The EUR6,591 per annum poverty line in Greece compares to average per capita income of EUR12,637 but what is perhaps most worrisome - as social unrest continues to rise - is that Greece is among the European countries with the greatest financial inequalities, as the richest 20% of the population had an annual income that was six times that of the poorest 20%

    Greek Brothel To Sponsor Broke Elementary School - This is what complete social collapse looks like

    . First, the local Neo Nazi party has soared in the polls and is now the third most popular Greek party. Then, in lieu of other sources of capital, a local brothel became the head sponsor of a minor-league soccer club from Larissa. Now, the same brothel which appears to have seen a substantial return on its advertising spend, has decided to branch out... straight into a local elementary school. That's right: a whorehouse is advertising its "services" to children in an elementary school. In exchange for what? Money to purchase a Xerox machine and a library. From Kathimerini: After sponsoring a soccer team in Larissa, central Greece, brothel owner Soula Alevridou is now extending her financial support to a school in Patra, in the Peloponnese. Following an open invitation for sponsorship launched by a Patra elementary school parents association, Alevridou pledged to donate 3,000 euros to the educational facility in order to cover for a series of operational costs, a daily Peloponnesian newspaper reported. According to reports, the funds would be used to purchase a photocopier and a library for the school.

    Greece — democracy in the balance - OK America is a more puissant nation but let’s say what most of us feel – it hardly matters who wins in America because, as am American comedian noted the other day,  the candidates are just the same model just in two different colours. Either way Wall Street gets its man in the Presidency.  For what it’s worth I think Wall Street, by and large, prefers Obama to win because his presence in the White House will do far more to contain public anger and particularly Black anger at the on-going lootting of the nation’s saving s and coffers than Romney’s would.Romney has served his purpose which was, I suggest, to pull the debate as far to the right as possible and to help ensure that whoever wins does so without any mandate from the people. No large majority –  no power to stand up to the juggernaught of special interests and Wall Street policies. But Greece on the other hand stands at a cross roads not just for itself but for Democracy in Europe as a whole. Greece is in disarray but no more so than the rest of EUrope just more visibly so.What ails them is what is eating at us – the creeping failure of Democracy.

    Angela Merkel: eurozone crisis will last at least another five years - Telegraph: The eurozone will take at least another five years to recover from the crippling debt crisis that has hampered even Europe's most powerful economy, according to German Chancellor Angela Merkel.Mrs Merkel said that though Europe was on the right path to overcome the crisis, she added: "Whoever thinks this can be fixed in one or two years is wrong." “We need a long breath of five years and more,” she told a conference in Sternberg, Germany. “We need rigor to convince the world it’s worth investing in Europe.” Two years ago some heavily indebted European countries were dragged into the turmoil that first gripped global financial markets in 2007. Greece in particular has been struggling with the austerity conditions imposed on it by countries such as Germany. But Mrs Merkel told a regional meeting of her Christian Democratic Party on Saturday that the time had come for "a bit of strictness."

    Spain 'faces slower growth and bigger deficit' - Struggling Spain, reluctant to call for a debt bailout, faces slower growth and a much bigger public deficit than its government initially expected, according to reports. This year's public deficit - the shortfall between government spending and revenues - will come in at 8.0pc of Gross Domestic Product, well above the target of 6.3pc agreed with Brussels when Spain was given an extra year to put its strained finances in order. The deficit next year will be 6pc, compared with Madrid's estimate of 4.5pc, a European source told AFP a day before the European Commission unveils its official forecasts for the bloc. In 2014, when the deficit was supposed to come in at 2.8pc - under the EU ceiling of 3pc - it will be still at 5.8pc, the source said, leaving Spain in dangerous waters. "This means that Spain finds itself with a real problem - it either gets another extension [to the timetable] agreed in June" or it will have to take additional austerity measures, the source said. Total debt as a percentage of GDP is expected to be slightly better than government forecasts, at 83.7pc in 2012 compared with 85.3pc, and 89.5pc next year rather than 90.5pc, but again it is well over the 60pc EU limit.

    Spain extends rescue fund for regions into 2013 - Spain's government announced Monday it will extend the life of a rescue fund through 2013 to help struggling regions finance crippling debts. Recession-struck Spain's 17 regions have already flooded the rescue fund with cries for help as they try to pay off debts at the same time as slashing budgets to meet stringent deficit targets. Prime Minister Mariano Rajoy's right-leaning government created the regional liquidity fund in July this year with a budget of 18 billion euros (US$23 billion) to bail out regions. A 2008 property market crash sent debt levels soaring in the regions, each of which is responsible for the costly provision of health, education and social services. It is already clear that the regions' cash problems will not be resolved by the end of 2012, by when the government has predicted they will have a combined public debt of 160.1 billion euros.

    Spain Still Has 60,000 More Public Employees Than in 2007 - Spain is finally shedding some public workers, but the total is still substantially above the number employed at the peak of Spain's property bubble. Via Google translate from Libre Mercado please consider Spain Has 60,000 More Public Employees Than in 2007 The Labour Force Survey (LFS) for the third quarter confirmed the trend that has been recorded in recent months in terms of job losses in the public sector. Specifically, the number of employed fell by 96,000 from the second quarter, reaching a total of 17.32 million, the lowest level since 2003. However, what is important is that nearly half of job destruction is concentrated in the public sector: 49,400 jobs, of which 19,600 were permanent and 29,800 temporary workers. Also focused on trimming the regional administration, with a reduction of 44,300 workers in the third quarter. The number of public employees in September stood at a total of 2.99 million, thus lowering the threshold of 3 million for the first time since the third quarter of 2008. Nevertheless, the Spanish public sector still has to this day with more than 59,800 employees at the beginning of the crisis, as in the third quarter of 2007 they numbered 2,931,900 workers.

    Ballooning deficit to up pressure for Spanish bailout - The EU commission on Wednesday (7 November) is likely to forecast a larger-than-expected deficit for Spain, adding pressure on the country to ask for a bailout. Spain's public deficit for this year - already adjusted twice in recent months - is now expected to reach eight percent of the country's gross domestic product, according to draft figures seen by AFP. This will be almost two percent more than a previous estimate when Spain obtained a year extra to bring its deficit below the three-percent threshold under EU rules. In addition, recession is to last until 2014, making it difficult for the Spanish government to push for more austerity measures to bring the deficit down.

    Italian business schools try to take on the Mafia - PEOPLE who live in Calabria and Sicily have average incomes less than half of what their fellow citizens earn in Lombardy and Tyrol. Some, if not most, of that difference can probably be attributed to the pervasive crime and corruption caused by the Mafia in southern Italy. The mob is so persistent because, like all good businessmen, Sicily’s Mafiosi have done a good job of tying their welfare to that of their local communities. One strategy is to operate many legal businesses with more employees than necessary, paying wages that would be hard to sustain if there were no illicit revenue streams available to supplement legal cash flows. This presents a problem for law enforcement agencies because many people generally resent what happens when these legitimate businesses are seized by the state. Today’s Financial Times has the story: It is normal for a decade to pass between when an asset of someone charged with being part of an organised crime group is confiscated and the final court verdict that passes the assets definitively to the state. Often, as with the San Paolo [a hotel], it then takes many more years before the government finds a buyer, while businesses languish or fold, leading to job losses and social unrest…The more than 1,600 confiscated businesses in Italy include construction companies, healthcare providers, mines, castles, manufacturers, villas, vineyards, hotels and supermarkets. Court-appointed administers of forfeited businesses often have a tough time filling in for the old bosses, which is why so many firms get liquidated:

    Portugal minister says bringing deficit down fully will take years - (Reuters) - Portugal will take many years to fully reduce its budget deficit, its finance minister acknowledged on Tuesday, adding that the IMF and World Bank were close to concluding an evaluation of further spending cuts. Additional spending cuts of 4 billion euros would come into effect in 2013-14, and would be on top of next year's budget, which will heap more austerity on the Portuguese as it will include the largest tax hikes in the country's modern history. The spending cuts were not included in the country's original 78-billion-euro bailout from the European Union and IMF but the government has presented them as a way to guarantee the long-term sustainability of public finances. Finance Minister Vitor Gaspar said it would take several decades to cut Portugal's debt to GDP ratio below 60 percent and said there were still great risks to the economic outlook in Portugal and Europe. Debt is currently expected to peak at 124 percent of GDP in 2013.

    France steps onto the austerity path - In the last week there has been quite a bit of news circculating about the weakness of France and its need for structural reforms to stay competitive. I’ve spoken previously about France and how, although it is recognised as a ‘core’ EZ country, it is far more like the periphery in economic structure:High levels of public and private debt, a long running negative trade balance and current account deficit, stalling industrial production, GDP and employment along with significant banking sector exposure to the periphery all add up to a fairly risky predicament. This is certainly not a country that could take on a strict austerity regime without causing itself some significant short-to-medium term economic damage because it is obvious from the metrics that the private sector has been borrowing from both the external and government sectors for a long period of time.Overnight the French government enacted some changes to business taxes worth €20bn, offset by consumer tax rises and public sector cuts, supposedly to start down the path to economic restructuring:The French government announced on Tuesday it is to create 20 billion euros worth of tax breaks for businesses as one of a series of budgetary measures aimed at boosting the country’s flagging competitiveness.France’s Socialist government unveiled Tuesday measures to bolster the struggling industrial sector and make exporters more competitive but the package fell short of the shock therapy industry leaders are urging.

    French Senate Rebukes Hollande in Symbolic Rejection of Budget - The French Senate delivered a symbolic rebuke to President Francois Hollande, with Communist lawmakers refusing to support his five-year budgetary plan they called too austere. Communist senators joined former President Nicolas Sarkozy’s Union for a Popular Movement opposition party to vote against the law late yesterday. The count was 189 votes against and 152 in favor. The bill returns to the lower house early next month where it will probably pass. Under French law the National Assembly’s final vote is enough to pass a bill. Hollande’s Socialist Party has an absolute majority in the chamber. Yesterday’s vote marked the second time in less than a month that Communists rebuffed a government bill. They have also criticized the 2013 social- security budget bill to be voted next week. The Senate may also rebuff the 2013 budget law. Hollande’s 2013 blueprint relies on 20 billion euros ($26 billion) in tax increases, including a levy of 75 percent on incomes over 1 million euros, and eliminating limits on the wealth tax. Hollande aims to reduce spending by 10 billion euros, bringing the deficit to 3 percent of output from 4.5 percent in 2012. The budget predicts growth of 0.8 percent.

    Wolf Richter: EU Bureaucrats Don’t Follow Own Austerity Prescription, Siphon Off EU Money - The European Union has been pursuing a dream, and in doing so, it has created a ballooning superstructure of governance manned by 41,000 bureaucrats and mostly unelected politicians. In 2011, they spent €129 billion that had been obtained from member states and their taxpayers. But now, the European Court of Auditors released its audit report for that year—a damning document that outlines how up to 4.8% of the EU budget had seeped through the cracks without ever reaching its target. Already, the EU is under fire. As member governments are tightening the belts of their people to get deficits under control, and as austerity measures are tearing into healthcare benefits, wages, pensions, and safety nets, and as living standards are being hammered to smithereens, the EU government demands another budget increase. It’s going to be quite a sight when the 27 member states have to sit down around the negotiating table on November 22 and 23 to cobble together a budget compromise for the next seven years. Some of them want the budget to be cut, and UK Prime Minister David Cameron, who has to quell a conservative rebellion in the House of Commons, threatened to veto the budget if it isn’t. France threatened with a veto, but in the opposite direction: it wants its beloved agricultural subsidies to survive intact. And Denmark threatened with a veto if it doesn’t get a juicy rebate. So the audit report came in the nick of time. It concluded that, overall, payments were “materially affected” by error and that supervisory and control systems for payments were only “partially effective.” The numbers were stunning: 44% of all transactions were “affected by material error,” and anywhere from 3.0% to 4.8% of the entire budget was unaccounted for, with 3.9% being the “most likely error rate” (MLE).

    Regulation concern increases the most in the latest ECB corporate survey - The ECB has released its latest survey on the corporate sector in the Eurozone (h/t Kostas Kalevras). The focus has generally been on access to finances for small and medium-sized enterprises (SMEs), but the survey covers considerably more, including large firms in the euro area. Finding customers of course has always been an issue, and in the current environment it is a struggle. But outside that category, two concerns have trended up. One is access to financing, which for larger firms seems to be more of an issue than it has been in several years. This is not surprising given the ongoing credit contraction in the Eurozone (see discussion).The other concern that is a bit more surprising is regulation, which has increased more than any other item in the survey for both small and large firms. It seems that just like in the US, regulation is adding to the uncertainties that companies face. Regulators across the EMU nations need to pay close attention before the various regulatory efforts extinguish corporate growth, making the recovery far more difficult.

    German Factory Orders Slump the Most in a Year: Economy - German factory orders fell the most in a year in September as Europe’s sovereign debt crisis and slowing economic growth prompted companies to reduce investment. Orders, adjusted for seasonal swings and inflation, slumped 3.3 percent from August, when they dropped a revised 0.8 percent, the Economy Ministry in Berlin said today. That’s the second straight drop and the biggest since September 2011. Economists forecast a 0.4 percent decline, according to the median of 40 estimates in a Bloomberg News survey. From a year earlier, orders sank 4.7 percent when adjusted for work days.Germany’s economy, Europe’s largest, is showing signs of weakness as governments and consumers across the region reduce spending, damping export demand. Business confidence fell to the lowest in more than 2 1/2 years in September and the unemployment rate rose from a two-decade low. At the same time, Germany is weathering the debt crisis better than its euro-area counterparts thanks to exports to emerging markets and domestic demand.

    Euro-Area Factory, Services Output Contracts for 9th Month - Euro-area services and manufacturing output contracted for a ninth month in October, adding to evidence that the single-currency bloc’s economy is in a recession.  A composite index based on a survey of purchasing managers in both industries dropped to 45.7 from 46.1 in September, London-based Markit Economics said today. That’s below an initial estimate of 45.8 on Oct. 24. A reading below 50 indicates contraction. “The euro-zone downturn appears, if anything, to be deepening rather than easing,” said Howard Archer, an economist at IHS Global Insight in London. “It already looks highly probable that the euro zone is headed for further economic contraction in the fourth quarter.”  At least five euro area countries are already in recession, and fiscal turmoil is showing signs of spreading to the region’s core nations. Economic confidence fell for an eighth month to the lowest in more than three years in October, adding to signs the slump extended into the fourth quarter.

    Eurozone core economies under pressure - The weakness in the Eurozone core nations' economic activity (see discussion) is becoming more acute. Today's release of Markit construction PMI for Germany in fact looks bleak. Markit: - The downturn in German construction gathered pace in October, with the civil engineering subsector showing particular weakness over the month. Activity fell on the back of another sharp decline in inflows of new orders, and firms responded to reduced workloads by cutting staff numbers. Meanwhile, future expectations were the lowest since the depths of the global financial crisis in late 2008. Total construction work in Germany decreased at a faster rate in October, as signalled by the seasonally adjusted Germany Construction Purchasing Managers’ Index® (PMI®) – a single-figure snapshot of overall activity in the construction economy – dipping from September’s mark of 48.6 to 44.6. That was the lowest since July, and the eighth sub-50 reading in the past nine months.Even residential construction activity, which has been fairly strong up until recently, is facing a slowdown. Markit: - A solid decrease in residential building activity followed growth in the sub-sector during the previous survey period, while the latest downturns in commercial construction work and civil engineering activity were the steepest for three and eight months respectively.Germany's composite PMI that covers all sectors of the economy also came in below expectations with a trend that is showing an ongoing decline.

    Convergence between the core and the periphery economies in the Eurozone - Here is a quick follow-up to an earlier post on Germany's weakening economic activity. The convergence between the Eurozone core and the periphery in terms of economic growth is now clearly visible in the PMI data. We may be looking at a situation in which some periphery nations have become a cheaper option for manufacturing (and other business activity), as companies shift some of their production out of the Eurozone core. In response, France for example is now taking steps to improve competitiveness and try to keep businesses and jobs from leaving. The latest idea is to provide tax incentives to companies, paid by an increase in VAT and cuts spending. WSJ:  - Socialist Prime Minister Jean-Marc Ayrault unveiled €20 billion worth of tax breaks over three years that will allow domestic firms to cut labor costs. The resulting shortfall in the government finances, equivalent to about 1% of gross domestic product, will be funded in equal parts by spending cuts and by an increase in the value-added tax. In effect the painful periphery adjustments are forcing the core to adjust as well, contributing to the convergence.

    Euro drops; Draghi says debt crisis hits Germany -- The euro dropped versus the dollar and other major rivals Wednesday, with U.S. stock index futures also on the decline, after European Central Bank President Mario Draghi said the euro-zone debt crisis is beginning to have an impact on the region's largest economy. "Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy," Draghi said in remarks prepared for delivery in Frankfurt. The euro fell to $1.2747 in recent action, down from $1.2817 in North American trade late Tuesday. A variety of German data have pointed to slowing activity in recent months, raising concerns over a weakening of the euro zone's growth engine, economists have noted

    Dreadful Economic Data in Germany, Italy, Spain France - Here are some dreadful Eurozone news stories you may have missed. Sharpest Fall in French Service Sector in a Year: The Markit France Services PMI® shows the sharpest fall in French service sector business activity for a year. Key Points:

    • Final Markit France Services Activity Index at 44.6 (45.0 in September), 12-month low.
    • Final Markit France Composite Output Index at 43.5 (43.2 in September), 2-month high.

    Business activity in the French service sector decreased at a substantial rate in October. This primarily reflected a further drop in incoming new business, as weak economic conditions weighed on demand. The rate of job losses accelerated as service providers responded to excess capacity. Output prices continued to be cut at a sharp rate, despite a further (albeit weaker) rise in input costs. Future expectations deteriorated again, slipping to the lowest level since January 2009.

    The Markit Spain Services PMI® shows Sixteenth successive reduction in business activity:

    • New orders and activity fall sharply
    • Charges decrease at faster pace
    • Companies forecast decline in activity over coming year

    The Markit/ADACI Italy Services PMI® shows Weakest fall in business activity for 14 months.

    • Output, new work and employment all fall at reduced rates
    • Margins squeezed by diverging trends in input and output prices
    • Future expectations remain subdued

    The Markit Germany Services PMI® shows Marginal reduction in German services activity amid ongoing new business declines.

    • Final Germany Services Business Activity Index(1) at 48.4 in October, down from 49.7 in September.
    • Final Germany Composite Output Index(2) at 47.7 in October, down from 49.2 in September

    Debt crisis: German economic data is a "catastrophe" say economists - German factory orders recorded their biggest drop for a year according to figures that lead a raft of economic data from Spain, France and Italy, that underscored the advancing debt crisis. The German finance ministry said factory orders were down 3.3pc in September from the month before shocking economists who had forecast a 0.4pc drop, according to Bloomberg poll. Taken with figures showing German business confidence has fallen to the lowest in two-and-a-half years, the data was described as “a catastrophe and very bad news” by Thomas Harjes, European economist at Barclays in Frankfurt. “We have a huge problem in the rest of the euro area that now seems to be reaching Germany and its labour market,” he said. “For the coming quarters, the economic outlook is quite gloomy.” Fresh data from Markit Economics showed that the eurozone’s combined output of the manufacturing and services sector fell at the fastest pace since June 2009. The composite PMI for the 17 member states fell to 45.7 in October, down from 46.1 in September. It was the nineth consecutive monthly fall.

    Economic Experts Warn Merkel Against Extra Spending - Spiegel - In its annual report presented to the German chancellor on Wednesday, the respected Council of Economic Advisors is calling on Berlin to be more ambitious in its efforts to consolidate the country's budget. It appears that the council, which serves as an official advisor to the federal government, isn't very pleased with Chancellor Angela Merkel and some major spending decisions she made at a party conference over the weekend. Merkel appears to be dipping into Germany's coffers in order to quiet rumblings in her coalition government as the country heads into a general election year. On Sunday night, Merkel agreed to boost pension payments to those threatened by old-age poverty as well as to implement programs that would provide up to €2 billion ($2.57 billion) a year in support for stay-at-home mothers, give €2 billion to relieve participants in the national healthcare system from a required quarterly €10 co-pay for doctor visits and bolster of the transportation minister's budget by €750 million. The move is likely to please some members of her coalition government, comprised of Merkel's own Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the business-friendly Free Democratic Party (FDP). But Merkel's economic advisors feel this sends out the wrong message. "Given that the government cannot count on special factors and favorable economic developments in the long term, it is necessary for it to get a lot more ambitious about consolidating the federal budget," the advisors state in their report, which was released on Wednesday.

    Angst returns on German recession fears and US fiscal cliff - Mario Draghi, the European Central Bank’s president, warned that Germany is no longer insulated from the slump in southern Europe. "The latest data suggest that these developments are now starting to affect the German economy," he said, triggering an immediate sell-off on Europe’s bourses and pushing the euro down to almost $1.27 against the dollar. Germany’s industrial output dropped 1.8pc in September and orders fell 3.3pc, far worse than expected. Spanish industrial output fell 7pc. Annalisa Piazza from Newedge said it was a shocking upset and implies that Germany may be in recession already. Flight to safety pushed down yields on two-year German debt to -0.06pc, nearing the all-time low seen during the last eurozone debt spasm in July. Yields on 10-year US Treasuries fell 11 basis points to 1.63pc. The jitters came as American voters delivere split government yet again, with the Republicans still in charge of the House of Representatives and the Democrats still shy of a 60-seat super-majority in the Senate. Alan Greenspan, ex-chairman of the US Federal Reserve, said it is unclear whether President Barack Obama can reach a deal with Congress to head off the "fiscal cliff" in the few working days before recess in mid December. Unless the two sides agree there will be automatic tax rises and spending cuts worth $600bn or 4pc GDP at the end of the year.

    Greece passes austerity bill amid violent protests - Greece's lawmakers narrowly passed a new €13.5 billion austerity bill on Thursday, which includes unpopular measures to raise the retirement age to 67 and cut the minimum wage. The vote sparked violent clashes outside the country's parliament. By FRANCE 24 (text) Greece’s Parliament passed a crucial austerity bill early Thursday in vote so close that it left the coalition government reeling from dissent. The bill, which contains yet more painful measures, including raising the retirement age to 67 and cutting the minimum wage passed 153-128 in the 300-member Parliament. It came hours after rioters rampaged outside Parliament during an 80,000-strong anti-austerity demonstration, clashing with police who responded with tear gas, stun grenades and water cannons. Approval of the cuts and tax increases worth €13.5 billion ($17 billion) over two years was a big step for Greek efforts to secure the next installment of its international rescue loans and stave off imminent bankruptcy.

    EU: Eurozone recession to be worse, rebound slower — Europe's economy is still reeling and unemployment could remain high for years despite the progress made in solving the debt crisis, the European Union warned Wednesday, as it downgraded next year's forecasts for the 27-country bloc. The European Commission, the executive arm of the EU, on Wednesday revised down its forecast for the region's gross domestic product, which it now expects to grow by just 0.4 percent in 2013, compared to its expectations this spring of 1.3 percent growth. The commission had previously expected the 17 countries that use the euro to find its footing next year, with 1 percent growth. Now it predicts only a 0.1 percent uptick. The report also suggests that unemployment won't start falling until 2014 — and then only slightly. "Europe is going through a difficult process of macroeconomic rebalancing and adjustment, which will last for some time still," Olli Rehn, the EU's economic and monetary affairs commissioner, told reporters. "Market stress has been reduced but there is certainly no room for complacency."

    Laughable European forecasts - While I watch the news feeds out of Greece as the parliament votes on the future of … well … just about everything, I am once again reminded how highly optimistic and misguided economic assumptions have led, in part, to the situation we now see across Europe.  One of the places where you can witness the historical record of this is in the European Commissions economic forecasts which are available here. Overnight the EC released its latest forecast on Europe’s economy which contained some large revisions to previously forecast data:The short-term outlook for the EU economy remains fragile, but a gradual return to GDP growth is projected for 2013, with further strengthening in 2014. On an annual basis, GDP is set to contract by 0.3% in the EU and 0.4% in the euro area in 2012. GDP growth for 2013 is projected at 0.4% in the EU and 0.1% in the euro area. Unemployment in the EU is expected to remain very high.The large internal and external imbalances that built up in the pre-crisis years are being reduced, but this process continues to weigh on domestic demand in some countries, and economic activity diverges significantly across Member States. At the same time, competitiveness lost in the first decade of EMU in some Member States is being gradually restored, so that export growth is projected to increase progressively as global trade starts reaccelerating. Further progress in consolidating public finances is underpinning this rebalancing process.

    Spain’s fantastical deficit forecasts - Spain’s fiscal management seems to increasingly be a case of plugging holes, watching new ones appear, ignoring them, then relenting and also plugging those… all while delaying a clearly inevitable request for assistance from Brussels. On the positive side, the auction on Thursday marked the completion of the country’s planned funding for this year (€86bn, but there’s also €10bn in private placements issuance). On the negative side, the €4.7bn debt sale saw unenthusiastic demand, which has helped spook investors and driven 10-yr yields up. From Reuters (our emphasis): “The five-year sale was awful. I don’t think it was good at all,” a trader said, highlighting the 9 basis points difference between the highest accepted yield and the average yield – a measure of demand known as the auction “tail”. Spanish 10-year yields rose to 5.86 percent, up 14 bps to their highest since mid-October, with yields across the curve rising by a similar amount and fellow struggler Italy’s debt also pressured. Here’s the 10yr yield action today:

    ECB Stands Ready to Buy Bonds as Economy Weakens - European Central Bank President Mario Draghi said the economic outlook is worsening and the bank stands ready to activate its bond-purchase program if governments fulfil the necessary conditions. “We are ready to undertake” Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said at a press conference in Frankfurt today after policy makers left the benchmark interest rate at a historic low of 0.75 percent. “The risks surrounding the economic outlook remain on the downside” and underlying inflation pressures “should remain moderate,” he said. Draghi indicated the ECB is likely to lower its economic forecasts next month as the sovereign debt crisis curbs growth in Germany, the region’s largest economy. He stopped short of signalling a further rate cut, saying the ECB’s monetary policy is already “very accommodative” and the announcement of its bond program has led to “a series of improvements” on financial markets.

    Merkel and Cameron Deadlocked Over EU Budget; Common Agricultural Idiocy - British Prime Minister David Cameron is locked in a battle with German chancellor Angela Merkel over whether to increase the size of the EU budget.  Cameron is the only holdout (yet he deserves no credit for his position). Rather, the British Parliament Voted to Reject EU Budget, Cornering Cameron. Otherwise he was prepared to have the EU budget go up at the rate of inflation. The 17 net recipient nations are all in favor of more money of course. And as I have pointed out numerous times, Merkel would sell her soul to keep the EU intact. Nearly half the EU budget is crop subsidies, price support mechanism, and guaranteed minimum prices on agricultural good. The aim of the Common Agricultural Policy (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food at fair prices and to preserve rural heritage.  CAP is idiocy. Farmers deserve no more taxpayer subsidies than bricklayers or computer programmers. Simply put, everyone deserves the exact same fair shake regardless of what they do. The way to accomplish that is not give any select groups subsidies.

    Greek parliament approves drastic austerity plan amid mass strikes - Shortly after midnight on Thursday morning, the Greek Parliament voted in favor of the country’s fifth austerity program within the last three years. Voting in favor of the sweeping cutbacks were 153 deputies, with 128 voting against and 18 abstentions. Earlier in the afternoon, more than a 100,000 angry workers marched through the rain to the parliament. They made clear they are no longer prepared to accept the poverty and misery bound up with more cuts. The police forcibly dispersed the protests using tear gas and stun grenades against demonstrators. The powerful mass demonstration together with a two-day national strike were an expression of the strength of the Greek working class. City halls, offices and banks have been closed since Tuesday, and public transport was brought to a virtual standstill. Numerous private companies, such as waste management, were also hit by the strike action, and schools and universities remained closed. Hospital and power plant workers as well as taxi drivers had already started strike action on Monday, prolonging their own walkout to three days. According to media reports, participation in the strike was overwhelming, with demonstrations also taking place in other Greek cities.

    Greek government defies protests to approve more austerity  - Greece's government voted by a razor thin margin on Thursday to approve an austerity package needed to unlock vital aid and avert bankruptcy, despite an internal rift and violent protests at the gates of parliament. Lawmakers approved the spending cuts, tax hikes and measures making it easier to hire and fire workers after nearly 100,000 Greeks waving flags and chanting "Fight! They're drinking our blood!" descended on Syntagma Square in central Athens. Despite the abstention of their junior ruling partner the Democratic Left, Prime Minister Antonis Samaras's New Democracy Party and its Socialist PASOK allies passed the 500-odd page bill shortly after midnight. The bill covering the bulk of 13.5 billion euros' ($17.2 billion) worth of belt-tightening measures is a precursor to the 2013 budget law, which the government is expected to push through on Sunday. If it does, it is expected to unlock a 31.5 billion euro aid tranche from the International Monetary Fund and European Union that Greece needs to shore up its banks and pay off loans.

    Greek Aid Payment Call Won’t Be Made Next Week, EU Official Says - Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a full report on the country’s compliance with the terms of its bailout, a European Union official said. Finance chiefs won’t make the call to release 31.5 billion euros ($40.1 billion) of aid for Greece that has been frozen since June when they meet in Brussels on Nov. 12, the official said today on condition of anonymity because the deliberations are private. Ministers will await a final report from the so-called troika that oversees euro-area bailouts on Greece’s efforts to meet the conditions of its second bailout since 2010 before taking action, the official said. That report isn’t finished yet, the official said, and while a preliminary version may be available for the Nov. 12 meeting, that won’t be enough for ministers to base their decision on.

    Germany Says Not Ready to Release Greek Aid Tranche as Default Concerns Grow - Germany won't sign-off on multi-billion euro aid tranche for Greece without parliamentary approval, a government official said Friday, causing concern the delay could push Greece into a short-term default as early as next week. Marianne Kothe, the spokeswoman for Germany's Finance Ministry, told reporters in Berlin that lawmakers could not make a decision on releasing the €31.5 aid tranche until Greece's international creditors, the so-called "Troika" of the International Monetary Fund, the European Central Bank and the European Union, published its long-delayed report on the state of the nation's budget and finances and its efforts in keeping to agreements reached in two previous bailouts. Finance Ministry officials in Greece, meanwhile, told Reuters they were "examining the rollover of €5bn in treasury bills" that mature on 16 November because they do not have the cash to repay investors and doesn't expect the Troika release, which was originally due in late June, to be approved by that time.

    Greece says cash reserves almost depleted (Reuters) - Greece is fast running out of cash while it awaits the next tranche of its 130-billion euro international bailout that is keeping it afloat, a deputy finance minister said on Friday. "The situation with the state's cash reserves is borderline," Deputy Finance Minister Christos Staikouras told a conference. "This fact creates a condition of asphyxiation in the economy." Athens is considering rolling over 5 billion euros in treasury bills when they mature next week due to a likely delay in receiving the 31.5 billion euro tranche, finance ministry officials told Reuters earlier on Friday.

    Europe Back In The Spotlight, by Tim Duy: Europe faded from the news over the summer. European Central Bank President Mario Draghi's shift to allowing his institution to serve as a lender of last resort calmed nerves and took the worst case scenario of imminent breakup off the table even though the program has yet to be implemented. In the meantime, economic conditions in Europe continued to slowly deteriorate. We are now looking at another year of dismal growth in the Eurozone. This crisis seems to have no end in sight. To be sure, a little relief today as the Greek parliament pushed through the latest austerity package, throwing the bailout back to the Troika. But the relief was short-lived. Interestingly, the Greeks were rewarded with news that the next tranche of aid is not a done deal. From Bloomberg: Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a full report on the country’s compliance with the terms of its bailout, a European Union official said. ...The EU official said Nov. 26 is a possible date for euro- area finance ministers to sign off on the next disbursement of rescue aid to Greece. I think I would have kept this under my hat until Greece votes on its budget this Sunday. Still, I understand the hesitation. I am guessing that the Troika increasingly sees no way out for the Greek economy, at least under the current policy path. Does anyone really expect this to be anything more than just another effort to kick the can down the road? Everything to date as simply intensified what Ambrose Evans-Pritchard described as the "Greek death spiral." Highlighting that outcome was today's news that Greece's unemployment rate in August rose yet again.

    Greek Unemployment Rate Hits Record 25.4% - Greek August unemployment: 25.4%, up from 24.8% in July and up from 18.4% a year earlier. Needless to say, this is a record, and at this rate will be just shy of 30% by the end of the year (sorry IMF). This is, however, good news though: the Greek unemployment is, believe it or not, the second worst in Europe, behind Spain's 25.5%. Yet a category where Greece is the indisputed champion is youth unemployment, which just hit a mindboggling 58%, up from 54.2% in July (more on that shortly).

    Who will stop the Sado-Monetarists as jobless youth hits 58pc in Greece? - Greek unemployment rose to 25.4pc in August. Youth unemployment rose to 58pc. Under the official forecast, the economy will contract by a further 4.5pc next year, so it fair to assume that lots more people are going to lose their jobs. It is certainly not going to improve in any meaningful way for years to come. This is what happens when you lock into the wrong currency and block the escape routes – or join a "burning building with no exits" in the words of William Hague. Even if Greeks comply with all demands, public debt will reach 179pc of GDP next year. Perhaps there will be some sort of formula to cut debt service costs by shaving 50 basis points off interest on rescue loans, and persuading the ECB to forgo "profits" on its estimated €40 billion holdings of Greek bonds (though unrealised profits would seem be courting fate). Yet it is hard to see how the salary and pension cuts, etc, pushed through the Greek parliament last night with enormous difficulty can do any more than buy a few months’ delay. The protests on Wednesday bordered on urban guerrilla warfare. It will not take much to cross that line. Even if the EMU machine succeeds in keeping Greece in the system, is this any longer a remotely desirable goal? Has it not become a vicious and immoral policy in itself?

    The widespread impact of unemployment - It’s a fairly obvious point that pay rises are connected to unemployment levels: the more people there are ready to step into work, the less scope employees have to push for higher wages. Of course the connection is not quite so straightforward in practice, and pay trends are affected by many more factors than unemployment alone. But data drawn over time and across countries points to a clear relationship.  Perhaps unsurprisingly, the impact is more marked at the lower end of the earnings distribution than in the top half. This reflects the fact that the unemployed are more often drawn from the less skilled, meaning that they are closer substitutes for lower paid workers. As the chart below – taken from our recent publication, What a Drag – shows, the magnitude of the difference is startling. A hypothetical doubling of unemployment would be expected to reduce real wages at the 10th percentile by 22 per cent (or more than £3,000 a year), compared with just 11 per cent in the top half of the distribution.

    Missing the Bigger Picture in Greece, by Tim Duy: The FT has an update on the Greek bailout: Eurozone leaders face a new round of brinkmanship over Greece’s €174bn bailout after international lenders failed to bridge differences on how to reduce Athens’ burgeoning debt levels, pushing the country perilously close to defaulting on a €5bn debt payment due next week. The sticking point: The IMF remains more pessimistic about Greece’s ability to return to economic growth, the amount it will collect in its €50bn privatisation programme, and how much money is needed to recapitalise the country’s teetering banking system.As a result, Brussels and Washington are 5-10 percentage points apart on where Greece’s debt will stand by 2020, the target date in the rescue programme for returning Athens to sustainable debt levels.  Further complicating negotiations, officials said the IMF is insisting Greek debt levels are reduced to 120 per cent of gross domestic product by 2020, while the European Commission is urging an easing of the target to about 125 per cent by 2022. If past experience is any guide, the IMF is correct to be skeptical. But the bigger picture here is that the Troika has repeatedly failed to hit this target of 120 percent, and this time will be no different. 120, 125, or 135 percent is more about political posturing than economic reality. With any of these targets, the ongoing waves of austerity are doing nothing more than pushing Greece deeper into a death spiral. Five years of recession and counting. Unemployment above 25%. Still too many sticks, not enough carrots. And remember, the 120 percent target itself does not guarantee safety. It is largely an artifact of wanting to justify the level of Italian debt. From Reuters: The 120 percent figure was fixed on because Italy had debts of 120 percent of GDP at the time and was managing okay. But Italy is a very different case to Greece, with high domestic ownership of its debt, and its situation is now less stable.

    Meanwhile, Europe - Paul Krugman - So, American voters have spoken and sent the nation firmly on the path of destruction — God’s wrath for gay marriage, you know. So we can relax a bit on that front and turn our attention back to Europe, which remains, as Tim Duy says, very grim. Europe has been out of the spotlight for a while, partly because of the election focus here, but also because the acute financial strains have abated a bit. The ECB’s apparent willingness to buy bonds has combined with what looks like a surprising willingness of peripheral economies to accept even more austerity; the result is smaller bond spreads and less immediate risk of meltdown. But the macroeconomics of austerity and internal devaluation haven’t gotten any better: unemployment is still rising fast, and at some point the strain will just be too much to take. And I think it’s worth pointing out that this isn’t just a Greece/Spain issue. If you look at the euro area as a whole, it has in effect been following drastic fiscal austerity with no offset on the monetary side. Here, from the IMF’s Fiscal Monitor, is one measure of the overall fiscal stance for the euro area, the cyclically adjusted primary surplus (that is, what the budget balance ignoring interest payments would be if the economy weren’t so depressed):

    Europe's Scariest Chart Hits Peak Scariness Levels, And Rising - Things are rather unsurprisingly going from worse to worserer in Europe. Perhaps it is the anecdotal evidence we see in the now weekly riot-cams from Spain and Greece but just as we warned over a year ago, the truly scariest chart in Europe remains that of youth unemployment. The correlation (and causation) that runs from extreme levels of youth unemployment to general social unrest and anarchy is stunning throughout time (as we noted here and here). With Greek 'youth' unemployment jumping to a disheartening 58% (for August) - by far its highest ever - and Spain rising inexorably at 54.2%, the under-25 populations in these nations is truly set to burst (with overall unemployment rates of 25.4% and 25.5% respectively). Euro-zone youth unemployment overall has risen to 23.3% and while Greece jumped the most, Italy was close behind with a 1.2ppt rise to 35.1%. We are sure the austerity voted for last night by the politicians will 'help' - someone...

    Bank of France warns of recession - The French economy suffered two setbacks on Friday when the central bank warned of a slight recession and official data said that industrial output fell sharply in September. France is heading for a slight recession at the end of the year, the Bank of France forecast. In another gloomy announcement, the statistics institute INSEE reported that industrial output fell by 2.7 percent in September after a jump of 1.9 percent in August and that industrialists were planning further reductions of investment. The central bank estimated that total output would shrink by 0.1 percent in the last quarter, after an estimated setback of about the same amount in the third quarter. In the previous three quarters gross domestic product was flat. This latest outlook underlines strains in the economy and comes in a week marked by a big effort by the government to reverse the falling competitiveness and a huge structural trade deficit.

    French Central Bank Says France Will Enter Recession 4th Quarter; Berlin Suggests Plan For France - As expected, at least in this corner, things are going downhill rapidly in France.  The French central bank is now predicting recession for France.  Bear in mind Europe tends to use a pretty strict definition of recession - two consecutive quarters of negative GDP.Courtesy of Google translate from El Economista, please consider France will enter recession in the fourth quarter, according to Bank of France. The Bank of France expects the country into recession later this year, to predict a fall in Gross Domestic Product (GDP) of 0.1% in the fourth quarter, the same percentage that fell in the previous three months. If confirmed, it would be the first recession in the French economy since the 2009 crisis.This is the first estimate of the situation issued by the Bank of France, which occurs a few days before you make the National Statistics Institute (INSEE), on November 15.  Also consider a Google translation from French site Les Echos which reports Berlin would consider a plan to put France back on the growth path According to Reuters and Die Zeit, the German finance minister, Wolfgang Schäuble, has suggested the five "wise men" to study what could put France on the path of growth. President sages insane. The subject is extremely sensitive to Berlin, which makes Jean-Marc Ayrault Thursday.

    Blame and shame in Ireland over financial crisis - Ever since international lenders bailed out Ireland in 2010 to the tune of 85bn euros ($110bn; £70bn), Ireland's four-and-a-half million people have lived under a regime of punishing austerity and plummeting property prices. The country is still coming to terms with what many see as the collective madness that gripped both ordinary people and the financial world in the run up to the economic crisis - leaving banks ruined and many householders owning property worth much less than the mortgage they owe on it. Former US bank regulator and criminologist Prof Bill Black, who was responsible for aiding prosecutors during America's savings and loans crisis of the 1980s, is a regular at Kilkenomics. He would like to see many more financiers in Ireland and beyond prosecuted for what went wrong in the run up to the 2008-9 financial collapse.

    Iceland Sees Mortgage Bubble Threat From Foreign Cash - Iceland’s lawmakers are searching for ways to keep their economy from lurching into another asset bubble as offshore investors forced to keep their money in the country channel it into the housing market.  Apartment prices have soared 17 percent since April 2010 and are now just 1.7 percent below the pre-crisis peak in March 2008, Statistics Iceland estimates. The boom stems from currency restrictions imposed in 2008 to prevent the collapse of the Krona after the country’s biggest banks defaulted on $85 billion of debt.  While those controls helped cauterize a capital exodus and propel a recovery, it left about $8 billion in offshore kronur that can only flow into Icelandic assets, inflating demand for housing and mortgage bonds. The government is now seeking to correct the imbalances, which risk plunging the island into yet another boom-bust cycle just four years after the banking industry dragged the economy through its worst recession since World War II.

    U.K. Manufacturing Increased Less Than Forecast in September -- U.K. manufacturing output rose less than economists forecast in September, held back by declines in machinery and chemical production. Factory output increased 0.1 percent from August, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for a gain of 0.4 percent. Total industrial output plunged 1.7 percent as oil and gas output dropped by a record due to maintenance of sites.  While the U.K. emerged from recession in the three months through September with the strongest growth since 2007, recent reports have shown signs of weakness in the economy at the start of the fourth quarter. The data clouds the outlook as the Bank of England Monetary Policy Committee starts a two-day meeting tomorrow to decide whether to expand stimulus after completing its latest bond-purchase round last week.  “The economic recovery is quickly losing momentum,”  “While the MPC may pause QE at its meeting later this week, if the economic data remain weak then it may not be long before the committee is forced to provide the economy with further stimulus.”

    North Sea hits industrial output - A 1.7% fall in industrial production between August and September was bad news, though it was accompanied by a 0.1% increase in manufacturing output, which was better than expected. Falling North Sea output, down more than 15% on the month, was to blame for the difference. There will be some relief that this September drop in industrial production will not impact on the third quarter GDP figures. The 0.9% rise in the third quarter was smaller than the 1.1% estimated in the GDP release but the difference is not large enough for a GDP revision. Given that the North Sea slump appears to reflect summer shutdowns lasting longer than usual, this could, paradoxically, help the October figures along. More details here. Elsewhere, the Society of Motor Manufacturers and Traders reported a 12.1% increase in new car registrations in October compared with a year earlier. Private registrations were up a very strong 23.9%.

    Service sector PMI falls The service sector puchasing managers' index might have come to the rescue following weak manufacturing news but it was not to be. It dropped to 50.6 in October, from 52.2 in September. The composite PMI, made up of construction, manufacturing and services, dropped to 49.7, suggesting a modest overall contraction in economic activity. "Further growth of UK services activity was recorded during October, although the rate of expansion slowed to a marginal pace. Growth of new business also eased during the month, leading companies to deplete backlogs of work. Meanwhile, staffing levels were reduced for the second month running. "On the price front, a further solid increase in input costs was recorded in October, but companies were still reluctant to fully pass on higher cost burdens to their clients and output prices rose only marginally. "The headline seasonally adjusted Business Activity Index posted 50.6 in October. Although this reading still signalled an expansion in services activity during the month, it was below the mark of 52.2 in September. Moreover, the rate of growth was the slowest in the current 22-month period of rising activity.

    Hedge funds betting millions against Britain’s high street - Hedge funds are betting there will be blood on the high-street this Christmas as Britain’s retail stocks dominate a list of big short positions that has been published for the first time. The secretive financiers have bet millions of pounds that companies including WH Smith, Home Retail Group, Ocado, Sainsbury, Tesco and Dixons will fall in value, according to a list published under new rules by the Financial Services Authority (FSA).  Lansdowne Partners, one of London’s best known hedge funds, has short sold 0.63pc of the value of Tesco - a £163m bet that the supermarket’s shares will fall. The Mayfair-based group has a 2.51pc short position in WM Morrisons, worth £159.8m.  GMT Capital, an American group, has built up a 3.56pc short position in Carpetright - which is worth just £16.3m but is the third biggest position of the list relative to the size of the company.  Barrington Wilshire, another US fund, has a bet against Mothercare worth £8.24m or 3.18pc of the company’s market value. Two hedge funds have revealed big short positions in Marks & Spencer, Jim Chanos, the famed US short-seller who runs Kynikos Associates, has a 2.52pc short position in Asos, the online fashion retailer.

    'Being Rude about Austerity' - Simon Wren-Lewis tries to get his anger over austerity under control: How rude should I be about policymakers?...I have to say that the 2010 switch from fiscal expansion to austerity does make me very angry. I’d like to think that this is just because of the immense harm it is doing, but there is something else as well. It represents the abrogation of knowledge: knowledge which, largely through accident, I was particularly aware of. I think this is something that even economists who are not macroeconomists, and not just non-economists, do not fully appreciate. In the mid-2000s my main research was on monetary and fiscal policy interactions, and this was a field that appeared to be characterised by considerable common ground, and certainly not by alternative ‘schools of thought’. Some of this knowledge began to be applied in 2008/9, and even an institution like the IMF which was famed for its fiscal conservatism was quite happy applying that knowledge. It is as if you are a doctor, treating a patient with proven but also state of the art medication. The patient is not well but the treatment you are applying is working. Then suddenly the hospital administrator tells you to stop, because the drugs are expensive and they would like to try some spiritual healing instead. And, in case you ask, the financial crisis did not suddenly render the sum of macroeconomic knowledge accumulated over the previous decades obsolete (whether embodied in textbooks or DSGE models).

    Disengagement at the Bank of England? - The Bank of England has just published three reviews of aspects of its performance over the last few years. These reviews were controversial before they were published: Andrew Tyrie, chair of parliament’s Treasury Select Committee, says that “the Bank of England has yet to produce a comprehensive review of the Bank's role in, and response to, the crisis. The decision to commission these reviews fell well short of what was required."  One of the reviews, by Dave Stockton (former Director of Research and Statistics at the US Fed), looks at the MPC’s forecasting capability. I want to discuss just one small part of that review, which I think illustrates how macroeconomic discussion of policy has appeared to degenerate in the UK over the last twenty years. (There is a lot else of interest in the reviews: see here for example.) The Bank’s current forecasting model, a DSGE model, is called Compass. Stockton notes that (para 92): “Compass has now been in active use by the staff as input into the forecast for nearly a year.  However, interested parties outside the Bank have little to no understanding of the model and its key features.”  There is a very simple reason why those interested parties have little or no understanding. The Bank has not published any details of the model. In a speech by Spencer Dale in March, there is a footnote that says: “It is a DSGE model that explains the behaviour of 16 – a relatively small number – of macroeconomic variables in terms a set of underlying economic shocks.  And that, as far as I can find out, is all anyone outside the Bank knows.

    Bank of England poised to decide on new stimulus as economy stutters - A DECISION on whether to inject further stimulus into the flagging UK economy appears on a knife-edge this week after growth in the powerhouse services sector slowed to a near two-year low while a post-Olympics retail rebound fizzled out. Bank of England rate-setters had been expected to sit on their hands at the monetary policy committee’s (MPC) November meeting, which concludes on Thursday. It followed last month’s revelation that the UK economy had exited recession more strongly than anticipated in the third quarter. However, analysts believe that a double whammy of negative economic news could provide a trigger for more quantitative easing (QE) or further monetary intervention.The Markit/Cips purchasing managers’ index (PMI) for the services sector, which accounts for more than two-thirds of the economy, eased to 50.6 in October from 52.2 the previous month.While holding just above the 50 mark that divides contraction from expansion, the reading was the lowest since December 2010 and fell short of City forecasts.

    Bank Of England Halts QE After "Potency Questioned" - In what may be the most disturbing news of the day, moments ago the BOE announced it is halting its own version of QE3, and capping the asset purchase program at £375 billion after "some policy makers questioned its effectiveness in supporting a recovery that remains lackluster." Could it be that even that peculiar Homo Sapiens subspecies known as "economist" is starting to realize that when applying the same "remedy" time after time to absolutely no avail, and where even the market no longer responds to unlimited injections of liquidity, then perhaps it is time to end said "remedy" altogether? And how long until the voodoo shamans in the dark lit room at Marriner Eccles follow through? Sadly, if Japan, and its 9 (so far) rounds of easing, is any indication, we have a lot more pain to go before what has been glaringly obvious to every hotdog vendor and shoeshine boy is also understood by Economics Nobel prize winners.

    UK Treasury to Use BOE's Stimulus Profits to Pay Off Debt - The U.K. treasury said Friday it will start using profits from the Bank of England's bond-buying stimulus program to pay off billions of pounds of government debt. Chancellor of the Exchequer George Osborne and BOE Governor Mervyn King agreed the BOE will start handing over cash held by the central bank from next year, the treasury said in a statement. The BOE has bought 375 billion pounds ($599 billion) of U.K. government bonds under its stimulus program, also known as quantitative easing. The bonds are held in the BOE's asset purchase facility, which had accumulated GBP23.8 billion of surplus cash from the interest paid on the bonds. That is likely to rise to GBP35 billion by March 2013, the treasury said. That cash will now be transferred to the treasury and used to pay off government debt, the treasury said.

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